Benefits of Privatizing State Enterprises


In the days of Ghana’s military regimes, we heard about nationalization of private enterprises, companies, institutions and other analogous organizations. Nationalization of private organizations was simply that, the government forcibly takes over the ownership of a private organization from its private owner for the state, with or without paying any compensation. If the state gets the ownership of any business on a continual term, that business is called SOE. As earlier indicated, an SOE can be either formed by the government or the government may take the ownership and custody of any private business. Such a business is therefore controlled and operated by the government through its appointed CEOs. Typical examples of private organizations that these past governments nationalized include Tata Brewery (now part of Guinness Ghana Breweries Ltd.), Institute of Professional Studies (now University of Professional Studies, Accra), Swedru School of Business and others. Nationalization of private organizations was a notable topic in a subject called “Commerce” in then WAEC’s GCE Ordinary Level Examinations. In the post-colonial era, successive governments have run numerous SOEs in Ghana till date. There have been a series of debate on whether the state should continue operating or privatizing these SOEs. In the eyes of some socialists, there are convincing economic grounds that discourage privatization of the SOEs:


1) Danger of employment loss. The socialists in Ghana use danger of employment loss to defend the existence of SOEs. Employment loss seems to be a point-blank argument against privatization as far as present employment scenario is concerned. Almost every CEO appointed to any of the SOEs assume office with a bunch of new employees, whether there are vacancies or no vacancies. The worse of it all, in certain perspectives this bunch of new employees would be the CEOs cronies and party functionaries. However, the private sector recruits to fill in existing and needful vacancies. In the name of efficiency and more profits, private entrepreneurs have adopted “hire and fire” policy of employment as well as labour-saving technologies. Further, private entrepreneurs maximize the working hours of labour, extend working hours, increase work load and use judicious ways of sabotaging the power of workers to negotiate with the employees. With all these manipulations in the private sector, a quiet number of them pay their workers fantastic salaries and wages, as compared to the SOEs. The SOEs have undergone several structural adjustment programmes but still, they are struggling to find their feet.


2) The socialists again argue that without SOEs infrastructures may not grow in abundance. They emphasised that economic growth crucially depends on the growth of infrastructure. Infrastructures both economic and social and economic growth are positively linked to each other. Since infrastructure investments are lumpy in character, private capital shies away from such investments and thrives on state-support infrastructures. Therefore, any greater move towards privatisation could result in the country’s slow and haphazard growth of infrastructural facilities.


3) Peripheral social responsibility. Another argument being advanced by these socialists to support the existence of SOEs is peripheral social responsibility. The private sector is completely guided by profit motive and only a few undertakes corporate social responsibility, compared to the SOEs. Over a period, the Ghana National Petroleum Corporation (GNPC) has sponsored the Blackstars, the national football team of Ghana. There are a host of other SOEs which perform creditably when it comes to corporate social responsibility. Social responsibility or welfare objective of business is mostly sidelined by private entrepreneurs, however, private businesses like MTN, Vodafone and Ghacem equally perform well in corporate social responsibility.


The SOEs do not follow flexibility for their effective business operations. Some were created by archaic laws and are unable to change their business strategies to match current changing situations. Their activities and fields of operations are limited by the laws which established them. In spite of these legal constraints, top managers of these SOEs engage in nepotism, favouritism and rampant corruption. They do not appoint efficient people as employees. They just use every means possible to employ their own people, without regard to their competences and experiences. As a result, inefficiency increases and cannot survive in the competitive business world.


Political intervention is found in the daily activities of these SOEs. They operate in the bossom of Ministers and the political personalities who hardly understand the problems of management of industries. They therefore end up making decisions on political lines rather than technical or economic grounds. All these create tax burden on the Ghanaian citizenry. It transfers the burden of the losses over the general public’s heads by imposed taxes and levies.


Neo-liberal economic theories recommend privatisation of SOEs as it aims at increasing efficiency, output and profitability as compared to the situation of SOEs. In the year 2017, the SOEs in Ghana recorded a net loss of Ghc1.29b, as revealed by the State Ownership Report. This report was launched in Accra and it went further to say that the losses were a reduction over similar losses recorded in year 2016. According to the report, the bane of Ghana’s SOEs is their chronic inability to contain costs and operate efficiently. “This is of concern, given that inflation and interest rates have been on a downward trajectory,” the Senior Minister, Mr. Yaw Osafo-Maafo, said when he launched the State Ownership Report at the second annual SOE Policy and Governance Forum in Accra, in year 2018.


Government officials who are often appointed to manage SOEs generally have a shortage of business knowledge. A lot of them do not have the required business skills and efficiency. In conducting all the activities of these SOEs, the CEOs normally take some decisions about their activities which ought to follow the government’s policies with full formalities. The danger here is that, the government’s policies might be political without any bearing with the profitability of these SOEs. Because of all these inefficiencies in the management of SOEs, they have become unprofitable.


