Privatisation in Africa: promoting local enterprise?

Privatisation is all the rage in Africa as state enterprises are wound up across the continent. Has privatisation eroded national control of African economies, as critics feared? Or could it provide opportunities for indigenisation – a measure aimed at increasing the ownership and control of assets by local enterprises and individuals? Might it even manage to achieve the development goals that eluded state enterprises?

A paper by the University of Huddersfield uses evidence from the Zambian privatisation programme to detail the range of measures that can be used to promote indigenous ownership in the context of privatisation.

Early doubts that African governments would abandon privatisation commitments have receded. By the end of the 1990s, the total value of privatisation transactions was some US $8 billion. Only in 10 of the 53 African countries did the World Bank record no privatisation activity.

To judge whether various forms of privatisation can address indigenisation, the paper distinguishes between facilitative, prescriptive and empowering measures. It is facilitative to unbundle a single large company into a number of smaller enterprises. Prescriptive measures may involve governments giving employees or other specified stakeholders a first purchase option. Empowering privatisation could involve boosting the financial capacity of indigenous investors through deferring payments by installments. In practice, these various forms have often been combined.

In Zambia, most large enterprises have now been privatised. Legislation establishing the independence of the Zambian Privatisation Agency (ZPA) has been regarded by some as a model for the rest of Africa. The ZPA was given authority to unbundle larger companies into constituent units before sale, provide preferential treatment for Zambians and encourage payment by installment.

Hard data on who has bought into ex-state enterprises and who continues to own them is hard to gather but it appears that the privatisation programme has:

• kept intact most enterprises as going concerns and promoted indigenisation – 70 per cent of sales have been to Zambian citizens
• been less successful as far as large companies are concerned: they are now mostly in foreign hands
• notably failed to offer the public the chance to obtain a majority shareholding in any large enterprise
• come up against problems when privately selling the majority of a controlling interest to existing shareholders: share offers have been undersubscribed
• set the minimum number of shares for which application could be made at too high a level for many Zambians to participate
• only succeeded in unbundling those state companies that were already horizontally diversified into such sectors as hotelling, farming and trading.

Potential for participation is limited by the high levels of poverty in Zambia. While a range of facilitative methods have been pursued, there has been inadequate support to enable a greater participation of indigenous investors. The scaling down of the activities of state-owned banks has left the financial sector incapable of meeting the needs of local business.

Relevant policy recommendations for Zambia and elsewhere in Africa include:

• embracing opportunities for indigenisation by a combination of facilitative, prescriptive and empowering measures
• recognising that indigenisation does not end with the completion of the privatisation process: the post-­privatisation environment must be regulated
• tackling the continent-wide problem of privileging senior political figures and their families in privatisation schemes.

Source(s):
‘Privatisation and indigenous ownership: evidence from Africa’, Annals of Public and Cooperative Economics 73(4), pp 559-76, by John Craig, 2002
‘Privatisation and indigenous ownership: evidence from Africa’, Centre on Regulation and Competition, Institute for Development Policy and Management, University of Manchester, Working Paper Series, No 13, by John Craig, January 2002 Full document.

Funded by: University of Huddersfield

id21 Research Highlight: 16 May 2003

Further Information:
John Craig
Department of Politics
University of Huddersfield
Queensgate
Huddersfield HD1 3DH
UK

Tel: +44 (0)1484 472290
Fax: +44 (0)1484 472655
Contact the contributor: j.craig@hud.ac.uk

University of Huddersfield, UK

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'The World Bank and privatisation: a flawed development tool?'

'Water privatisation in Africa: how successful is it?'

'Privatisation in Egypt and Tunisia: liberal outcomes and/or liberal policies?' from GDNet

'The social impact of privatisation and the regulation of utilities in Peru' from WIDER

'Privatisation in developing countries: an engine of growth?'

'Agricultural innovation: best left to the private sector?'