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Myths and Realities About Privatization in Sierra Leone
Posted by on Aug 26, 2008, 18:20

For many years, privatization has being one of the main pivots of the IMF and World Bank advised structural adjustment programme (SAP) polices for developing countries, especially the heavily indebted poor countries. Various views have been expressed about ways of implementing this policy and reducing government control over the economy. Privatizing the state-owned companies as one of the processes of SAP was a plan raised by the International Monetary Fund (IMF) in the early 1990s at the international level and the then Military government of the Capt. Strasser decided to implement the plan along side the country’s development agenda. We saw for example the transformation of the Ministry of Works (MOW) into the Sierra Leone Roads Authority in 1993/94. By way of following through the erstwhile government established the National Commission for Privatization (NCP) in 2002 by an Act of Parliament. This commission is charged with the responsibility of overseeing the smooth transfer of ownership of public companies from government control to privately own.

The National Commission for Privatization (NCP) Sierra Leone; is a corporate body established to serve as the policy and decision-making organ with regards to the divestiture and reform of public enterprises; to transfer the management of all public enterprises to the Commission, and remove the interference in the management of public enterprises from line Ministries, thereby ensuring transparency, corporate governance and avoidance of conflict of interest in the affairs of public enterprises.

 There are 24 listed enterprises, which are categorized into nine (9) groups with plans of action for each group, including the time schedules for the completion of each of the planned transactions. The strategy to privatize the enterprises has three (3) components:

·        For loss-makers engaged in production or trading in services and operating in competitive markets, these should be privatized without further delay by an outright sale.

·        For large public enterprises especially the utility companies, measures to improve their efficiency are to be instituted in the initial period, since outright sale may not be financially or politically feasible in the short term. In the interim, management contracts, performance contracts, joint venture and leases are to be offered, while the legal, organizational, managerial and financial aspects of such enterprises are restructured before being offered for sale.

·        Employee ownership and effective local participation are to be given high priority in the sale process in order to mobilize domestic support for the programme.

Why the Growing Trend Toward Privatization?

The growing trend towards privatization and contracting is a genuine threat to workers in the public sector and an attack on the American system for providing public services for Teamster families and all Americans. Faced with tight budgets, many government officials and politicians see privatization as a quick fix. But in the long run, privatization often ends up costing taxpayers more, while putting private profit ahead of the public interest. It is important that all Teamsters understand this issue and are prepared to fight back against privatization.

Privatization means allowing profit-making corporations to take over the duties that have traditionally been performed by public agencies. Usually, this means that government will contract out work to private companies that was performed by public employees.

Over the last two decades, managers in the public sector have faced a very real problem: the public expects quality services, but tax revenues are often inadequate because corporations and the rich don’t pay their fair share. Anti-government politicians and corporate special interests don’t streamline government and reform the tax code to raise revenue fairly. They argue that the solution is to turn over government functions to profit-making companies.

Many officials and citizens innocently fall for this scheme because it is packaged as a quick fix for government problems. They are promised that contracting out will:

·        Cut costs.

·        Provide a workforce with specialized skills.

·        Give financial incentives for managers to work harder.

·        In reality, privatization rarely meets those goals. In fact, the real reasons for privatization often include the following:

·        As a payoff to friends or political allies

·        To avoid paying workers’ benefits

·        As a way to keep workers from having union protection.

·        As a way to intimidate unions during bargaining

·        Because of political pressure from powerful corporations

 

Myths and Realities

There are many researchers who are counteracting the arguments of privatization advocates who want to sell-off our public services. This list of Myths and Realities should help.

Myth: privatization saves money.

Reality: Nearly two- four- year of experience now clearly shows that government rarely saves money in the long run as the budget deficit is still high

Privatization may show short-run savings. This is because private contractors will purposely under-estimate costs at the beginning in order to get a contract. This is called "low-balling" or "buying in." But once government work is turned over to a private business, the drive to produce profits takes over and contract costs rise. Contractors will pad later contracts with unnecessary expenses. After a while, government loses the ability to perform the work and becomes dependent on the contractor, no matter what the cost.

There are also lots of hidden costs. Drafting, negotiating, and monitoring compliance with contracts can require a whole new layer of government bureaucracy. Because privatization usually leads to layoffs and loss of pay and benefits, taxpayers will face the hidden burdens of unemployment compensation and public assistance programs. As good paying government jobs are replaced with low paying contract jobs, the government will collect fewer dollars in tax revenue. Private sector workers suffer because laid-off public workers can no longer afford the goods or services they produce.

 

Myth: Private businesses are more efficient that the government.

Reality: Although many people believe this, no one has ever demonstrated that it is true. But examples of inefficiency on the part of companies that contract with governments are numerous. Take for example, the case of Bintumani Hotel sole to the Chinese some eight years ago, can we say it is better run than when it was under government control? Certainly not!  At least there is no significant difference between the services provided by Bintumani Hotel and say Cape Sierra Hotel, etc.

 

Many observers agree that quality usually decreases under privatization because private managers cut corners to reduce costs. They tend to hire inexperienced, low-paid workers who do not get training on how to do the job right. Also, the low pay, poor working conditions, and lack of union representation often cause high turnover of employees. Private firms often increase their profits by providing good service only to certain areas. But areas where poor people live would get less priority.

 

Myth: Competition keeps private service providers accountable.

Reality: Competition only works when there are many firms competing to provide a product or service. But under most privatization schemes, competition ends once the work is contracted out. After the contract is signed, one firm becomes a monopoly because it gets all the equipment, experience and training. Once a company knows that the government will not contract with another firm, it can jack up its rates or cut quality.

 

When governments subcontract work, other accountability problems are created. It is often not clear who is responsible to taxpayer – the government agency or the contractor. Contractors can pass the buck for shoddy work, claiming that it is the government’s fault. Citizens often do not know who is supposed to receive complaints or fix problems. Privatization creates many opportunities for corruption. Private Service providers/contracts to provide government services may be given to political cronies or campaign contributors. Competition for initial contracts often leads to kickbacks, bribery, and collusive bidding.

Myth: Private providers are able to use a more flexible, specialized workforce, thus saving a lot in overhead costs.

Reality: Privatization undermines the workplace protections and standards that many labour union members have fought hard to win. When work is taken away from union members, it is often given to inexperienced, less-skilled workers. Costs may be cut in the short run, but over time quality will decline. Look at the Sierra Leone National Air line (SNA) issue, a company slated for privatization; the experienced workforce is already dumped, workers are redundant without pay.

 

In practice, flexibility is often harmed by the contracting out process. It is impossible to design bid specifications and contracts that foresee all future needs. So the government loses her ability to respond to new situations.

In conclusion, it can be said that privatization can be carried out in the best possible manner only when it is part of a comprehensive reform program offered by a reformist government under a strategic time-table and without allowing any body to derive personal benefits from it. The best way to implement privatization policy is to be prepared before it starts by educating stakeholders and the general public about privatization issues and involving them in a constant campaign to promote public services. An educated and involved public will be ready to embrace any move toward privatization through Community Alliances such as Reach out to community, consumer, religious, and other groups in an ongoing effort to promote public services and maintain alliances with those who use the services.






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