PRIVATIZATION Lecture Five 1 Belaynew Ashagrie, HU College of Law, 2015.

Belaynew Ashagrie, HU College of Law, 2015

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PRIVATIZATION

Lecture Five


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Meaning and raison d'être of Privatization

Meaning of privatization:It is a process of transferring ownership of

business from public sector/government/ to the private sector/business.

Broadly speaking it is “privatization refers to transfer of government functions to the private sector including revenue collection and law enforcement.”


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What is being privatized?

It has no limits


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Why privatization?

It improves the use of public resources It improves operating efficiency It improves dynamic efficiency


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How to privatize?

Governments must create a conducive environment Governments must streamline the privatization

process Governments must prepare the enterprise for

privatization


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Arguments for and against Privatization

Proponents have the following arguments: Performance Corruption Accountability Goals Security


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Arguments

Opponents of privatization said: Performance Corruption Goals Capital Lack of market discipline Cuts in essential services Concentration of wealth Political influence Downsizing Profit


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Privatization in Ethiopia

Earlier in 1960’s there was a great belief that the government will engage actively in managerial, administrative and distributive functions.

However, this thought does not have an acceptance in the period after 1990’s due to various reasons.

In such period many governments across the world come to understand to reduce the engagement of the government in such activities.


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In addition, many international financial institutions such as he World Bank and IMF pushed countries to privatize government held companies to the private sector.

This measure is usually known as Structural Adjustment Policy (SAP).

Such institutions similarly had forced the Ethiopian government to privatize publicly owned enterprises.


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In 1991, in Ethiopia: There have been many public enterprises, Some of the enterprises were run in crisis, Some of the enterprises survived due to government

subsidy and others due to monopoly position, Arguments for and against privatization have arisen.


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Against privatization: said that government is not inherently inefficient and that

failures had to be attributed to institutional weaknesses in these public enterprises.

Failure of public enterprises did not necessarily mean privatization was the solution.


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The groups who are gainst privatization asserted that PE would be efficient if:

greater administrative autonomy is assured, they are put in harder budget constraints, the number of employees number is cut into appropriate

size, merit based recruitment and promotion of workers is set

in motion and enforced strictly, and flow of profits to the central treasury is required by law. However, this argument advocated for parallel

growth of the private sector.


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Argument for privatization: Said that reform does not help in achieving economic

efficiency; transfer of public enterprises to private hand would do.


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Proponents of privatization raise three things:1. PE performed very poorly not only in Ethiopia but

also in many East European countries;2. If PE can be managed like private enterprises there

is, then, no economic advantage for the government to retain them under its control. Some body else can do the job with equal and even better and greater efficiency.

3. Argument of parallel growth of private sector has ignored the following points:


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a. The country has very low infrastructureb. The purchasing capacity of the people is very low

due to the policy adopted by Derguec. Nationalization adopted by Dergue resulted in loss

of confidence of domestic and foreign investorsd. There was also a pressure from IMF


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Finally, the economic policy of the transitional government in 1991 favored continuation of certain state enterprises. See: The Preamble of Proclamation No 25/92 (second

paragraph) and The preamble of Privatization Proclamation No 146/98

(first paragraph)


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Reasons of privatization in Ethiopia

Art. 3 of the Proclamation1. To generate revenue required for financing

development activities undertaken by the Government;

2. To change the role and participation of the Government in the economy to enable it exert more effort on activities requiring its attention; and

3. To promote the country’s economic development through encouraging the expansion of the private sector.


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Privatization Laws

1. Ethiopian Privatization Agency Establishment Proclamation No. 87/94

It establishes the Ethiopian Privatization Agency

2. Establishment of the Board of Trustees for Privatized Public Enterprises Proclamation No 17/96

It establishes the Board of Trustee

3. Privatization of Public Enterprises Proclamation No. 146/98

4. Proclamation No 412/2004 It merged the Ethiopian Privatization Agency and the

Public Enterprises Supervising Authority


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Art. 2(1) of Privatization Proclamation 146/98 defines privatization as:“Transfer through sale, of an enterprise or its units or

asset or government share holdings in a share company to private ownership and includes: The making of an enterprise a government contribution to

a share company to be formed with the participation of private investors; and

The privatization of the management of an enterprise.”

PRIVATIZATION Lecture Five 1 Belaynew Ashagrie, HU College of Law, 2015.

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Transcript of PRIVATIZATION Lecture Five 1 Belaynew Ashagrie, HU College of Law, 2015.