Table Of ContentKlenk/PhilipplReineke/Schmitz
Privatisation in Transfonning and Developing Economies
Jiirgen Klenk/Christine Philippi
Rolf-Dieter Reineke/Norbert Schmitz
Privati sa tion
in Transforming and
Developing Economies
- Strategies
- Consultancy
- Experiences
GABLER
Jiirgen Klenk is advisor in the Private Sector Promotion and Industrial Consultancy Di
vision of the Deutsche Gesellschaft fUr Technische Zusammenarbeit (GTZ) GmbH in
Eschborn, Germany.
Christine Philipp is a management consultant at Kienbaum Development Services
GmbH, Dusseldorf, Germany.
Dr. Rolf-Dieter Reineke is Professor of Business Administration with special focus on
International Management at the Hochschule fUr Technik und Wirtschaft in Dresden,
Germany.
Dr. Norbert Schmitz is a member of the Managing Board of Kienbaum Development
Services GmbH, Dusseldorf, Germany.
Die Deutsche Bibliothek - CIP-Einheitsaufnahme
Prlvatlsatlon In transforming and developing economies :
strategies - consultancy - experiences I Jiirgen Klenk ... -
Wiesbaden : Gabler, 1995
ISBN 978-3-409-13598-6 ISBN 978-3-663-05892-2 (eBook)
DOI 10.1007/978-3-663-05892-2
~:K1enk,Jiirgen
Gabler Verlag is a subsidiary company of Bertelsmann Professional Information.
© Betriebswirtschaftlicher Verlag Dr. Th. Gabler GmbH, Wiesbaden 1995
Lektorat: Barbara MaIks I Annegret Heckmann
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v
Foreword
Many countries throughout the world are currently striving to limit government activities
to core tasks. A central element of these reform measures is the privatisation of public
enterprises. The Deutsche Gesellschaft fUr Technische Zusammenarbeit (GTZ) GmbH
supports these efforts in the reforming countries of Central and Eastern Europe as well as
in developing countries. Kienbaum Development Services GmbH (KDS) is frequently
involved with the rehabilitation and privatisation of public or state enterprises. It was
therefore suggested that the experiences and conceptual approaches of both companies be
brought together in a synergistic manner. The result is herewith presented to the broader
public.
A holistic approach has been developed in this handbook. The distinguishing element of
this concept is that the complexity of the privatisation process is taken into account
through comprehensive and extensive consultation. Measures on the macroeconomic
level should therefore be conneCted with the microeconomic and mesoeconomic levels.
This handbook aims to present international experiences in privatisation processes in a
compact and clear format, and concurrently to clarify the special features of the
GTZlKDS approach. Both basic theory and concrete practical examples underpin the
concepts presented. The handbook is aimed at professionals in the field of privatisation,
GTZ and KDS consultants, and managers, programme planners and others affected by or
involved with privatisation in both public and private sectors.
The aspirations of this handbook also set its limits: the discussion of a comprehensive
privatisation concept cannot answer every individual question in detail. Generalisations
are, in view of the heterogeneity of questions surrounding privatisation, not always easy.
At the same time, this handbook cannot be expected to provide a self-validating
privatisation concept. Each case of privatisation has its own history and its own
dynamics.
Against the background of the concurrent treatment of both transforming and developing
countries, it is also the reader's responsibility to flexibly combine elements from the
various modules for his or her particular purposes - under consideration of differing
cultural and economic developments - in order to choose or construct the most
appropriate approach for the particular situation.
VI
The conceptual bases of privatisation processes are explained in Chapter 1. In addition
to introducing specialised terms, a typical or ideal privatisation programme under the
holistic approach is portrayed. The question of the basic underlying differences between
privatisations in developing countries and eastern reforming countries is of particular
importance and is discussed in Sub-Chapter 1.3.
The remaining three chapters follow the logic of the holistic privatisation approach, which
distinguishes between measures on the macroeconomic level (Chapter 2), on the
mesoeconomic level (Chapter 3) and on the microeconomic level (Chapter 4).
The treatment of measures on the macroeconomic level in Chapter 2 is divided into
structural framework and process-political measures. The important steps in these areas
are discussed from the point of view of supporting privatisation programmes and
therefore do not encompass all aspects of system transformations.
Chapter 3 discusses the building and strengthening of institutions on the mesoeconomic
level -institutions operating between the enterprise and macroeconomic levels. Points of
emphasis lie in the discussion of alternatives for structuring privatisation agencies,
associations, and export and investment promotion bodies.
