Privatisation

Editorial
Stabroek News
May 18, 2000


The National Development Strategy advocates that by 20l0 all public enterprises should be privatised. The broad policy recommended is to find a strategic partner and to allocate shares to that partner, the government, the workers in that industry and the public. The Strategy states:

"A number of state-owned enterprises in Guyana still remain to be privatised. In order to involve more Guyanese both in the privatisation process, and to encourage them to participate more in the ownership and development of the country's economy, such privatisation, wherever possible, should be founded on broad-based ownership strategies. Similar requirements in other parts of the world have led to the development of voucher-based mass privatisation programmes in Central Asia, Eastern Europe, and in the former Soviet Union; to non-voucher variations that pool equity that is distributed to citizens in countries as diverse as Bolivia and Zambia; and to discounted public offerings to elicit worker participation in privatisation, or to achieve a wide ownership of privatised firms, in many other countries. These three basic techniques for achieving broad-based ownership, voucher - based programmes, collective investment programmes, and public offerings, offer social advantages over more traditional privatisation methods. They also contribute to the development of capital markets.

Unlike traditional privatisation methods, broad-based ownership schemes allow governments to address concerns about the distribution of wealth. Redistribution can be accompanied by issuing vouchers (the number or value of which may vary with the recipients age or years of work), by offering discounts on shares, or by limiting participation in collective investment schemes to low-income groups.

Moreover, public offerings of enterprise shares have been used by many developing countries in order to achieve widespread share ownership. To be successful, public offerings require a well-functioning and absorptive domestic capital market.

Guyana should explore the possibilities of adopting one, or a combination, of these broad-based ownership strategies as the means of privatising its remaining state-owned enterprises".

It is a pity that these techniques have not been used in privatisations that have already taken place. They serve a dual purpose, to create a much wider property owning class and to help to set up and to empower a Stock Exchange which can become an important part of the capital market, both as the mechanism for raising funds for businesses in share issues to the public and as the forum for dealing in shares.

As the Strategy notes, studies on setting up a Stock Exchange have been carried out since l99l. A Call Exchange failed for lack of business, all buyers no sellers. That is because there being no established market sellers have no idea if the prices offered privately are fair and should be accepted. A new exchange would have to undertake a publicity campaign educating the public on the buying and selling of shares and explaining how a market works and some of the criteria that can be used to assess prices such as the price/earnings ratio. There are public companies whose shares can be traded (Banks DIH Limited, Demerara Distillers Limited and Sterling Products Limited for example). Government bonds could also be traded. And there are some substantial private companies that could be encouraged to go public with tax incentives.

Stock exchanges exist in Jamaica, Trinidad and Tobago and Barbados. It's time we get involved and establish links with their markets so that we can buy shares through local brokers in Neal and Massy, Grace Kennedy and Barbados Shipping and Trading.

There is a general political consensus on creating a property owning democracy. It would be a good start to consider putting further privatisations through a stock exchange, at least insofar as the offer of the minority shares to the public is concerned. This can help to jump start the stock exchange, give the brokers some business and give the man in the street a chance to buy some shares which should be attractively priced, as they were in the United Kingdom, in an effort to give more people a direct stake in the productive economy.