THE FOLLOWING IS AN EXTRACT OF A RESEARCH PAPER TITLED: Privatization of Public Enterprises in Zambia: An Evaluation of the Policies, Procedures and Experiences

by

Caleb M. Fundanga and Andrew Mwaba

African Development Bank

Mode of Privatization

Although this paper does not evaluate in detail the firm level performance of the privatized companies, it is worth making a couple of observations on the outcome of the process in terms of the modes of privatization employed.

We indicated earlier the menu of options that the privatization agency has employed to privatize the public corporations, the main ones being: acquisition by use of pre-emptive rights; private sale via negotiated and competitive bids; public offering of shares; dilution of government shares and management and employee buy outs. Experience has shown that the most successful privatisations have been those involving private sales via competitive bidding and acquisition by use of preemptive rights. Companies that have been privatized in this manner have attracted considerable interest from local as well as international investors and have gained substantially from the infusion of new resources in terms of capital and management.

As acknowledged by Chilipamushi (1994), private sale through competitive and negotiated bids has been used successfully, especially in cases where the bidding firm buys whole or part of the state enterprise being sold.

On the other hand, companies that were privatized by management buy outs have not performed as well and most of them have not withstood the test of time. Privatization by Management buyout has involved close to 20 firms in Zambia.

Firms privatized by management buyouts have not been as successful as their privately sold counterparts for a variety of reasons. Firstly, this procedure rarely involves the inflow of new capital into the operations of the firms. The “buyers” rarely have any funds to inject into the operation or make payments to the government for the assets. They instead negotiate terms with the privatization agency under which nearly the entire payment for the acquisition of the firm is deferred to some future date into the next century.

Secondly, the employee/ management buy out does not result in the infusion of a “breath of fresh air” of new management and practices. The management continues to be trapped in the same parastatal culture that the privatization process is intended to steer the firm from. For mainly the two reasons advanced, the management buyout has not been very successful as a privatization tool.

The results have been that most of the firms privatized in this manner have collapsed. There are no winners out of such schemes as the government does not get revenue from the “sale”, and the collapse of the firm leads to all kinds of income and welfare losses for the workers and the entire economy.

Corporate Status of Investors

Another issue that is worth considering is the status of the investors in their own countries. The position of organizations such as the CDC is of particular interest. CDC is not a private company but a British government owned organization that has a mandate to make investments in many of the United Kingdoms former colonies.

Although a parastatal itself, CDC has also worked for the promotion of the private sector. Currently, CDC is behind many venture capital funds in Africa and has worked closely with the IFC in such endeavors. The role of CDC has often posed difficult questions.

Can a foreign state-owned enterprise be regarded to be better than a local state enterprise? Can we regard a company sold to a foreign parastatal as privatized?

These questions will assume even greater relevance for francophone countries given the large number of French parastatals that are likely to bid for companies under privatization in these countries.

The position of these parastatals some of which are slated for privatization in their own countries is much more interesting than CDCs, whose role could be much more justified as its function is mainly one of an investor as opposed to being an operator. With increased acquisitions in Zambia, CDC may increasingly assume a more operational role.


***The author Dr. Caleb Mailoni Fundanga was a negotiating chairman of a privatization committee pursuant to the ZPA Act (1996) and is a former Bank of Zambia Governor, President & Executive Director of Macroeconomic and Financial Management Institute for Eastern and Southern Africa – MEFMI, President at the Institute for Finance and Economics and has been Chairman of the Board of Directors at Standard Chartered Bank Zambia Plc since 1st October, 2017.

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