ANDREW BAHLMANN: Privatisation in Africa a powerful tool for progress
While potential benefits of privatisation-led M&A in Africa are vast, several challenges must be addressed
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In recent years, Africa has emerged as an attractive destination for mergers and acquisitions (M&A), with increased investor appetite for various sectors. Furthermore, as African nations strive for economic growth and development, M&A represents a potent catalyst for privatisation in many forward-thinking countries.
It is for this reason that an international summit has just closed in Paris, aimed at establishing a new global financing pact, to facilitate access to international financing for the country’s most vulnerable. This was more immediately related to climate change, but also more broadly with the aim of proposing solutions to finance issues that broach access to health and the fight against poverty.
Other issues that came under scrutiny were how to restore fiscal space to countries facing short-term difficulties, especially the most indebted countries; fostering private sector development in low-income countries; and encouraging investment in “green” infrastructure for the energy transition in emerging and developing countries.
These topics are inseparable from M&A and its twin, privatisation.
Privatisation initiatives across Africa can create fertile ground for M&A activities by unlocking value and driving efficiency. When state-owned enterprises (SOEs) are divested to private investors, it typically leads to improved corporate governance, increased competition and enhanced operational efficiency. These factors in turn can attract international investors seeking to capitalise on unleashed potential and drive growth in a particular industry or sector.
Privatisation, the transfer of SOEs into private hands, has been a topic of intense debate and mixed outcomes around the world. In Africa, where economic growth and development are crucial, the prospect of privatisation has become a focal point for policymakers, investors and citizens alike.
Proponents of privatisation in Africa often cite economic efficiency as the primary benefit. They argue that private ownership can inject capital, expertise and innovation into previously stagnating industries, leading to increased productivity and economic growth. Privatisation can also streamline operations, reduce bureaucracy and enhance competition, ultimately benefiting consumers through improved services and lower costs.
The private sector has the potential to attract foreign direct investment (FDI), promoting technology transfer, job creation and economic diversification. By opening up sectors such as telecommunications, energy and infrastructure to private investors, African countries can bridge the infrastructure gap, stimulate industrialisation, accelerate development and close the skills gap.
M&A transactions facilitate the entry of private players who possess the financial resources and operational capabilities to undertake large-scale infrastructure projects — a strategy which has in recent decades transformed the economies of other regions such as China and the Gulf Co-operation Council countries. This addresses the infrastructure deficit and also creates job opportunities, fosters skills development and contributes to overall economic growth. The injection of private capital can help bridge funding gaps and expedite the delivery of critical infrastructure projects such as roads, ports, power plants and telecommunications networks.
While the potential benefits of privatisation-led M&A in Africa are significant, several challenges and concerns must be addressed to ensure successful outcomes. One such challenge is the need for robust regulatory frameworks that protect the interests of all stakeholders. Clear guidelines, transparency and fair competition practices are essential to prevent monopolistic behaviour, promote healthy market competition and safeguard against predatory practices through the emergence of politically-connected cliques.
Inclusivity and social responsibility should be integral components of any privatisation strategy. Governments must prioritise job creation, workers’ rights and socioeconomic development when transitioning from SOEs to privately-owned entities. Public-private partnerships and active engagement with local communities can help mitigate any adverse socioeconomic impacts and ensure equitable distribution of resources and benefits.
While FDI can bring much-needed capital, expertise and technology, governments must carefully consider the impact on national assets, economic sovereignty and the long-term development goals of the country.
Transparency and accountability play a pivotal role in this regard. Governments should prioritise comprehensive due diligence processes, engage in fair and transparent bidding processes, and establish mechanisms for monitoring and regulating foreign investment activities. Effective governance frameworks ensure that privatisation and subsequent M&A activities align with the country’s broader economic and social development agenda.
One of the most contentious aspects of privatisation in Africa revolves around the potential exacerbation of social inequality. Critics argue that the transfer of state-owned assets into private hands concentrates wealth in the hands of a few, widening the gap between the rich and the poor. This inequality can lead to social unrest, political instability and a sense of exclusion among marginalised communities. The counterargument is that this has in any case occurred with existing state-owned assets, and elites have prospered at the expense of the citizenry.
The prospects of privatisation in Africa are not inherently either negative or positive — rather, the outcomes depend entirely on how the exercise is implemented, the specific context, the quality of regulatory frameworks, and the commitment to transparency and accountability. To ensure that privatisation benefits all stakeholders, it is crucial to strike a balance between economic efficiency and social welfare.
Governments should adopt comprehensive and inclusive policies that prioritise public consultations, protect workers’ rights and ensure the provision of essential services.
• Bahlmann is chief executive: corporate & advisory, at Deal Leaders International.
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