TOPIC 10: PRIVATIZATION ~ ECONOMICS FORM 5

PRIVATISATION

It is the transfer of public sectors or enterprise to the private sectors. It is the selling of the 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

Share issue privatization
Assets sales privatization
Voucher privatization:distributing shares of ownership to all citizens (at a very law price)
Privatization from below:start up of anew private business formerly socialist country

Other Forms of Privatization

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

This is when the government return enterprises and properties to their rightful owners.
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.

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

This involves the government remaining barrier to entry of private individuals in certain undertaking in order to increase competition.

Types of Public Enterprises.

Public Utility Parastatal:- These are formed to provide vital services to people eg. DAWASCO, TANESCO
Marketing Parastatal:- These are involved in marketing commodities especially agricultural commodities.
Development Co-operation: These are established by the government to spearhead some development project eg. National Development Co-operation (NDC)
Financial Cooperation:- These are established with an aim of mobilizing financial resources in the country eg. NIC, NSSF, TIB etc
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.

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.
Parastatal organization enhanced and expanded government control of the economy which makes economic planning more easier.
They offer services which are very vital to society through which the returns are very less eg. DAWASCO
Public enterprises help in creation of employment opportunities to all kind of labor.
Government participation in business also helps to reduce the exploitative behavior of private monopolies.
Some parastatals make profits which contributes to public revenue.
Parastatals like financial institution provide direct financial assistance by providing loans required for development.

Problems facing Parastatals in Tanzania

Inadequate Finance:- The government does not have enough capital to inject into these parastatals which affects their operation.
Bureaucracy decision making which result into delays in making decisions.
The conflicting objective of profitability and social benefits.
There is a lot of government intention in the operation of a parastatal organization on political grounds which affects effective operation.
There is a lot of corruption and embezzlement.eg.misappropriation of funds etc
Inefficiency due to the monopoly power possessed.

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

The privatization process has been faced by a lot of opposition from some groups of people especially politicians on the opposition plus some other local people. Thus has slow down the privatization process.
Some of the parastatal were really in very poor conditions and therefore have not attracted buyers which has resulted to a very big loss to the government as many assets in them eg. machines have depreciated a lot.
Poor social and economic infrastructure:- Social and economic infrastructures such as roads, railways and other communication networks are still in poor conditions, this does not offer a conducive environment for the buyers.
Some of the buyers have acted unfaithfully and have failed to complete the payments for the enterprise bought.
There has also been lack of transparency on the side of privatization unit which is believed to be corrupt and this has raised a lot of doubt about its credibility.
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 a one of the ways through which the government can raise revenue and hence reduces, the need to borrow.

It reduces government financial burden through financial accommodation of inefficient parastatals in form of subsidies.
It helps to widen the tax of the government as more firms engage in production
It help to reduce mismanagement and hence encourage accountability and promote efficiency.
It also increase the country’s chances of security financial aid from international agencies such as IMF & WB who put such conditionals.
It helps to create more employment opportunities.
It helps to increase production and also improvement of the quality of goods and services provided.
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) reduce unemployment.
There has been improvement in social and economic infrastructure eg. roads,schools, hospitals etc.
The tax base of the government has also increase investments which enables the government to raise more revenue.
There has been increase in exploitation of idle resource 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 into improvement inefficiency and quality of goods and services.

Arguments against Privatization in Tanzania.

It has resulted in to capital and profit out flow as most of the enterprises are bought by foreigners.
It has also widen income inequality in the country since wealth is the hands of the few than in the hands of majority.
It has resulted into increase in social cost such as pollution,environmental degradation due to the profit motive under private ownership.
It has also resulted into decrease in the government control over the economy as many economic activities are in the hands of the private sector.
It has contributed towards increase in unemployment due to do option of capital intensive technique and inflow of foreign labor
There has also been failure among the private sectors to run some of the enterprises that provide vital services e.g. TRC.
Privatization has also resulted in to emergency of private monopolies which has resulted into provision of poor services and charging excessively high prices.

PRIVATIZATION IN TANZANIA

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

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

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

TOPIC 10: PRIVATIZATION ~ ECONOMICS FORM 5