Wednesday, September 23, 2020

It’s opportune time to review the privatisation programme

It’s agreed generally that the privatisation programme has not succeeded in achieving the goals and objectives set out in the Privatisation Policy. As we begin the rollout of the belated National Development Plan 10 (NDP10), it would be beneficial to reflect on the challenges experienced during implementation of the programme and to develop strategies that can improve efficiency in the delivery of goods and services in order to meet the rapidly changing domestic and international market. Only then, can we realistically hope to leverage on the pull and push factors that will have impact on implementation of the privatisation programme, going forward. Like all other public sector reform programmes, a first major milestone in the path for privatisation is the development of a policy framework that will provide a strategic direction during implementation of the programme.

Which is why the adoption of the Privatisation Policy for Botswana in 2000 was seen as an important watershed as it was expected to mark the beginning of a transition from public ownership to a truly market economy. But the journey has still not begun! As the policy framework merely provides a source of guidance during implementation the importance of a strong legal and institutional framework to support the programme cannot be gainsaid. Strangely, in formulating the Privatisation Policy, Government explicitly decided that “an over-arching privatisation legislation was not required.” Instead, a case by case review of the relevant legislative instruments would be done for each privatisation transaction. And, this has proved to be the enduring Achilles’ heel in the privatisation programme. Countries that have successfully implemented privatisation have purposefully adopted a phased and structured approach. They started with the sale of commercial enterprises which already operated in a competitive environment. Such entities were transferred to the private sector in their existing form through trade sales or stock market floatation. This phase, commonly referred to as divestiture, was premised on discreet privatisation law. The next phase is where the private sector is invited to participate in the provision of public infrastructure and services through Public Private Partnerships (PPPs) or Private Finance Initiatives (PFIs).

Public utilities’ and infrastructure corporations such as BPC, WUC, Botswana Railways, etc. would be prime candidates for privatisation under this category. This phase could then be expanded to include private investment in social and environmental services such as health, education, correctional services, waste water and social security. Our privatisation programme has, however, been less organised and less structured. Part of the problem could be the attempt to implement privatisation in its varied forms all at once. It has consequently become practically impossible to design an overarching privatisation legislation to cover all conceivable forms of privatisations as encapsulated in the broader definition of the concept. For instance, divestiture would require a completely different form of legislation from PPPs and so is the case with contracting out which has always been implemented through the Public Procurement and Asset Disposal Act. That perhaps explains why we are still grappling to implement divestiture transactions while a lot of countries are already on the third wave of privatisation. But, what has really stalled the privatisation programme in this country? A number of factors could explain why privatisation in Botswana has not been pursued with the same vigor and gusto that has characterized privatisation in some developing countries. To begin with, experience tells us that the success of any economic reform programme is dependent on the political will and commitment on the part of Government as well as a robust implementation framework. Undoubtedly, privatisation is such a sensitive programme. Primarily because privatisation would almost invariably lead to reductions in the size of the workforce or the outsourcing of functions previously carried out within the enterprise.

This is especially the case where privatisation is accompanied by the introduction of technological developments which will improve productivity and efficiencies within the privatised entities. Introduction of competition would also lead to employment reduction in hitherto natural monopolies.

But the upside is that more employment is created in the newly established competing firms. And, very few Government officials are prepared to take the political risks associated with loss of jobs, unless compelled by the micro-economic conditions. On the other hand, the Government is thus acutely aware that the growing population, as well as the need to improve infrastructure services in order to attract FDI as a means of diversifying the economy away from minerals, would require some economic reforms to be undertaken. But, that should be done at minimum cost to the labour market. Yet, the reality is that so long as the staffing levels are out of kilter with the commercial imperatives of the enterprises, loss of jobs cannot be avoided, at least not in the short term. Moreover, privatisation is an economic process as it is a political process. It cuts across an existing array of spheres of political and bureaucratic control.
Naturally, it carries with it a shift in the balance of power from the parastatal to the private sector. This could also be a daunting prospect, especially for those public officers who stand to benefit out of the maintenance of the status quo.

And, that partly explains why privatisation legislation was not considered desirable in the first place. The fact that the programme is meant to be implemented on a “pick and choose” basis, depending on the whims and caprices of the powers that be, could be problematic.

While it may be true that sale of state assets or transfer of provision of public services to the private sector in this country is not impeded by any legal constraint such as to warrant enactment of enabling legislation, as is the case in some jurisdictions, it must nonetheless stand to reason that privatisation must be carried out through a process that is open, transparent and consistent- which can only be achieved through a discreet privatisation law. Regrettably, the case by case approach fails to achieve any of the three cardinal principles of privatisation. Stakeholders – including the taxpayers, the labour organisations, potential investors and commercial lenders – alike, would want to be assured that the process is fair and that it is done for the benefit of all and not just a few. Reports that some potential investors withdrew their bids for Air Botswana after complaining that the procurement process had been manipulated to favour one potential bidder over others, do not help the integrity of the privatisation process, and such could have been aggravated by the absence of a reliable implementation framework. A review of the Privatisation Policy, complemented by the development of a clear legal, regulatory and institutional framework for implementation, could ameliorate the negative perceptions about the programme. And, this is opportune time to review the privatisation programme to steer it out of this discomforting legacy.

*Abel W Modimo is the PEEPA’s General Corporate Counsel, but the views expressed here do not necessarily reflect that of his employer.

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