Thursday, November 03, 2011
World Bank backs Zim privatization move
Posted by By Professor Tshuma at 3 November, at 03 : 23 AM
THE World Bank (WB) has backed Government’s move to privatise its Parastatals and Enterprises saying the two no longer give feasible receipts to the national Gross Domestic Product (GDP).
Presenting a paper at the Conference on Restructuring of State Enterprises and Parastatals in the capital recently, WB country manager Mr. Nginya Mungai Lenneiye said the contribution of the State Enterprises and Parastatals (SEPs) to the national fiscus was no longer tangible and called for a quick reaction towards the move.
He said several economies had privatised state enterprises and parastatals as they were giving a financial headache to the economy as most of them were underperforming and making huge loses year by year.
“It is imperative to privatise state owned enterprises because most of them in many countries are underperforming,” he said.
“For instance in China, in 1978 state owned enterprises had a share of the GDP of 80 percent and by 2003 the sector’s contribution to the national fiscus fell to as low as 17 percent.
“In the eastern Europe and Central Asia, 22 countries increased private sector share of GDP from nine percent in 1994 to slightly above 50 percent in 2003.”
Mr. Lenneiye said loss making firms contribute to the fiscal burden, thus they need to be privatised especially in economies that are recovering, Zimbabwe for example.
He, however, said there were several challenges to be expected when a country undergoes privatization of parastatals as this has negatives in employment creation.
The country manager said usually parastatals employee more people than when it is a private entity.
He said private firms have a lot to desire, chief among them being value maximizing, market discipline, incentives and disclosure when state enterprises have weak or no markets, conflicting objectives, low disclosure and multiple agencies.
Mr. Lenneiye said government should check if privatizing a certain entity will significantly increase firm value rather than just privatise all firms including those that already are making profits.
“It is vital to check also whether or not privatizing an entity will significantly increase firm value and also consider financial and business line,” he said.
Mr. Lenneiye said Zimbabwe must make case by case approach as it is not always the case that the Parastatals will make profit after privatization.
“There is need to have a case by case approach as the needs and attractiveness of each parastatal differs.
“A sound regulatory framework is essential to attractive private sector participation through investment and improvement of services as well as building a public support.”
Meanwhile, the WB has urged the government to exercise the privatization move with caution as failure to deliver services by the private sector will end up in citizens rising against the government.