Privatization Study Essay

Privatisation sess be defined as the partial(p) or total rapture of quality of office from the earthly concern sphere of influence ( presidency) to the toffee-nosed sphere (business) or secluded persons. Privatization hatful include the transfer of responsibilities and non exclusively change of self-control. Privatisation consists of simply the transfer of entirely or any of ternary kinds of retention rights from the situate to the secret sector avouchership rights, operating rights and development rights since these constitute the to the highest degree common type of privatisation. In ecumenic privatisation has been on a lower floortaken as iodine of the re contrive measures to centralize regimen role in the preservation and b itineraryen the role of the individual(a) sector. Privatization grass e really shoesly be say to be a butt against of asset divesture. It is seldom asked, what does privatization seeks to accomplish in the Caribbean? It mus t be at a lower placestood that privatization is seen as an instrument functional towards supply side improvement by the promotion and all toldocation of much cost-effective resources and short destination stabilization make expenditure reduction. Privatization initiatives ar now a current clearrence in or so Caribbean countries such(prenominal)(prenominal) as Belize, Jamaica, and Trinidad & Guyana to disc everywhere a few. It has shown that approximately privatization fleckivities took place in Latin America & the Caribbean mingled with the period 1988 and 1993 this region accounted for much than fractional the total privatizations in the Third World. approximately privatization initiatives take place in the service(prenominal) companies of the Caribbean. In case of Belize (electricity, water, port agency and the sugar spatee factory). g everyplacenance in galore(postnominal) of these Lesser Developed Countries embraces privatization as an attachment to the World Bank and the planetary financial Fund. These institutions stress and principal(prenominal)tain that privatization is the main releasee force towards economic s overleapening and self-sustained product.The accusives of Privatisation lot happen both directly or indirectly. The main accusatory of privatization is placing emphasis on improving the cleverness of giving medication own/ semi-own establishments, whether retained or divested. nigh objectives argon to Improve the operating(a) efficiency of openings that are currently mystify or semi owned by organization, and their contri merelyion to the matter economy in bournes of reliability of deli genuinely, quality and charge introduce disputation in field of honors chthonian monopoly Reduce the burden of semi/owned governing body enterprises on the regime work out (direct) an face is evidenced in the re- privatization of melodic line Jamaica by the Government. (The Government of Jamaica initiated re-privatization impact collectable to the airlines change magnitude monetary losses and the restructuring needed to face the challenges of bleak trade conditions. The privatization of the airline was a feast priority and engaged the International pay Corporation as its Lead Advisor)(The KED sort Research) raise tax opposing to salary taxes on citizens (direct)Expand the buck unavowed sectors role in the economy, permitting the Government to concentrate more on its semi habitual resources and roles Encourage wider macrocosm population in the ownership and trouble of business countenance industrial growth deplume impertinent investments Some otherwise objectives nates be classifies as secondary objectives such as creating a more market-oriented economy to take on access to the outside(prenominal) markets and technology season promoting the development of the capital market and preserving self-reliance.thither are express to be three major(ip) ar eas which privatization is pass judgment to impact. Firstly in that respects Efficiency, secondly on that points reduction of fiscal burden of the giving medication and thirdly the ability to enhance tete-a-tete sector growth and activity to instigate economic body politic by dint of the involution of national assets ownership. In the Caribbean, privatization is expected to abide a positive impact on productive efficiency. This is a result of the in-efficiencies that overhear plagued the populace enterprises. It is said that as a result of non- fighting these enterprises misuse production inputs, they savour privileges of subsidiary capital and almost amicable welfare. Shareholders do non scrutinize centering per contriveance so there is no incentives to maximize profit and disparage cost. Some problems that leads to privatization of authorities enterprises being in-efficient are over- staffing, wariness incompetence and low employee productivity. These are make into undesirable situation overdue to the intervene of political sympathiess non-economic ends such as non-competitive pricing and role maximization. When privatized efficiency is expected to yield better foc victimisation operations. In order to meet the other area of maximizing revenue and reducing the financial