Privatisation is the only way forward

Privatisation will focus attention on poor resource allocation, inefficiencies, and weak corporate governance’

Sub-Saharan African states urgently need expanded and more dynamic private sectors, more efficient and effective infrastructure/utility provision, and increased investment from both domestic and foreign sources. Privatisation is one way to address these problems.

But African states have generally been slow and reluctant privatisers; a good percentage of industrial/manufacturing and most infrastructure still remains in state hands. Given prevailing public hostility towards privatisation, and widespread institutional weaknesses, such caution is defensible, but costly. The long-term and difficult solution is the creation and reinforcement of the institutions that underpin and guide proper market operations .

Regarding the impact of privatisation, clear benefits from privatisation have been recorded in terms of the contribution to government financial flows and at the enterprise level where there is a definite trend for privatized enterprises to improve performance, largely as a result of new investment, which has a delayed positive effect on employment.

Ten countries account for most of the privatisation in Africa so far:  Mozambique, Angola, Ghana, Zambia, Kenya, Tanzania, Guinea, Madagascar, Nigeria (federal government only) and Uganda. A study points to the surprising difficulty of obtaining transaction data in many countries and the failure of most governments to establish monitoring procedures so as to be able to track and evaluate performance following privatisation.

The trend of the privatisation process in Africa reflects some of the problems: lack of political commitment, poor design, insufficient resources, weak management, and corruption. The trend is a cause of concern because privatisation is a one-off opportunity not only to reduce the fiscal and administrative burdens of a large public enterprise sector but also to stimulate private sector development, to instill greater government accountability, and to contribute to the fight against poverty; and that opportunity has been grasped by few governments.

Zimbabwe has had several stop-start-stop attempts at Privatisation programmes. A few entities have been successfully privatized such as Cotton Company and Dairibord. The current economic situation will require tough choices to be made and allow privatisation and commercialization of several so-called "strategic" entities.

Parastatals such as Zisco, ZESA, CSC, NRZ and Air Zimbabwe are leading candidates for Privatisation from which the State can raise a substantial amount of capital to finance infrastructure and other social services. Given the attractiveness of some of these assets the State can include requirements to dispose of these assets in the much needed foreign currency provided local and indigenous partners are somehow accommodated. Foreign partners normally help to strengthen the talent  base and access to foreign markets and a stable financial base.

There is growing pattern of flawed classification of enterprises as strategic and non-strategic (monopoly utilities have invariably been characterized  left out of the privatisation program), non-establishment of important operating policies, non-transparent use of proceeds, weak mobilization of potential investors, weak privatisation agencies and the lack of appropriate legal authority.

Now that most countries have gained experience of the process and have developed their capacity to manage it, privatisation has entered its main phase. This phase has four noteworthy features which have important implications for the privatisation process:

emphasis on large enterprises; increasing demand for public information and accountability; creation and growth of capital markets; and much greater efforts are underway to stimulate private investment.

Indeed, with new investment in many of the privatised enterprises, we are seeing improved performance, expansion and new jobs being created.

And that is the message that we must get across to labour leaders and politicians. They know that privatisation will focus attention on poor resource allocation, inefficiencies, and weak corporate governance.

But they must also understand that it is bringing in the investment that is needed in new technology, people and marketing; better value products and services which benefit local consumers; better working conditions and pay; and, in the longer term more sustainable employment.

The key is for the state to create a conducive environment in addition to divesting from state enterprises and create more room and opportunities for Private sector participation . – Gilbert Muponda is a Zimbabwe-born entrepreneur. He can be contacted at gilbert@gmricapital. This article appears courtesy of GMRI Capital.

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