Privatisation strategy: Did it enhance Africa’s economic competitiveness?

Recently, the World Bank raised concern about the high fiscal deficit and huge debt burden weighing down many African countries. High fiscal deficit is becoming more prominent due to reduced export earnings and currency depreciation among African nations. Many countries on the continent are trying to push for privatisation of state-owned enterprises as a strategy to enhance competitiveness of economy and deal with fiscal deficit. Privatisation, the process of transferring an enterprise or industry from the public sector to the private sector, previously, privatisation gained momentum among developing countries post-1980s. It is one of strategies supported by the World Bank to promote growth, competitiveness and solve balance of payment problems in developing countries. It is also seen as way for efficient utilisation of recourses and enhancing productivity of low-developed economies. Currently, there is debate on impact of privatisation on inflation and economic growth in less developed nations, with some economists saying it helps ease inflationary pressures, especially if it’s foreign direct investment (FDI) financed. Others say it enhances competitiveness and economic growth through production, and is also favoured as solution for better utilisation of human capital skills. Since 1995, Rwanda has put in place a series of economic mechanisms that aimed at reviving the national economy so as to address the deteriorating situation of public enterprises. This programme, which aims to achieve a sustained economic growth, is centred on three complementary pillars; one of pillars is about encouraging greater participation of the private sector in financing the country’s economic development. Since privatisation programme started in Rwanda around 56 companies were fully-privatised, while 20 are still under privatisation with different phases of privatisation or awaiting decision to be sold to non-public operators. The privatisation process in Africe was initiated way back after independence from colonial powers to achieve “high and stable” rates of economic growth. However, the process of privatisation has been slow in most African countries, and much of the 80s push for privatisation was from creditor institutions under their structural adjustment programme. By 1998, some 34 African countries had World Bank project or programme financing agreements that included privatization, and three-quarters of World Bank loans or credit were conditional, and tagged on privatisation of state enterprises. Mozambique, Angola, Ghana, Zambia, Kenya, Tanzania, Guinea, Madagascar, Nigeria and Uganda are some of the African countries that embraced the privatisation agenda under the tutelage of IMF and World Bank. Any success stories? Zambia and Mozambique are seen as some of the ‘success’ stories of the privatisation, which is largely attributable to government commitment, institutional arrangement and co-ordinated support of donors. Privatisation also has proved successful in countries like Kenya where privatisation of Kenya Airways converted loss-making government enterprise to successful profit making African Airline. However, the airline has of late experienced huge challenges driving it into losses over the past few years. Privatisation has also accelerated the development of capital markets in several African countries, including Zambia, Tanzania, Nigeria and Rwanda as well as boosting capitalisation of exchanges on the continent. Recent reviews about the progress in Africa indicate that the rate of privatisation in African countries has been low as compared to other countries. Though there are many individual success stories of privatisation of state-owned enterprises in Africa, the process as a whole has been facing many challenges in most African countries. Lack of transparency, poor governance and limited access to public information have been identified as some of the challenges that led to low success level for the privatisation process. Way Forward Though there are many cases of success of privatisation, the process did not necessarily lead to efficient allocation of resources and enhancing efficiency especially in developing countries. Private investors’ choices do not necessarily reflect choice of government investment. Many times there is clash between profit maximisation motive of private investors and welfare motive of government. Some of areas which are needed for welfare in developing countries like hospitals, schools subsidised housing require government investment and intervention. In developing countries, there is need of strategic privatisation in areas of export promotion and technology. In addition, government intervention is needed for import substitution and welfare promotion areas, public-private partnerships could prove helpful in achieving these objectives. The writer is a Kigali-based economist and consultant

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Privatisation strategy: Did it enhance Africa’s economic competitiveness?