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NATIONAL DIALOGUE ON PRIVATISATION AND RESTRUCTURING OF THE LESOTHO
ECONOMY: MASERU, 1-2 SEPTEMBER 1999 PRESENTATION BY MR. M.T. MASHOLOGU- DIRECTOR OF PRIVATISATION UNIT Right Honourable the Prime Minister, Honourable Deputy Prime Minister, Honourable Ministers, Your Excellencies, Distinguished Guests, Ladies and Gentlemen, HAZARDS OF PRIVATISATION IN LESOTHO: 1. One of the reasons why the Government of Lesotho has convened this important National Dialogue is the high level of discomfort which the policy of privatisation has aroused among many citizens. The hazards take many forms. Privatisation has been discussed in Lesotho since 1993, but at first it attracted little attention because it was too new, and because it seemed far away. Today Privatisation has become familiar. It is actually happening. It has become the subject of heated political debate. Some people defend it, others oppose it. Workers worry seriously about the possibility of losing their jobs. Some people worry that state enterprises are being sold to foreigners. Other people worry about the process itself: either it is happening too soon or too fast for some, or too slowly for others. Some people complain about the procedures: they claim that the procedures are too complicated or not sufficiently transparent. The scrutiny of enterprises during the Privatisation process has sometimes revealed corrupt practices in the enterprises which had been hidden from public view in the past. This difficult situation is further complicated by the fact that despite strenuous efforts the government does not seem to have yet found the best way of giving information about privatisation to counter the vast amount of disinformation that privatisation has generated. 2. THE NEED FOR ASSURANCES ABOUT PRIVATISATION: There is no denying the fact that in Lesotho as in most countries Privatisation is a revolutionary process that calls for major changes in the way the economy is managed. Privatisation first and foremost means the transfer of Government owned enterprises, or their parts or shares into private sector hands. We have to acknowledge that some people are afraid of change itself simply because it means movement from familiar ways of doing things to the unknown. It is natural that people should want some assurance that the new system will indeed produce positive results. The fundamental questions that are being asked are whether Private Sector ownership of key enterprises will deliver better service, increased employment opportunities, faster development, and lead to a better allocation of limited national resources for education, public health and judicial services and road infrastructure development which would still remain the direct responsibilities of Government. Almost all observers of privatisation programmes agree that the positive results of privatisation take around two years before they can be seen and be felt by consumers. 3. THE LIMITATIONS OF STATE ENTERPRISES: Privatisation may not be a panacea that will solve all of Lesotho's problems, but it is part of economic restructuring to address some of Lesotho's chronic problems. The Lesotho economy suffers from a high unemployment rate where up to 45 per cent of the adult work-age population are without jobs. The Government Sector has reached its saturation point where it cannot create more jobs. The Private Sector is therefore being called upon to provide new capital investment, new managerial skills, new market and supply linkages, in order to generate new jobs. We have the example of a typical state enterprise in Lesotho Telecommunications Corporation, a hundred per cent state- owned, loss-making company (M3.9 million loss in 1996) which has reached saturation point with 20,000 telephone installations. On its books are 20,000 applicant customers who Lesotho Telecommunications Corporation cannot connect and service because of lack of capital and capacity. In theory one way of helping this company to meet demand would be for Government to seek a big loan, that is further increase national debt in order to provide fresh capitalisation for Lesotho Telecommunications Corporation. Yet even with that line of action there would be no guarantee that the existing demand would be met because of the chronic low productivity of the company where one employee services an average of 25 line connections compared to 188 lines per employee in Western European countries. With the best will in the World Lesotho state enterprises suffer chronically from shortage of capital, shortage of implementation capacity, and from low productivity. 4. OBJECTIVES OF PRIVATISATION: Privatisation of a State enterprise such as Lesotho Telecommunications Corporation is expected to achieve many objectives which include provision of new capital investment, introduction of new technology, rapid expansion of Services, and removal of the distortionary need for state subsidies to the Corporation thereby releasing budget resources for other national needs. Finally the object of privatisation is increased efficiency in meeting demand. Yes, the privatisation process of Lesotho Telecommunications Corporation will initially lead to job losses because the company was overstaffed for present level of services. However it is anticipated that when the corporation is privatised and is able to expand its services even to rural areas to meet pent-up demand, new jobs will be created. Rapid expansion of service delivery and of employment is anticipated in other key sectors with the introduction of Private Sector participation. For example Lesotho has currently the lowest service delivery of electricity in the Southern African Development Community with only 2 per cent of Basotho having access to electricity. It is envisaged that with Private Sector participation the access to electricity in Lesotho would be significantly stepped up with faster installation and expansion of lines. 