I I I I I I BOTSWANA CONFEDERATION OF COMMERCE INDUSTRY AND MANPOWER I Privatisation in Botswana - August 1996 I Final Report ,0£! I.,_t,.f *h\:11±'.i .. 4!,t) ,, , l." 4,W f.!;;.Ji', . * ( i,i,.<tQ,. ""' J> '""''" 191 !M!w,4 •• ,.iqk.•i *··'"··*"'·" 4 , ~•.>11'1-1,·, ; .;; .... J .. _.,1, ·' I I I ·1 I I I I I I I I PRIVATISATION IN BOTSWANA Page No. I Executive Summary 1 I Introduction 5 I Terms of Reference 5 Enterprises in Sample 6 1- Acknowledgements 8 Report Contents 8 I Selection of Divestiture Targets 10 I Background IO Changing Relations between Government and Parastatals 10 I Restructuring Parastatals 14 Restructuring commercially oriented Government Departments 15 I Changing the Role of Local Councils 17 Removing Obstacles to Sale Transactions 18 I Policy concerns 19 Legal constraints 19 I Formal agreements 19 Monopolies 19 I 20 Performance issues- I Selecting Sale Method 20 Public issues 20 I Trade sales 23 Asset sales 23 I Employee buy outs 24 Joint ventures 25 I Contracting out 26 I I I I Privatisation Options and their Consequences 28 Background 28 I Government 29 Company Management 30 I Employees 32 Customers 32 I Investors 32 I Special Interest Groups 34 Promoting the Privatisation Programme 35 I Publicity Techniques 35 I . Financial Incentives 37 I Scheduling the Privatisation Programme 40 Background 40 I Capacity Constraints 40 Areas ofFocus 40 I Privatisation Plan 41 I The Cost and Revenue Implications for Government 43 Evaluating Financial Impacts 43 I Botswana Meat Commission 44 Botswana Telecommunications Corporation 45 I Botswana Housing Corporation 45 Botswana Savings Bank 46 I Conclusion 46 I Organisational and Legislative Implications 47 I Background 49 Organisation of the Programme 49 I Privatisation Legislation 52 I I I Appendices Appendix A: Gaborone City Council Al -A5 I Appendix B: Central Transport Organisation Bl -BS Appendix C: Department of Architecture and Building Services Cl--- CS I Appendix D: Botswana Savings Bank DI -D4 Appendix E: Botswana Railways El -E5 I Appendix F: Department of Supply Fl -F6 Appendix G: Department of Printing and Publishing Services GI -GS I Appendix H: Botswana Housing Corporation HI -H9 Appendix I: Botswana Telecommunications Corporation 11 - 18 I Appendix J: Botswana Meat Commission JI - JS I -Appendix K: Botswana Power Corporation Kl -KS Appendix L: Air Botswana Ll -LS I Appendix M: MFDP Accounting Unit Ml-M4 I I I I I I I I I I I I I Executive Summary I We were invited by BOCCIM to carry out a study on privatisation in Botswana. The I study involved a review of a sample of state owned enterprises, including parastatals, Government departments and councils. _9ur analysis showed that there is substantial potential for privatisation in Botswana, which could have a considerable impact on the way the country I is serviced. The scope for privatisation covers not only the possible sale of several parastatals but also a number of executive functions of Government and activities of local councils which could be transferred to -the private sector. In the process, the role of Government could be I transformed from one of owning and doing to one of expediting and regulating. 2 The transition from microeconomic management based on Government intervention I through parastatals to an approach which places greater reliance on market forces involves substantial policy decisions. Activities such as the provision of middle and upper income housing, the marketing of maize and sorghum, the running of airlines, the export of beef, the I running of printing services, rural savings mobilisation and lending, the management of transport fleets and provision of telecommunications services can certainly be left to the private sector. This is the position in many other countries. But the Government of Botswana I has intervened directly and extensively in these areas, as was necessary in the early years after independence. It may now b~ prepared to change its approach but only after evaluating the I effects can it confirm that it is prepared to move to a market oriented approach. 3 As a starting point for implementation of the programme, we suggest that there should I be a transition to a more commercial approach to running the public sector as a whole. This - would involve:- I (a) Establishing an arms length relationship between Government and parastatals, which would preserve and enhance Government's role in agreeing parastatals' plans and monitoring their performance but give parastatals greater freedom in I taking pricing, operational and investment decisions. (b) Turning a number of Government departments into parastatals and putting their I relations with Government onto a commercial basis. They would join other parastatals in adopting accruals based financial and management accounting systems. They would sell their services to Government and Government could I procure from elsewhere if it wished. I (c) Introducing accruals accounting into councils. These arrangements would provide both a better