Privatization — Alarming Economic Reforms for Kenya
The current regime’s swiftness to privatize and list state-owned corporations, without parliamentary oversight raises a lot of concerns on their level of scrutiny and methodical due diligence needed to make the process efficient and ensure we harvest economic gains. Privatization has previously worked in developed nations, but for developing economies like Kenya, it requires stringent regulatory structures, pertinent processes and due diligence, and implementation of supplementary policies. For a country diagnosed with the cancer of corruption, this is like picking up a habit of smoking.
In essence, privatization can be an economical game changer in unlocking value in the economy by involving private capital and expertise in the delivery of public services, a task which the Kenyan government has failed terribly. Privatization is done by transferring ownership or management of a public entity to a private party. It can be complete privatization, privatization of operations and/or management, or allowing competition. Just like Azrae, the angel of death, the Kenyan government has sucked the soul out of most of the state-owned corporations and public companies in which it has a controlling stake or major influence. Over the last five years, investors have recorded a wealth erosion of Sh164.1 billion. Kenya Power is a monopoly, yet it makes huge losses. The only reason a monopoly can make losses is by being inefficient. Kenya Airways, a company that has the potential to be the top continental legacy carrier and airline is still so far behind. The suspension of the company’s shares was recently extended because it is still undergoing operational and corporate restructuring processes. Such outcomes offer less faith that the current privatization plan carries any weight in improving the overall economic health, especially without proper policies.
Digging into the books of history, Boris Yeltsin was quick to carry out reforms for economic restructuring after the fall of the Soviet Union in 1991, which was a critical need for consideration for foreign loans. To deal with the collapsing economy and the huge state enterprise sector, the president chose to sell state-owned assets. It is important to highlight that private ownership was forbidden before and the assets were to be sold to the public. However, without proper reforms and the creation of regulatory capacity, it ended up allowing the concentration of wealth to a small groups referred to as oligarchs. Which is not a far away story with what has been happening in Kenya. We have a crumbling economy that relies on debt, but that shouldn’t pressure the government to overlook policies that had been set. The Privatization Act was set to allow the parliament to participate in broadening the ownership of the Kenyan economy. Removing it is a way of concentrating power to the executive arm in a very polarized government. Recently, the Deputy President callously declared that the government will prioritize rewarding its political allies. Poor reforms and political disorder are the catalysts for embezzlement of state resources.
A few factors need to be analyzed. The government should at least maintain the regulatory framework in place, especially in the current unstable political and economic environment and ensure evidence-based analysis and right methodologies of valuation are applied in the process. Secondly, we need to have a discussion on which companies should be privatized. We have a high poverty rate, and the private sector’s free market pricing on public services and amenities can make it unaffordable to people living below the poverty line. For example, the government should maintain water distribution and provision of higher education. Additionally, the government should consider full sale of the companies because this has been statistically proven to be more beneficial. I have already highlighted how the government’s influence in corporations has led to downfalls. It opens room for corruption and political patronage.
The details of the buyers’ insiders and shareholders should be made public. We need utmost transparency to ensure this huge sale of parastatals is not hijacked by a small group of individuals. We are finishing the dynasties, we don’t want to make oligarchs. Foreign buyers have historically done well, but reliance on foreign investment opens up other risks. Concerns always arise when foreign companies merge, acquire, or take over domestic firms rather than new investments. Another security risk is the shifting global power dynamics. Very soon, third-world nations will have to subdue as allies, as the current regions in Eurasia and Southeast Asia are consolidating and challenging the west on every spectrum, ranging from cultural aspects to political and economic systems. The nation should not allow itself to be in a situation where diplomatic ties can have a devastating effect on our economy because of the direct or indirect impact of sanctions.
Sidelining the parliament, the representatives of the electorate from such a vital process opens the door to state looting, which brings a lot of suspicion on the hurried motive of the privatization of state cooperation. The parliament, which is the voice of the people, needs to be included in such a significant process to ensure the efficient distributional impact of privatization. The Privatization Authority should conduct proper due diligence with the oversight of Parliament, which has a fiduciary duty to the people, for the process to be transparent and efficient, and to yield economic gains.
