Why privatisation turned out to be empty promise

Thursday November 14 2019



Karoli Ssemogerere

Karoli Ssemogerere 

By Karoli Ssemogerere

Privatisation was a very popular idea packaged in “reform or die” medicine administered by the World Bank and IMF in the 1980s and 1990s. Collapse of world prices for anything brought many countries to their knees, a sharp descent that was tied to political mismanagement. Some countries even lost the ability to feed their citizens.

Privatisation was marketed as a halfway pill, between full liberalisation where the State divested itself 100 per cent from economic activities and assumed the role of regulator, policy maker and taxation authority.

For a few healthier enterprises, further steps would be taken to involve the public in their ownership through the stock exchange. Many African countries have some form of bourse even though the bourses are now mostly dormant as they forgot one major ingredient, a broad liquid market where buying and selling of shares is hassle-free and tied to current market information.

Privatisation got rid of the easy candidates using liquidation to get rid of asset rich, cash-flow poor enterprises even where most of these businesses could have been saved with infusion of credit secured by workers.

Unlike the new workers who are lightly unionised, the older establishment workers were heavily unionised and enjoyed both State-backed and supplemental worker benefits. Workers, for example, in Jinja, enjoyed a far higher standard of living than those in the subsistence sector.

Nytil (now Picfare Nyanza) at its height employed more than 6,000 workers and so did the others such as Uganda Grain Millers, Nile Breweries, etc. The ululations, which have accompanied the return of the State into business in the last decade did not take into account why privatisation was adopted in the first case.

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The well-capitalised firms of the West were not interested in appending local capacity to their global operations, especially in Africa, Asia and Latin America where markets were small, and had no connection to the American or European consumer. Even where the consumers existed the State had been captured by corruption was Nigeria or hived off by developments like apartheid, in South Africa.

In 2020, there are a few success stories. South African State enterprises managed under a prosperous regime for decades fell to political manipulation and corruption sinking the fortunes of post-apartheid South Africa. Energy giant Eskom, South African Airways and others have not fared as well under post-apartheid South Africa, dragging down the larger economy with them.

Neighbours Zimbabwe have drifted into near collapse after mortgaging most of the State resources to China. For a while, partially privatised Kenya Airways has been limping until Kenya Parliament proposed that government acquires all its voting stock as air is a strategic component of the economy.

From 2015 to date, we have seen a spurt in growth of national companies owned by governments, airlines, oil and mineral companies, railway stock and accompanying infrastructure like bonds.

This confidence was partly driven by the success of a few continentwide enterprises that avoided the sledgehammer the first time like Ethiopian Airways founded in 1946, the continent’s largest courier. Ethiopia has the entire continent pointed onto Addis Ababa for regional and international destinations.

Nigeria Pipeline Corporation is still struggling to find its feet after the collapse of domestic refining capacity, but still has a chance as Africa’s largest economy realises the future is more than its high quality oil, which has consumed its politics for decades.
Many State companies now have full State charter, specified sources of revenue and most operate in sectors of the economy where the State has specified a strategic interest. This does not seem to be a barrier to doing business until the economic wars begin. For example Rwanda, Uganda, and Tanzania have revived national airlines.

The precarious state of bilateral ties in the EAC means that it may be easier for the last mile for many commodities, including food to go through a state operator. The hegemonic State has been reborn.

Mr Ssemogerere is an Attorney-at-Law and an Advocate.
kssemoge@gmail.com