Kenya’s planned sale of state-owned firms runs into trouble

By The Eastafrican

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Kenya’s plan to sell 26 state-owned corporations to private investors has been delayed by bureaucracy in approval of the transactions by the executive and the proposed parastatal reforms, even as many of them continue to post poor performance.

The Privatisation Commission which was brought into being by the Privatisation Act (2005) was mandated to sell of 26 poorly performing parastatals to strategic investors to reduce their reliance on the exchequer.

The sale of state-owned enterprises were also expected to mobilise resources and support the government’s budget and boost activity on the Nairobi Stock Exchange (NSE) as some were expected to float shares through initial public offerings.

But the commission led by former assistance minister Henry Obwocha has only managed to conclude a single privatisation transaction in more than a decade.

In 2014 the Commission sold a 26 per cent stake in Kenya Wine Agencies Ltd (KWAL) to South Africa’s Distell Group Ltd, Africa’s largest producer of spirits, wines, ciders and ready-to-drinks.

In 2017 Distell increased its shareholding in KWAL to 52.43 per cent after acquiring an additional 26.4 per cent stake from Centum Investments.

Mr Obwocha told The EastAfrican that due diligence on some firms which he did not name has revealed that they don’t need to be privatized.

“Once we do the due diligence and find out that the company is doing well we hand it over to the National Treasury,” he said.

The parastatals the government approved for sale are National Bank of Kenya, Consolidated Bank of Kenya, Kenya Meat Commission, Development Bank of Kenya, East African Portland Cement, Kengen, Kenya Pipeline Corporation, Kenya Ports Authority, and five sugar millers: Chemilil, Sony,Nzoia, Miwani and Muhoroni.

Others are Agrochemical and Food Corporation, New Kenya Co-operative Creameries, Numerical Machining Complex and Isolated Power stations, hotels (Kabarnet hotel, Mt Elgon Lodge Ltd, Golf Hotel Ltd, Sunset Hotel Ltd, Kenya Safari Lodges and Hotels Ltd) and the Kenya Tourism Development Corporation associated companies which include International Hotels Kenya Ltd, Kenya Hotels Properties Ltd, Mountain Lodge Ltd and Ark Ltd.

Embezzlement

Industry sources said the delayed sale of these parastatals have led to increased mismanagement, poor corporate governance and embezzlement of funds.

A week ago, the Capital Markets Authority (CMA) enforced a combination of administrative actions including financial penalties and total bans from holding office in listed firms against five (5) former senior managers of National Bank of Kenya for poor corporate governance and misappropriation of funds.

“The authority hereby reinforces the importance of board members and key officers in public issuers of securities and exercising their fiduciary responsibilities to protect shareholders investments and investors interests by putting in place internal controls and improving the capacity of board audit committees to ensure financial statements published disclosure accurate and complete information,” said CMA.

The Privatisation Commission however said the government’s proposed reforms of state owned entities and related restrictions have impacted on its functions and ability to deliver on the proposed privatization programme.

According to the Commission the parastatal reforms have taken a toll on its ability to deliver by initially freezing the Privatisation Programme in 2013 and subsequently limiting implementation of the Programme to only a few transactions in 2014.

The report of the Presidential Taskforce on Parastatal Reforms released in October 2013 defined a strategy to harmonize parastatals in order to enhance efficient service delivery to the public.

The report proposes the formation of a Government Investment Company to take over the mandate and operations of the Commission.

According to the PC privatisation process requires approvals at various levels within Government including the National Treasury, the Cabinet and the National Assembly but the receipt of such approvals is often delayed.

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