The road for privatisation has split.
The first path is to realistically introspect to find answers to nagging questions of why privatisation has stalled. The other path is to bury our heads in the sand and keep deluding ourselves that the path of yesterday is all rosy. The current global financial crisis has been the prime catalyst of the schism between the old and the new thinking. Not only has it rekindled the debate about the role the private sector should play in the economic development of a nation. It has also brought into sharp focus the fallacy of protectionism.
Such is the case as commentators and opinion makers are beginning to ask whether privatisation of public enterprises such as BTC and NDB should not be halted in light of the global economic recession.
Concern is being raised over the potential risk of not being able to maximize the benefits from the process in terms of proceeds from the sale of state owned assets.
This, undeniably, is as valid a point as the argument that we ought to have started the process much earlier.
However, as experience elsewhere has shown, the benefits of privatisation are much more than the proceeds received from the sale of an asset. The primary objective of privatisation, however defined, is to achieve optimal utilization of economic resources.
By way of a background, it is important to recall that the public sector’s involvement in commercial and economic activities started way back when private sector capacity to provide public services was almost nonexistent.
It was therefore generally believed that the State should be a major instrument of economic development and a guarantor of social welfare. That trend led to the development of parastatal entities that were sustained through borrowing from the international financial market on the strength of sovereign guarantees.
As the public entities increasingly became an instrument of political cronyism and corruption, further borrowing from the international financial market became unsustainable. In the wake of excessive public debts and the currency crisis of the 1980s, the affected countries started selling off their industrial and commercial enterprises to the private sector, almost invariably under the aegis of the structural adjustment programmes sponsored by the IMF and the World Bank.
Since Botswana was not particularly affected by the public debt and currency crisis of the early 1980s, there was then no compelling case for the Government to adopt privatisation as an economic growth and development strategy.
The impetus for privatisation in Botswana therefore did not come from budgetary constraints or foreign exchange scarcity, as was the case with some developing countries. Rather, it came from the demonstration effect.
When the sale of unsustainable public entities gave way to a new wave of privatisation through infrastructure project financing, the Government became aware that its much vaunted fiscal strength as well as the economic and political stability by no means guaranteed us the much needed foreign direct investment as investors and project developers were attracted by the resulting economic recovery of the South East Asian and Latin American emerging market economies.
The investment flow that went into these emerging market economies in the years preceding the 1997 Asian Financial Crisis influenced Government’s decision to adopt privatisation as an economic growth and development strategy in 2001.
However, the demonstration effect, on its own is not sufficient to create the political will that is required in order to successfully deliver on a privatisation programme.
The fact that almost eight years since the adoption of the Privatisation Policy for Botswana, the Government has still not delivered on a single privatisation project is illustrative of the awkwardness of the stated political commitment to the programme.
Because there were no significant push or pull factors, besides the loss of foreign direct investment to emerging market economies, the public sector reform initiative was bound to falter.
Fortuitously, we have now entered yet another era of global economic crisis. And the question that remains to be answered is whether Botswana will once again emerge out of the economic meltdown unscathed.
Or, are we now likely to see a paradigm shift in terms of policy outlook which help shape a positive outlook towards private sector participation in the economic and commercial activities presently undertaken by Government alone or in competition with the private sector? In other words, will the push factor of budgetary constraints that influenced privatisation in other developing countries replicate itself in Botswana?
Already, there are signs that it will. There are discernible policy interventions that are being pursued with the objective of filling the gap between the budgetary constraints that are being experienced as a result of the depressed commodity prices and the financing for recurrent and development budgets. Unexpectedly, Government has borrowed a lot this time from the African Development Bank (AfDB) than it has ever done before.
That could be a tell tale of the level of desperation exacerbated by the recognition that diamonds are as venerable to external forces as agriculture is to weather unpredictability?
The biggest challenge for Government is to restore private sector confidence in the privatisation programme. The Air Botswana fiasco, the Government’s unwillingness to adopt overarching privatisation legislation and the absence of a long term policy on infrastructure project financing, coupled with a rudimentary sector regulatory and institutional framework, could collectively conspire to slow down implementation of the reform programme at a time when it is needed most.
What this country needs in order to stimulate economic growth and development is a partnership relationship with the private sector in the delivery of infrastructure projects and services.
But that relationship is not helped by Government’s demonstrated reluctance to partner with the private sector.
*Abel W Modimo is PEEPA’s Corporate Counsel, but the views expressed here do not necessarily represent that of his employer.