PUBLIC LECTURE ON PRIVATISATION: ANSWERING FIVE BURNING QUESTIONS
By Alexander Nkosi (Development Economist)
1. WHAT IS THE TRUE VALUE OF ASSETS? ASSET VALUATION
A company has assets and liabilities. In most cases critics only focus on assets ignoring liabilities when discussing the value of a company. Valuation looks at both assets and liabilities to come up with the true value. These companies also come with hidden short and long term costs and other complex issues that most critics may not even be aware of. It is not enough to judge the deal based on perception of asset value without looking at all the fine details.
2. WHY ISN’T THE HIGHEST BIDDER ALWAYS THE BEST OPTION? THERE IS A DIFFERENCE BETWEEN BUSINESS AND DEVELOPMENT OBJECTIVES.
When Alexander Nkosi is selling a company his interest is purely to earn as much as possible from disposal and thereafter has no say or interest in the direction the company takes. The goal here is purely business and therefore the highest bidder gets the company. It is totally different with government where development objectives override business objectives. Government is not so much interested in just the revenue from the sale. Government wants to sell to a buyer with a very good and feasible growth strategy which will ensure job creation, better linkages with other sectors, increased forex earnings and increased government revenue through taxes. Hence government retains high interest in the asset, except instead of it being managed directly the burden is transferred to private hands so as to focus on tax collection. It therefore follows that the highest bidder does not always win. What happens to the comapny afterwards depends so much on how government supports and closely monitors it to ensure compliance.
3. WHAT IS THE ROLE OF A CONSULTANT?
When you are hired as a consultant to negotiate sale of national assets or valuation, you do not call the shots, you are only a consultant working within a very strict framework with a clear scope of work developed and monitored by government. You have clear deliverables and you are monitored to ensure compliance. Experts in government and multilateral advisors also monitor the quality of deliverables closely. You are only paid once government is satisfied with the deliverables after review by expert technocrats. In privatisation government calls the shots and has very qualified technocrats who carefully study the output from consultants.
Based on this rigorous process which is well documented and monitored, it is therefore assumed that final decisions made are done on merit and within the framework provided by government. Should people involved in this process buy companies at a latter stage? As long as it is not deemed illegal in the contracts signed between the consultant and government that is absolutely fine. We need to worry more about how assets are being managed afterwards and the level of local ownership. If locals invest better and expand those companies and make money, this should be celebrated because it is basically what we want; increased local ownership and growth.
4. HOW DO YOU ELIMINATE BIAS AND TAKE CARE OF ETHICAL ISSUES?
If my company was involved in providing consultancy during privatisation, I do not have to buy shares in one of the companies privatised for people to suspect bias. Bias can be there even without me buying shares at a latter stage. For instance, if there are no controls in place I can easily conive with my good friend Vikasi who is interested to bribe me and get favours. So in privatisation the work of consultants is closely monitored by experts in government, civil society and multilateral partners like African Development Bank, World Bank and IMF. These stakeholders have to be satisfied the consultant did an objective and thorough job with everything well documented. This eliminates bias and takes care of all ethical issues. This simply means that even if I decide to buy shares at a latter stage, ethical issues should not come up because they were eliminated at an earlier stage when internal and external experts demmed the valuation as thorough, rigorous and objective. It would actually be unfair to stop all individuals who worked for a firm that did valuation from buying shares in those assets in future.
To add context to this, Dr. Caleb Fundanga and Andrew Mwaba in their African Development Bank economic paper highlighted key stakeholders that played a role to ensure the process was of acceptable standard. UNDP provided the financing for technical work required to effect most of these legislative changes under the privatization and Industrial reform programs. The World Bank in provided assistance through the Privatization
and Industrial Reform Credit. A lot of support to the Zambia Privatization Agency also came through bilateral agencies, such as,
USAID, ODA, GTZ, NORAD, and DANIDA. This support was mainly in the form of provision of technical experts to assist ZPA in the technical evaluation of companies to be privatized, provision of equipment, such as, computers and the training of personnel. The ZPA also benefited from capacity building programs.
5. WHO SOLD THE COMPANIES?
To answer this question it is important to understand how the privatisation process was done. As clearly put by Dr. Caleb Fundanga and Andrew Mwaba in AfDB economic paper on the privatisation process, it followed the following steps:
(i) Tranching – approved by Cabinet;
(ii) Technical and financial evaluation of company to fix the price and recommend the mode of divestiture – done by Consultants;
(iii) ZPA decision on price and mode of divestiture;
(iv) Advertising and opening up of competitive bidding – by ZPA;
(v) Evaluation and short-listing of bidders – done by ZPA;
(vi) Negotiations – done by independent teams;
(vii) Signing of Heads of Agreement/Memorandum of sale by the Minister of Finance.
If we want local ownership, let us take keen interest in what is happening to the gold and other minerals at present. Both public and private ownership can work for a country as long as it has clear, stable, consistent and progressive policies which are strictly implemented.