PRIVATIZATION

This is the transfer of ownership, control and management of public assets/ state
enterprises to individuals/ private investors
Or
This is the transfer of ownership o public enterprises from government to private
individuals and companies.

FORMS /TYPES OF PRIVATISATION.

1. Divestiture/outright sale/complete/total sale
This is the total sale or complete sale of all shares of a public enterprise to
private sector/ ownership.
Or where government sells off all her shares to private sector. This is
common with non performing enterprises.
2. Partial sale.
Is where the government sells off part of her shares to the private sector.
Or this is where by a given portion of a public enterprise e.g. one which
carries out a given activity is sold to a private individual or company while
the remaining part is controlled and run by the government.
3. Sale of management/ contracting out.
This is whereby the government retains ownership of asset but sells or
transfer management to private sector e.g public markets, public parks
4. Joint venture
This is where the running of enterprises is by both the state or the
government and private sector e.g government holds 51% shares and 49% is
left to the private sector.
5. Mortgaging/leasing
Is a temporally sale of state enterprises to private individuals with aim of
repossessing them by state in the future date.
6. Denationalization
Refers to return of once privately owned enterprises to their rightful owners
by the state /original owners as the case is with the property of
Indians/Asians in Uganda.

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REASONS FOR PRIVATISATION OF STATE ENTERPRISES IN
UGANDA
1. To enable firms operate more efficiently due to increased competition in
private sector.
2. To fight corruption due to increased accountability and transparency
associated with private sector.
3. To attract foreign investment/capital inflow because most of big enterprises
are bought by foreign investors who have big capital hence high capital
inflow.
4. To reduce government expenditure on running the public enterprises e.g
provision of services. This reduces public expenditure and protects the
public from being over taxed.
5. To fulfill IMF conditionalities.The conditions of IMF of creating private
sector led economy became a condition for developing countries to access
financial support hence countries had to privatize.
6. To raise revenue for the government. This can be done through sale of
public enterprises and increased taxation of enterprises in the hands of
private ownership.
7. To control structural inflation due to increased production of goods and
services hence increased export earnings.
8. To increase employment opportunities in the long run due to increased
profits this results into expansion of firms in the long run.
9. To increase the level of resource utilization because private sector is profit
oriented/motivated which encourages firms to expand hence produce on
large scale leading to increased resource use.
10. To reduce bureaucratic tendencies with its associated evils to enable gov’t
decision making and implementation with private sector due to limited
consultations.
11. To allow government concentrate on provision of essential goods and
services because the government is able to save the money previously used
for running the enterprises for provision of essential goods for nationals e.g
health care, safe water.
12. To encourage competition. This results into production of more output and
of a high quality.

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13. To encourage creativity and innovations by individuals due to profit motive
with the private sector.
14. To improve balance of payment position by reducing imports and increasing
exports due to production of large output of goods and services.
Qn
1.a) Account for the divestiture of public enterprises in your country.
(b) What are the problems encountered in the divestiture of public enterprises
in your country.

2a) Account for the privatization of public enterprises in your country

(b) What problems have been faced in the privatization of enterprises in your
country?

IMPACT OF PRIVATISATION IN UGANDA.