Necessary privatisation steps on the enterprise level are discussed in Chapter 4. This
chapter begins with a discussion of whether enterprises should be rehabilitated prior to
privatisation or vice versa. This discussion is followed by the treatment of appropriate
privatisation measures which result from enterprise analysis and evaluation, valuation and
sale. Finally, measures for securing the sustainability ofprivatisations are suggested.
The correlations between theory and practice is presented in numerous practical examples
resulting from current GTZ and KDS work (identified in the case studies throughout the
handbook). Further ideas for practical applications are found in the appendix. Sources of
relevant literature are indicated at the end of each chapter for those readers who wish to
engage in further research. Finally, it should be noted again that this handbook should
serve as a working instrument. Readers' suggestions and comments are most welcome.
VII
We would like to express our gratitude, also in the name of the authors, to the numerous
GTZ and KDS colleagues who contributed valuable insight to the working discussions in
the course of developing this manual.
Eschbom and Dusseldorf, Federal Republic of Germany
Christian Pollak Dipl.-Ing. Gerhard Kienbaum
Head of the GTZ Department Minister for Economics (ret.)
"Management ConsultinglPrivate Kienbaum und Partner GmbH
Sector Promotion"
IX
Table of Contents
Foreword ........................................................................................... V
Table of Contents ................................................................................. IX
List of Case Studies .............................................................................. XI
List of Figures ................................................................................... XII
1. Conceptual Foundation of Privatisation ..•.•.•••.•.......•....•.•.•..•.. l
1.1 Privatisation and Reform Discussion: The Role of State and Private Sector .. 1
1.2 Privatisation as Central Reform of the Public Sector .............................7
1.3 Fundamental Differences between Privatisation in Developing Countries
and Eastern Reforming Countries ................................................ 12
1.4 Typical Process Flows of an Ideal Privatisation Programme .................. 18
1.5 Selection of Enterprises for Privatisation ........................................ 22
1.6 Privatisation Methods .............................................................. 24
1.6.1 Material Privatisation .................................................. 27
1.6.2 Pdvatisation of Management .......................................... 32
1.7 Obstacles to Privatisation .......................................................... 33
1.8 The Holistic Approach to Privatisation ........................................... 36
Bibliography ............................................................................... 40
2 . Measures on a Macroeconomic Level ..•.......•.••.......••.•..•..•.•. 43
2.1 Macroeconomic Determinants ..................................................... 43
2.2 Market-oriented Economics as Prerequisite for Successful Privatisation .... 44
2.2.1 Legal and Institutional Framework ................................... 46
2.2.2 Securing and Promoting Competition ............................... 50
2.2.3 Establishing a Working Price System ............................... 53
2.2.4 Financial Market Reform .............................................. 54
2.2.5 Adapted Economic Opening .......................................... 56
2.2.6 Development of a Consistent Tax System ........................... 58
2.2.7 Labour Market and Socio-Political Order ........................... 61
2.3 Stabilisation Measures ............................................................. 64
2.4 Regional and Sectoral Structural Reforms ....................................... 66
2.5 Labour Market and Social Policies ............................................... 74
2.6 Information and Public Education ................................................ 80
2.7 Timing of Individual Reform Measures .......................................... 83
Bibliography ............................................................................... 87
x
3. Measures in the Enterprise-Relevant Environment •.••.....•.......•• 90
3.1 The Important Position of Meso Level Institutions ............................. 90
3.2 Conception of an Efficient Privatisation Agency ................................ 92
3.2.1 Independent Institutions or Subordinated
Government Entities? .................................................. 95
3.2.2 Where do the Ownership and Control Functions lie? .............. 98
3.2.3 How are different Interests represented? ........................... 100
3.2.4 Which Organisational Structure is recommended? ................ 101
3.2.5 Use of Extemal Experts? ............................................. 103
3.3 Institution Building and Strengthening of Enterprise-Relevant
Entities .............................................................................. 104
3.3.1 Commercial Associations and Chambers of Commerce .......... 104
3.3.2 Export and Investment Promotion Entities ......................... 108
3.3.3 Finance Institutions ................................................... 116
3.3.4 Supervisory Institutions .............................................. 120
3.3.5 Strengthening Enterprise-Relevant Services ....................... 122
