ADVANTAGES AND DISADVANTAGES OF PRIVATIZATION
Privatization: Refers to the policy of transferring of public sectors or assets in to the private sectors or individual.
Privatization is one of the conditions of structural adjustment programs (SAP) which was launched by the international monetary fund (IMF), World Bank (WB) and donors from the developed countries like Britain, France, USA, Denmark and German.
OBJECTIVES OF PRIVATIZATION
1. To creates more market oriented economy where those privatized firms will participate in the stock market.
2. To improve productivity of economy and efficiency of privatized parastatals.
3. To secure and enhance access to foreign markets, capital and technology through attracting managerial and technological resources from the private sector.
4. To broaden share and ownership through equal provision of public services to all levels.
5. To reduce the overwhelming and challenging increase of public dept.
6. To preserve the goal of self-reliance
METHODS STRATEGIES TAKEN BY THE DEVELOPED COUNTRIES TO OPERATE PRIVATIZATION TO THE DEVELOPING COUNTRIES
1. Introduction of democratization.
2. Reduction of drade restrictions.
3. Improvement of the operational efficiency of enterprises and their contribution to the national economy by selling them to private investors.
4. To encourage more private investors.
5. To encourage wide participation in the ownership of private companies and management of business by selling and telling private investors engage in production.
MODES/PRINCIPLES/CONDITIONS OF PRIVATIZATION
1. Selling of shares
The equity share of public assets should be sold through exchange. However through this conditions there is short term government benefit from the privatized assets.
2. Direct negotiations
There must be presence of direct negotiations between the government band the individual companies interested to the privatized assets. This mode is profitable to both the buyer and seller.
3. Public auction marts
This mode involve selling of public assets through an open auction mart once after or during the privatized a certain sector
4. Public tender
This is a formal offer to do a job or provide goods and service for a particular price. Normally public tender for the privatization of public assets is normally done through negotiations.
5. Contracting
There must be presence of contract between the buyer and the government where the owner of privatized assets has to deliver services and goods in the country.
IMPORTANCE/ADVANTAGES OF PRIVATIZATION
1. It increase production in different sectors.
The privatization encourage high production in different sectors due to the existence of competition, hence the development of national economy.
2. It reduce the costs of goods and services
Due to competition caused by free market economy, resulting from improving and increase efficiency in production through competitive process.
3. Establishment and improvement of different institutions
Privatization has led to the Introduction and improvement of some institutions like education institutions, health institutions and financial institutions in the country.
4. It increases the government revenue
Due to the payment of taxes, grants and assistance. The private sectors encourage competitions which increase the level of productivity and efficiency.
5. It provides employment opportunities
It gives more people choice of options where they can be more satisfied interns of contract, salaries and working conditions.
6. It increased flexibility in production
Due to the reduction of bureaucratic complexity and procedures in order to improve the national economy.
6. It helps to avoid unnecessary political interference
This is due to the fact that private sectors are driven by profit making decision rather than political decision. Hence this helps to increase effectiveness in production processes.
7. It helps to improve science and technology
The private investors tend to transfer technology from their countries towards the privatized countries which later contribute the expansion of technology to the respective country.
8. It ensures availability of goods and services in the country
Privatization support the production vof different goods and services in different sectors which resulted in to availability of goods and services in the country. These are such as education services, health services, transport and communication services as well as financial services.
NEGATIVE IMPACTS/DISADVANTAGES OF PRIVATIZATION
1. It can lead to unemployment
Privatization has increased unemployment of indigenous people. This is because most of the people come from outside to work. When any public enterprise is privatized it is accompanied with massive redundancy of the previously employed people.
2. Decline of production in some sectors
It has led to the fall in production in different sectors like agricultural and industrial sector due to the withdrawal of the government from providing public services to the respective sectors.
3. Decline in quality of goods and services
Privatization can lead to the production of goods and services with less quality in the country due profit making purpose.
4. Increase in rate of moral erosion
Privatization can lead to the increases in rate of moral erosion due to its policy of free trade. The private companies tend to import all goods without considering consumers. For example, pornographic pictures and other related films or VCD/DVD which affect the younger generation.
5. It can lead to the increase in poverty
Privatization policy may lead to the increases in rate of poverty to the respective country due to intensive exploitation of resources.
6. Intensive exploitation of natural resources
The external investors pose high exploitation of resources to the third world countries under the imposed low conditions.
7. Decline of local industries
Privatization can cause decline and stagnation of indigenous industries to the poor countries due to over importation of manufactured goods from the developed countries.
