Out-Law News | 11 Dec 2017 | 10:10 am | 2 min. read
The newly-released 'African trends going into 2017' report by Deloitte said many African countries are now beginning or re-energising long overdue privatisation processes.
While many states in the region have been “particularly resistant to privatisation”, the report said “the combination of rising external debt, along with the accompanying interest payments, and weak currencies may force them to sell off assets such as utilities and infrastructure”.
According to the report, a number of African nations are being forced to embark on “long overdue sales of state-owned assets” to shore up their balance sheets “under increasing fiscal pressure from reduced export earnings and the impacts of currency depreciation”.
Mozambique looks likely to be one such example, the report said. “To rationalise state spending and reduce fiscal risks, the Mozambican government has approved an independent external audit of public funds and legislation in order to begin reform of public enterprises.”
More privatisations and the closure or restructuring of public companies are expected in Mozambique, the report said. The move follows a 2016 government announcement that it expected “to sell (or close) up to 40 state-owned companies”. “This is viewed as a progressive move for the economy and provides numerous opportunities for firms looking to expand into the country,” the report said.
In Zambia, the International Monetary Fund (IMF) “is calling for the restructuring of the state-owned power utility, Zesco, as part of a proposed $1.5 billion support package”, the report said.
Meanwhile, in Ghana, the IMF is advising a “contentious” shift to independent power producers from the state-owned Electricity Company of Ghana – “a reform that trade unions oppose”, it said.
In Kenya, the IMF provided “further access to financial support” last year in a bid to help reform the country’s macro economy and institutions, the report said. The move came after Kenya announced the privatisation of 23 state-owned firms in 2012. The IMF has also urged authorities to push further ahead with proposals that would lead to “a substantial increase in foreign-financed public investment”.
Deloitte’s report said even African countries that are “not yet under severe fiscal strain” are likely to take a closer look at their debt sustainability – which in turn could “provoke further privatisation”.
Ethiopia is highlighted by the report as one country “making moves towards privatisation in an effort to promote foreign investment”.
“The government made an announcement early in 2017 that the country is shifting away from state investment as a means of driving growth and is offering stakes in some state-owned companies to foreign firms,” the report said.
A possible driver of economic transformation in some African countries into manufacturing and higher value-added exports could be “the enormous opportunity presented by the shifting value chain of production in Asia”, the report said.
“The rising cost pressures on China’s light industrial manufacturing sector will cause manufacturing capacity to be relocated to lower-cost foreign economies,” the report said. “As this shift in production out of China’s southeastern provinces takes place, forward-looking African countries could emerge as ‘new Vietnams’ – offering low-cost destinations for manufacturing investment from China.”