Introduction

Context

Privatisation can be defined narrowly or broadly. For the purposes of this guide it is defined as a transfer of ownership from the public sector to the private sector.  Transfer of service provision to the private sector involves different issues which are better dealt with separately.

The attractiveness of privatisation for governments started to be understood in the 1980s. Since then privatisation has become a worldwide phenomenon – including strategic businesses such as telecoms, electricity, gas, water, transport and banks.

The privatisations of these kinds of enterprises required a major ideological shift in public opinion in the countries where they have taken place, towards acceptance that it was possible for such industries to be in private rather than state hands. But countries experience of   privatisation – particularly whether it resulted in benefits for the business, users and other stakeholders – has differed. In general privatisation seems to have been most successful when privatized enterprises have been subject to genuine competition. In some cases this has accompanied liberalisation of the industry, for instance in the telecommunications industry in the UK. Of course this sector has also benefited from astounding technological innovations as well.

Privatisation has taken different forms in different countries. The most common forms of privatisation are trade sales, management and employee buy outs and flotations on stock markets. In the former planned economies countries even the smallest enterprises were state-owned, and in the first move away from this system many governments began by selling a great many of their smaller assets such as shops and companies to the public by auction, with the goal of creating a mixed economy like those of Western Europe and North America.

Some governments also attempted to transfer a large amount of public enterprises into private share ownership simultaneously using voucher schemes. These schemes initially seemed very successful, but then ran into numerous problems which had not originally been anticipated, largely because of the lack of a sufficiently robust institutional framework to underpin them.

In all countries, investigation by an independent auditing institution on whether a privatisation has been successful and whether appropriate procedures were followed, is likely to lead to a better accountability and better deals. This can provide an impetus towards positive change in their countries.

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