Privatisation: The path is clear now

It is obvious fact that some government-owned enterprises are underperforming. A number of them are key strategic industries that we cannot allow to fail. The government recently announced that 56 enterprises will be privatised in the near future. In the past privatisation sometimes failed or didnot go as planned.

It is obvious fact that some government-owned enterprises are underperforming. A number of them are key strategic industries that we cannot allow to fail.

The government recently announced that 56 enterprises will be privatised in the near future. In the past privatisation sometimes failed or didnot go as planned.

It seemed logical to privatise publically owned firms, but in the past we often did so without the necessary regulatory framework.

At the time there was limited internal capital and the highest bidder often won, now we take into account the technical and financial bid.

The recent commercial laws that were introduced set out the parameters for privatisation and standards expected of a company. The establishment of regulatory bodies is another important addition.

The main aim of privatisation is to increase performance and efficiency, increase capital investment, introduce market discipline and deliver a cheaper products or services to the customer.

One of our biggest problems is natural monopolies where a player has such a dominant market share that the entry barriers are set so high.

For example utilities are often natural monopolies as it would cost too much to lay a whole new pipeline system or electric grid.

Electrogaz was recently demerged as a first step towards privatisation, the Electricity component is now Rweco and the water component is Rwasco.

Utilities always have communal benefit, therefore the thought of selling off our water to a foreign source is met with hostility.  

It makes sense to further privatise our utilities, but selling them off is not the answer. We have often tried asset privatisation where an asset is entirely sold off or share privatisation where assets are partially sold.

There are ways to maintain control of assets while bringing in investment. We should allow consortia to manage operations on behalf of government.

For example in UK, airports are still nominally owned by the government but management consortia from the private sector run them for profit.

The government gets a dividend as well as taxes, and the facilities are well run. With regard to our utilities we could have a situation where the national grid is broken up into smaller parts and sold off, this allows companies to invest in specific areas and develop infrastructure.

Let management companies come in and streamline our organisations, at the moment they are not ready to be sold for a premium.

They need major surgery just to reduce the costs, liabilities, improve structures, increase skills and attract investment.

Selling off loss-making assets is easy, but we need a different approach. It is the profitable ones we should be selling off and develop loss-making ones into potential future sell-offs.

Our government-owned enterprises do not need to be sold off, they just need to be made more efficient. We often assume that selling them off will make them better run but that isn’t always the case.

We just need to bring the private sector ethos to publically owned companies. That can be done by privatising management while keeping ownership in public hands.  

ramaisibo@hotmail.com

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