framework for those entities which stay in I the public sector and a sound basis for privatisation of those which are being sold. 4 In parallel with the move to a more commercial approach to running the public sector, I work can begin on privatisation transactions. Sales could be made through a variety of methods including:- I I 2 I (a) Public issues. We identified the Botswana Meat Commission, the Botswana I Telecommunications Corporation and Air Botswana as potential candidates to be sold by this method. I (b) Trade and asset sales. The Botswana Savings Bank or the housing stock of the Botswana Housing Corporation (BHC) could be sold by this route. I (c) Employee buy outs. These could be alternatives to asset or trade sales for entities such as the fuel points and workshops of the Central Transport Organisation, the depots of the Department of Architecture and Building I Services and the maintenance activities of the BHC. I (d) Contracting out. A number of enterprises are already contracting out services as diverse as vehicle repairs, refuse collection, building maintenance, printing jobs, security, construction, uniform manufacturing and catering. There is I substantial scope for expanding contracting out in both established and new areas. I 5 All these approaches have some novel aspects for Botswana which will require careful management. Public issues should be planned so as to attract the maximum public interest and create a generation of citizen shareholders through special incentives such as financial I discounts and trust funds. They provide a major opportunity for developing the Botswana Stock Market. Employee buy outs can create new locally owned businesses and Government should create financial and managerial mechanisms to ensure that they are supported. Effective I contracting out requires in~reased skills in tendering procedures and contract writing, some of which are available through the sharing of existing experience. It is therefore important to plan I the programme well so as to gain the full potentfal benefits. 6 This requires an appropriate institutional framework for managing the programme. We suggest that, within the Cabinet, overall responsibility for the privatisation programme should I rest with the Minister of Finance and Development Planning (WDP). The Minister would be supported by a privatisation committee, chaired by his Permanent Secretary. The committee I should have eight to ten members, drawn from both the private and public sectors. Responsibility for the implementation of individual transactions would rest with the sponsoring I ministry for the parastatal or department affected, through a reference group. 7 - It is vital to keep sponsoring ministries closely involved in managing the transactions. It is only through their active commitment to the programme that all the potential I opportunities for privatisation in Government can be identified and realised. Furthermore, sale transactions for complex parastatals have to be handled on a case by case basis as they are bound to raise unique legal, regulatory and policy issues which only the sponsoring ministry is I competent to address fully. 8 However, recognising that ministries will not have all the technical skills to manage I transactions, both the programme as a whole and the individual transactions would be supported from a small unit in MFDP. The unit would act as a secretariat to the privatisation committee and support the committee in developing overall plans and policies for I implementing privatisation. It would also provide technical support to ministries through therefore be able to advise ministries on the I membership of the reference groups. It would 3 overall direction of the programme and to report back to the privatisation committee on the progress being made by each ministry and on each transaction. The unit should be structured along the lines of the Shashe Project Management Unit or the North South Carrier I Implementation Unit. 9 The unit would report to a senior civil servant in the :MFDP, possibly the Permanent Secretary or alternatively one of his immediate subordinates, who would haye responsibility I for the unit, along with other responsibilities. Within the unit there would be at least one experienced privatisation specialist, designated as the Chief Technical Adviser, who would co-ordinate- the technical advice to decision makers in the privatisation committee and the I reference groups. The ideal candidate for this post would be a citizen who could combine privatisation skills with deep knowledge of the economic and political situation in Botswana. I This ideal is not likely to be achieved in practice as privatisation skills are not widely available in Botswana. The Chief Technical Adviser is therefore likely to be an expatriate. I 10 The unit would have about three other staff members initially but staffing might need to be higher or lower depending on the rate of progress of the programme and the needs for central support to ministries.