Emmanuelle Moors De Giorgio explains the pros and cons pros and cons
the advantages and disadvantages of a situation [Latin pro for + con(tra) against] of privatisation Noun 1. privatisation - changing something from state to private ownership or control
denationalisation, denationalization, privatization
social control - control exerted (actively or passively) by group action and examines the advantages and the disadvantages of pursuing the process in Africa.
Since the late 1980s, few would deny that most African governments have played their own part in paying lip-service to privatisation. Apart from a few exceptions, such as reform pioneers like Ghana, the reversal of post-independence development policies has been pretty slow off the mark. At least, that was the case until the past 12 months or so when the process moved up a gear.
Today, Africa's private sector is increasingly present by virtue of market liberalisation n. 1. Same as liberalization.
Noun 1. liberalisation - the act of making less strict
alleviation, easement, easing, relief - the act of reducing something unpleasant (as pain or annoyance); "he asked the nurse . More and more countries are cementing their intentions to establish a private sector base.
Zimbabwe confirmed its commitment in May this year with the privatisation of Ziscosteel. In the same month, Zambia agreed to award the development of Konkola Deep Copper Mine to a consortium led by Anglo American. Even Ethiopia revised its Investment Act in June, giving real incentives to foreign companies.
On a global scale, the bulk of privatisations took off after the fall of the Berlin Wall. With such momentum pushing forth these trendy transitions, it is easy to lose sight of the actual advantages that such a policy boasts. A simple but vital question, therefore, warrants attention. Why privatise Verb 1. privatise - change from governmental to private control or ownership; "The oil industry was privatized"
manufacture, industry - the organized action of making of goods and services for sale; "American industry is making increased use of ?
Mr Valentine Chitalu, Chief Executive of the Zambia Privatisation Agency (ZPA ZPA Zone of Polarizing Activity
ZPA Zambia Privatisation Agency
ZPA Zero Period Acceleration
ZPA Zeus Program Analysis
ZPA Zwiazek Polek w Ameryce (Polish Women's Alliance of America)
ZPA Zone Plate Array ) states, "the most significant and lasting benefits will not be the cash received. Rather it is the capital investments, the jobs taken forward and the jobs created, the liabilities assumed, the transformation of inefficient, subsidised companies into profit-making, competitive businesses."
These economic advantages come through technology transfers and increased access to markets. In addition, explains Ms Cynthia Valianti Corbett, an investment banker Investment Banker
A person representing a financial institution that is in the business of raising capital for corporations and municipalities.
An investment banker may not accept deposits or make commercial loans. , "wide-ranging privatisation programmes are necessary for local stock exchanges to really grow and create the liquidity needed for foreign investors."
The Comite de Privatisations in Cote d'Ivoire states that, with privatisations, "a government can refocus Verb 1. refocus - focus once again; The physicist refocused the light beam"
focus - cause to converge on or toward a central point; "Focus the light on this image"
2. the activities of the state to those sectors traditionally under its responsibility - education, health, infrastructure, security and defense - and leave the private sector to produce goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. for the market."
On a macroeconomic mac·ro·ec·o·nom·ics
n. (used with a sing. verb)
The study of the overall aspects and workings of a national economy, such as income, output, and the interrelationship among diverse economic sectors. level, privatisations form a vital role in encouraging permanent growth. For example, fostering a free market, high saving rates, low taxes and primary education, together with maximising existing resources and technologies.
The International Finance Corporation (IFC (Internet Foundation Classes) A class library from Netscape that provides an application framework and graphical user interface (GUI) routines for Java programmers. IFC was later made part of the Java Foundation Classes (JFC). See JFC, AFC and AWT. See also ICF. ) devotes much of its energy to advising governments in the early stages of privatisation programmes and investing in privatised companies.
One of the top four priorities of the African Development Bank is technical assistance in privatisations. In June, the UN Economic Commission for Africa Noun 1. Economic Commission for Africa - the commission of the Economic and Social Council of the United Nations that is concerned with economic development of African nations held a conference, attended by the newly-formed African Capital Markets Forum, aimed at reviving private investment in Africa.
The privatisation process
With this in mind, let us now look at the privatisation process and explore some of the difficulties which pave its path.
Under the aegis of the World Bank, many African governments have already established privatisation agencies and obtained some form of technical assistance.
The first step, nevertheless, is the selection of a financial adviser. The ideal candidate has a thorough knowledge of markets and privatisation techniques, the ability to manage complex operations, an understanding of the key elements vital to sellers and buyers and the capacity to perceive national interest and public opinion.
A local presence is usually required as is a pioneer approach. The South African Standard Corporate and Merchant Bank, for example, wrote the entire procedures for receiving banks in the privatisation of Zambia's Chilanga Cement Chilanga Cement is a company of Zambia. Chilanga is principally a cement company, producing cement and cement clinker. The company is headquartered in Chilanga, which is close to Lusaka, the national capital. .
The ideal selection process is based on defined criteria, such as cost. African governments should strike a balance between paying the necessary fees and restraining the budget to the extent that advisers operate at a loss.
One solution is to assign most of the background work to development agencies.
Once mandated, advisers begin the assignment by analysing the elements of a privatisation framework. These include: The country, local capital markets, the specific industry, the privatisation programme, the company itself, and all the key issues and implications linked to the privatisation process and proposed structure.