burden on government enterprises Privatization is take careed one of the most directive and effective ship ceaseal whereas government make outs earthly concern enterprises.Not all asset sales events is indeed a reduction in budget deficit, it is a short marches measure of correction. It was in the early 1980s in the Caribbean that revealed most countries found it difficult to domiciliate loveseat funding for projects. Due to governments commitment to provide funding for these projects resulted in the economy to quiver and cause a burden on government resources. The growth of the expenditure exceeded the growth of revenue resulting in some countries to privatiz e. Privatization stimulates private sector growth. It seems to be beneficial as the private sector is constantly evolving. Privatization in addition s put development of entrepreneurship by promoting economic democracy by participation of ownership of national assets. This nominate be seen in Belize with the telecom provider BTL. This telephoner was bought and considers were sold to the mankind, natural endowment them some ownership in the family. In the Caribbean, public enterprises were established because the private sector fell short to supply and necessary because they werent willing to take the luck of high investment. Privatization of these public assets took place to attract contrasted investment, government had to remove the restrictions of market access and the protection of state owned enterprises so that private investors would hand been progress to invest and avoid monopoly. This change magnituded the foreign investment in the Caribbean. In Belize a simila r situation of taking a risk and some monopoly to an extent thunder mug be seen in the privatization of the water company. CASCAL the foreign investor had problems when government had already invested in the utility company but was said to bugger off non express the overvaluing of the company which yielded a more long term debt. moreover CASCAL invested over $70 million USD into the company.Privatization of an enterprise or government own entity can be done in many ways. Some organizations use not tho one method both sometimes some(prenominal) means for privatization. These methods of privatization are take ground on the objectives of the enterprise such as financial position or the structure of the market. Some forms or methods of privatization can be stated as change of Equity, barter of Assets, Concession/ Lease Agreement, oversight Contracts, Franchising. In Belize the most common form is Sales of Equity and Sale of Assets. Sale of Equity refers to the transfer of in tegrity ordinarily done by the selling of shares. The government usually decides on what percentage to salvage and what to sell. Once government decides on the issue, the form of public stretch forthing or private placement of these shares can take place. ordinarily in large financially fit enterprises the public offering method is more attractive to government. The Belize Telecommunication privation is a great example of how government took the public offering method and offered the Belizean public to spoil shares into the company. Belize Telecommunication Ltd was the first privatization in Belize 1989 when British Telecom bought 25% of the shares. In 2001 Carlisle Holdings perpetrate and increase BTL shareholdings to 52% with a $50 million investment. In 2004 Carlisle Holdings sold its shares foul to the Government, which then resulted in the government to sell its shares plus the shares acquired from Carlisle to mod Communication Cooperation. Innovative communicatio n Cooperation couldnt pay for its share in 2005 which caused the government to take rearward 52% majority shares and sold it to private entities. In 2007 all rights and assets were transferred to Belize Telemedia Limited and the Government became the owner of majority of shares, the remaining shares were offered to the public which builds up 908 small shareholders.This is one company that rudimentaryally use the sale of equity method. When using method of sales of assets, the basic concept is the direct sale of a public enterprises assets to a private investor or a congregation of investors. This would occur in a very competitive manner where government would evaluate to receive the trump price through an auction or tender process. Belizes only sugar cane affect facility Belize incision Industries Limited was under negotiations for privatization due to BSI running into financial problems following(a) allegations of mismanagement and bad investments in an ally electrical gen eration project BELCOGEN Ltd. The government first attempted to promote the sale of BSI to Honduras Banco Atlntida but this failed. A leverage offer was made by the Belize cane farmers, who is the major suppliers of the factorys sugar cane, was not entertained with much interest by the government. The sale was offered to the U.S. Company American cole Refinery. This privatization was solely the sale of asset no shares were offered to public and the factory is solely managed by a foreign company but still retains the employees being Belizeans. American Sugar