Does privatisation serve public interest?Thursday February 09 2023
For decades, governments have privatised state-owned enterprises to improve their performance and lower fiscal -risk.
Different economies look into privatisation as a tool to deliver debt and deficit reduction.
The policy has over time been used to stimulate and expand private sector involvement by unlocking private capital, avoiding the use of the government balance sheet.
When governments divested state-owned enterprises in developing economies, notably in the 1980s and 1990s, their objectives were usually to enhance economic efficiency.
Owing that most sectors of those countries then had features of mismanagement.
Whether to raise revenues from the privatisation programme itself or to stop fiscal haemorrhage from certain loss-making Stat-owned enterprises, is the question actors in the policy arena need to think through
In many instances, the sale of state assets results in a one-time revenue boost for the government but may not be a long-term solution for generating sustainable revenues in public sector services.
The Kenyan economy is experiencing fiscal constraints coupled with inflationary pressure arising from among them, the devastating socio-economic impacts of Covid-19 and global energy crises, let alone the worst drought in 40 years.
Such concerns precipitate the growing need to arrogate privatisation of some state enterprises.
However, not always would privatisation and disinvestment be the ideal option. Particularly if those state-owned enterprises are financially sound, performing optimally and somewhat observing a perfect market condition.
In a growing economy like ours, the rationale for ownership should be mostly limited to the need to remedy the market failure and to provide goods and services for which there is no likely private supplier.
Additionally, there are real risks in divesting a state enterprise engaged in strategic sectors such as transport infrastructure, ports and airports, energy, communications, and maritime to the private sector.
Private entities inherently focus on profit motive and undermine the social benefit imperative.
But most fundamentally, state assets, especially those that deliver, ought to be regarded as a public grandeur that elicits some sense of pride and belonging to the citizenry.
Today, for instance, electricity generation from geothermal technology is unique to our country and by extension in the region.
The value of such a state entity mandated to deliver in this space in monetary terms is inconceivable.
Similarly, public universities, some of which have been in existence for close to 100 years, are priceless, you cannot put a value on them.
If properly managed, these statutory entities enhance the socioeconomic value of the population.
Depending on the industry in question. An industry like telecoms is a typical industry where the incentive of profit can help increase efficiency.
However, if you apply it to industries like health care or an institution of higher learning, the profit motive is less important.
Nonetheless, such tools as performance management contracting and measuring results against institutional strategy are available for these entities. The idea should be to improve not to change ownership.
The point here simply is, the appetite to privatize is not there. For this reason, there is a duty on the part of the government in a democratic society like ours to ensure that, one a careful diagnostic on why adopting a policy is conducted and secondly on whether the benefits of such actions accrue to the people generally.
During this period when various policies are under review, with many people still struggling, it is critical that decision-makers evaluate every available option.
Over and beyond, the government should continue to prioritize helping the most vulnerable to cope with soaring food and energy prices and cover other costs and avoid expanding their budget to finance ambitious projects that risk aggravating inflation.
In many instances, fiscal restraint can help lower inflation while reducing debt.
State intervention does not always have to take the form of divestiture. Regardless of the discourse, the economics need to feed into it but ultimately that will be a political decision.
Let’s approach everything with a desire to move the country forward.
Thuo Njoroge Daniel, an Energy Economist at the Africa Utility Forum
Email : [email protected]
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