Privatisation and technical efficiency: evidence from Malawi manufacturing

Privatisation and technical efficiency: evidence from Malawi manufacturing

Published Nov 2000

Author

E. Chirwa

Publisher

Focus regions

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Explaining privatisation in Malawi

Many developing countries, and African countries have followed the path of privatisation of the state-owned enterprises (Adam et al., 1992; Cook and Kirkpatrick, 1995; White and Bhatia,1998). Although the pull and push factors leading to privatisation differ across countries, in most African countries, privatisation of state-owned enterprises (SOEs) has been associated with World Bank and International Monetary Fund (IMF) sponsored structural adjustment programs (Adam, 1994; White and Bhatia, 1998).

In Malawi, the government has implemented privatisation programs within the framework of expenditure-switching and expenditure-reducing structural adjustment programs of the World Bank and IMF following the poor performance of state enterprises in the early 1980s (Adam et al., 1992; Adam, 1994). The restructuring process of the SOE sector in Malawi began with the parastatal reform programme. The parastatal reform programme was initiated in 1981 and mainly targeted directly owned state enterprises.

This study evaluates the impact of privatisation on the technical efficiency of six privatised enterprises, three state-owned enterprises and six private enterprises competing in three oligopolistic manufacturing industries in which privatisation took place between 1984 and 1991 using panel data between 1970 and 1997. The statistical analysis of variance shows that privatisation in Malawi is associated with high mean technical efficiency in privatised enterprises and competing state-owned enterprises and private enterprises. If we account for other sources of technical efficiency, in the full sample we find evidence that the competitive process is more important than privatisation in increasing the technical efficiency of all enterprises competing in the same industries. However, the results of the sub-sample of privatised enterprises show that privatisation significantly increases the technical efficiency of privatised enterprises, although we cannot ignore the role of domestic competition, capital intensity, multinationality and structural adjustment programs as sources of technical efficiency.

The study’s objective is to:

  • Evaluate the impact of privatisation on the technical competence of six privatised enterprises, three state-owned enterprises, and six private enterprises competing in three oligopolistic manufacturing industrie.
The results for the privatised state-owned enterprises support the hypothesis that privatisation increases technical efficiency. All the three measures of technical efficiency show that technical efficiency improved following their privatisation.




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