Privatisation has been a significant policy tool for economic reform in Kenya, aimed at enhancing efficiency, attracting investment, and improving service delivery. This article provides a detailed overview of the Privatisation Process in Kenya, including its stages, benefits, challenges, and the legal framework governing it.
Whether you are a business owner, investor, or policy enthusiast, understanding this process is crucial for navigating Kenya’s evolving economic landscape.
What is Privatisation?
Privatisation refers to the transfer of ownership and management of public assets or enterprises to private individuals or entities. The goal is to enhance efficiency, stimulate economic growth, and improve the quality of services.
In Kenya, privatisation has been applied to various sectors, including telecommunications, energy, and transport.
Legal Framework Governing Privatization
The Privatisation Act, 2023 is the primary legislation governing the privatisation process in Kenya. It is a landmark piece of legislation designed to govern the privatisation of public assets and enterprises in Kenya.
It replaces previous privatisation laws with updated provisions to streamline the process, enhance transparency, and align with contemporary economic practices. The Act sets out the legal and regulatory framework for transferring public assets to private ownership, ensuring that the process is efficient, transparent, and beneficial to the public.
The Act establishes the Privatisation Authority, which is responsible for formulating, managing, and implementing the privatisation program.
Methods of Privatization
The Section 29 of the Privatisation Act, 2023 outlines several methods for privatizing public assets:
Initial Public Offering (IPO): Shares of the state-owned enterprise are offered to the public through the stock exchange.
Sale of Shares by Public Tender: The enterprise is sold by Public Tender.
Sale Resulting from the Exercise of Pre-emptive Rights; or
Such Other Method Determined by the Cabinet
Key Stages of the privatisation Process Under the Act
The privatisation process as outlined in the Privatisation Act, 2023, involves several key stages:
1. Identification and Assessment
Objective: Determine which public assets or enterprises are suitable for privatisation.
Asset Identification: The government, through the privatisation Commission, identifies state-owned enterprises or assets that are eligible for privatisation. This selection is based on factors such as operational inefficiencies, potential for growth, and strategic importance.
Assessment: A thorough evaluation is conducted to assess the financial health, operational status, and market potential of the asset. This includes a comprehensive audit to determine the asset’s value and identify any potential issues that need addressing before privatization.
2. Legal and Regulatory Framework
Objective: Establish a legal basis and ensure regulatory compliance throughout the privatisation process.
Legislation: The Act provides the legal framework for privatisation, detailing the roles and responsibilities of the Privatisation Commission and other relevant bodies. It mandates adherence to transparency and fairness in all privatisation activities.
Regulatory Compliance: Compliance with relevant laws and regulations is critical. This includes environmental laws, labor regulations, and sector-specific rules to ensure that the privatisation process does not adversely affect public interests.
3. Strategic Planning and Public Consultation
Objective: Develop a detailed strategy for the privatisation and engage with stakeholders.
Strategic Planning: A comprehensive privatisation plan is developed, outlining the objectives, timelines, and methods of privatisation. The Act emphasizes the need for clear strategic goals to guide the process.
Public Consultation: Engaging with stakeholders, including employees, the public, and potential investors, is essential. Public consultations help address concerns, gather feedback, and ensure that the privatisation process aligns with public interests.
4. Valuation and Financial Structuring
Objective: Determine the value of the asset and structure the financial aspects of the privatization.
Valuation: Professional valuation firms are employed to assess the market value of the asset. This process includes evaluating the asset’s financial performance, growth prospects, and market conditions.
Financial Structuring: The financial terms of the privatisation are developed, including pricing, payment methods, and financing options. The Act provides guidelines on structuring these terms to ensure fair and transparent transactions.
5. Marketing and Sale
Objective: Promote the asset to potential buyers and finalize the sale.
Marketing: The asset is marketed to potential buyers through various channels, including investment banks and public announcements. Transparency and comprehensive information are crucial to attract serious investors.
Sale Execution: The sale process involves bidding, negotiations, and finalizing the transaction. The Act mandates that the sale be conducted in a transparent and competitive manner to ensure the best outcome for the public.
6. Post-Privatization Monitoring and Evaluation
Objective: Monitor the performance of the privatised asset and ensure compliance with the terms of privatisation.
Performance Monitoring: After privatisation, ongoing monitoring is required to ensure that the privatised asset meets performance standards and regulatory requirements. This includes tracking financial performance and service quality.
Evaluation: A post-privatisation evaluation assesses the overall success of the process, including its impact on the public and the effectiveness of the privatisation strategy. The Act emphasizes the importance of evaluating outcomes to refine future privatisation efforts.
Benefits of Privatisation
Privatisation offers several key benefits:
Enhanced Efficiency: By transferring management to the private sector, the Act aims to improve operational efficiency and productivity of public assets.
Attracting Investment: privatisation under the new Act is expected to attract both local and international investors, fostering economic growth and development.
Improved Service Delivery: Private sector involvement can lead to better service quality and innovation, benefiting consumers and the public.
Revenue Generation: The sale of public assets generates revenue for the government, which can be reinvested in other critical areas.
Challenges and Considerations
Despite its advantages, the privatisation process under the Act faces several challenges:
Public Resistance: There may be resistance from the public or employees concerned about job security and access to services.
Regulatory Compliance: Ensuring compliance with all relevant regulations can be complex and require significant resources.
Market Risks: Market conditions can affect the valuation and success of the privatization, necessitating careful planning and risk management.
Ensuring Fairness: The process must be transparent and fair to prevent corruption and ensure the best outcomes for the public.
Conclusion
The Privatisation Act, 2023, represents a significant advancement in Kenya’s approach to economic reform. By providing a clear legal framework and emphasizing transparency and efficiency, the Act aims to improve the management and performance of public assets.
Understanding the stages of the privatisation process and the benefits and challenges involved is essential for stakeholders navigating Kenya’s evolving economic landscape.
For more detailed information, please refer to the Privatisation Act, 2023.
*Recent Development
On 24th September 2024, the Privatisation Act, 2023, aimed at regulating the privatisation of public entities in Kenya, was declared unconstitutional by Hon Justice Chacha Mwita sitting in the High Court in Orange Democratic Movement Party & 4 others v Speaker of National Assembly & 5 others (Constitutional Petition E491 of 2023 & E010 & E025 of 2024 (Consolidated)) [2024] KEHC 11494 (KLR) (Constitutional and Human Rights) (24 September 2024) (Judgment)
The court’s decision was based on three main arguments:
Lack of Public Participation: The Act was found to have insufficient public involvement during its formulation, violating Article 10 of the Kenyan Constitution.
Transparency and Accountability Issues: The Act lacked clear guidelines to ensure transparency and accountability, raising concerns about potential misuse and corruption.
Potential Violation of Economic and Social Rights: The privatisation of essential services without adequate safeguards could negatively impact vulnerable populations.
The ruling emphasizes the need for future legislation to ensure meaningful public participation, clear guidelines for transparency and accountability, and protection of economic and social rights. This decision sets a precedent for upholding constitutional values in legislative processes in Kenya.
To learn more, see the full judgement in Orange Democratic Movement Party & 4 others v Speaker of National Assembly & 5 others (Constitutional Petition E491 of 2023 & E010 & E025 of 2024 (Consolidated)) [2024] KEHC 11494 (KLR) (Constitutional and Human Rights) (24 September 2024) (Judgment)
