East Africa: Privatization plans for state owned enterprises

East African governments have recently intensified efforts to privatize inefficient and loss-making state-owned enterprises, aiming to relieve taxpayers of unnecessary burdens. However, the region faces various challenges in privatization, as discussed by Kwame Owino, CEO of the Institute of Economic Affairs. Privatization is a tough sell in East Africa due to a lack of trust in governments and a history of state control over enterprises. Governments often face resistance from individuals benefiting from board positions or procurement contracts with state-owned corporations. Additionally, complex privatization laws and the lack of incentives for privatizing successful firms impede the process. Privatization becomes a priority for governments only during financial crises or under external pressures. In Kenya alone, the government's exposure on distressed parastatals amounted to about 1.3 trillion Kenyan shillings in the 2021-2022 fiscal year. This financial strain not only affects Kenya but the entire region, impacting economic growth significantly. State-owned enterprises in sectors like agriculture and aviation absorb substantial resources, hindering overall economic progress. The national airline sector, including Kenya Airways, Air Tanzania, and Air Uganda, continuously operate at a loss, requiring significant government subsidies year after year. These airlines need substantial capital injections to sustain operations, leading to continuous reliance on public funding. Governments must make tough decisions to restructure or privatize national carriers to alleviate financial burdens on the public fiscals. Despite the challenging economic environment, privatization can offer deficit financing options for governments. However, inconsistent commitment to privatization in the region remains a significant obstacle. East African governments often prioritize privatization efforts when faced with considerable debt pressures but tend to neglect the process when financial constraints ease. There must be a clear distinction between commercial enterprises suited for private operation and those that require governmental oversight for efficient management. While the economic rationale for privatization in East Africa is evident, the political will and bureaucratic resistance hinder progress. In Kenya, recent amendments to laws granting the National Treasury powers to conduct privatization without parliamentary approval and plans to list state-owned enterprises on the Nairobi Securities Exchange within 12 months signal a shift towards privatization. However, the extent and success of these efforts remain uncertain due to bureaucratic processes and potential resistance. Implementing a comprehensive 10-year privatization plan with a set number of enterprises for privatization each year could provide a more sustainable approach. This long-term strategy would ensure that private investments are effectively integrated into state-owned enterprises, promoting economic efficiency and growth in the region.