Privatisation : a survey of literature.
Nogwanya, Bathandwa N. P.
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The Government of National Unity (GNU) came into power in 1994 and was immediately confronted with severe problems. In particular, the government was faced with the problems of high rate of unemployment, low economic growth, high rate of inflation, and high fiscal deficits. As part of the measures to address the fiscal deficits problem, the government has approved a process of privatisation and restructuring the state assets. To this end, sector specific task teams have been established and given the mandate to develop major options for the privatisation and restructuring process. There are some issues of concern in the planning of privatisation and restructuring process. The major issues of concern include, the identification of enterprises to be privatised and when and how to privatise public enterprises. Further, privatisation transactions, like any other sale, require a buyer and a seller. Here, the process raises three fundamental questions: (a) should the state-owned enterprise be sold? If yes, should it be disposed of in its entirety or sold off in segments ?; (b) to whom should state assets be sold?; and (c) at what price should the assets be sold? There is also a distributional problem which often results from the pricing of asset being privatised. Discounts on the market and underpricing of asset often result in the transfer of wealth to the new owners from the wider public and tax payers. The process can also affect consumers through changes in both the level and structure of prices of the newly privatised enterprises. It can also be costly to employees of the enterprises being privatised if there are layoffs by the new. owners unless they are offered severance packages. That is why privatisation is, sometimes, open to opposition by unions and public in general. This study reviews literature on privatisation with the aim to bring about the issues, processes, and problems involved in the process. In doing this, the study examines the privatisation experiences of some developed and developing countries with a view to providing some lessons that South Africa could learn from these experiences. The review suggests that South Africa can reduce its stock of debt and finance its expenditure by utilising proceeds from the sale of some of the state assets. In addition, the efficiency ofthe state enterprises can be enhanced ifthe ownership of some of them is transferred to the private sector. Privatisation of state assets, however, comes with costs. The critical concerns regarding the implementation ofthe process are; the openness of the process to political opposition for fear of economic concentration of wealth to rich individuals and public sector unions opposition for fear ofjob losses oftheir members; the setting and determining the market price of the public enterprise in advance of sale. In some cases the tenders fail to reach the reserved price whereas in others the offers are oversubscribed. In the former case, the risk is perceived to be greater that in the latter. Although public offering may be a preferred method, in an economy with underdeveloped financial markets, flotation of shares to the public may not be feasible. Despite these likely problems, privatisation can bring productive gains if it is well planned and managed.