MARK BARNES: A reluctant, desperate call for private capital to save the state

Finally, the call has come. The demise of our public sector entities practically demands the invitation (if not a plea) for private sector capital to rescue the failing state. Turnaround strategies abound, but the call is for money — from the Passenger Rail Agency SA to the Post Office, from Transnet to tourism authorities — real money, not platitudes in presentations. 

Why didn’t the government ask for help before the assets were on their last legs? After all, a doctor can’t cure a corpse. One of the reasons, I suspect, is that the government doesn’t really want help, despite the self-evident need. It just wants money, private sector money.   

The private sector actually invests in the government every day. The private sector is the only source of revenue for the government. We pay taxes. Vast fortunes of tax revenue have already been squandered or stolen, and its source is being decimated, all but destroyed or blocked through broken, ill-maintained infrastructure.

We have already been rendered unable to participate (let alone compete) in global trade. Local manufacture has been disqualified from being global low-cost producers, despite natural resource advantages, through increased, country-specific input costs, particularly energy and labour, all the while being still further constrained by the government’s determined pursuit of unaffordable, dependency-creating social development and support programmes.

All of this is instead of investing expertise and money in fit-for-purpose education and the creation of jobs. Then there is unfunded capital transfers of ownership (essentially another tax, and a deterrent to potential foreign capital investors).  

Capital is available, in abundance, but it has choice and will go where it is welcomed by the right risk-return equations. Owners of capital dictate the terms, not those who are asking for it. Simply offering preferential service and rates to transport their goods to those who have to fund their own rail network simply won’t cut it.  

The private sector has no choice but to invest in the future of SA as the cold winds of failure whistle through the corridors of corporate deliberation, but it will be conditional capital, and there will have to be some rules of engagement. Let’s start with these: 

• Providers of capital (as shareholders) will directly oversee and manage its application into specific projects — no allocations to government departments to apply at their discretion. In time, once adequate returns are paid to capital providers, functional projects can be handed over to the state as national assets;
• All deals will be done at demonstrable fair market value (no out-of-transaction transfers, no “fees”);
• Capital will be provided only for investment, not consumption;
• Professional management (not political appointees) will be employed to manage capital projects (also extended to provincial and municipal management structures);
• No bailouts for continuously failing and flawed economic models, legacy systems or legacy mindset management;
• No last-resort impositions of unfounded increases in regulatory income sources — such as VAT, fuel prices, tariffs, municipal rates — to fund failure; 
• Devolution of investment decisions to the lowest, local, competent level to ensure local economic empowerment — no central power structures with agendas other than the project economics and broader positive consequences;
• Implementation of trade-friendly policies and incentives to encourage foreign direct investment, alongside local capital;
• Outcomes-based remuneration and merit-based employment policies for all public departments; and
• Maintained independence of the judiciary, banking and asset management systems. 

There will be more, or fewer, and detail will matter, but a fundamental mindset shift will be required for any chance of success. To create and embrace such an environment would require a maturity of leadership (from the government and business) not now present, grounded in a distilled, accepted mandate. This is not yet entrenched anywhere other than perhaps, momentarily, on our sports fields, where common purpose, agreed rules of engagement and national pride drive us to the top of the world. 

We have to do this now. We have to leave our old, heavy, divisive language, our baggage, at the door and cut some deals. 

• Barnes is an investment banker with more than 35 years’ experience in various capacities in the financial sector.