Undue interference by Ministers into the day-to-day operations, lack of autonomy for decision making by management… all result into poor performance leading to financial conundrums
Privatization of the CWA
There we go again with a Minister (government?) trying to peddle the project of privatization of yet another strategic asset of the country. In this case the strategic nature of the object being proposed is not strictly related to a financial consideration. In a general global context where water is increasingly viewed as a scarce basic resource and in a world in which climate change is a determining component of any responsible government’s preoccupation, such a move would constitute a regressive measure and yet another case of the state shying away from one of its fundamental responsibilities.
This column does not take a position of blanket rejection of privatization. We have suggested in the past that in some specific cases of State Owned Enterprises (SOEs) involved in commercial activities – where the mission of the enterprise is essentially profit oriented – there may be space for introduction of private capital in their equity structure in the interest of greater efficiency.
In contrast the view is also taken that any attempt to proceed with the privatization of what are considered essential services such as water supply would constitute a total aberration in our historical, socio-political and economic context. The rest of this article will endeavour to make the point.
The imperative for autonomy
The single most important rationale for the setting up of parastatal bodies such as the Central Water Authority and others has always been that by their very nature these institutions can neither function within the straitjacket of a government department nor the profit motive framework of private business. In fact since the 1990s the trend has been to provide even more autonomy to these bodies through a process of “corporatization” — a process by which a pre-existing statutory body is converted into the status of a company in which the State remains the sole shareholder.
From the government’s point of view, such a disposition is generally required for two principal reasons. The technical nature and expertise required for a particular activity is such that the recruitment of talents and remuneration policies need to be freed from the shackles of the Civil Service system of “equivalence” and other terms of employment. The nature of the activity is also such that it cannot be accommodated within the general conditions of employment of the traditional civil service structures. In such cases it is more appropriate to set up an autonomous board to run the affairs of the “company” within the general policy framework defined by the government of the day.
There are a number of reasons for which in such cases governments do not proceed with a straight privatization of these institutions. Among others there is the fact that often such bodies are in effect “natural monopolies” which do not function within a “competitive market” and privatization only results in a change of ownership without the purported benefits of “competition”. Then there is a political dimension whereby the State considers that the provision of what are defined as essential services for the people remains the responsibility of the government which is finally accountable to the population for the quality of service provided.
The debate concerning privatization is in the end largely a matter of “ideology” and of the world view of those engaged in it. In the United Kingdom, for example, the Labour Party under Jeremy Corbyn is proposing to renationalize a number of sectors which had been privatized under previous Conservative governments. The rationale is often that the nature of the processes for providing the service/product is such that it cannot be left to the play of market forces and the logic of returns on investments, especially in these days of pressure on businesses to deliver short term returns to shareholders.
While supply and demand curves are undoubtedly great tools for micro-economic analysis, one cannot even start imagining that sections of the population would be excluded from provision of water because they lack the purchasing power to even enter the market. Such is in fact the nature of the service/product that it cannot be “commoditized”.
How insult is added to injury
Having said the above, the point we wish to make here is not about WHY the proposed privatization of the CWA should not go ahead but rather to deplore a process which is considered to be an insult to the intelligence of the Mauritian nation.
Every time a case is made by a government minister or other generally vested interests for privatization of a statutory body, the leitmotiv is inevitably that the latter is financially unsustainable. However, in almost all these cases, a closer examination of the matter will show that the main cause of poor performance of these organizations is inevitably related to the denial of the very raison d’être for which these bodies had been structured as parastatals or corporatized.
Undue interference by Ministers or officials of ministries into the day-to-day operations, lack of autonomy for decision making by management and dearth of independent and competent directors who can add value to the board’s decisions as well as constant second guessing of the decisions of the board by outsiders all result into demoralized management and poor performance leading to financial conundrums. All too often it must be said the political appointees at management levels are part of the problem.
Having thus sabotaged the organization, those responsible for its impairment are amongst the first to start calling for “privatization” as the panacea. And the cherry on the cake becomes evident in cases where privatization does go ahead. The new owners are usually foreign companies and the new management is almost inevitably composed of expatriates. It is absolutely incredible to observe how suddenly the whole policy environment changes – even in cases where the government keeps an important fraction of the shareholding of the new set-up. Ministers and their officials suddenly start to behave. The freedom and latitude which had been denied to local management is suddenly the new “mantra” and the new owners are given full freedom to make decisions including the “unavoidable” increase in price of services/products.
The above naturally begs the question: is it inevitable that Government owned entities (GOE) should suffer from the above malfunctions? The success of a number of GOEs in the local economy points to the opposite. It finally boils down to the political will and determination to create the right policy environment to favour the emergence of serious new players in the national economy and a consequent widening of the circle of opportunities.