This preliminary analysis is usually followed by the development of a strategy. At this stage, the core activities are in the following areas: Structuring or identifying both the government's and company's objectives; an analysis of priorities and unavoidable trade-offs; a demand assessment; preparation, including pre-privatisation measures; due diligence Research; analysis; your homework. This term has caught on in all industries, because it sounds so "wired." Who would want to do analysis or research when they can do due diligence. See wired. ; and finally valuation, which is generally for political reasons although the eventual price will be governed by the market.
Of course, privatisations are never straight forward and, according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. some, not always the best option. Listed below are a number of criticisms that are commonly launched against privatisations. To what extent can they be justified?
"Privatisations replace state monopolies by private monopolies?"
This is a possibility but one that can be mitigated. In Zambia, privatisation of the state-owned telecommunications company See telecom company. has involved opening up the sector to competition and appointing a regulatory authority Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest
administrative body, administrative unit - a unit with administrative responsibilities .
Another solution is to break down a monopoly into several concessions before it is privatised. Again, Zambia's Konkolo North mine is up for competitive bidding Competitive bidding
A securities offering process in which securities firms submit competing bids to the issuer for the securities the issuer wishes to sell.
1. because, says the Minister of Mines and Minerals Development, "it is not our wish to see one company acquiring the best ore body in the country."
According to the IFC, "even when monopolies remain, privatisations bring important economic gains especially in terms of services (networking) Terms Of Service - (TOS) The rules laid down by an on-line service provider such as AOL that members must obey or risk being "TOS-sed" (disconnected). and coverage". Nonetheless, these may be obtained by opening the sector to competition.
"The sale of important companies to foreigners amounts to a new form of colonisation?"
The scarce amount of local capital in Africa puts it in a position where the level of foreign investment is likely to be high. However, this can always be restricted as in Tunisia and Zambia, where foreign investors were excluded from primary public share offers.
Yet the overwhelming aim of privatisations is to raise performance which requires know-how and market access. As a rule, this can only be found outside of the country. This year, for example, 26% of Kenya Airways Kenya Airways, the national airline of Kenya, based in Nairobi, Africa, started operations on 4 February 1977 It operates scheduled services throughout Africa and to Europe and the Indian subcontinent, with its main base at Jomo Kenyatta International Airport, Nairobi. was sold to KLM KLM Kaiserliche Marine (Enigma: Rising Tide game)
KLM Koninklijke Luchtvaart Maatschappij (Royal Dutch Airlines)
KLM Klub Langer Menschen (German: Tall Person Club) .
Generally, privatisations do increase direct foreign investment in developing countries, something which had been decreasing in Africa. In the 1970s, it stood at 15.4% but dropped to 8.7% in the 1980s and averaged at 3.4% during the first half of the 1990s.
Foreign investment is also coming from the multitude of recently-established Africa privatisation funds development finance institutions. Arguably, this is less constraining than aid money. National sensitivities may be mitigated by the increasing involvement of African Americans in privatised companies, such as the Calvert New Africa Fund.
On the other hand, the proposed conversion of external public debt into shares of newly privatised companies should be considered with great care. Such schemes may enable creditor countries to retain a strong economic influence over indebted countries, or to subsidise foreign investments by their own blue-chip companies through attractive debt-for-equity conversion ratios.
"Privatisations increase unemployment and thus threaten the stability of democratic governments?"
In the short term it is true that privatisation goes hand-in-hand with restructuring which generally means laying-off workers. On the other hand, it can be argued that privatisations allow governments to separate social and economic objectives. This would be entirely acceptable if governments could be relied upon to cushion the short-term social harm brought about.
"Privatisations mean losing control of key sectors of the economy?"
The very raison d'etre rai·son d'ê·tre
n. pl. rai·sons d'être
Reason or justification for existing.
[French : raison, reason + de, of, for + être, to be. of privatisations is that the private sector is better at running companies than the government! Nevertheless, some governments insist on retaining an interest.
Inversely, strategic investors can be offered a controlling stake, as in Uganda. Countries can also adopt the strategy of Zimbabwe, which recently announced the privatisation of "loss-making national companies which are burdening the national budget."
Africa is not the only place where governments would rather own profit-making companies for as long as possible. The French Government is happy to rely on the profits of France Telecom in order to meet the budget deficit target set by the European Union European Union (EU), name given since the ratification (Nov., 1993) of the Treaty of European Union, or Maastricht Treaty, to the
European Community for entry into the monetary union.
Further, control can always be exerted through regulatory bodies, especially for the infrastructure and media sectors.
To close this chapter, let's take a look at the factors that can have an impact on the success of African privatisations.
According to the IFC, public authorities should almost never invest before a sale except to complete existing programmes or to ensure effective business and management. On the other hand, who could argue that the extensive restructuring of Kenya Airways did not contribute to the success of its privatisation?
Secondly, for the World Bank, the more competitive the sector and the better the macroeconomic and regulatory framework, the higher the chances of success.
The Chief Executive of the ZPA says, "the success of [Zambia's] privatisation programme is due to the unwavering commitment of the government, a rare political consensus and the dedication of the professionals working at ZPA," while "the primary problem had been opposition to privatisation generated by vested interest Vested Interest
A financial or personal stake one entity has in an asset, security, or transaction.
For example, if you have a mortgage, your bank has a vested interest on the sale of your house.
See also: Right in ZIMCO ZIMCO Zambia Mining and Industrial Corporation ."
African privatisations will remain controversial because they represent a complete turnaround from the ideologies that shaped the liberation struggles. The positive aspect of this, however, is that it forces African leaders to tread the privatisation road with extra care.