Sale of parastatals a noble concept, but something stinks to high heaven

Plants outside KICC during the Ministerial Conference of the Africa Climate Summit on August 04, 2023. [Stafford Ondego, Standard]

In another time and space, this column today would have been dedicated to Christmas carols to sooth the body and soul off the travails of the year. However, the president’s engagement with the media last Sunday raised fundamental questions of national importance that demand we pause the merry making to pay homage to our civic obligations.

If I was to render an unsolicited opinion to the President and his handlers, my candid advice would be to desist their engagements with media unless they are clear on the agenda, the purpose and on facts. It is honestly embarrassing for a head of state to struggle before the nation on his administration’s achievements 15 months into office.

For the purpose of this article, I focus on the thorny issue of privatisation intents that stuck out during the interview. There have been many conspiracy theories since the amendment of the privatisation law that allowed the National Treasury to bypass Parliament and subsequent prioritisation of the plan to divest from 11 enterprises.

Unfortunately, whether intended or unintended, the president’s sentiments on the subject leave no doubt that the motive behind the current exercise are anything but public interest. The red flags were all over that this can only end in premium tears for the people of Kenya. It thus becomes a solemn duty for any responsible citizen to stand on guard for maximum transparency and accountability if this exercise must proceed in its current architecture.

Historical context

It must not be lost to the public that the ongoing events are reminiscent of a similar exercise from the 1970s, originated by the famous Ndegwa Commission Report of 1971. In its wisdom or lack of it, the Ndegwa Commission offered a blank cheque for public officers to engage in business to supplement their low pay at a time when the government was divesting from the economy in favour of private enterprises. Protection of public interest was left entirely to the purity of the conscience of participating public officers.

Five decades later, the disparities in wealth distribution and malpractices in the conduct of public affairs is evident to all of us. Only those in the feeding trough may deny this fact. The concentration and tight control of almost all sectors of the economy by an extreme minority of the populace is traceable to this accident in our history.

If we trailed a majority of the fabulously wealthy individuals in the economy today, they were either senior officials in government then or had tight links with powerful government officers or politicians of the time. It would be an extreme folly for our generation to miss out this seemingly insignificant coincidence to the current privatisation adventure.

Plunder economy  

Good students of our economic history understand that nothing is new in this country when it comes to the schemes utilised by successive regimes to plunder the economy. It is one area where no innovation happens. The only differences are the actors, the characters and the volume of the plunder. The schemes are either transferred to the incoming administration or borrowed from an earlier one.

For avoidance of doubt, I am in no way suggesting that there is anything wrong with the government undertaking a strategic privatisation exercise. As a good student of public finance and fiscal policy, I do understand the economic value of a well thought-out and executed privatisation exercise.

The benefits of privatisation are well documented in academia. For example, www.investopedia.com documents the two primary motives for privatisation as to help the government save money and increase efficiency. This is because privately owned companies are able to run business more economically and efficiently due to profit-incentives. In addition, privately owned companies do not have to content with bureaucratic red tape that makes public sector lethargic to innovation, effectiveness and efficiency.

In an article on the benefits of privatisation in Tanzania in 2002, Benedict Mongula states the motives of privatisation in Tanzania then as the need to improve efficiency of privatised firms, desire to do away with the burden imposed on government by loss making public enterprises, and the need to raise government revenues from increased corporate taxes.

This target benefits notwithstanding, he found that there was lack of transparency in the process; privatised firms still poorly performed afterwards; and the welfare of employees in privatized firms was not well managed.

In the Kenyan context, the Privatisation Commission lists the benefits of privatising state enterprises as to: improve infrastructure and delivery of public services by involvement of private capital and expertise; reduce demand on government resources; generate additional government revenues through compensation and corporate taxes; improve regulation of the economy by reducing conflicts between private and commercial functions; improve efficiency in the economy; broaden base of ownership of the economy; and enhance capital markets.

If this enormous potential benefits are true, why then should there be no easy consensus into the exercise?

From an analytical perspective, I would not read much into the legal amendments that sought to vest all the power to privatise into the hands of the executive. On the question a parliamentary involvement, it is easy to conclude that our ‘Waheshimiwas’ are either toothless to stop anything or have been willing collaborators in the crimes against the people. It was, however, the characterisation of specific state enterprises by the president that rendered undeniable credence to the conspiracy theories.

For instance, media has since confirmed that the presidents’ sentiments about Kenya Pipeline Corporation (KPC), the Kenyatta International Convention Centre (KICC) and Post Bank are a gross misrepresentation of facts on their true performance.

Cash dividends

For the doubting Thomases, the 2021/22 Audited Annual Financial Statements for KPC have an Unqualified Opinion by the Auditor General.

The statements report Profit After Tax as Sh3.8 billion and Sh1.7 billion for 2021/22 and 2020/21 financial years respectively. Tax charges for the government in the two years were Sh2.3 billion and Sh5.2 billion for the same period respectively.

As per the Cash Flow Statement, the company paid cash dividends of Sh8 billion as at June 2022 and Sh2.7 billion as at June 2021. So who was paid this dividends if we were to believe the president’s remarks?

For KICC, the 2019/2020 financial statements submitted to Parliament indicate sales at over Sh1 billion each year and a profit after tax of Sh37.4 million in 2019/20 and Sh32.8 million for 2018/19. The stated total asset book value is about Sh6.5 billion.

It is on this basis that one wonders what was the motive behind this gross misrepresentation of a verifiable financial performance for these entities? Does it mean the country’s CEO was unaware of the actual reported performance despite their listing for privatisation having elicited so much public controversy for weeks before his appearance before the media? Or is it that the president has such a low opinion for his subjects that he believes they will swallow such obvious gaffes unquestioningly?

More fundamentally, what have we learned from such previous attempts like in the case of Kenya Airways, the Sugar Companies, Kenya Railways and ongoing Telkom saga? Only days after this interview, the Auditor General reports KQ was controversially given about Sh16 billion without the approval of parliament.

If indeed these enterprises deserve to be disposed off, why do it when they are at their lowest assuming the president is correct with his numbers and in such a bad operating environment? Why first make them look so worthless in the eyes of potential investors, and from a source the market considers to have access to privileged insider information? To whom does the government want to dispose these entities it says are irredeemably non-performing? Which investor bets his billions to such an entity? This things just stinks to high heaven!