ECONOMICS As LEVEL(FORM FIVE) NOTES – PRIVATISATION

PRIVATISATION.

It is the transfer of public sectors or enterprises to the private sectors. It is the selling of government-owned enterprises to the private sectors.

Parastatal Organization.

These are state-owned enterprises established by an act of parliament to offer vital services to the public. The capital to them is contributed by the government and it appoints the board of directors to run them on its behalf. Eg. TANESCO, DAWASCO, TRC and so on.

Forms of privatization

1. Share issue privatization
2. Assets sales privatization
3. Voucher privatization: distributing shares of ownership to all citizens (at a very low price)
4. Privatization from below: start-up of a new private business formerly socialist country

Other Forms of Privatization

1. This involves outright sale of all government shares to the private sectors eg. Kilimanjaro Hotel.
2. Partial Privatization

This involves the government selling some of the shares to some private sectors and it remains with some (joint venture) eg. N.B.C

3. This is when the government returns enterprises and properties to their rightful owners.
4. Contracting out

This is when provision of goods or services is transferred from the government to the private sector while ownership is retained by the government.

5. This involves renting out a state-owned enterprise to private individuals eg. toilets, the markets, bus parks etc.
6. Liberalization / deregulation.

This involves the government removing barriers to entry of private individuals in certain undertakings in order to increase competition.

Types of Public Enterprises.

1. Public Utility Parastatal: These are formed to provide vital services to people eg. DAWASCO, TANESCO
2. Marketing Parastatal: These are involved in marketing commodities especially agricultural commodities.
3. Development Co-operation: These are established by the government to spearhead some development projects eg. National Development Co-operation (NDC)
4. Financial Cooperation: These are established with an aim of mobilizing financial resources in the country eg. NIC, NSSF, TIB etc.
5. State Commercial Enterprises: These are established with an aim of making profits to the government eg. the former TBL

The role played by Parastatal Organization in Tanzania.

1. They have to fill the gap which is left out by the private sector in those ventures which are not attractive to them due to factors such as high capital, high risk etc e.g. airline services.
2. Parastatal organizations enhance and expand government control of the economy which makes economic planning easier.
3. They offer services which are very vital to society through which the returns are very less eg. DAWASCO
4. Public enterprises help in creation of employment opportunities to all kinds of labor.
5. Government participation in business also helps to reduce the exploitative behavior of private monopolies.
6. Some parastatals make profits which contribute to public revenue.
7. Parastatals like financial institutions provide direct financial assistance by providing loans required for development.

Problems facing Parastatals in Tanzania

1. Inadequate Finance: The government does not have enough capital to inject into these parastatals which affects their operation.
2. Bureaucratic decision making which results in delays in making decisions.
3. The conflicting objective of profitability and social benefits.
4. There is a lot of government intervention in the operation of a parastatal organization on political grounds which affects effective operation.
5. There is a lot of corruption and embezzlement, e.g. misappropriation of funds etc.
6. Inefficiency due to the monopoly power possessed.

Problems that have been experienced in the Privatization Process in Tanzania.

1. The privatization process has been faced by a lot of opposition from some groups of people especially politicians in the opposition plus some other local people. This has slowed down the privatization process.
2. Some of the parastatals were really in very poor condition and therefore have not attracted buyers which has resulted in a very big loss to the government as many assets in them e.g. machines have depreciated a lot.
3. Poor social and economic infrastructure: Social and economic infrastructures such as roads, railways and other communication networks are still in poor condition; this does not offer a conducive environment for the buyers.
4. Some of the buyers have acted unfaithfully and have failed to complete the payments for the enterprise bought.
5. There has also been lack of transparency on the side of the privatization unit which is believed to be corrupt and this has raised a lot of doubt about its credibility.
6. The market size in Tanzania is also still small due to poverty which has been a great worry to the potential buyers.

Advantages of Privatization.

a) It is one of the ways through which the government can raise revenue and hence reduces the need to borrow.

1. It reduces government financial burden through financial accommodation of inefficient parastatals in form of subsidies.
2. It helps to widen the tax base of the government as more firms engage in production.
3. It helps to reduce mismanagement and hence encourage accountability and promote efficiency.
4. It also increases the country’s chances of securing financial aid from international agencies such as IMF & WB who put such conditions.
5. It helps to create more employment opportunities.
6. It helps to increase production and also improve the quality of goods and services provided.
7. It helps to introduce modern technology in the economy.

What benefits has Tanzania experienced as a result of Privatization.

• There has been creation of employment opportunities (unskilled, semi and skilled labor) reducing unemployment.
• There has been improvement in social and economic infrastructure eg. roads, schools, hospitals etc.
• The tax base of the government has also increased investments which enables the government to raise more revenue.
• There has been increase in exploitation of idle resources in order to provide inputs to the started-up firms.
• There has also been improvement in technology as new techniques of production have been introduced.
• The financial burden to the government on financing non-performing enterprises has also reduced.
• It has also promoted entrepreneurship in the economy as the public now has more freedom to engage in economic activities.
• It has also created more competition in economic activities which has resulted in improvement in efficiency and quality of goods and services.

Arguments against Privatization in Tanzania.

1. It has resulted in capital and profit outflow as most of the enterprises are bought by foreigners.
2. It has also widened income inequality in the country since wealth is in the hands of the few rather than in the hands of the majority.
3. It has resulted in increase in social costs such as pollution, environmental degradation due to the profit motive under private ownership.
4. It has also resulted in decrease in government control over the economy as many economic activities are in the hands of the private sector.
5. It has contributed towards increase in unemployment due to adoption of capital-intensive techniques and inflow of foreign labor.
6. There has also been failure among the private sectors to run some of the enterprises that provide vital services e.g. TRC.
7. Privatization has also resulted in emergence of private monopolies which has resulted in provision of poor services and charging excessively high prices.

PRIVATIZATION IN TANZANIA

Privatization is a reform measure that was to make fundamental changes in the economy of Tanzania.

Such reform measures were supported by IMF and WB and have involved transfer of all or any of the three kinds of property rights from the state to the private sectors i.e ownership rights, operating rights, and development rights.

Between 1995 and 2004 a total of 219 parastatals were privatized among parastatals, economic efficiency, stimulate the private sector, mobilize both domestic and foreign investors etc.