logo
ADVERTISEMENT

AGONDA: Privatisation of state-owned enterprises a brilliant approach to promote economic sovereignty

They should be independent, operate efficiently, cover their expenses, earn profits and improve government’s revenue.

image
by OKOTH AGONDA

Star-blogs18 October 2023 - 14:48
ADVERTISEMENT

In Summary


  • When an SOE is not efficient, it diverts from its primary purpose and transforms into an economic risk by recording revenue losses.
  • Privatisation will also alleviate corruption and mismanagement of the parastatals and make them more profitable.
President William Ruto poses for a photo with senior state officials after signing into law the Privatisation Bill at Kisumu State Lodge on October 9, 2023.

As the global economy continues to face headwinds and the financial environment remains fragile, countries the world over are initiating measures to cushion the jolts. These measures will enable the countries to avoid accumulating more debts and ensure financial sustainability.

According to the World Bank, most of the poorest countries globally have been spending the highest share of revenues to service debts. This means that debt-related risks are on the increase, especially for low and middle-income economies.

The situation is not any different in our country. Kenya has grappled with increased debt since the beginning of the Covid-19 pandemic. This is after the government resorted to multi-lateral loans to mitigate the effects of the economic shocks brought about by the pandemic. The country faces significant debt servicing pressures and will keep up to ensure economic stability.

This is the reason the government is pursuing programmes that will promote economic growth and development.

The most common and effective global economic adjustment programmes include restructuring of public expenditure to focus on priorities, reforms in the tax systems to enhance revenue collection, fiscal discipline and privatisation of state-owned enterprises.

Like other strategies, privatisation of SOEs promotes economic growth and efficiency while strengthening macroeconomic reforms. This programme enhances financial productivity by improving the SOEs' performance, decreasing government intervention and increasing its revenue. It also introduces competition in monopolised sectors.

Rationally, the formation of SOEs is meant to increase citizens' participation in the economy; promote domestic entrepreneurship; promote foreign investment and enhance economic social development.

SOEs should basically be independent, operate efficiently, cover their expenses, earn profits and improve the government’s revenue.

However, when an SOE is not efficient, it diverts from its primary purpose and transforms into an economic risk by recording revenue losses. This means that the government is compelled to embark on rescue measures, which include fiscal actions. The government will have to bail out the SOE and reallocate resources that are meant to be utilised in other development activities.

Some of the SOEs in Kenya have frequently recorded huge losses, which consequently lead to growth of fiscal deficit and government debt. Besides enhancing revenue collection, privatisation is one of the strategies that the government will initiate to help ease financial deficit and debt.

 In 2009, the government published the privatisation programme comprising entities to be privatised as per the Privatisation Act, 2005. Due to the inhibiting legislative and policy framework as provided in the Privatisation Act, 2005, the implementation of the programme encountered challenges, making it possible for only one transaction to be successfully concluded.  

As a result of prolonged delay in the process, the value of some of the entities has substantially depreciated. Consequently, these enterprises are now dependent on the National Exchequer for bail-out. Further, as the financial and operational performance continues to depreciate, they create huge fiscal risks to the national government and the exchequer due to the contingent liabilities.

The government has therefore embarked on the process and is seeking to privatise non-strategic performing state-owned enterprises to raise additional revenue to finance development, reduce the fiscal deficit and ease government debt.

It is for this reason that the government has amended the Privatisation Act, 2005 to provide for a more facilitative legal and policy framework to steward the privatisation process. The President has now assented to the Privatisation Act, 2023.

The Privatisation Act will be aligned to the Constitution and other laws, such as the Public Finance Management Act and the Public Procurement and Asset Disposal Act. These laws were enacted following the promulgation of the Constitution in 2010.

The Act also provides clarity on the role and functions of the National Assembly and the Executive as envisaged in the Constitution. It will also enhance the efficiency, transparency and competitiveness of the privatisation process, while providing a framework for alternative dispute resolution besides the court process.

With the new Act, the government will now commence the privatisation of the non-strategic parastatals through the Nairobi Stock Exchange. This will grant Kenyans an opportunity to trade shares, enhance accountability, improve corporate performance and eliminate the dependence and draining of government resources by the enterprises.

The move will also alleviate corruption and mismanagement of the parastatals and make them more profitable.

The process is anticipated to encourage technical competence and investments to boost economic growth. This shows the government’s commitment to pursuing economic programmes to ensure debt sustainability and economic sovereignty.

ADVERTISEMENT

logo© The Star 2024. All rights reserved