Ministry of public enterprise which is mandated to facilitate privatization of government owned co has announced their plan to sale Assela malt factory; which is the oldest and major supplier of malt for brewery companies.
According to the reporter issued on November, 18, 2017, there is keen interest by Oromia regional Government and Oromia Cooperative unions to buy the factory. However, the Federal government is also looking outside to search foreign investors. Meanwhile, a team which was led by Dr. Girma Amente went to Europe in search for new investors.
Since the regime change had taken place 1993, Ethiopia adopted market economy as a means to insure sustainable, fast and efficient economic growth. Following this, privatization of public enterprise has taken place over the years. This strategy has insured efficiency and profitability for many Companies such as Bedele, Harar, Meta breweries are profitable and efficient after they were sold to foreign Brewery conglomerates; Heineken and Diageo Similarly, as an extension, over the week ministry of public enterprise issued public foreclosure to sale Assela Malt factory; the oldest malt factory which had a phenomenal market share until the emergence of Dashin Malt Sco.
According to the article published on the reporter Nov, 18, 2017. There was a request by competing interest groups to take over the malt factory which is located around 165km south west of Addis Ababa. Though the needs can be analyzed from different vantage point, for the rationale of our analysis this paper will provide a perspective mainly from theoretical notation of privatization of Assla malt factory to address the following questions.
a) Is it vital for Ministry of public enterprise to privatize Assla malt factory?
b) If it’s necessary to privatize; to whom should it be sold to assert efficiency and maximum short run and long run benefit to the nation?
Arguments of privatization in favor and against advocates fundamentally lay on their political paradigms. Thus, the coming theories are emanates from political ideologies of organizations to effective from economics point of view.
In this regard, the public choice theory is the economic analysis of capitalism, neo-classical or market fundamentalism Political-economy. This theory argues the necessity to decrees the size and growth of government to maximize efficiency through privatization. Their arguments are supported by two critical reason propositions. The prime one is, there is no generally accepted method of combining individual preferences in to unified social preference. The second proposition is peoples act primarily based on self-interest.
On contrary, anti-privatization thought which emanates from socialism or communism advocates resources has to be used collectively to maximize and equate social welfare. When we domesticate the proposition of anti privatization to our case, we will gate a tall and highly structured bureaucracy to merge and mange individual resources collectively. Thus, anti- privatization or collective ownership is dominated by strong and tall bureaucracy, which will be represented by Max Weber’s theory of bureaucracy for our analysis.
Since, the unit of analysis of this review is Organizational level; the reviewer shall downsize both theoretical views to fit it to Assela Malt Factory privatization case. The scope and degree of analysis shall be limited to investigate the matter from inefficiency in related to the nature of the good/service and administration vantage point. Finally, the proposition of the writer is In favor of privatization of Assla malt for foreign investor as foreign direct investment (FDI).the next paragraphs will illustrate the argument through deductive approach backed by theoretical foundations highlighted above and personal experience to provide realistic conclusion.
Inefficiency caused because of the Nature/Type of the good: Malt (private good)
A mainstream economics thought argues that in efficiency arises when the government involves in provision of private goods. Since, private goods are divisible and excusable and the owners have a self centered profit maximization motive. Conversely, a government is structured and behaviorally oriented to maximize social welfare through provision of public goods which have indivisible and non-excusable nature. This argument is theoretically supported by Public choice theory. According to this theory domination of self-interest in the organization makes it difficult to make Asseal malt factory efficient. Furthermore, self interest domination in such government owned enterprise would also lead to corruption and embezzlement.
Thus, in general apart from inefficiency, government involvement in provision of such private goods would also led to increases the scope and size of government which may lead to a filler on government responsibility to provide major public goods and meet complex and growing societal needs. This is a major criticism of Traditional model of public administration and pushing factor to transform to a new public management.
Inefficiency from Administration point of view: Bureaucratic nature of government owned enterprise.
The major cause for inefficiency of for profit public enterprise, in our case Assela malt is the way its Administration organized. The basic problem lies on the political appointment of board members. This appointment in such organization doesn’t consider the level of knowledge about the industry rather, political affiliation and trust of the party. Usually, this appointment is given as a reward for public officials who performed best at their duty in public office.
Similarly, CEO’s are selected by the board that has no sufficient knowledge about the business. So, their selection ability of best candidate in high level of the enterprise is limited and open for appointment based on personal affiliation. Thus, such non-merit based appointment of bureaucratic public officials as a board will result the following problems:-
§ Inability of the public official to make knowledge based strategic decision and to recruit high level officials of Assela Malt
§ Appointment of public officials would result transfer of bureaucratic type of public administration into the private enterprise. Which lids to late decision making, procedural emphasis and less result orientation in a highly competitive private sector.
Thus Assela malt factory also suffers from inefficiency which is resulted from bureaucratic nature public Administration.
Based on the argument highlighted on the analysis, I strongly recommend the following solutions.
§ Assela malt has to be privatized
§ Assela Malt as to be privatized to independent foreign private entity
To conclude, the fundamental reasons which led to conclusions above are: inefficiency which arise b/c of ownership and administration of pure private good by a government or a public entity. Since this would led to increases the scope and size of government which will influence the government not to focus in improving the quality and accessibility of public good. Implicitly, the domination of self interest in public service is a theoretical rational manifested in Public choice theory. Thus privatization is highly recommended.
The basic and realistic reasons in support of Assela Malt privatization to independent foreign private entity are the following:
· FDI is a new source of capital
· Additional source of foreign currency
· A good means of knowledge and technology transfer
· Oromia cooperative and Oromia regional governments are affiliated to bureaucratic nature of administration which hinders efficiency and productivity.