3.4 Creation of a Privatisation Network ............................................. 125
Bibliography .............................................................................. 127
4 • Measures on the Enterprise Level .••••••••••.••••.••.•........•...... 129
4.1 The Relationship between Privatisation and Rehabilitation ................... 129
4.2 The Most Important Privatisation Steps in Time Sequence ................... 134
4.3 Privatisation Strategy on the Basis of a Company Analysis .................. 136
4.4 Company Valuation ............................................................... 143
4.5 How to promote the Sale of State-run Companies ............................. 148
4.6 Negotiations with Potential Investors ........................................... 153
4.7 Measures for ensuring the Sustainability of Privatisations ................... 155
Bibliography .............................................................................. 159
Appendices
A Checklist for evaluating the Legal Policy of the Status Quo .•....• 161
B Checklists for Support of Company Analyses ••••••••••••••.•••.•••• 163
XI
List of Case Studies
• Private Property as a Means of Welfare Gains ............................................. 5
• Support of Legislative Reform in Transfonning Countries ............................. 49
Support of the Tax Administration ......................................................... 60
• Support of the Labour Administration in Kirgistan ...................................... 62
Social Security in Transforming Countries ............................................... 63
• Measures towards Active Public Participation .................................... " ...... 70
• Programmes to support Livelihood as Assistance to Structural Change ............... 73
• Integration and Occupational Support Programme in EI Salvador ..................... 78
• Vocational Training for the Integration of the Unemployed. ............................ 79
• Information Campaign in the Privatisation of NCB Bank ............................... 83
• Is the Concept of the Treuhandanstalt transferable to
Developing and Transforming Countries? ................................................ 96
• Privatisation in Zambia: Problems resulting from the Separation
of Privatisation Responsibilities and Disposal Rights ................................... 99
• Albania's National Agency for Privatisation (NAP) as
an Example of a Decentralised Privatisation Agency Concept ....... , ................. 102
• Knowledge and Experience Transfer through Partnership Projects ................... 107
• The Small Industries Development Board (SIDB) in Pakistan ........................ 108
• The Trafalgar Development Bank Ltd. (TDB), Jamaica ................................ 119
Supporting the Standards and Industrial Research Institute of Malaysia ............. 121
Rehabilitation -An Approach with a Promising Future .............. " ............. " .123
Strategic Options for the Privatisation of the Zambian Copper Mines ................ 141
• Privatisation and Sale of Morogoro Canvas Mill Ltd., Tanzania ...................... 151
• Privatisation and Rehabilitation of Mount Kenya Textiles Ltd., Kenya ........... , .. 157
XII
List of Figures
Figure 1 Main Tasks of the State .......................................................... 5
Figure 2 Privatisation as Part of a Comprehensive Reform ............................ 8
Figure 3 Framework Conditions as the Prerequisite for the
Development of Dynamic Enterprises ........................................ 15
Figure 4 Privatisation Stages and Need for Support. ................................. 17
Figure 5 Privatisation Process Orientation .............................................. 20
Figure 6 Classification of Enterprises to be privatised ................................ 23
Figure 7 Privatisation Methods ........................................................... 25
Figure 8 Major Obstacles to Privatisation ............................................... 34
Figure 9 The Holistic Approach to Privatisation ....................................... 37
Figure 10 Important Legal Foundations of a Market Economy ....................... .47
Figure 11 Characteristics of Competitive Markets ....................................... 51
Figure 12 Regional and Sectoral Measures for the Promotion of
Economic Development ........................................................ 68
Figure 13 Measures for Active Public Participation in the
Privatisation Process ............................................................ 71
Figure 14 Socio-Political Accompanying Measures ..................................... 75
Figure 15 The Most Important Steps of Public Information and
Educational Campaigns ......................................................... 82
Figure 16 Classification of Meso Level Institutions ..................................... 90
Figure 17 Structure and Relationship Network of a Privatisation Agency ........... 93
Figure 18 Factors influencing the Organisation of Privatisation Agencies ........... 94
Figure 19 Formation and Development of Associations... . . . . . . . . . . . . . . . . . . . . . . . . . .. 105
Figure 20 Export Promotion Measures ................................................. 110
Figure 21 The Most Common Mistakes made by Enterprises in Transforming
Countries with Regard to Fair and Exhibition Participation .............. 111
Figure 22 The Twelve Most Frequent Investment Promotion Measures ........... 113
