NURUL SYAZRINA BT ABD RAHMAN

A133675

TASK 3

PRIVATISATION

Problem:

Kajang Municipality intends to redevelop the stadium into an Innovative Research Park. The park

is intended to take advantage of a number of universities and research centres in Kajang area to turn

the municipality into centre for innovative, high value added industries. However the

administration is in no position to fund the proposed project. You are required to propose a viable

solution to ensure the success of the project. Explain the responsibility of all parties involved in the

project, project component, the benefit of your proposal and the problem that might occur in the

future.

Solution:

This problem can be solved by privatization this project. Privatization involves the transfer of

activities and functions that traditionally rested with government to the private sector.

Privatization has generally led to reduced costs, higher-quality services, and increased

innovation. Privatization also played an important role in accelerating economic growth

through greater investments which led to corporate expansion. Privatisation is a good way to

develop the research project because it is can generate very fast development, leads to lower

prices and greater supply.

In formulating its privatization policy, the government aimed to achive the following

objectives:

i. To relieve the financial and administrative burden of government

ii. To improve efficiency and increase productivity

iii. To facilitate economic growth

iv. To reduce the size and presence of the public sector in the economy

v. To assit in meeting the national development policy targets

The main methods of privatisaton:

1. Asset sale

Governments sell or ‘cash-out’ assets which could include infrastructural equipment, land

or other capital goods- to private companies in order to recoup a windfall gain and further

expand their tax base resulting in increased revenues. This is particularly effective when

the government owns land that is in high demand or if it owns infrastructure such as

heavy machinery previously used to provide services now being contracted.

2. Vouchers

Vouchers are issued to individual public service recipients and used by those individuals

to procure the services for which they qualify. Voucher privatization distributing

ownership to all for free or at lower cost.

Potential benefits of privatization:

1. Improved efficiency

The privates companies have a profit incentive to cut costs and be more efficient. In the

government run industry , managers do not usually share in any profits. However, a

private firm is interested in making profit and so it is more likely to cut costs and be

efficient.

2. Lack of political interference

It is argued governments make poor economic managers. They are motivated by political

pressures rather than sound economic and business sense. For example a state enterprise

may employ surplus workers which is inefficient. The government may be reluctant to get

rid of the workers because of the negative publicity involved in job losses. Therefore,

state owned enterprises often employ too many workers increasing inefficiency.

3. Shareholders

It is argued that a private firm has pressure from shareholders to perform efficiently. If the

firm is inefficient then the firm could be subject to a takeover. A state owned firm doesn’t

have this pressure and so it is easier for them to be inefficient.

4. Increased competition

Often privatisation of state owned monopolies occurs alongside deregulation for example

the policies to allow more firms to enter the industry and increase the competitiveness of

the market. It is this increase in competition that can be the greatest spur to improvements

in efficiency. For example, there is now more competition in telecoms and distribution of

gas and electricity. However, privatisation doesn’t necessarily increase competition, it

depends on the nature of the market.