Privatization of State Owned Enterprises (SOEs) has often been recommended by multilateral lenders such as the International Monetary Fund (IMF) and World Bank as a strategy of fiscal enhancement. In the medium term, it is a way of raising capital while reducing huge subsidies and bailouts to loss-making SOEs that weigh on the government budget.
Privatization in any field typically aims at enhancing economic efficiency by improving a company’s performance, and cease or reducing the need for government economic intervention.
Globally, one of the notable privatization of State Owned Enterprises (SOEs) was British Airways in 1987 when it was listed on the London Stock Exchange.
In Kenya, SOEs have been touted as major contributors to the nation’s expenditure and public debt, given that whenever these companies borrow, the state guarantees the debt.
As at the end of FY’2021/22, publicly guaranteed debt by SOEs stood at Ksh.145.4 billion, a 7.5 percent decline from Ksh.157.2 billion in FY’2020/21.
President William Ruto’s government targets to reduce government expenditure by Ksh.300 billion and the current stock of debt guaranteed for SOEs stands at 48.4 percent of the austerity target.
As a result, privatization of SOEs has been earmarked as a fiscal enhancement strategy. It has been one of the conditions set by multilateral lenders such as the International Monetary Fund (IMF) to access concessional borrowing facilities.
Kenya’s privatization process has been exceedingly slow over the years, despite the previous regime earmarking 26 parastatal to be privatized in 2016, none was achieved. However, the new Kenya Kwanza regime has been keen on fast-tracking the process as part of its fiscal consolidation measures.
In October 2022, the new administration announced plans to privatize 6 to 10 of State Owned Enterprises (SOEs) in the agricultural, energy and financial sectors, within 12 months. As a result, a new Privatization Bill 2023 was introduced, and if approved by the parliament, it will replace the Privatization Act 2005. The bill is set to address the long ambiguous process of privatization stipulated in the privatization act 2005 by eliminating the multi-level approvals.
Some entities lined up for state divesture by the Privatization Commission includes; the Kenya Pipeline Company, the Kenya Ports Authority, the Consolidated Bank, the Development Bank of Kenya and the Kenya Tourist Development Corporation among others.
As such, the initiative is expected to revitalize capital markets and spur new listing at the Nairobi bourse.
Privatization Bill 2023
Recently, the Kenya Cabinet approved the Privatization bill 2023 which is set to replace the Privatization Act 2005 if approved by the parliament.
The new bill is set to address the inhibiting legislative and regulatory framework provided in the privatization Act 2005 that led to long processes of approval of SOEs for privatization. Other key objectives of the bill include;
i. Encourage more participation of the private sector in the economy by shifting the production and delivery of products and services from the public sector to the private sector. Furthermore, broadening the base of ownership in the Kenyan economy by encouraging private ownership of entities,
ii. Improve the infrastructure and the delivery of public services through the involvement of private capital and expertise,
iii. Generate additional revenue for the government through proceeds from privatizations and reduce the demand for government resources by non-strategic SOEs,
iv. Improve the regulation of the economy by reducing conflicts between the public sector’s regulatory functions and commercial functions, and,
v. Improve the efficiency of the Kenyan economy by making it more responsive to market forces and enhance development of the capital markets in Kenya.