Could you provide us with some background information on the privatization commission, why it was established and what have been the most recent developments?
The program of privatization in this country is not a new phenomenon. Even under the previous regime, there had been a fair amount of divestiture that was aimed at ridding ADMARC (Agricultural Development Marketing Corporation) of some of the investments which they had acquired over the years. In the late 1980s, with the support of the World Bank and USAID, a program was put together to divest some investments owned by ADMARC, and therefore the only major change of this has been the development of a fully-fledged privatization program. ADMARC was responsible in the late 1980s for divesting the various enterprises which it owned, while today this responsibility is held by the Privatization Commission. The Commission is the sole body in this country responsible for the divestiture program, disposing of the interests in various public enterprises which are held directly by the government, along with other enterprises which are indirectly held through remaining investments and organizations like MDC (Malawi Development Corporation) or ADMARC. So we are now the ones who are responsible for the divestiture of those respective interests.
This new policy came about in 1994, following the change of government. As part of its manifesto, the UDF (United Democratic Front) had the wish to divest government ownership of public enterprises. The rationale was to rid the government of the onerous responsibility of managing public enterprises, understanding and accepting that the government did not have a competitive advantage in managing these various public enterprises. It is the private sector which has a competitive advantage, so the decision to divest various interests had four major objectives: the first was to increase efficiency, the second was to generate competition in the economy, the third was to enable Malawians to participate in the companies that were to be privatized, and the final goal was to raise revenues. Raising revenues has two advantages: the direct sale process that is obtained from various transactions, but also, with equal importance is the fact that the various public enterprises depend on the government and if they are privatized, the dependence syndrome will decrease, and the amounts of money put aside for these public enterprises can be put to use elsewhere, like the social sector for instance. Therefore, in terms of raising of revenues, privatization should not only be seen as a direct form of fund raising, but also in terms of resources saved because it will be no longer necessary to support certain public enterprises following privatization.
We have a policy which was developed in early 1995, basically articulating the objectives of privatization and providing the guiding principles of how privatization was going to be managed. Guiding principles included the fact that there was going to be no discrimination or preferential treatment for indigenous Malawians – we are going to allow everyone the opportunity to participate in the various privatizations. In order to achieve the objectives of economic empowerment, certain other mechanisms are going to be put in place, but it is not going to be achieved on the back of political or racial discrimination. There is a special fund, for instance, to enable Malawians to borrow money and use these funds to purchase stocks on the local stock exchange. Other measures were also adapted to give Malawians the opportunity to purchase some enterprises at a slight discount, but discrimination per se is not accepted in this country. The guiding principles are to be as fair and as transparent as possible, and in order to achieve this were are going to publish every transaction, unless of course there are pre-emption rights. If no legal rights exist which confer special rights to shareholders, we will be as transparent as possible by placing advertisements in local and international newspapers.
What have been the most progressive aspects of the privatization commission? What have you achieved so far, and is it in line with expectations?
It would depend with whom you speak, but I believe that expectations were too high in the past. There was a belief that privatization would be put in place and completed within a two or three year period. This was quite optimistic, and with hindsight it was just not possible.
| The core of the population actually believes that we are moving too fast. They feel that we should be moving a little slower in order to allow them the time to mobilize their resources and meaningfully participate in the program. Meanwhile, there is another school of thought, like the IMF, which does not think we are not moving fast enough. The rational interpretation of the two extremes is that we are moving at a good pace and striking middle ground on this issue.
Looking back to the concept of the speed at which we are disposing of public enterprises, it is important to understand that the privatization program cannot be implemented in a vacuum. We are trying to attract investors, who must take calculated risks and decide whether it is viable for them to come and invest here. They will have to take in account economic fundamentals like the rate of inflation, the rate and availability of exchange, interest rates and so on… these are all pertinent questions by a potential investor. When you have a situation like the current one, where interest rates are in the 50s, inflation is in the upper 30s, a question has to be asked: which investments still make economic sense? Something has to give, and often it is the price of sale which makes the difference. The danger about this is that if you practically give away these enterprises, there will be local opposition and we must try to maintain the reputation we have developed of being transparent and independent in various transactions.
In the region, Malawi has made some important strides in privatizing the local railway company, and certain countries like Mozambique have still not achieved this feat. We are also quite advanced in terms of privatization of the local telecommunications company, and in comparison Zambia has not yet started on this. Moreover, we have already established a new legal framework for the national power company, and we expect that in a year or so we will put together some prospectus to form the basis for invitations to tender. Once again, our neighbors in the region are not advanced as we are in the power sector. In terms of the total number of privatizations, we feel that it is the total percentage and quality of privatization which is important. In Malawi we have actually touched on numerous politically emotive enterprises, more so than our colleagues in the region.
Taking in account the important changes which are needed in the country, what do you think Malawi will look like in five years time?
With the ambitious program that we have, I believe that the foundations are in place, and we have established a strong framework to implement whatever is left to undertake. My mission in the next two years is to complete the power and communications sectors. After we have completed these, in addition to the railway company, I think we will have really completed the heart of the privatization program, and my objectives will have been achieved. There will still remain numerous shares in quite a few enterprises, but these will involve simple transactions which do not require major restructuring or innovations.
In five years time I hope that Malawi’s economy will mostly be transferred to private hands. Presently I do not believe that people in this country fully appreciate the impact of the work that we are doing – for them it is simply a question of how much money we generate, for me it goes beyond that. Even if we give away public enterprises for nothing, it is not a loss because the private sector will not simply expect money to come from heaven; they will do something with that public enterprise, invest new capital and inject new expertise. Because of these things a company which is dormant today should be able to generate profits in five years time. These profits will be for shareholders, and those profits will also translate into taxes for the Malawi government. With these new sources of income, we should be able to start addressing some of the social concerns of the majority of our people. An enterprise which is efficient should be able to employ people, instead of an enterprise which will die off. So these people will have families to feed, which spreads out wealth and also contributes to government taxes. Therefore, an efficient enterprise will positively contribute to the economic growth of the country, as opposed to the continuation of the status quo which depends on government subventions. |
MALAWI PRIVATIZATION COMMISSION