POSITIVE IMPACTS/ADVANTAGES.
1. Leads to increased output due to increased production of goods and services
by private individuals hence resulting in to high rate of economic growth.
2. Leads to increase in government revenue from sale of state enterprises and
taxation. After privatization, the enterprise expands in size, produces more
output which increases the tax base.
3. Widens the consumers’ choice, this is due to the production of a variety of
goods and services which increases standard of living.
4. Reduces government expenditure that is to say the cost of paying the
employees and the general running of the enterprise are transferred to private
sector after their sale.
5. Reduces dependence on imports. This is due to increased local production
after privatization of enterprises.
6. Privatization reduces the level of corruption and embezzlement in the
enterprise. This is because of the high rate of supervision and accountability
and transparency by private owners.
7. Reduces and eliminates unnecessary bureaucracy in business management.
This is because with private enterprises, consultation is minimized and there
are no delays in decision making.
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8. Leads to Increased investment by foreigners. It attracts foreign investors in
the country who usually come in to the country to buy the enterprises
9. Leads to production of quality of output/ products. This is because of the
presence of competition between the various private investors.
10. Results into increased innovations and inventions. This is due to high level
of creativity and increased profits within the private sector.
11. Improved relations between the country and the international community
especially the donors. This is due to increased capital inflow.
12. Encourages creation of employment opportunities in the long run especially
after privatization. The enterprise expands in size due to increased profits
and therefore, employs more people.
13. Leads to improved efficiency in resource allocation and management of the
enterprise. This is as a result of increased supervision, cost effectiveness and
better delivery of services in private sector as a result of competition.
14. Helps to control structural inflation in the economy. This is a result of
increased production and supply of goods and services by private sector.
15. Leads to an improvement in the balance of payment position. This is as a
result of reducing expenditure on imports and increased export earnings due
to large scale production by private sector.
16. Gives a chance to the government to concentrate on provision of social
services after leaving some of the activities to be carried out by private
individuals and companies.
17. Increases the level of resource utilization in the country. This is as a result of
increased output which facilitates exploitation of idle resources.
18. Leads to improved skills of workers, this is due to training provided to
workers by owners of private enterprises inform of seminars, workshops etc.

NEGATIVE IMPACTS /DEMERITS.

1. Leads to consumer exploitation. This is because private individuals usually
charge high prices in order to get more profits.
2. Leads to unemployment in the short run. This is as a result of restructuring
and retrenchment of workers in order to reduce costs of labour and use of
capital intensive methods in production i.e. substitution of labour with
machines.

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3. Leads to increased foreign control of the economy. This is because big
enterprises are sold to foreigners because they have required large capital for
their purchase and maintenance.
4. Leads to irrational exploitation of resources which results into environmental
degradation due to excessive desire for profits.
5. Leads to profit repatriation, this is because large investments are mainly in
the hands of foreigners who repatriate profits and incomes they accumulate
to their own countries.
6. Leads to increased income inequality. This is because private owners of
enterprises generate high income at the expense of other people.
7. Leads to resentment of government that is to say a negative attitude towards
the government by those people who are against privatization due to
ignorance.
8. Leads to a reduction in the provision of certain vital goods because private
individuals do not provide goods and services which are not profitable
though vital to the nationals.
9. Leads to losses incurred by the government. This is because of poor
valuation, the high costs of advertising the enterprises, high costs of the
process.
10. Results into increased price fluctuations. This is because prices of private
individuals usually depend on forces of demand and supply due to
divergence in the level of output in private sector.
11. Leads to duplication of services. This is due to wastage of resources as a
result of wasteful competition.

Qn. Distinguish between privatization and nationalization of enterprises.

Examine the impact of privatization in your country.

PROBLEM ENCOUNTERED IN THE PROCESS OF PRIVATISATION

/FACTORS LIMITING OR STAGNATING FACTORS.
1. Corruption in the privatization unit, some officials in the privatization unit
ask for bribes from the intending buyers, which scares off some of the
investors from purchasing the private enterprises, some enterprises end up
being sold at give a way price because officers in charge are bribed.
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2. Opposition from the public. This is mainly due to ignorance of the people
about the benefits of privatization, many of them go on de-campaigning the
process of privatization and as well as the government.
3. Poor valuation of public enterprises that are on sale resulting into
undervaluation of enterprises. Also over valuation of enterprises scares off
the would be buyers thus making a government incur losses.
4. Poor state of some public enterprises. Many of the enterprises are in a very
bad shape which discourages the buyers thus making it difficult to sell the
enterprises.
5. Lack of well developed capital market. This hinders the smooth sale of the
shares in the public enterprises.
6. Political sabotage for example by the parliamentarians on the opposition side
tend to oppose government policies in order to make government unpopular
thus making it hard to carry out the privatization exercise.
7. Poverty among the nationals. This forces the government to sale most of the
enterprises to foreigners because most of big enterprises are expensive to the
local people.
8. High costs of the process because of need to renovate these enterprises,
advertisement to call for potential buyers etc.
9. Presence dishonest buyers. Some individuals pretend to be buyers when they
do not have adequate funds for purchasing the enterprise hence preventing
the sale of the enterprise to genuine buyers.
10. The small market for goods and services in the domestic market discourages
the buyers of the enterprises because it’s not profitable to buy enterprises
whose products lack market.
11. Political instability in some of the areas where the enterprises are located.
This scares both local and foreign investors for fear of loss of their lives and
property.
12. Ideological differences. Some individuals are socialists while others are
capitalists and therefore where the country’s ideology is not in line with
potential buyers, then the process fails.

