KENYA PRIVATISATION, BETTER LATE THAN NEVER

Last week Kenya’s President William Ruto announced his government would be privatising 35 state owned companies.

To that end, a new law  been enacted that brings into force an agency to carry out the exercise without bureaucratic interference.

The naysayers of course are up in arms, seeing this as an International Monetary Fund (IMF) plot to take Kenyan assets on the cheap.

Even if that is true no one is asking how Kenya came into a situation that the IMF would dictate to it.

"The IMF is like the lender of last resort. When no one else will touch you with  a 100-foot poll the IMF is the one you go to. But they are not a charitable organisation, their money has a cost.

Normally others will not lend to you, because the probability is high you will not be able to repay them.

So the IMF may insist on more efficiency in the economy and the easiest thing is to flog all the deadweight companies that are sucking more out of the government than they are paying back in taxes and dividends.

Greater efficiency in the economy will make the IMF redundant, as the country will be able to go to the open market to borrow funds.

Privatisation can take many forms, selling the company as a going concern or liquidating it all together – selling the assets and paying off the liabilities.

In the last incidence the company maybe beyond salvage – up to its eyeballs in debt, in need of major recapitalisation and in a dying industry, in which case it may not make business sense to try and keep it going.

But if the company is to be sold as a going concern one can expect that the labour force will be cut (tribalism and nepotism are never an efficient recruiting mechanism), minimum efficiencies achieved, while replacing obsolete machinery before they may think about beefing up staff numbers again.

The Uganda experience shows that the labour force eventually surpasses the original numbers before privatisation. The only thing is that it is not all those who are retrenched that regain their old jobs.

"The main aim is not to raise money but to create greater efficiency in the economy...

Kenya has a fairly robust stock exchange on which some of these companies can be offloaded – if they have sound management and strong balance sheets, but chances are they will be sold to investors directly.

The critics will say that since many of these companies will be snapped up by foreign investors it amounts to colonialism via the back door.

It would be ideal that local businessmen buy the companies. But often what happens is that it is cronies of the political elite who “buy” these companies, who often can not raise capital to revamp them and end up selling them anyway, to foreign investors at multiples of the price they bought it at.

The ordinary citizen  is often conned into thinking it is better to sell to our own, not knowing they are facilitating crony capitalism with they being the eventual loser. They lose because efficiencies are not created that would see a wide supply of goods or services.

Kenyan indigenous capital would have a better chance of participating in the up coming privatisation, because not only are they wealthier but also because they know how to mobilise resources in groups. They have longer experience in SACCOS and investment groups than we do or did in the 1990s, when our privatisation process was taking off.

In the final analysis the man on the street wants better goods and services at a fair price, they really don’t care who owns the company.

In theb 1990s Russia, still hung up on their socialist dogma, privatised many of their companies by giving shares to the workers. The workers ended yup selling their shares to a few connected Russians who are today’s oligarchs, fabulously wealthy people (all men) and the workers’ plight is worse off than it was under communism, especially since expected efficiencies did not turn up in the economy. And also because they took the money from these companies to buy assets abroad, like Chelsea FC.

But if ownership is such a big deal, the Kenya government should make listing on the Nairobi Stock Exchange (NSE) within a certain time frame as a condition of sale. No gentleman’s agreement as happened here, with the eventual owners not acting as gentlemen eventually.

"The powerful interest groups in Kenya that have resisted the privatisation of companies have finally run out of runway. These companies should have been privatised 20 years or so ago. But the economic realities have dictated that  they have to go now.

Dictated because the short term suffering from privatisation can be politically costly. Ruto did not come to this decision with out the economic reality staring in the face. He needs to offload as much excess baggage on the national purse strings, if he is to have ha lf a chance of getting the Kenya economy back on track.

Again we bring such hard decisions on ourselves. If these companies were well run and making contributions to the treasury the case for their sale would be hard to sustain.

But no, people are not asking the major question, who put us in this position?