Part Four – An end to procrastination
Douglas Rasbash and O’Brian Mkali
This is the last in the series of privatisation which looks at the broad international experience and tries to draw in the strings for the specific case of Botswana. What is clear that procrastination can no longer be a strategy for avoiding decision making.
International experience in privatisation really started in the 1980s in the United Kingdom although Volkswagen was privatised in 1961 and British Steel in 1950’s. Notable privatization attempts in the UK included privatization of Britoil (1982), the radioactive-chemicals company Amersham International (1982), British Telecom (1984), Sealink ferries (1984), British Petroleum (gradually privatized between 1979 and 1987), British Aerospace (1985 to 1987), British Gas (1986), Rolls-Royce (1987), Rover Group (formerly British Leyland, 1988), British Steel Corporation (1988), and the regional water authorities (mostly in 1989). After 1979, council house tenants in the UK were given the right to buy their homes (at a heavily discounted rate). One million purchased their residences by 1986. Ports railways and even some roadways have been privatised. Telecoms have been the most popular privatisations throughout the world. Fifteen of the twenty largest public offerings have been telecoms privatisations. Former-Communist countries privatized almost all of their economic activity, as it all previously been state owned.
International experience shows there to have been several methods of privatization: Share issue privatization: shares sale on the stock market; Asset sale privatization: asset divestiture to a strategic investor, usually by auction or through the Treuhand model; Voucher privatization: distribution of vouchers, which represent part ownership of a corporation, to all citizens, usually for free or at a very low price; Privatization from below: start of new private businesses in formerly socialist countries. Management buyout: purchase of public shares by management of the company, sometimes by borrowing from external lenders and Employee buyout: distribution of shares for free or at a very low price to workers or management of the organization.
According to research performed by the World Bank in the early 2000s, privatization in competitive industries with well-informed consumers, consistently improved efficiency. It was noted that the more competitive the industry, the greater the improvement in output, profitability, and efficiency. Such efficiency gains mean a one-off increase in GDP, but through improved incentives to innovate and reduce costs also tend to raise the rate of economic growth. More problematic was the privatisation of problematic and heavily loss-making industries. In other words it the promoting government privatisation objective was to accelerate innovation diversification and efficiency then, more often than not the effort was worth-while. But if it was to sell off a basket- case industry or service as a last and final attempt to save it, then the results are mixed. The BTC might fit the former category and the Botswana Railways the latter.
Proponents of privatization make the following arguments that political interference leads to commercial suboptimality, that private firms are more efficiently driven than government departments. Private companies are more flexible and able to take risks and governments are more susceptible to corruption. Accountability is more transparent and disciplinary action more straight forward. It is also widely believed that privately held companies can sometimes more easily raise investment capital in the financial markets when such local markets exist and are suitably liquid. (“Privatization – Wikipedia”) While interest rates for private companies are often higher than for government debt, this can serve as a useful constraint to promote efficient investments by private companies, instead of cross-subsidizing them with the overall credit-risk of the country. Investment decisions are then governed by market interest rates. State-owned industries have to compete with demands from other government departments and special interests.
Opponents of privatization in general—or of certain privatizations in particular—believe that public goods and services should remain primarily in the hands of government in order to ensure that everyone in society has access to them (such as law enforcement, basic health care, and basic education). There is a positive externality when the government provides society at large with public goods and services such as defence and disease control. Some other often quoted reasons to oppose privatisation is that elected officials are more committed to safeguard public assets, that state enterprises can be used to implement certain policy – such as economic stimulation. Governments may raise funds more cheaply and are able to back loans with sovereign guarantees. For a natural monopoly such as water supply, real market conditions will not exist so negating much of the benefit of commercialisation. Privatisation has often lead to job losses. It is acknowledged by many studies that there are winners and losers with privatization. The number of losers—which may add up to the size and severity of poverty including reduced wages and benefits. May also claim the quality of service and goods deteriorates with privatisation in order to maximize profit. That ultimately while a private company is interested only in the bottom, line, government is broader interests in the well-being of the population.
There is a clash of cultures between those of public service and those of business which is largely to blame for the sub-optimality in SOEs that is costing P2.6 billion per year. The public sector is widely acknowledged to be too dominant in Botswana. Parastatals and SOEs need to be privatised as the main strategy to improve performance and diversify the economy. The provision of social services does not mandate public ownership. Water and power are no different to the internet, the latter being almost totally private the former being almost totally public. Aviation does not need to be state owned in order to fly people from Gaborone to Johannesburg on time and at a reasonable price. Railway freight trains do not need to be hauled by state supported locomotives and wagons just as road trucking is not state owned. Beef production will not reduce if there is no national commission or agency. Private companies are more than capable to satisfying the needs of consumers anywhere in the world. Power will soon reach a tipping point where 25% of the energy to the Southern African Power Pool is supplied by the private sector at lower cost than ZESCO, ESKOM or BPC, and when that happens the fate of public sector power generation and transmission will be sealed – we should not wait for that but be proactive in restructuring power supply to meet future market requirements.
Ultimately, if an SOE cannot produce and publish an annual report that includes annual financial statements, then it says everything we need to know about how that organisation is managed. It is inconceivable that a Public Limited Company or PLC could get away with this most fundamental of management requirements. As might be expected, those SOEs that do not publish annual reports also do not keep their web sites and social media up to date. They are being run as quasi government departments where accountability is less important than botho and good relations. The problem is that values that do not include performance are meaningless. CEOs that do not publish annual reports need to be fired and replaced by those that will. What Public Enterprises do not recognise is that failure is OK – some of the time. Success cannot be achieved without risking failure – businesses know this, but government does not. New ideas are seen as rocking the boat rather than energising change.
By privatising large sections of the economy, making inward investment very attractive, simplifying emigration processes and giving five year tax and regulatory breaks for all SMMES diversification drive will accelerate, jobs created and we will have finally turned the corner on a gloomy future. The SMMEs sector could become the primary beneficiary of privatisation and driver of economic diversification. Thus, catapulting the private sector to propel the nation of Botswana into prosperity.