The Case for Privatization

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I believe the first time Liberians paid keen attention to the “word” was many years ago, when a presidential candidate mispronounced it apparently during a political debate. Once a word used to ignite laughter and sometimes political argument amongst Liberians, “privatization” is slowly creeping back into the national vocabulary. It drew a lot of interest few months ago, when the Minister of Education announced his intention to “outsource” the public primary school system to private actors through a Public Private Partnership (PPP). The war of words that ensued between people from different sectors of the country and even those out of Liberia were “indescribable.” As a blogger put it, “local and international experts have planned to fight tooth and nail to ensure that a plan by the Government of Liberia to outsource all primary education here to a private company does not push through.” Even the UN Special Rapporteur on Education wrote among other things, that this move by the Ministry was a “gross violation of the right to education.” To be fair to the Ministry of Education, I didn’t see how the State was abandoning its function to provide education to its citizens, but I think the State was actually fulfilling that function through another means. But that is not what my article is about.

My article seeks to play the devil’s advocate and make a case for privatization especially given the recent move by the Liberian Senate, voting to privatize the Liberia Water and Sewer Corporation (LWSC). While reading about this development on the FrontPage Africa website, I stumbled upon our country’s profile on the British Broadcasting Corporation (BBC) website. It read, Liberia: “Africa’s oldest republic, it remains largely without mains of electricity and running water. Corruption is rife and unemployment and illiteracy are endemic.” Even though this made me sad, I was really concerned about what we could do differently as a people and nation to change this narrative. It dawned on me that privatization could offer us another pathway to development in Liberia.

But what really is privatization? The concept covers several distinct and sometimes unique types of transaction. According to the Library of Economics, privatization can be the granting of a long-term franchise or concession under which the private sector finances, builds, and operates in many cases, a major infrastructure project. Privatization also involves government selecting a private entity to deliver a public service that had previously been produced in-house by public employees. This form of privatization is increasingly called “outsourcing.” William D. Eggers once wrote that much of the impetus behind the concept is the desire to inject competition into the delivery of state services in order to provide services to citizens in a more efficient and cost-effective manner. Hundreds of studies done on privatization around the world have documented “major” cost savings as well as a steady stream of tax revenues. Given the recent donor fatigue, Liberia would need these new sources of income to cater to the huge resource gap we are experiencing.

My research has shown that if structured appropriately and sufficiently monitored, privatization can, among other things, improve service quality, increase efficiency and innovation, allow policymakers to steer rather than row, improve maintenance and significantly contribute to the economic and social development of any nation.

The case of Guinea is a classic one. “From independence in 1960 through the end of the 1980s, Guinea’s state-owned and operated infrastructure companies (SOEs) in telecommunications, energy and water provided consumers with an inadequate quantity of low quality services. As of 1989, only 38% of Guineans had access to piped water, almost none in rural areas. Those connected suffered frequent interruption of service. Half or more of the water sent into the system vanished and was never billed. At this price, with this rate of loss, the national water company could not come near covering its operating costs, much less invest in badly needed maintenance and expansion. Donors made repeated attempts to work with government to reform the national water company; these failed to make a major or sustained difference. In 1989, Guinea entered into a lease arrangement with a private provider to deliver water in the capital, Conakry, and 16 other towns. Over the next seven years, major improvements took place. Connections increased from 12,000 to 23,000. The percentage of metered private customers rose from 5 to 93% and to 100% for government customers. The percentage of the population with access to water rose from 38 to 47% and the pace of increase was greater than it had been under public ownership. Better still, the World Bank subsidy ended.”

In Côte d’Ivoire, of 81privatization concepts analyzed in the electricity sector, infrastructure, agriculture, among others, it was found that firms in these sectors performed better after privatization. The analyses also showed that the firms performed better than they would have had they remained under public ownership; and privatization contributed positively to economic welfare.

These significant benefits stemmed from increases in output, investment, labor productivity, and intermediate-input productivity.

Going back to the case of Guinea, like Liberia, the country faced a huge challenge especially relating to service delivery but was able to successfully mitigate it through privatization. The point is, privatization may not necessarily reduce or enhance the quality of service especially when the public and private managers are not interested in the general social outcome. As many people would argue, it’s hard to know whether the private managers will act in the best interest of the people; but the counter argument is, it is easy to see how many of the public managers have not acted in the best interest of the people. Hence, privatization can do more good than harm.

Others may also conclude that just because it worked for Guinea in the water sector doesn’t mean it could work for Liberia. There are many countries where privatization has worked but I chose the case of Guinea because in many ways we are the same. The truth is: The same gains made by Guinea can be made by Liberia if we take a closer look at, and keenly study, the concept as well as put in place proper mechanisms to monitor. For instance Guinean authorities worked with the private managers and retained ownership of the assets. They were also responsible for setting policy and tariffs, and (with World Bank assistance) marshalling investment finance and expanding the network.

The key design coming out of this was careful and effective government oversight. The case of Guinea also showed that both public and private managers had the will and the incentives to work in the interest of the public.

Liberia stands to benefit from privatization especially given the fact that we are still in the process of establishing and implementing different institutional and regulatory frameworks around the country. The major issue now is just making it a matter of policy. The onus is upon our leaders and Liberians in general to pursue this concept with an open mind and try to answer many hard questions that may arise. One of which is whether or not the problem we face especially involving service delivery is institutional or political in nature.

The World Bank has said that privatization works best in countries when it is integrated into a broader process of structural reform. Liberia is at that crossroad. It is high time we take that careful step towards change. As the former US President Ronald Reagan once said: “Don’t just stand there, undo something.”

Laura Golakeh can be reached on 0776834002 or 0886671742 or via email [email protected]

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