The arguments for privatisation are based on the economic grounds and poor performance of these SOEs. Let’s consider some economic arguments in favour of privatisation of SOEs in Ghana:


1) Dismal performances of the SOEs. One of the strongest arguments in favour of privatization of SOEs being aired by the Ghanaian citizenry is the dismal performance of these SOEs. These SOEs are over-controlled and over-regulated causing inefficiency to grow upwards. Further, accountability of these enterprises is minimal, and no one is held responsible for the ineffective functioning of these enterprises. Political interference also has a telling effect on the performance of the SOEs. Most of these SOEs operate with CEOs having less or no expertise on the affairs of the organization’s activities. In fact, decision-making is a long process requiring specific efficiencies for it to be effectively implemented. Managerial inefficiency is one of the greatest banes of these SOEs. As a result of all these, SOEs chronically suffer from losses leading to a drain on state resources. Some of the times, most of the public sector undertakings are unable to generate enough revenues to overcome its numerous expenditures, despite their potentials. The government grants such SOEs bail by giving them subsidies and grants. Instead of them operating efficiently to generate fantastic revenues, they have become economic white elephants, monumental wastes and liabilities for taxpayers. Against such a backdrop, it is argued by some people that high-cost uncompetitive SOEs in Ghana would not be able to compete with the globalized world. Under the circumstances, privatization is the best answer to the ills of SOEs. If the private sector is allowed to grow and function in a liberalised economy, the benefits of efficiency in terms of resource allocation could be maximized.


2) Accountability of the private sector raises efficiency. Privatisation of SOEs will usher in an improvement in efficiency and as improved performance is concerned with profit oriented decision-making strategy, accountability is strictly ensured in private sector enterprises and some people are held responsible for any failure. Accountability and responsibility will tone up the efficiency and greater output of the private sector.


3) LPG mantra against competitive behaviour. The current buzzwords are liberalization, privatization and globalization. The acronym of these three words is LPG. To move in tune with the global situation, privatisation seems to be the better answer. Hitherto, Ghanaian entrepreneurs perform creditably well in a non-sheltered market, compared to the SOEs. The private enterprises most often than not outcompete the SOEs. The only hitch deterring the private enterprises from rapid expansion is that they remain uninsulated from any kind of external competition. Yet, these private enterprises compete with certain foreign imported products, by using total quality management to outcompete these below standard foreign products. In Ghana’s construction industry, the developers prefer the locally produced tropical and cable metal electrical wires to the imported foreign cables. Privatization promotes private sector culture by introducing competition with their foreign counterparts and hence generate greater output and improved efficiency. All these triggers a chain of favourable movements in many direct and indirect directions.


4) There is absolute absence of governmental interference when it comes to the running of private sector enterprises. SOEs are subject to too much governmental and political interference thereby making them operationally inefficient. A story is told that, whenever the Board of Directors of any SOE is being constituted some of the ruling party functionaries will nominate certain personalities to the presidency for consideration. Then the ensuing question from the presidency is that, “ls he one of us”? This means that the nominee’s competence and expertise may not be considered but rather his political affiliation and loyalty to the party. I have said it time and again that, when it comes to the constitution of every board, it is vital to include a Chartered Accountant, a Lawyer and the industry’s expert, before adding other personalities. With ardent government interference in the affairs of SOEs, the initiatives of those in control are killed meaninglessly. However, the private sector is free from such unavoidable interference.


The Minister of Finance, Ken Ofori-Atta in his 2017 Budget said this: “The Ministry of Finance has initiated the creation of a Single Entity for the management of the assets and liabilities of SOEs and collaborated with the SOEs to implement a number of measures to improve their performance”. Meanwhile, we have the State Enterprises Commission (SEC) that oversees and controls the SOEs. In fact, the SEC is really ineffective in performing its mandate because all CEOs of the SOEs were appointed by the presidency and perhaps the Ministers of the affiliated ministries under which the SOEs fall. Some CEOs despise all directives from the Executive Chairman of SEC and the situation worsens in circumstances where the CEO was nominated or appointed by the presidency. One time, l questioned a high ranking official of SEC that in the government machinery, where does the SEC fall? No substantive answer was given me. He just argued with his colleague in their office premises. Whereas one was telling me, they are under the Office of the President, the other was saying they are under the Ministry of Finance. All these presuppose that the SEC is also not fully supervised. When fully supervised, the workers of SEC would not have argued about their reporting office.


Despite the avowed goals of privatization and its undeniable economic development, there are certain personalities who kick against privatization of SOEs in Ghana. However, we can conclude that there are numerous demerits in SOEs and that is why they continuously record huge losses almost everywhere in the world. It stands to reason therefore that it is appropriate for the government to divest its interests in all SOEs in Ghana, to enable privatization steer real economic growth. I attended a colloquium which was organized by the National Petroleum Authority (NPA) and Mr. Yaw Osafo-Maafo was the guest speaker. In his speech delivery he touched on a certain economical wisdom to my liking. He emphasized that the government is a shareholder of all private businesses in Ghana, meaning that the government taxes all the profits of these businesses to raise more revenue for its development projects. Therefore, it continues to be sensical for the government to privatize all the SOEs to ensure efficiency and make more profits in order to pay more taxes to the government. Whereas the SOEs record huge losses and pay nil corporate taxes, diversified SOEs could make a lot of profits and pay more corporate taxes to the government. In addition, it is a proven fact that some of the SOEs have defaulted for years, the payment of import duties, meanwhile this practice is uncommon with the private enterprises. All these point to the fact that, to ensure sound economic growth, all SOEs should be privatized.


www.TheHawkGhana.Com/Julius Opuni Asamoah (BSc MBA CA)/2019


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