Thunder, lightning, family jewels, privatisation and globalisation
by George Mangion
The Prime Minister was recently quoted in Parliament as assuring the Chamber that privatisation was not a threat to civil servants as the government will not dismiss anyone.
He was reacting in Parliament to remarks by Labour MP Helena Dalli who wanted to know the fate of civil servants whose sections may be privatised.
Dr Fenech Adami stated that the government never said that the deficit could be solved by shedding 10,000 civil servants, although it would be good if 10,000 workers could do work which could be privatised.
The general process of internationalisation and economic integration of economies has made cross-border mergers and strategic alliances all the more important. By contrast, vigorous privatisation was undertaken in a number of OECD countries and others outside Europe such as South Africa.
The reactions from unions on the aftermath of privatisations differ from country to country. In early December 1995, the South African government announced that it was going to privatise many State assets. It planned to sell off part of SAA, Telkom and Airports Company, and all of Autonet, Sun Air and Transkei Airways.
This was met by opposition by the unions, spearheaded by the 1.6 million strong COSATU federation (Congress of South African Trade Unions). Mass actions were organised in the postal and public transport sectors. COSATU also called a general strike for 16 January 1996.
This strike was called off at the last minute when the government agreed to halt its privatisation plans and enter into negotiations with the unions over economic restructuring. (Excerpted from http://www.oecd.org/daf/
fin/netfmt.htm, financial market trends .
White Paper - future strategy
One welcomes the White Paper on privatisation by the Minister of Finance. A programme of the entire process of privatisation is planned to be executed over the coming five years.
This paper has been drafted in a very professional manner and is now issued for public discussion after consultation with a group of leading financial institution and major trade unions. In this respect, privatisation is important for two reasons.
First, it relieves the restraints of government budget financing, while privatised companies may be more free to target new business areas and to make new investments by tapping directly into the capital market. Secondly, private companies may be more willing to undertake joint ventures with an enterprise that is not State owned.
It is breath taking to read an official publication admitting four principal weaknesses of the public sector namely:
1) There is over manning;
2) Bad use of resources and considerable waste;
3) Control is weak and needs to be made more affective;
4) There is a dire need to overhaul management practices, which are outdated in order to achieve the desired optimisation of resources. Having reviewed the scope for this massive programme of privatisation one can proceed to contemplate how it can be achieved.
The White Paper goes into detail on all aspect of the marketing approach to realise maximum benefits towards the disposal of such assets reputedly referred to as jewels of the crown.
Jewels of the Crown
Governments all over the world are increasingly coming under budgetary strain. Malta is no exception to this rule. In this respect, the privatisation of State companies is attractive by removing the need to transfer resources to companies running deficits and/or by generating revenues from the sale of companies.
However, by selling off companies, the government gives up the future dividend stream from these assets, leaving the net effect on government wealth difficult to assess. Also, the White Paper points out that it is crucial that the proceeds from privatisation are not utilised to relieve pressure for taking measures against structural budget deficits.
The aims of the White Paper as given by the Ministry cover various topics such as:
a) Reaching for higher efficiency in public sector finances;
b) To improve services to the general public;
c) A higher efficiency in development of human resources within the public sector;
d) To introduce new capital markets for investment;
e) Better competition within a modernised public sector;
f) To redimension Government onto its central role thereby encouraging a culture of enterprise;
g) Attracting both private local and foreign investment enabling the transfer of technology through strategic alliances;
h) To consolidate public sector funds.
All the above topics are covered in depth in the White Paper and one finds a constant reminder that restructuring is a must. There is a direct reference to the fact that without any doubt, financial and human resources are not being used in the most efficient manner. This is found in myriad departments and public enterprises controlled by government.
Globalisation
An important emphasis is placed on the need for Malta to use its privatisation strategy within the global context. This appears to be the key towards promoting the island as a reputable financial centre where investment is safe and rewarding.
Economic reforms that have for the past years eluded many politicians have now to be tackled.
To assist the reader, the White Paper reproduces extracts from recent studies on the merits of privatisation conducted by World Bank in all countries from Middle East up to North Africa.