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NATIONALIZATION OF ENTERPRISES.
This is where the state takes over ownership of property /enterprises that were
originally owned by private individuals.
Or
This refers to where the state takes over an enterprise to be run in public interest
that is to say the state owns, controls the enterprises.

Denationalization is where the state returns once privately owned enterprises to

their rightful owners
Or
It’s where the government takes back what was originally owned by
private individuals e.g Asian property in Uganda.

MERITS OF NATIONALIZATION (merits of public enterprises)

1. Helps in provision of essential goods and services at cheaper prices i.e the
commodities ignored by the private sector
2. Reduces wasteful competition among enterprises because the government
becomes the sole producer and allocates resources accordingly to needs of
the society.
3. Encourages large scale production because the government is not profit
oriented hence a lot of profits can be generated.
4. Promotes equitable distribution of wealth and income because government
ensures that both rural and urban areas are balanced in development, the rich
and the poor are closely brought together.
5. Generates revenue for the government because nationalized enterprises
produce output which is sold to generate revenue.
6. Easy to mobilize large amounts of capital required to run these enterprises
compared to the private sector.
7. Reduces foreign domination of the economy because it takes control and
ownership of enterprises that belong to foreign private individuals.
8. Makes it easy to respond to structural changes when it a rises, because where
government is in full control of the economy, it responds quickly to
structural changes e.g prolonged drought, floods etc.
9. Reduction in social costs for example pollution and depletion of resources
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 because the government is conscious about the health of its citizens.
10. Ensures government control of strategic /vital sectors of the economy.
11. Protects consumers from consuming undesirable products because
government puts up quality control measures to ensure that output produced
is up to standard of the public.
12. Controls private monopoly and its negative effects because by
nationalization of private enterprises, monopoly power is controlled and all
its associated effects checked.

DEMERITS OF NATIONALIZATION (Dis advantages of public enterprises)

1. Leads to inefficiency in production leading to production of low quality
output. This is due to limited competition.
2. Encourages corruption, this leads to misuse or divergence of the available
funds or revenue leading to poor performance of nationalized enterprises.
3. Leads to provision of limited variety of goods and services to consumers.
This limits consumer’s choice thus reducing standard of living.
4. Nationalization is associated with bureaucracy; this slows decision marking
and implementation due to frequent consultations.
5. Leads to increased government expenditure on running nationalized
enterprises, this subjects nationals to high taxation in order to raise funds for
running such enterprises.
6. Leads to political interference in running of nationalized enterprises, this
lead to political appointments of managers which promotes inefficiency
since such managers may not be skilled in running such enterprises.
7. Leads to low tax revenue because nationalized enterprises in most cases are
exempted from taxation.
8. Leads to resource misallocation because nationalized enterprises interfere
with price mechanism.
9. Discourages private investment, because through nationalization private
investors in most cases are either less or not at all compensated.

Revision questions.
Qn.1 (i) Distinguish between nationalization and privatization of enterprises.
(ii) Explain for privatization of enterprises in Uganda.
2. Assess the consequences of privatization in your country.
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3. Explain the factors limiting privatization process in Uganda.
4. Account for divesture of state enterprises in Uganda.
5. (a) Define the term nationalization of enterprises.
(b) Assess the impacts of nationalization of enterprises in Uganda.
6. Explain the merits and demerits of nationalization of enterprises in Uganda.
7. What are problems associated with nationalization of enterprises in Uganda?
8. Why is it necessary to nationalize enterprises in Uganda?
9. Explain the arguments for and against nationalization of enterprises in
Uganda.

END

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