Sale of State firms could net Sh110 billion
| Dec 05, 2023
The planned sale of State-owned entities could generate as much as Sh110 billion over the next four years, which the government expects will help in reducing the money it has to borrow to finance the budget.
The National Treasury last week listed 11 State corporations in which its plans to offload its shareholding to private sector players.
The targeted parastatals include the Kenya Pipeline Company, New KCC and the Kenyatta International Convention Centre (KICC).
They are among the 35 State firms that President William Ruto said are ready for privatisation.
The Parliamentary Budget Office (PBO) in a February report estimated that through the sale of the companies, the government could generate Sh30 billion annually over the medium term.
It noted that if well executed, privatisation of State corporations could become a source of revenue for the cash-strapped government while at the same time reducing costs and risks to the government.
The sale would also bring higher capital investment as the privatised enterprises seek fresh capital to improve profitability and enhance service delivery.
“The government could raise approximately Sh30 billion annually from the privatisation programme over the medium term. There are 248 State Corporations in Kenya, and it is estimated that the privatisation programme will primarily target commercial enterprises that account for 19 per cent of total State corporations,” said Parliament’s think tank in a recent report.
“While privatisation of non-commercial enterprises that account for 81 per cent could be undertaken on a case-by-case basis, depending on economic conditions, privatisation can raise between 0.5 percent and one percent of GDP.”
“For Kenya, depending on the privatisation methodology, targeted State-owned enterprises (SOEs) and response from private purchasers, the privatisation resources are estimated to range between Sh60 billion and Sh110 billion spread out over the medium.”
The 11 companies that the Treasury listed for sale last week include KPC, KICC, New KCC, Kenya Literature Bureau (KLB) and Kenya Seed Company, all which are profitable.
Others are National Oil Company (NOCK), Kenya Vehicle Manufacturers (KVM), Rivatex and Numerical Machining Complex (NMC), Mwea Rice Mills and Western Kenya Rice Mills, which it noted are loss making.
The sale of the firms is expected to enable the government to reduce its budget deficit. It currently has limited room to borrow with the public debt – which stood at Sh10.59 trillion in September – already subject to debate over its sustainability.
Kenya Revenue Authority has also been struggling to collect tax revenues, with the PBO (in a separate report) projecting that it might miss its target of Sh3.02 trillion for the current financial year by some Sh300 million. Deficit for the current financial year is estimated at Sh861.3 billion or 5.3 per cent of the gross domestic product (GDP).
The National Treasury revised the budget deficit in the first supplementary budget, having earlier been working with a deficit of Sh718.9 billion that was 4.4 per cent of GDP.
“Given the current constrained fiscal environment, privatisation may provide deficit financing for the government. It also has the potential to create savings by substituting government expenditure for private capital and unlocking the potential of SOEs to increase their efficiency and long-term productivity,” said the PBO.
The plans to privatise have been opposed by different stakeholders.
Busia Senator Okiya Omtatah noted that the planned sale of State entities was not in the interest of Kenyans and that the government had yielded to demands by international institutions, including the International Monetary Fund (IMF).
Azimio leader Raila Odinga also noted companies such as KPC and Nock were strategic and should not be put in private hands.
Farmers in North Rift also protested plans by the government to privatise State corporations including New KCC and Kenya Seed Company (KSC).
The farmers said New KCC and KSC are the most active agricultural agencies and privatising them could have a negative economic impact and hurt the country’s food security.
The farmers instead urged the government to support the process of reverting New KCC to dairy producers, saying they had invested heavily through a capital levy charged on their supplies over the years.
The government is banking on a recent change in the law to speed privatisation of the State-owned companies earmarked for sale.
The Privatisation Act, 2023, which came into force in October, gives the Treasury authority to sell off the entities without parliamentary approval.
The new law seeks to cut through a thicket of outdated regulations and give the government tighter control of its ambitious privatisation drive.
The new law, for instance, assigns the responsibility of formulating the privatisation programme to the Treasury Cabinet Secretary.
Thereafter, the privatisation programme shall be submitted to and approved by Cabinet. The role of the National Assembly shall be to ratify the programme. The government in 2008 came up with a plan to privatise 26 parastatals through the Privatisation Commission, but it has only managed to conclude a single deal involving Kenya Wine Agencies Ltd (KWAL) over the one-and-a-half decades.
The dismal performance has been attributed to, among other factors, a bureaucratic process in the existing legal framework.
The government had been looking at selling stakes in the SOEs to strategic investors as well as to the public through listing at NSE.
“The Privatisation Commission has been unable to successfully privatise any SOE since 2008, partly owing to operational challenges (lack of a board) and external challenges (legal and stakeholder resistance1),” said PBO.
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