Seven steps to successful privatisation

While privatisation of state assets has generated significant value and wealth and reshaped the economies in many developed countries, cases of successful privatisation in emerging African countries are still few and far between. It is often not due to a lack of will; but the process encounters numerous difficulties along the way. At a time when governments are fiscally constrained, privatisations can provide an avenue to free up capital and also create a competitive environment in which the private sector can compete and thrive.

However, first, one needs to understand why the privatisation process is complicated or rarely achieves the expected results, and what can be done to reverse this trend and achieve the impact seen elsewhere.

Having both observed and worked on privatisations, I can say that privatisations require a rigorous approach in which each step is crucial. I have broken these down into seven steps.

Select carefully

The starting point is the identification and relevant evaluation of the sectors and companies to be privatised. Whether for public services, infrastructure or natural resources, the selection must be based on an analysis of the state of these sectors, their respective current and potential profitability, the level of indebtedness and investment needs.

Once selected, the assets or services to be privatised will be subject to multidimensional due diligence (technical, financial, commercial, human resources), as well as the preparation of financial projections and determination of market value.

These financial projections, prepared with reasonable accuracy, will be challenged by potential investors and specialists in the sectors concerned.

Legal and regulatory framework

A framework that favours the transition of state-owned companies to the private sector is critical. This must include appropriate regulation of the post-privatisation sector to protect the interests of consumers and, increasingly, the environment. 

Involvement of stakeholders

Public consultations to gather the opinion of civil society, trade unions and non-governmental organisations are necessary prior to privatisation. They also make it possible to address fears related to privatisation, such as job losses or possible price increases for consumers. Taking environmental impact into account in privatisation objectives is now required under environmental, social, and governance, standards. These consultations will provide feedback to strengthen the process and regulatory framework as well as allaying fears.

Seek out expert advice

One of the objectives of privatisation is to stimulate economic efficiency in sectors that are very different from each other. Working with sector experts is important to avoid common mistakes and to ensure that privatisation achieves this. 

If necessary, collaboration can be established with foreign entities that have already carried out similar operations. There is a need to be pragmatic and adopt best practice where it exists while avoiding the pitfalls of failed or under-performing privatisations elsewhere.

Implementation strategies

The marketing process must be transparent and respect the competitive process. Local investors who meet the criteria should not be excluded from the process of selecting the successful bidder.

Taking a phased approach

A phased approach should be adopted, starting with the least sensitive sectors, capitalising on lessons and pitfalls to better approach privatisations in more complex sectors of activity. Conducting a privatisation programme is a dynamic process. Strategy adjustments to better address certain issues at the time are to be made throughout the project.

Monitoring and evaluation

Defining a set of key performance indicators to measure and evaluate the impact of the privatisation on the local economy is crucial. These may include the number of jobs created, the impact on the prices of goods and services, and the quality of services.

Evaluations need to be carried out regularly to analyse the economic and financial performance of privatised companies and make necessary adjustments if necessary. 

The publication of reports on the performance of privatised sectors will also help to bring transparency and comfort to the general public and civil society, thus promoting an inclusive approach.

The environmental and social impact, which will be evaluated alongside financial performance, should also be included in any evaluating criteria.