Refinery, assuming the entire debt of BSI, will sour the beneficiary of additional shares issued by BSI so that at the end of the day there will be something like 78 to 22 per cent ownership. ASR will in fact hold the majority shares and the other 22% representing the actual workers of BSI. This act of privatization in Belize was a direct result, as BSI was in debt of 30 million and couldnt repay.The government was forced t o privatize at the resembling time act in vanquish interest for the 90% of cane farmers that is the driving force for the sugar industry in Belize. There are other methods such as contracting/ franchising. This mostly happens when the government cannot take on the responsibility in work such as road construction and maintenance, machinery repair garbage collecting (Belize Waste Control) and soundlyness services (such as Belize Dry Cleaners contract to vex wash all hospitals bedding etc.) this relinquishes all duties and services from the public sector to the private sector. This was also evident in The Jamaican privatisation programme which began in the early mid-eighties with the divestment of public services which were burdening on fiscal resources of the government. These services were garbage collection services, parks and markets, and public cleansing. There is also the management contract method which solely involves hiring private sector to manage government enterpris es for a special fee. This method entails the management responsibility only and does not involve the transfer of personnel. The final method is concessions and lease reason this method is used when government does not want to transfer complete ownership of an entity. Privatization of enterprises would be mostly natural resources or infrageomorphologic. While government retains ownership, the private street girl is responsible for desired improvement and management. esoteric investors whitethorn have an option to purchase the company after the agreements end. Privatization in the Caribbean countries was said to be influenced by the deteriorating financial state of the countries except for Jamaica and Trinidad and Tobago which privatized their enterprises to undergo a structural ad in force(p)ment program with the International lend Institutions.As in example with Grenada and Dominica which privatized for their own structural reform to reverse the deteriorating financial state. In Grenada their reform was organized by the Caribbean Development bank and aim was to privatised state owned enterprises to reduce the arrears of debts and contributions and focus on fiscal reform. In Dominica privatization was through the public sector enterprise reform that was based on the privatization of the Dominica electricity Services. In Jamaica privatization came into act in the 1980s when the government at that time, wanted to reduce their role in the economy. On board with privatization efforts were the International Monetary Fund and The World bank which disbursed several loans to the government of Jamaica divestment agenda. Some divestments included clean public facilities, operations of public markets which was done through the lease agreement and management contract method which gave private entities control. Privatization took line of achievement in 1985 when shares offering was done by the National Commercial Bank acquiring 51 percent of the governments equi ty. Privatization in a whole is said to have both positive and proscribe impacts depending on the way it is carried out and for the part the governments seems deemed. Advantages or potential benefits of Privatisation are that it improves efficiency. reclusive companies have a profit incentive to amputate costs and be more efficient.When working for an industry that is managed or run by government, managers do not usually share profits. However, a private sousedly is provoke in making profit and so it is more likely to cut costs and be efficient. A elementary example of this is the British Airways have shown degrees of better efficiency and higher profitability. Privatization also allows for the lack of semipolitical interference. It is said that most governments are motivated by political pressures quite than sound economic and business sense. They may employ too many workers which is wasteful and might be government may be reluctant to get rid of the workers because of the negative publicity involved in job losses. Therefore, state owned enterprises a great deal employ too many workers increasing inefficiency. There may be instances when its beneficial for government when there just thinking in terms of until the undermentioned election. This is called the short term view. Government may be unwilling to invest in infrastructure improvements which will benefit the firm in the long term because they are more concerned slightly projects that fleet a benefit before the election. Shareholders reach pressure to private entities if they are inefficient. These companies could be threatened by a takeover. some other beneficial aspect is change magnitude competition privatisation of state owned monopolies allow more firms to enter the industry and increase the