Working Paper 35 - Privatization of Public Enterprises in Zambia: An Evaluation of the Policies, Procedures and Experiences

Abstract

The term Privatization is often loosely used to mean a number of related activities, including any expansion of the scope of private sector activity in an economy and the adoption by the public sector of efficiency enhancing techniques commonly employed by the private sector. While acknowledging that no definition of privatization is water tight, we will define privatization, for the purpose of this paper, as the transfer of productive asset ownership and control from the public to the private sector.1 The transfer of assets can be total, partial or functionary, with the sale being implemented by methods such as private sales, leasing arrangements, employee buy outs and share issues. In Africa, many governments have embraced the idea of privatization, brought to the fore mainly as a part of the adjustment and stabilization programs of the mid-eighties and the nineties. Privatization now frequently features in government policy statements and in conditionalities from donors. The past decade has also seen the World Bank and other donors get increasingly involved in lending operations towards parastatal sector reforms that included privatization components. African countries share a number of common features in relation to the drive towards privatization. For most of these countries, the first twenty years of independence were characterized by rapid growth, driven by favorable terms of trade and high levels of public investments in infrastructure and services. The development of import substituting industries brought in the dramatic rise of parastatal corporations, which were also used as vehicles for increased local participation in the economies. Many governments moved to nationalize existing foreign interests in their countries and also to create new state enterprises to carry out the various production and trading functions. Parastatal corporations rapidly dominated the extractive industries, manufacturing and financial sectors of their economies, and acquired important economic and political status, becoming major sources of employment. The moderate growth experienced in the seventies, however, was quickly reversed by the financial crisis of the early eighties, and associated inefficiencies made parastatal sector reform a major element in the reform efforts implemented by the countries. Zambia was one of the earlier countries to embark on a major privatization exercise as part of its economic reform program started in 1992. Although progress was initially slow, mainly due to the inertia associated with start up activities and generally opposition from interested parties2, the program picked up momentum in the last two years, culminating in the rapid divestiture of public enterprises that many have compared only to privatization programs in eastern Europe. This paper reviews the privatization program in Zambia, highlighting the major tools and mechanisms employed, and the achievements and constraints faced by the authorities in privatizing one of the largest public sectors in Africa. The paper begins with a brief overview of the main economic issues surrounding moves towards privatization of public enterprises.