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 / Winter 2006 / Issue 45(originally published by Booz & Company)


The Company That Anticipated History

Eskom, Africa’s largest electric company, has shown the world how to combine social leadership and business success.

Driving along the old two-lane road from the Republic of South Africa’s political capital, Pretoria, to its commercial hub, Johannesburg, a visitor sees two strikingly different nations.

Photograph by Graeme Williams

The first South Africa looks like an emerging economy in hypergrowth. Hundreds of acres of rolling hillsides are rapidly giving way to new four-lane highways, office parks, shopping centers, and housing developments of modest and McMansion-style homes. Parking lots in Johannesburg suburbs are jammed with BMWs, Mercedes-Benzes, and Range Rovers. A supermarket called Woolworth’s resembles the American haute-healthy food emporium Whole Foods; an apparel store, Kozi Kids, looks like the Gap. Bars and restaurants cater to young, university-educated, upwardly mobile professional blacks — a category that didn’t exist 15 years ago. It emerged after the 1994 national election, which brought Nelson Mandela and the African National Congress (ANC), the country’s oldest black rights organization, to power.

The second South Africa consists of a predominantly black population mired in poverty. Next door to many of the new malls and mansions are sprawling shantytowns of rusting metal shacks. Men and women in tattered clothes walk from them daily through tall grasses down to the urban roads. On their heads, some balance baskets filled with fruits and vegetables or trinkets they will try to sell to travelers. Day laborers jam themselves into ramshackle minivan taxis that take them to pickup points for construction or farm work. If they’re not lucky enough to land those jobs, these itinerant workers might end up in a crowded shopping center parking lot, directing cars to open spaces and hoping to receive a small tip for their service.

South Africa’s president, Thabo Mbeki, calls these two South Africas the “first” and “second” economies. They are a legacy of apartheid, the system of racial segregation that governed South Africa from 1946 to 1994, effectively excluding nonwhites (who make up 79 percent of South Africa’s 47 million people) from the nation’s economy and politics. Even with GDP growth averaging 3 percent since 1994, and more blacks rising out of poverty to enter the first economy, whites’ per capita income of 82,000 rand (US$11,000) is still more than five times that of blacks, and black unemployment remains a problem. Officially, unemployment nationwide stands at about 27 percent. Unofficially, the rate is anywhere from 40 to 75 percent among blacks.

Access to electricity is always an important first step up the economic ladder. In South Africa, Eskom Holdings Ltd. provides that first step. A government-owned corporation headquartered in the Johannesburg suburb of Sandton, Eskom generates 95 percent of the country’s electricity. Many organizations debate whether their business has social responsibilities, but Eskom’s core business is itself a social responsibility. Without electricity, educating children is difficult; families must heat their homes with coal or wood, a major cause of respiratory diseases; and new businesses and employment opportunities can’t grow. Eskom receives 80 percent of its revenues from industrial customers, but the company also has a self-imposed mission: to deliver electricity to all individuals, especially those who, in every sense, have lived without power.

Eskom adopted this mandate not in the wake of apartheid’s fall, but in the mid-1980s, when it was legally prohibited from providing electricity to black communities. The company’s early embrace of “electricity for all” (as the policy is called) allowed the company to play a leadership role early on in the social transformation of South Africa. Not only did the company rethink the value of serving black customers and remake its work force to bring blacks into positions of responsibility — both in defiance of the laws then in place — but it thus positioned itself as one of the very few African companies that could make a play for international expansion. (South African Breweries, now SABMiller, is another.)

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  1. Anton Eberhard, “The Political Economy of Power Sector Reform in South Africa,” working paper no. 6, Program on Energy and Sustainable Development at the Center for Environmental Science and Politics, Stanford Institute for International Studies, April 2004: Context for Eskom’s challenges as the primary electricity supplier in South Africa. Click here.
  2. Linda A. Hill and Maria Farkas, “A Gentler Capitalism: Black Business Leadership in the New South Africa,” Harvard Business School working paper no. 06-057, 2006: An informative profile of another South African company’s effort to recruit and develop black managers. Click here.
  3. Charlayne Hunter-Gault, New News out of Africa: Uncovering Africa’s Renaissance (Oxford University Press, 2006): The respected American journalist provides fresh perspective on pre- and post-apartheid South Africa, and prospects for the continent.
  4. Reuel J. Khoza and Mohamed Adam, The Power of Governance: Enhancing the Performance of State-Owned Enterprises (Pan Macmillan, 2006): The former chairman of Eskom offers views on governance of state-owned enterprises and on the narrowing gap between public- and private-sector management.
  5. Ian McRae, The Test of Leadership: 50 Years in the Electricity Supply Industry in South Africa (EE Publishers, 2006): Eskom’s former chief executive tells his story. Click here.
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