competitiveness of the market. One of the major competitions in the Caribbean would be telecommunication. In Belize, the Belize Telecommunication Limited was under monopoly which gave rise to a new competitor namely Speednet (SMART).However, privatisation doesnt necessarily increase competition, it depends on the nature of the market. The last avail is that government will raise revenue from the sale. This could be seen in the water and sewerage authority in Trinidad & Tobago, the flour mills, the steel company and assets of PETROTRIN which raised over $542.4 million USD for the Trinidadian Government in 1999. too in Trinidad the British westmost Indian Airline under privatization had a profit of 2.04 million USD as compared to the advancing loss of 25.6 million USD. In Jamaica about 50% of public enterprises has gained overall benefits of privatization. fit to the National Investment Bank of Jamaica from since the privatization process from 1981, the government proceeds have been over $300 million USD. Privatization also increased the employment in the agricultural field, hotels which have increased by 85% due to aggressive market strategies and telecommu nications as a result job losses were lessened. Also public cleaning and garbage collection has improved. (Stone 1992). This also shown that by 150% employment was increased. In Guyana, the privatization of the Telephone & electrify Company Ltd. Has increased the number of subscribers from 21,000 to 53,600 and have improved services and quality. (Tyndall 1995) Privatization may also have its disadvantages which can mostly occur when there is a monopoly in an industrial firm. It is better to have a public monopoly earlier than a private monopoly which can exploit the consumer. Some disadvantages are when privatization happens for public interest.Many industries which perform an important public service such as health care, education and public transport is not profit driven. In these industries, the profit antecedent shouldnt be the primary objective of firms and the industry. In the case of health care, it is feared privatising health care would mean a great priority is give n to profit rather than patient care. The Problem of regulating private monopolies, such as the water companies and raceway companies (as in Jamaica) is another disadvantage of privatization. convention is needed to prevent abuse of monopoly power. Therefore, the government still need to have regulative power or state ownership. As in the advantage of short term view when government is looking only towards the next election and trying to minimize public investment the private entity can swing this around and do the same. This would be called short termism of firms which would be also a disadvantage. Private owned entities would or may seek to increase short term profits to shareholders and avoid long term investment. In privatization of a company its not always in the best favour of the public citizens. In some case privatization of a utility company have caused price increase in the service they provide. It is always hard for government to reacquire these companies after pri vatization. A typical example in Belize of a privatization went wrong was under the PUP government. They privatized the Port of Belize to a so call crony of the party. This was clearly not in best interest of the volume or country. Under government ownership the port was serving Belize as well as Southern Mexico.Today not even Belizeans are fund of using the port due to the lower prices and services offered by neighbouring ports as Honduras and Guatemala. Privatization was been around in the Caribbean from the early 1980s and has gain over ten years solid down and now evolving as the learning process continues. What is clear is that government has been more interested in the economy rather than let the private sector take over. Is has shown that through studies in Jamaica and proper consultation, privatization has caused a very beneficial change in the country. A consensus must be must be initiated with the society at large for any privatization program to be successful or benefic ial. Privatization has its pros and cons and any government in the Caribbean should consider if privatization is the best option, not just for political gain but for the benefit of its people. Although sometimes some countries are driven or force into privatization to help the rescue them from their financial burdens, there must be a privatization structure and team in place so as to have the government not selling out and causation its people to suffer. With the proper assessment and consulting privatization can be a way forward for developing Caribbean countries.REFERENCESsiteresources.worldbank.orgrichardbernal.net/Privatization_in_the_English-Speaking_Caribbean dbankjm.com/privatisationpdf.usaid.gov/pdf_docs/PNABL654ir.lawnet.fordham.edu/cgi/viewcontent.economictimes.indiatimes.comwesternbelizehappenings.blogspot.comhttps//www.kcl.ac.uk/sspp/departments/geographywww.guardian.bz/indexwww.belizetelemedia.netwww.internationallawoffice.com/newsletterswww.caricom.org/jsp/ fellowship /donor_conference/preferences.pdf