By Silas Apollo
When the government came up with the idea of setting up parastatals and state corporations soon after independence in 1963, the goal was driven by a national desire to create institutions to help the country achieve social and economic growth.
Central to this plan was a need by the government to have institutions that would, among other things: play important roles in accelerating economic and social development across the country, redress regional economic imbalances, increase citizen participation in the economy, and promote local and foreign investments.
Against this backdrop, key institutions, which were mostly run and even owned by the government, came into existence.
The idea at the time was to have institutions that would not only help accelerate growth internally but also place the country at a vintage point economically and give it a competitive edge with its peers and other nations across the globe.
The plan was guided mainly by the now famous Sessional Paper No. 10 of 1965 on African Socialism and its application to planning in Kenya.
However, many of these institutions failed to achieve the desired outcomes over the years as corporate infightings, mismanagement, wastage, or malpractices stood in the way.
The parastatals, corporations, and state-owned enterprises also moved away from their primary functions, especially the regulatory boards, most of which had translated their regulatory role into executive one, resulting in waste and confusion.
The result of this confusion was the increasing cases of graft and grand corruption in a number of the said institutions as outlined in various government-sanctioned performance review reports such as the 1979 Report on the Review of Statutory Boards and the 1982 Report of the Working Party on Government Expenditures.
The reports also noted that the growth in the parastatal sector had yet to realize development. At the same time, there also existed the danger of over-politicizing production and distribution by establishing too many parastatals.
Therefore, the conclusion was that the state corporations’ operations had become inefficient and unprofitable. Some joint ventures taken up by the institutions had also failed, resulting in the waste of billions of public funds.
The result of this wastage and the losses incurred by these institutions also meant that the government had to incur additional expenses in the form of bailouts to the said institutions, sometimes to the tune of billions of shillings, all at the expense of taxpayers.
It, therefore, did not come as a surprise when a proposal to streamline the management and the operations of the parastatals was mooted, like the enactment of laws such as the State Corporations Act.
However, this did not help address the recurring problems, leading to further proposals to allow the government to sell and even privatize some institutions to help them return to profitability.
Subsequent administrations would opt for this route, with some state corporations and parastatals falling into the hands of private investors.
One of such major privatization exercises would occur under former President Mwai Kibaki, under whose tenure in office saw institutions such as KenGen, Kenya Reinsurance, Safaricom, and Mumias Sugar privatized through the Nairobi Securities Exchange between 2003 and 2008.
And President William Ruto has also not been left behind in the quest to turn government-owned institutions that his administration argues have been gobbling up billions of taxpayers’ funds in losses back to profitability.
The Head of State has already earmarked at least 18 loss-making state-owned enterprises. His administration says it intends to privatize through the Nairobi Securities Exchange or sell them to private investors.
Some institutions already earmarked for this exercise include the Kenya Ports Authority and Kenya Pipeline Company, with loss-making lenders, collapsed sugar millers, and hotels that have been run down over the years.
The government is also keen on selling hotels, including Kabarnet, Mt Elgon Lodge, Golf Hotel, Sunset, Kenya Safaris Lodges, and stakes in Hilton Group of Hotels, InterContinental Hotels Corporation, and Mountain Lodge Limited.
Consolidated Bank, Development Bank, Kenya Meat Commission, and Kenya Cooperative Creameries have also been targeted for sale.
The intention of Dr. Ruto is not just to turn around the companies and relieve the government of the burden of forking out cash in the form of bailouts every year but also to help with debt retirement and development funding.
And to help it achieve its desired outcome, the government is currently pushing for a change in the laws governing the sale of such public entities to allow for the direct sale of assets of such firms through competitive bidding.
This has been through the recently proposed Draft Privatization Bill 2023 that, among other things, seeks to exclude Parliament from approving the privatization of State-owned firms and instead hand over the responsibility to the National Treasury and the Privatization Commission.
According to the Parliamentary Budget Office – the entity that advises MPs on budget planning, the government is estimated to earn between Sh60 billion and Sh110 billion by selling its stakes in public firms. The funds, PBO says, could be raised in a period spread out over the medium term.
“For long-term impact, privatization proceeds should be earmarked to capital projects that have the potential to generate future revenues or be used to retire expensive public debt,” PBO said in its statement to MPs on the 2023/24 financial year budget.
The Privatization Commission, on the other hand, argues that the privatization of some of the already identified institutions is the key to unlocking their full potential and growth both in the medium term and the long term.
The commission, which is a creation of the Privatization Act (2005), has already identified about 26 institutions for the privatization exercise. The commission was established with the key mandate of planning the sale of such institutions.
The Commission, in its report to the government, lists institutions such as Muhoroni, Miwani, Nzoia, South Nyanza, and Chemelil sugar companies, KenGen, Kenya Pipeline, Kenya Ports Authority (KPA) Eldoret container terminal, East African Portland Cement, Kenya Meat Commission, and New KCC as some of the entities it believes have a potential for growth if privatized.
It argues that privatizing the 26 government-owned institutions was their only way back to profitability.
For instance, regarding the privatization of the sugar milling companies, the commission says that such a move will help speed up the realization of the government’s commitments under the Common Market for Eastern and Southern Africa (Comesa) Sugar safeguards.
“The objectives to be achieved through privatization will be to help meet government – COMESA Sugar Safeguard commitment to privatize sugar companies. It will also help mobilize resources to support expansion and modernization program for the company,” the commission says.
“The restructuring and privatization will also address the excess debt and generate the resources required by the company,” the agency added.
On other entities such as KenGen, Kenya Pipeline Company Limited, Kenya Ports Authority – Eldoret Container Terminal as well as the Kenya Ports Authority – Outsourcing of Stevedoring services, the agency says that privatization will help government raise additional resources, promote efficiency and corporate governance as well as to modernize their operations.
“The objectives to be achieved through privatization will be to improve efficiency in the delivery of services through mobilization of private sector financial and management resources,” the agency says.
But even as the government moves forward with its plan to offload the assets of the said institutions, some analysts have called for caution, arguing that proposals to exclude institutions such as Parliament from the sale may be catastrophic in the long term.
The proposal has also received the opposition of opposition lawmakers allied to the Azimio la Umoja Coalition, who argue that the rushed sale without input from Parliament and the public would be deemed unconstitutional.
“These entities, some of which are critical to our nation’s security, must be allowed to continue serving public good rather than lining the pockets of individuals.
“Further, these parastatals are public property and cannot be sold without Parliamentary approval. The current attempt to amend the law so that these parastatals are sold at the whim of administration will be resisted by the people of Kenya,” the Azimio coalition recently said in a statement.
However, the government has insisted that it intends to follow the law in the exercise even as it races against time to cushion the public from losses incurred by the said institutions.
“We will choose our best SOEs to privatize through the stock market to increase activity. The first point of call is to reform the law, and once we are done, we will move with speed. That has already started,” Treasury Cabinet Secretary Njuguna Ndung’u recently said in an interview with the African Report. (
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