‘Privatization of government assets as a tool of budgetary strategy’

(Third of five parts)

D. Macroeconomic benefits of privatization

A World Bank report in July 1992 reported that “8,500 enterprises in over 80 countries have been privatized in the past 12 years.” The privatization bandwagon virtually started in the early 80’s when Great Britain, under then Prime Minister Margaret Thatcher started selling off major government owned assets, in a program termed devolution. This was established on a simple underlying principle that “what you own, you take care of, what nobody owns or everybody owns falls into disrepair”. This program privatized seven major commercial airports, millions of units of public housing and British Telecom among others.

A later World Bank report registered figures of 7,860 privatization transactions between the years 1990 to 2003 in 120 developing countries valued at $400 billion.

The World Bank provides the most comprehensive data on privatization, be it from developed countries or emerging countries. The latest data they have however, is still dated 2007 and the 2008 updates will only be released in December 2009.

They provided some updates on privatization, but exclusive to PPP’s and only for infrastructure, and for emerging countries only. The World Bank noted that as a result of the global financial crisis, the infrastructure side of privatization is witnessing a slowdown, primarily due to the increased cost of financing or total lack of it. It added though that is still refining the data and it may be too early to tell if the trend will continue for the rest of the year.

The latest World Bank figures show that privatization has had quantum leaps in the developing countries.

The $735 billion is the total proceeds from privatization activities in 132 countries, from China which has the biggest total to Gambia which has the smallest amount of proceeds. Global figures (which are difficult to come by) are an estimated $1 trillion until 2007, so that would place the developing countries as the major contributors in privatization proceeds.

China which heads the list is an interesting study. About 75 percent of its privatizations were done in 2005 to 2007. Brazil got most of its proceeds, about 57 percent, in the years 1997 to 2000.Mexico got its biggest share, about 52 percent, in the years 1990 to 1992 and got 9.9 percent in one year alone, 2007. Chile, the original privatization country, got a steady stream of about three to six percent (save for a few low years) from 1988 to 1998 then had two big ones in 1999 and 2004 which contributed about 45 percent to their total. The Philippines, which ranks 22nd in this list, recorded the highest privatization amounts in 1992 and 1993 of about 34 percent and in the years 2006 and 2007, of about 38 percent. Interestingly, total privatization proceeds for China in 2007 contributed 2.18 percent to its total GDP and for the Philippines in 2007, it contributed 1.51 percent.

These figures underpin the benefits of privatization to the governments who seriously undertake the programs.

(To be continued)

(This article was originally published at the Financial Executives Institute of the Philippines [FINEX] publication entitled, “Getting to Know the National Budget, A Series of Discussion Papers to Create Awareness and Interest in Budget Reform [An educational service of the FINEX Public Affairs Committee through its National Budget Study Group]” released on January 2010.)

(Vicente Julian A. Sarza is a Principal of Advisory Services of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email manila@kpmg.com or vsarza@kpmg.com) –Vicente Julian A. Sarza (The Philippine Star)