Comparative Analysis of Privatization and Government Divestiture: Challenges and Opportunities
The main aim of the analysis was to glean and borrow beneficial privatization practices from nine selected countries across the world with the intention of availing the gathered information for purposes of Privatization Commission learning and improvement. The study explored various theoretical frameworks of privatization to broaden the understanding of the concept of privatization. Both cross sectional and longitudinal study design was used in this research. Cross section was used to study the practice of privatization across nine select countries as compared to Kenya. Longitudinal design was used to trace the history, practice and outcome of privatization in the focus countries of study from the end of World War II to date. The study focused on US, United Kingdom, Brazil, China, India, Japan, South Africa, Nigeria and Ghana. Secondary data obtained from literature review was used. Content analysis was done on data collected and presented in narratives and discussions.
In analyzing the privatization practices among the countries targeted, eight important variables were used as measures of comparison, these were: objectives of privatization in each and every country, history of privatization, privatizations undertaken, methods of privatization, processes of privatization, legal environment of privatization, challenges of privatization and privatization lessons learned from each country under study. The study found out that privatization is a wave of economic policy that took root in the 1970s starting with the United Kingdom. It came as a result of the realization that governments were not efficient in managing state enterprises due to various reasons and that private individuals who pursue profit motive would be more committed towards the success of enterprises under their ownership. Privatization was also driven by the assumption that in a perfect market, competition would yield more benefit to the consuming public.
There are mixed results to the economic policy of privatization across the world and in individual countries. In some instances, it has produced the desired results, but in some cases, it has failed. Across the studied countries, it was observed that the success or failure of privatization depended on economic sectors and cultural factors. Each case was however unique to each country. The key determining factors in the success or failure of privatization seems to rely heavily on the culture of the society in which it practiced as manifested through governance practices. Privatization seems to have done well in civilized communities where the well-being of the society is put above those of individuals as opposed to situations where the selfish interest of individuals is allowed to take root. The study ends with a summary of challenges and specific recommendations.
ENHANCEMENT OF CORPORATE GOVERNANCE THROUGH PRIVATIZATION
The convergence of global economies towards market-based systems has put the modern corporation in the centre of economies around the world. It is becoming increasingly recognized that companies should be managed to reflect the interests of society at large rather than for purely private interests. The positive and negative externalities of the separation of management and ownership in the modern corporation makes corporate governance an important issue. This leads to a number of issues related to efficient control of the assets of corporations in the interest of all stakeholders. Corporate governance is also important for state-owned enterprises (SOEs).
DEALING WITH RESISTANCE TO PRIVATIZATION
As the Privatization Commission executes its mandate of formulating, managing and implementing the Privatization Programme, it is likely to encounter resistance from different stakeholders. This is not unique to Kenya as every country that has pursued privatization as a Government policy has had to deal with resistance to privatization at one time or the other. A survey carried out by the Center for Global Development in 2002, concluded that “privatization remains widely unpopular, largely because of the perception that it is fundamentally unfair, both in conception and execution”.
Opposition to privatization can come from different stakeholders and groups that include trade unions - including workers and management, consumers, professionals, environmentalists, political groupings and politicians, and community organizations. Resistance to privatization has taken place in countries at varying levels of national incomes so that the resistance to privatization is not limited to developing countries.
Resistance has the potential to delay, dilute or sabotage public enterprise reform in general and privatization in particular (Nellis, 2003). Despite the resistance, the economic benefits associated with privatization are widely accepted and can include: improving enterprise efficiency and performance; developing competitive industry which serves consumers well; accessing the capital, know-how and markets which permit growth; achieving effective corporate governance, broadening and deepening capital markets and securing best price possible for the sale.
In light of the above, this paper seeks to identify the possible reasons for resistance to privatization and the mitigation measures that can be put in place to deal with the resistance.
The specific objectives of the paper are: identifying the benefits associated with privatization based on numerous studies that have been conducted; identifying possible reasons for stakeholder resistance to privatization; identifying some of the mitigation measure that can be put in place to deal with resistance to privatizations; and proposing recommendations on how to mitigate possible resistance as the Privatization Commission implements the Privatization Programme. The paper has extensively reviewed literature on privatization most of which has been downloaded from the internet.
Recommendations from the paper include:
- Need for a communication strategy for the Privatization Programme through which stakeholder expectations for privatization can be managed.
- Need for enhanced stakeholder consultations during the design of the Privatization Programme and prior to and during the entire process of implementing privatization transactions.
- Inclusion of employee ownership schemes in the privatization proposals to offer interested employees an ownership in privatized enterprise.
- Publicizing major activities can enhance public acceptance.
- The proposed methods of privatization could as much as possible encourage broad based ownership to gain public and political support.
- There may be need to ensure that the Commission is underpinned by a strong law that empowers it to overcome opposition from vested interests – this may call for strict
- Enforcement of the existing law or amendment. Such a law could accord the Commission administrative authority that requires entities to be privatized and government ministries to comply with its requirements.
- The Commission may consider developing a mechanism to monitor institutions post-privatization that will provide feedback on closed transactions – this will build stakeholder confidence and marshal support to ongoing privatizations.
- Government may be encouraged to plough back privatization proceeds into social infrastructure such as hospitals and schools to build public support for privatization