The privatization of government corporations is vital to the achievement of the big four agenda, as well as growing the private sector.
According to Nairobi based Economics think-tank ‘Kenya Business Guide‘, commercial state corporations take up to 6% of Kenya’s GDP through capital grants.
Often, such investments do not bear financial returns, leaving a hole in the budget which is filled by tax payers.
The increased fees inflate the cost of doing business, denying the private sector the incentives to invest in projects behind the Big Four Agenda.
In 2018, state corporations took as much as KSh 345 billion from the exchequer and brought in minimal returns from the investment. This amount increased from KSh 169 billion in FY 2013/2014.
In most cases, the capital grants often disappear through corruption, denying the economy of any significant gain. This unrequited financial cost adds salt to the festering wound of public debt.
What Happens If we Privatize State Corporations?
Privatization would provide a shot at better management, and increase the capacity of the government corporations to provide economic returns. Good governance will improve operations and increase efficiency in the companies.
Additionally, privatization will help reduce and eventually eliminate the need for capital grants, which are increasingly denting Kenya’s budget.
While privatisation is not a guarantee to end corruption, the private sector has a better track record at handling graft.
The government can opt to either fully privatize or give up majority control.
In the first instance, the state can pump resources from the sale to support the Big four agenda. In the second instance, the state can channel dividends earned toward development projects.
Privatization reduces the funds which the exchequer pumps to finance operations of state-run corporations.
Additionally, well-performing parastatals generate net economic gain through taxes and a conducive environment for business.
The foregone expenditure on capital grants provides room for incentives to the private sector. The incentives, either through tax or energy incentives, reduce the cost of doing business and therefore attract investors to invest in development projects.
A Path Trodden with Caution
[bctt tweet=” Some parastatals are pivotal to a sector. Therefore, legislators should approach policies around them with tact, weighing implications of privatization on employment, economic growth, and provision of services “]
This entails an understanding that while privatization would propel the performance of some parastatals, its application should follow a keen analysis on a case to case basis.
The bottom line is, Kenya needs to privatize some parastatals to cut the cost of operations, access better management for economic value, and improve tax revenues.
