The problems of South Africa’s state owned enterprises are in the headlines every day. Yet many have existed for over 80 years.
Why were they established in the first place and how have they survived this long? Their histories provide clues for their successes and failures. State owned enterprises in South Africa date back to the 19th century when Paul Kruger’s Zuid Afrikaansche Republiek tried to pro- mote local industries to stave off British control. Kruger’s government erected high tariffs against imports of many consumer goods as well as industrial goods used by the mining industry. At the same time, it handed out monopoly concessions for local manufacture. In most cases, foreign capital still managed to control these enterprises – the most important for railway service and electricity gener- ation for the mines.
Kruger’s aim of fostering eco- nomic independence through local industries was utterly defeated with the British victory in the South African War in 1902. But the con- nection between economy and state lived on through the railway and electricity concessions. By the 1920s, the expanding railway enter- prise – the South African Railways and Harbours, now Transnet – needed more and cheaper electric- ity, and steel for rails. In 1923, the Smuts government estab- lished the Electricity Supply Commission (now Eskom) in part to serve the rail- ways and also the grow- ing mining industry.
In 1928, Prime Minister Barry Hertzog estab- lished the Iron
and Steel Corporation (ISCOR) to produce cheap steel rails for the South African Railways and Harbour and to create some inde- pendence from the profit-seeking European steel makers.
Although both Eskom and Iscor were established under state auspic- es, they enjoyed only tepid govern- ment support and faced stiff com- petition. They were established at a time when nearly all industrial goods and many consumer goods were imported at great cost. In the case of electricity, the major market – the Rand gold mines – was
already under contract to the private Victoria Fall Power Company. And in the case of steel, a European cartel of steel makers was ready to dump cheap steel on the South African market in order to kill off local produc-
tion. Some foreign firms estab- lished small operations inside the country, but with profits still flowing back to overseas inves- tors.
How did they survive?
Initially, both state corporations sur- vived through close partnerships with their private competitors. In the case of Eskom, the power supplier agreed to provide electricity to the privateVictoria Fall Power Company at cost while the company passed it on to their mining customers at a hefty profit.
Iscor reached similar agreements with local engineering firms, providing them with raw steel to be fashioned into finished products. In addition, Iscor reached a compromise agreement with European steel producers in 1936. This essentially divided the local market, with Iscor providing approximately one-third of steel goods.
Even more contentious were the corporations’ labour policies. In the
1920s and 1930s, the white South African government pursued a policy of favouring white people in industrial jobs as a means of alleviating pover- ty in largely Afrikaans-speaking rural communities. State entities were under the most pressure to hire whites, many unskilled, into their operations.
But, facing heavy competition, Iscor could not raise its costs and employed almost as many black people as white people on its factory floor in Pretoria. In fact, most white employees were for- eign skilled workers. And the associated coal and iron ore mines (both Iscor and Eskom used vast amounts of coal) had predominantly black workers.
Both of the first state corporations were dependent on close business rela- tions with private firms, often to their own detriment, and reliance on low labour costs to survive.
But they could hardly profit or flourish under such conditions. During the Second World War, they were able to establish more successful operations under near monopoly conditions.