Some of the lessons learnt from other countries that successfully privatised national assets are reproduced hereunder:
a) There is a need for a good public relations exercise to be conducted aimed at informing the general public about the aims of privatisation;
b) Privatisation is only a means to an end. Linked with other merits associated with privatisation are the benefits of economic liberalisation;
c) No doubt, a well-structured privatisation plan needs to address both changes necessary in the labour market, in capital market apart from the regulatory aspect;
d) A well-paced programme of information exchange programme which appears to be transparent and fully accountable;
e) Finally the newly privatised companies should have philosophy of an open management structure.
What is to be privatised
The White Paper lists a number of parastatal companies and other government services, which may be included in the shopping basket.
These public companies (apart from the civil service) employ more than 11,000 workers representing an average 10 per cent of the working population.
Of these more than 80 per cent are engaged in general infrastructure sectors while the rest are services some of which are of an offshore nature.
All in all these entities have a high debt ratio of Lm531 million or Lm14,000 per employee. It is interesting to note that apart from the obvious parastatal companies, one observes that the following services within the public sector can be potential assets for sale.
Such services include: Mechanical and engineering works. Construction and Works (possibly the entire Public Works division?) General Maintenance (Road Works?, Widening of Valleys?) Public Cleaning (possibly Beach Cleaning, gardens and so on?) Catering (say schools, hospitals, university etc..?) Lotteries (say a revamping of gaming industry on international scale?) Collection of Taxes (new initiatives for private companies to collect arrears and so on? )
The obvious choices are: Strategic sale to world class investors, through direct negotiations. Public offers through Stock Exchange both local and foreign.
Employees participation in share ownership plans. Issue of privatisation bonds which entitles the owner to convert bonds into either shares in privatised companies, carrying a competitive coupon rate or an option to encash the bonds.
The first jewels to be paraded for auction include, Malta International Airport; Freeport Terminal; Public lotteries; Libyan Arab Holding Company and the golden share in Bank of Valletta Plc.
Success rate in other countries
Let us now consider the background and experiences including some pitfalls on privatisation as experienced by other countries. Commentators have different views on the success rate arising from recent privatisation schemes in the OECD countries as compared with particular experiences recorded in Estonia.
Privatisation offerings by OECD countries amounted $48.5 billion in 1995, as compared with $56 billion in 1994. In the OECD area, the largest amounts raised in 1995 were in Australia ($9.4 billion), Italy ($8.7 billion), and France ($5.7 billion).
Developments varied significantly across the area, with some member countries experiencing a marked set-back to their initial privatisation programmes while privatisation activity picked up in other countries.
In particular, the sale of government companies in some European countries proved to be difficult and privatisation fell short of expectation, with the aggregate volume of privatisations in Europe posting a decline from some $47 billion in 1994 to $34.5 billion in 1995, no. 64, June 1996.)
By contrast during four years of its existence the Estonian Privatisation Agency (EPA) has successfully earned the State by privatisation contracts more than 8.9 billion kroons worth of income of which 3.8 billion kroons are from the sale of companies and assets, 1.9 billion kroons from obligations taken over by purchasers and 3.2 billion as investment commitments.
This is good news to an emerging and budding EU applicant such that during four years the EPA has concluded 465 purchase agreements through tender with preliminary negotiations.
In 1315 cases the property rights have been transferred through auctions. During public offerings of shares more than 1.6 billion privatisation securities, kroons (voucher kroons) have been used.
Conclusion
The trend of rolling back state ownership in the economy follows a long period in the post-war years, when the governments particularly of socialist credos expanded their role in the economy through public ownership and control.
A reversal of this trend through a general process of sustained privatisation and integration of economies has facilitated cross-border mergers and strategic alliances.
The White Paper also comments that it is in the public interest that all trappings of exclus ivity enjoyed by some will be lifted. Let us hope that this mammoth task finds the cooperation of all the social partners so that finally we can have a sustainable and innovative public sector in the new millennium.
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