Hurdles blocking privatisation of State enterprises

Tuesday, September 17th, 2019 00:00 |
Telkom. Photo/Courtesy


There can be no doubt that the privatisation programme in Kenya has had a major impact on the country’s economy.

In sectors such as telecommunications and transport, the impact has been wide-ranging, with major benefits for the economy.

However, the exercise continues to be dogged by myriad challenges, and devolution has become one of the biggest obstacles to progress, according to stakeholders.

A former Permanent Secretary in the Ministry of Transport and Communications, Prof Gerishon Ikiara, says that privatisation has generally done well for the economy. 

He notes that some dramatic results have been achieved in the telecommunication and banking sectors, with the former becoming a major driver of innovation, job creation and even impacted positively on the security sector by facilitating setting up of surveillance cameras in Kenya’s towns and highways.

Ikiara was the PS when the telecoms and railway sectors were being unbundled and privatised.

He observed that KCB Bank, formerly fully government-owned, has grown into a multinational, adding that all these developments would not have happened without privatisation.

Privatisation in Kenya started in early 1990s when the government formed the Parastatal Reform Programme Committee (PRPC) to reform the parastatal sector.

The government then classified parastatals as strategic, to be retained within the government but reformed to be commercially viable, and non-strategic, to be fully divested.

One of the biggest challenges that the initial implementation faced was lack of a law to give legal backing to the exercise. 

In 2008, the government enacted the Privatisation Act, through which the Privatisation Commission was borne. The Commission inherited the work of the PRPC, and is the agency that now runs privatisation.

Little progress

However, there has been little progress on privatisation since the establishment of the Commission, and in the last 10 years of its existence, it has only managed to privatise Kenya Wine Agencies Ltd (KWAL), a relatively minor transaction.

Chief Executive Officer of the Commission Joseph Koskey, attributes the delay to the promulgation of the new Constitution in 2010, shortly after the Commission was created, which brought into existence county governments.

“Implementation of the privatisation programme slowed down as functions of the two levels of government were unbundled,” he says. 

Koskey adds that the government also appointed a taskforce on the rationalisation of State-owned enterprises in 2014, and this necessitated the Commission to put its work programme on hold to avoid clashing or duplication with that of the former.

The first chairman of the Commission, Prof Peter Kimuyu, states that the way the privatisation law was crafted has been a major contributor to slowing down the denationalisation process.

“You have to get numerous approvals,” he says, adding that people end up changing their minds along the long-drawn-out processes. He feels disappointed that despite six years of hard work preparing major reforms, they were only able to privatise KWAL, which he terms a small thing.

Political will

Kimuyu notes that devolution has brought its own challenges to privatisation, adding that lack of political will is a big challenge. “Politicians are very difficult to convince about things,” he says.

Reversals in recent years of even seemingly highly successful divestitures have dampened the enthusiasm those transactions generated. Kenya Airways is now in financial doldrums while National Bank of Kenya has basically been taken over by KCB Bank Group to rescue it from collapse.

 Telkom Kenya, on the other hand has remained mired in controversies over how the government has carried out its divestiture.

Ikiara says the answers to these troubled privatised entities are not in reverting to government ownership.

He maintains that management under government ownership is generally difficult. 

He acknowledges, however, that the failure of such privatised entities such as KQ and Mumias Sugar discourage the common man, who comes to believe that privatisation is a way of stealing public assets.

What is the future of privatisation? Koskey is upbeat. Although not in a position to offer transactional timeframes, he states that most issues that held back the work of the Commission have been resolved, and implementation is back on track.

He refutes any suggestions that the government’s commitment to privatisation is waning.

He also denies that some parastatals targeted for privatisation had been removed from the list. Any such removal, he states, will have to be gazetted. The writer can be reached at [email protected]

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