5. DIFFICULTIES OF MARKETING LESOTHO STATE COMPANIES: It has to be understood that there is absolutely no barrier to private sector interests in Lesotho bidding for ownership of state companies such as Lesotho Telecommunications Corporation so long as they can mobilise the required capital and management capabilities. In fact it is government policy to encourage and favour any local groups that might put together a proposal with potential. Telecommunications is a high technology business well known for rapid changes in keeping with new scientific advances. Therefore those who bid for Lesotho Telecommunications Corporation must also show evidence of being able to provide or access the required levels of technological expertise There are 14 other African countries embarking on privatisation of their telephone companies at the same time as Lesotho. Already Lesotho is handicapped by the potentially small local market in comparison with countries like Tanzania or Mozambique. The poor condition of Lesotho Telecommunications Corporation is also not likely to excite the market. The poor financial record of many companies in the Lesotho Privatisation Programme has been a major handicap as shown by companies such as Basotho Fruit and Vegetable Canners which has been in the market for over 2 years without attracting a buyer. Finally the successful marketing of state enterprises depends on whether the country is investor friendly: whether licenses and permits are readily available; and whether there are good dispute resolution mechanisms such as a functioning Commercial Court system. 6. LESOTHO PRIVATISATION LAWS: It is absolutely necessary to have relevant laws and regulations to govern the privatisation process and particularly to eliminate arbitrariness. The Laws also provide protection of the assets, and general guidance for those who manage the process. In Lesotho the Privatisation of State enterprises is implemented in accordance with the Privatisation Act of 1995, and the Privatisation Regulations of 1997. These laws spell out the procedures that have to be followed in each privatisation. These procedures have been adhered to by the Privatisation Unit and the Cabinet. It has been observed by many outside critics that the procedures laid down by the Lesotho Privatisation Act and Regulations are cumbersome and slow. For instance it requires at least three rounds of Cabinet approvals to secure a full privatisation of one company. This is considered excessive, but it is certainly the law as it stands today because Parliament wanted Cabinet to oversee every step in the process. 7. THE HANDICAPS OF PARTICIPATION BY CITIZENS: Some critics of the Lesotho Privatisation Programme have also expressed concern at the glaring lack of Basotho participants as bidders and investors. This matter has also concerned the Privatisation Unit and last year the Unit conducted a short study which revealed that the main causes for lack of Basotho participants were lack of money and lack of understanding of the privatisation market process including how to prepare bid proposals, how to contact strategic partners and how to mobilise finance from local and foreign sources. There also seemed to be a disturbing resignation that business in Lesotho was going into foreign hands anyway. From the Privatisation Unit we have to admit that the programme commenced with huge enterprises that required high levels of capital such as Lesotho Flour Mills, and some which were also risky loss-makers such as Lesotho Airways Corporation. A more fundamental shortcoming was lack of a mechanism for the purchase and sale of shares. After the failure to establish a Stock Exchange plans are almost complete to launch an Investment Trust Fund whereby Basotho can buy shares in the privatised companies such as Lesotho Flour Mills. 8. THE ROLES OF GOVERNMENT: The privatisation process does not mean that the Government is abandoning all participation in the national economy. Government has a duty to create and enforce a strong regulatory framework for all business activities in conditions favourable to development and private sector investment while protecting consumers from exploitation. One of the conditions for the privatisation of Lesotho Telecommunications Corporation for instance is the enactment of Telecommunications Law to regulate this important sector. Regulatory Laws are also being prepared for the Water and Electricity Sectors before privatisation. The Government also has a duty to maintain a stable banking and financial services sector - that I leave for the Governor of the Central Bank of Lesotho to explain. My point is simply to emphasise that the Government is not expected to abandon its duty to protect is citizens because of privatisation. 9. A NEW PARTNERSHIP: The implementation of the privatisation programme in Lesotho has been slow as we all had to go through a learning curve in which we had to deal with the peculiar difficulties and hazards which we have described. The condition of the major state enterprises in all sectors by the end of 1995 showed that practically all of them needed major restructuring with Private Sector participation if they were to survive. In spite of privatisation Air Lesotho has since collapsed because it could not cope with competition from a rival company in our restricted travel market. On the other hand Lesotho Flour Mills is thriving, and soon shares will be floated through the Investment Trust Fund. A new and dynamic Smart Partnership among State, Business, and Labour could be emerging. The state will have leaner, and more sharply defined roles of regulation and providing a facilitative environment. The Private Sector will identify and pursue business opportunities to provide affordable and efficient services. Labour will benefit from merit based recruitment and promotion as well as incentive driven compensation. These are goals which seem well worth pursuing even if the road may be occasionally hazardous. |
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