Sustainable privatisation programs

Let’s try a measured, case-by-case approach

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By Antony Mutunga

Soon after he was sworn in, in 2013, one of the first moves President Uhuru Kenyatta made was to appoint the Presidential Taskforce on Parastatal Reforms (PTPRs), which he mandated with interrogating policies on the management and governance of parastatals in the country, to identify how best they could contribute towards development and facilitate our nation’s economic transformation.

The key finding of the taskforce was that there was a replication of functions amongst some institutions, and between parastatals and county governments. It also noted embedded corruption, and a reduction of the institutions from 263 to 187, through dissolving, merging and transferring roles.

The president directed that the recommendation be fully implemented to stem further wastage of public funds, and promote productivity. Sadly, five years later, this is yet to happen; only eight bodies (Coffee Board of Kenya, Kenya Sugar Board, Tea Board of Kenya, Coconut Development Authority, Cotton Development Authority, Sisal Board of Kenya, Pyrethrum Board of Kenya and Horticultural Crops Development Authority) were collapsed to create the Agriculture and Food Authority (AFA).

This halting progress is explained by the fact that the Government Owned Entities (GOE) Bill and the National Sovereign Wealth Fund Bill, which were drafted four years ago to facilitate the reduction, are yet to be debated in the National Assembly and passed. As a result, the country continues to lose billions of shillings yearly, just like it has for decades.

According to Auditor-General Edward Ouko, the country has lost more than Sh30 billion since 2013, in suspicious loans borrowed by state corporations. As well, because of unchecked looting, many of these parastatals have often required bailouts, which the National Treasury continues to extend at the expense of taxpayers who do even benefit from services rendered. The country’s 2015-2016 audit report shows that 36 parastatals, which have been declared insolvent, require financial assistance of up to Sh118.7 billion to stay operational! The result, expectedly, is perennial budget deficits – this year’s stands at Sh592.6 billion, according the Institute of Economic Affairs (IEA).

Like clockwork, a new policy decision proposes to privatise a number of parastatals, to stem wastage and reduce the budget deficit. Besides mobilizing funds, the move is also expected to increase activity at the Nairobi Securities Exchange (NSE), which would be a boon to our sometimes bumbling economy.

The process this time is being handled by the Privatisation Commission, which seeks to privatise 26 parastatals, including the National, Development and Consolidated Banks, Kenya Meat Commission, East African Portland Cement, KenGen, Kenya Pipeline Corporation, Kenya Ports Authority, Agrochemical and Food Corporation, New Kenya Co-operative Creameries, Numerical Machining Complex and sugar millers, as well Kenya Tourism Development Corporation and associated companies.

Privatisation, it is projected, will increase efficiency and therefore profits and eliminate political interference and its associated ills, such as nepotism. According to Jimmy Kimani, an employee at one of the parastatals, the management of the state corporations fails when political figures come into the picture, and “at this point, privatising them is necessarily a good thing.”

Industrial strategy
But others see beyond this quick win and offer a word of caution. One of them is Deepak Dave, the founder of Riverside Capital Advisory founder, who says that rushing the privatisation process may inadvertently cause the parastatals to be undervalued, where the loser will be the taxpayer.

“Privatising companies to raise cash is not always the best motivation…it doesn’t always yield expected results. An industrial and economic strategy should underpin the movement of assets from public to private sector, because fire-sales never result in the right valuation in cash or value for the economy,” says Dave.
While privatisation of some of parastatals will definitely yield good results and create much-needed breathing space in budget-making, it is prudent to proceed with caution to ensure that we do not create costly mistakes besides the troubles we are already experiencing.

It is laudable that government is taking real steps to stem wastage, but it must also do due diligence, and only apply its weight where it really matters. The idea is to not gift private players with undue advantage by creating monopolies that may hurt the public in the long run. Privatisation is the right move, but the process needs time and dedication to get right.

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