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South Africa Sees Insurance Companies Replace and Improve Government Services

Although one of the few upper-middle income countries on the African continent, the nation of South Africa, particularly, has fallen on hard times as the government’s ability to provide vital public services remains in disarray. President Cyril Ramaphosa declared a “state of disaster” earlier this year as rolling power cuts have left businesses and households without electricity for as much as 11½ hours a day. Meanwhile, cities including Johannesburg have been left with little to no running water, while volatile economic growth since the country’s deep lockdown-induced recession has threatened tax revenue and the financing of state operations. In addition to South Africa’s half-baked recovery since the recession, corruption and mismanagement have greatly hampered its government’s provision of public services. At the center of the country’s energy crisis is the state power utility Eksom, who was found to have offered favorable terms and contracts to allies of former president Jacob Zuma and the African National Congress (ANC), South Africa’s ruling party. While a solution to the crisis could be found in auctioning off power plants to private companies directly responding to the profit motive, such a move would prove highly unpopular with the country’s ruling left-wing alliance of the ANC, the Communist Party, and its many powerful trade unions.

In spite of drained tax revenue, rampant corruption, and anti-market sentiment inhibiting a much-needed improvement in the federal government’s operations, at a local level one may indeed find that private firms, mainly insurance companies, are voluntarily stepping in to fill in for the services that the government has failed to provide. Filling in potholes, managing traffic, and even fighting fires, insurance companies in South Africa are being motivated to clean up local governments’ mistakes for the sake of lowering payouts, and luring in new customers. Talking to The Wall Street Journal, Discovery Ltd., a financial services company, estimates that they’ve filled in 150,000 potholes in the city of Johannesburg since May 2021, working alongside their competitors Dialdirect Insurance to establish a “Pothole Patrol.” Discovery later went on to team up with private fire service Fire Ops SA to launch a “Fire Force” service after a series of devastating fires in Johannesburg unmitigated by publicly-funded fire services. Meanwhile, South Africa-based OUTsurance Group has been deploying employees on motorbikes in order to alleviate heavy road traffic, as traffic lights break down due to rolling blackouts.

As President Rampaphosa’s appointment of an “Energy Minister'' months ago has largely failed to leave a dent in the energy crisis, it’s been private firms that have been forced to deal with the wreckage and assuage the crisis’s symptoms. Although “privatization” may be a heavily stigmatized term in the developing world including South Africa’s bordering countries, any accusations of “neoliberalism” in private companies’ handling of South Africa’s public services may be preferable to the alternative absence of them in the first place. Whereas state monopolies face less incentive to deliver a cheap and efficient product and instead face enormous pressure from special interests, private firms must compete with one another to deliver a better product, thus engendering the “invisible hand” of being forced to cater to the interests of consumers out of self-interest. In the case of South Africa, what’s remarkable is that the activities of insurance companies in filling in for public services isn’t entirely sanctioned by the South African government. Nonetheless, the lack of public services has proven so devastating that for the sake of lowering payouts, insurance companies have still found themselves performing these tasks.


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