Leasing a better option than privatisation

Dr Jamal Khan :
(From previous issue)

The differential impact of privatisation on the minority ethnic segments and public resentment over real or perceived giveaways to foreigners are noticeable. The environment tends to get too touchy and the human costs of the transition are too high to move at a pace initially envisaged. Related problems faced include: multiple tiers of reporting and decision-making, managing programme, handling affected employees, political and ideological resistance to divestment and privatisation, downturns and recession in the domestic environment, sensitive nature of liberalisation and deregulation, contentious nature of the rules of the game, and inequalities and unevenness caused or compounded by the process of privatisation.
While many smaller countries are ready to divest and privatise, their enterprises are in a precarious financial state, the status of their accounts is poor and audited accounts may be available for only a few years. Selling of each entity is time-consuming: dissolution of a company, incorporation under the Companies Act and clearing up and restructuring finances and operations prior to privatisation.
Privatisation problems are not a result of ownership. They are a reflection of absence or weakness of market discipline and competition. Using modern management techniques cannot succeed if high tariff and nontariff barriers perpetuate private monopolies.
It is argued that even in the most propitious conditions, privatisation is unlikely to be sufficiently impactful to have a large effect on the macroeconomic variables. Further, risk with privatisation via joint venture/equity grows when the forcible dilution of ownership interest occurs by recapitalisation and share capital expansion.
Aggressive and persistent lobbying – with a hard-sell no-holds barred approach, injecting culture shock into smaller countries and some foreign buyers showing bellicose behaviour – pose threats to privatisation. Some of the buyers employ the full spectrum of tools available to industrialised-country lobbyists – corporate bullying, misrepresentations of actual events ranging from advertising in the media and suborning of various personnel and representatives to donations, gifts and recruiting resident diplomatic assistance. Nor uncommon are personal attacks in the media on some negotiators and decision-makers, a demoralised, stressed and haemorrhaging public sector, low and declining real income, and private sector representatives frequently looking at the public sector as an object of attack rather than as a development partner.
Country experience and development evidence show that pricing and valuation are the most contentious issues in the privatisation drive and that it is a skill-intensive and time-consuming exercise even under the most favourable conditions.
The preparation of an enterprise for divestment and privatisation is demanding in terms of the type of skills which are in short supply. Without certain skills, the background information cannot be prepared.
But buyers/investors want exactly such information which is comprehensive and reliable. Consulting is available but expensive and inadequate. It is money which drives privatisation, but without successful privatisation expected money is not available. Even when money is available, the privatisation cost needs to be weighed against the offered price.
There is usually a premium on speed. The search for quick success may impose strains on the capacity of agencies in place to manage the process. The privatisation move needs to be reinforced by technological expertise as well as management, business, financial, negotiating and advertising skills. Carefully-drafted privatisation agreements – anticipating risks and abuses – can make life less uncomfortable for the concerned parties.
Keeping the public and the media informed of the emerging issues and the negotiating progress is desirable. With major decisions having an asymmetrical impact on different communities and with those who are adversely affected by the process, it would be prudent to ensure that the move is not regarded as a zero-sum game and that the process is informed by well-defined guidelines and clear fiscal issues. If durable payoffs are to be obtained from the move, attention has to be paid to creating and maintaining a vibrant competitive and achievement-seeking environment.
 with the income and opportunity inequalities and social tensions associated with market operations in dependent, postcolonial and structurally-weak economies such as ours, the competitive imperative puts a premium on public management.
(Dr Jamal Khan was professor of public sector management at the University of the West Indies. [email protected] )