Why privatisation of State corporations won't benefit ordinary Kenyans

Operation Linda Jamii has gone to court to challenge the legality of the Privatisation Bill, 2023, that President William Ruto recently signed into law.

Of concern is the insatiable appetite for privatization shown by the Ruto administration from its first Cabinet meeting.

This coupled with the fact and the intention of removing the requirement for parliamentary approval of members of the Privatisation Authority, which was provided for in the repealed Privatisation Act 2005, among other envisaged illegalities.

The government's argument that this revised regulatory framework seeks to improve the efficiency and competitiveness of Kenya's productive resources leaves much to be desired.

Privatisation gained momentum in the 1980s. Prior to this, believing that through nationalisation they could offer quality and affordable services to their citizens, governments around the world had increased the scope and magnitude of state firms, taking on a variety of tasks that the private sector had performed previously.

But then in the 1980s there was a shift from public to private management. By 1990s this newfound faith in privatisation had spread to become a global economic phenomenon.

Whereas by the end of the 1980s sales of state enterprises worldwide had reached a total of over $185 billion - with no signs of a slowdown, in 1990 alone, the world's governments sold off $25 billion in state-owned enterprises - with continents vying to see who could claim the privatisation trophy.

This fever soon spread to developing countries through conditional loans and grants from the so-called developed countries and organisations they control such as the IMF. They jumped into the privatisation bandwagon sometimes as a matter of political and economic ideology and at other times simply to raise revenue.

Presently, the West keeps pushing the privatisation agenda down Kenya's throat. This is despite the fact that it has not worked as expected in the West. The question, therefore, is: how will privatisation benefit Kenyans? Will it not lead to Kenya suffering the same fate as the West has?

History has the habit of repeating itself, and facts are usually stubborn. When the 'Iron Lady', Margaret Thatcher, privatised public services in UK, she promised the British great things. Instead, 40 years later they started paying more for worse services.

Likewise, when public services are eventually privatised, Kenyans will pay more, both as a taxpayer and directly, for government services such as water, electricity, transport, education and healthcare. The quality of these services will also suffer, as it has done in other places, thanks to privatisation.

There are many reasons for this. First, public services provide us with the essentials of a dignified life, which is a human right and doesn't afford the government any luxury of choice. These services are 'natural monopolies' where competition doesn't really make sense. Privatisation, on the other hand, was introduced with the belief in free markets and consumer choice.

Paradoxically, it is implemented as a 'natural monopoly'. Anyone using SGR, for example, is condemned to use only one SGR. There is no choice; no consumer power; no real market. The closed-door contracts between private companies and governments are usually lacking transparency and public scrutiny.

Second, privatisation leads to wastage of public resources. Instead of using our taxes and bills to improve public services, they are paid to private shareholders in the form of dividends. Additionally, interest rates for companies are higher than they are for governments.

Third, with privatisation the drive to maximise profit comes into conflict with the need to spend time caring or spend money to meet people's needs. In the UK, a study by Oxford University found that outsourcing of NHS services has led to an extra 557 deaths.

Fourth, private companies cherry-pick the profitable bits of a service and leave the rest. For instance, bus companies will choose to run buses on profitable routes but ignore poor areas unless the government steps in with a subsidy.

Fifth, privatisation creates a complicated, fragmented, inefficient, and wasteful system where it is not always clear who is doing what. For example, in the energy sector, different companies are responsible for either generating, transmitting or regulating power.

Also, private companies have wrong incentives, which may not be solely aimed at tackling the problem. For example, companies running private prisons will get paid more money if more people are locked up. These mixed motivations may compromise the professional standards of the staff involved in making decisions.

- The writer comments on topical issues