Government

How private firms show up SA government incompetence

Staff Writer

 ·29 May 2014

Many South African companies have business models which rely on providing better service levels than government, and many of them are thriving. This is particularly prominent in healthcare, education and policing.

South Africa’s education system has been described as mediocre at best, public healthcare and hospitals have been mired by controversies and the South African Police Force is not trusted to protect and serve.

The success of private companies doing the job of government is seen by some as a clear indication that the country’s leaders are not providing the level of service which citizens expect.

In the capitalistic process of supply and demand, it speaks to reason that if government was fulfilling its mandate to provide effective public healthcare, quality education and adequate security, there would be no need for private companies to operate, and often charge more for “proper” services.

Healthcare

The South African healthcare sector offers both public and private healthcare options for citizens. The public sector still covers the greater part of the population (about 80%, according to StatsSA), as private healthcare remains inaccessible – and unaffordable – to poor people.

According to the Health System Trust’s South African Health Review 2012/13, satisfaction rates for private healthcare are high (98.6% in 2011) and lower for public healthcare (67%).

Private healthcare often operates on a two-tier system involving commercial practices tied to medical aid schemes.

89% of people belonging to a medical aid use private healthcare services, compared to only 19% of non-members. In contrast, 81% of non-members use public facilities, compared to 11% of medical aid users.

Two major players in the private healthcare market – Discovery and Netcare – have both seen healthy growth over the past 5 years, with no signs of slowing down.

Netcare 5 year performance

Discovery 5 year performance

Discovery Health owns approximately 31% of the total medical scheme market in South Africa, according to its 2013 full year report, with operating profits growing 13% to R1.69 billion for the year ended 30 June 2013.

Netcare, meanwhile, saw revenues grow by a compound rate of 4.6% over the past 5 years, with profits hitting R5.1 billion in 2013 – up a massive 139.4% from R2.13 billion in 2012.

In the public sector, the South African government is in the process of dampening the cushy prospects of private healthcare in the country under the banner of the National Health Insurance (NHI) plan.

The plan aims to rectify a “skewed healthcare financing system”, providing all South Africans access to a defined package of health services – paid for by monthly contributions by tax-paying citizens.

“At the present moment, private healthcare is only for the rich. NHI is trying to blend the two in a more sustainable manner that benefits the population,” the Department of Health said.

In terms of the proposed NHI plan, users of private healthcare are free to keep using the private sector, but if they earn above a certain income they will be required by law to make a contribution to the NHI Fund, with no option to opt out of the responsibility.

Education

Education in South Africa is said to have failed many of its students over the past 20 years, particularly in mathematics and science.

Census data indicates that only an estimated 48% of students who begin Grade 1 actually complete Grade 12, with most learners dropping out of school in Grade 10 and 11 – while teachers and university professors claim that pass rates of 30% to 40% are just too low to be of any value.

The perception of a lacking education sector has seen a number of private companies enter the market – both costly and affordable – filling the need by parents to have their children in a private school.

According to listed private education company, Curro Holdings, in 2013 private schools comprised 4% of all schools in South Africa with just over 500,000 students enrolled in private schools out of a total learner population of 12.4 million.

While public education still dominated by a significant margin, the group expects the private schooling business to grow at 10% up to 2020, having grown at a rate of 6% over the past 6 years.

Curro schools and learners

By 2020, the education company expects the private school market share to increase to 8% (just over 1 million students enrolled). Private education companies are also planning big investments for growth over the next few years.

Another private education company, Advtech has a R1.2 billion development program for at least 10 new schools in the next four years, with a total investment lineup of R2.6 billion as at March 2014 – a 114% increase from the previous year.

Curro projects total investments in 2014 to reach R1.4 billion.

Financial performance (Revenue ZAR million)

ADvTech 5 year performance

Curro holdings 5 year performance

The SA government’s budget allocation for education in 2014 is R254 billion.

Security

Security companies and security estate developers have also found room for growth in the South African economy, which is widely known as one of the most dangerous countries in the world with high levels of violent crime.

Looking at Johannesburg and its surrounding areas alone, a large number of “security estates” have popped up, offering gated communities with controlled access and the promise of safe and secure living.

From the in-development Waterfall Estate developments north of Joburg, to Kyalami Estates, Midrand Estates, Featherbrooke Estates in Krugersdorp and Aspen Estates in Johannesburg south, these massive developments all play off the offer of safety and security as a primary feature.

Private security firms, too, have found a hole to fill in providing security to the public – at a price.

The SA government’s budget allocation for public order and safety in 2014 is R116 billion, with a police force many members of the public simply do not feel safe around.

The 2013 Global Corruption Barometer listed South Africa among 36 countries in the world in which the police was seen as the most corrupt institution.

Large private security companies such as Chubb and ADT are not listed locally, making it difficult to gauge their success – however, at least one group has had some showing of measurable prominence, locally.

Since the merger of Coin Security Group and Protea Security Services in July 2007, private security firm Protea Coin Group has seen marked growth in South Africa.

The group’s parent company, Mvelaserve, delisted from the JSE in March 2014 following a continuing decline in profit after rapid expansion. However, in its last reporting, all indications pointed to strong growth in the company’s security division, which grew revenues 15% to R2.27 billion for the year ended 30 June 2012.

Mvelaserve 5 year perfomance

Protea Coin contributed over 44% of the group’s total revenue for that year, in turn drawing interest from listed services, trading and distribution giant, Bidvest.

In November 2013, the Competition Tribunal approved the acquisition of Mvelaserve by Bidvest, following an offer from the group to buy out a further 17.7% share of the company for R610 million, giving it a controlling stake of 53%.

Protea Coin Group Revenue

From these few examples, it’s evident that government incompetence has given rise to many new companies basically doing the job of government.

These companies have shown strong growth, and many people predict that this will continue under the new Zuma government.

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