Is privatisation a master key?

Two banks are up for grabs under the new jargon, public-private partnership (PPP), a much “sexier” term than privatisation. There is no difference in the two since the idea is to dispose of State assets. There is fierce debate on whether these banks should go. You can issue 20 billion shares at K2 each and raise K40 billion kwacha with a likelihood of over-subscription on the stock exchange. The banks are not even the compendium guidebook for investments.

I think all of us must sober up a bit, throw away the emotions and critically look at how economic interests of our country are best served by privatisation. The legal minds are also rolling, but I would rather read more into the benefits to the owners of these institutions, Malawi citizens, whose economic rights are guaranteed in the Constitution.

Since 1994, a rapid wave of privatisation has been undertaken and continues to evolve. The successes are quite mixed. Remember the Malawi Book Service that had presence all over the country. It went under the hammer. So did David Whitehead, Fincom, Malawi Railways, National Oil Industries, Commercial Bank of Malawi, various hospitality establishments such as Chitipa, Chintheche, Kasungu inns and the various forest lodges.

We have come from far. The most recent has been Air Malawi Limited now Malawian Airlines Limited, a PPP company by Ethiopian and Malawian taxpayers. Tongue in cheek!  So we have a great history and we can judge the success of the process.

Reading the lips of the executive today and years before, possibly from as far as the early 1980s, entities that are a drain on the budget must be privatised in some way. The lips never shy sometimes and often sentiments like the donors or multilateral lenders have told us to privatise and so we must do.

The indicator on privatisation success is a reduced government deficit or borrowing. The rest is often not very important. The philosophy of multilateral partners is balance the budget, yet economic rights of Malawi citizens are a constitutional issue. Privatisation must be in the interest of citizens, not just a few capitalists. Multilateral lenders never foresaw the global financial crisis plus Greece and Iceland chaos, much bigger economies that Malawi. We just grow tobacco, import fuel, fertiliser and medicine, that simple. They are part of the problem because our marriage with them is five decades old.

As we debate the process of privatising the banks and many other institutions, I am tempted to think about what privatisation can do to prevailing economic problems. I would love to answer the question: How can privatisation assist the country to improve the quality of life of the average person? Has the wave of post-1994 led to the efficiencies that private enterprise is supposed to bring, at least from its preachers? The quality of life includes decent jobs and reduced unemployment for many young people roaming streets or living hopeless lives in rural Malawi.

Today we can think of our major public entities such as Admarc Holdings Limited and the Malawi Development Corporation (MDC) and the cost of borrowing. Through these public institutions, billions of taxpayer funds were invested and most of their enterprises are still functional.  While the parent companies do not have the old clout, it is important to recognise that there is a chance that public enterprises can excel depending on how they are governed.

Admarc Holdings and MDC played a key role and solved a problem that is a thorn in the growth of private enterprise today. You need to pick a newspaper any day and there is chance that some bank is selling off some stuff to recover unpaid loans. It is a common site. The cost of borrowing is quite high and our market is quite small unless businesses eye markets beyond the border, they are vulnerable to banks killing them off.

These major investment arms of government played a huge role to fill in the gap that was too huge for private enterprise to invest due to high cost of borrowing. The same situation exists today and it is foolhardy to imagine paying 40 percent on a loan. If you make a profit of a million in a year, 40 percent of it goes to a bank and the balance can be reinvested but this is not enough to grow a business since shareholders too want their returns. It is this kind of environment that has created an environment where banks make huge profits, not from their private sector counterparts, but rather government debt.

Private enterprise has been reduced to pay loans so that banks can exist. All I am trying to say is, should the privatisation of these banks go ahead, the thinkers and the honchos that call the shots, pay close attention to cost of capital. I reckon to say some serious thought be paid to how these banks can be reformed to become engines of growth, not guzzlers of treasury bills.

For banks to be engines of growth and help in the development of the country they need to lend to businesses to invest. The idea of a development bank was conceived for the same reasons. Do we really need to create a new development bank? Why can’t we reform the two existing State owned banks that are being put under the hammer, redesign their business model to focus on development banking minimise undue interference in their management.  The systems and structures are already in place.

Banking is a profitable business in this country. The State owned or partly owned, do not even get any subvention from Capital Hill. So why should we simply let them go because some external institutions think it should be like that?