The United Kingdom will hold a General Election on 12th December; the second in three years and the third in five. There was no need to hold a General Election at this time. Under the Fixed Term Parliament Act, an election should be held every five years. Hence the next election is not due until May 2022. However, Boris Johnson, Like Theresa May in 2017 thought this would be an ideal time for him and for his party to hold a general election. Just like in 2017, the Tory Party, according to the opinion polls which are often found to be wrong, is more popular than the Labour party; and Boris Johnson, the Leader of the Tory (Conservative) Party is more ‘popular’ than Jeremy Corbyn, the leader of the Labour Party. However, the outcome of the election is not a foregone conclusion. In 2017, though Theresa May had an even wider lead in the opinion polls, she lost her majority in parliament which in the end costed her premiership. Hence anything could happen in this election too.
In any case the election campaign is well underway. The Conservative Party would like the main issue and campaign point to be Brexit. Their main campaign slogan is, ‘Let us get Brexit done!’. Once Brexit is sorted, the rest would be easier, they claim. The Labour party, which seems not to have a definite position on this issue, would like the election to be about other issues, like the NHS, public sector pay, the economy, education etc.
Some of their main policies are:
- Hold a second referendum on Brexit
- Increase health budget by 4.3%
- Raise minimum wage to £10 per hour
- Abolish university tuition fees
- Free bus travel for under 25s
- Build 100,000 council homes a year
Renationalise some of the biggest privatised companies
This coupled with other policies would result in a significant increase in the national debt. Both Labour and the Conservative party have promised higher spending without sufficient tax rises or spending cut elsewhere to keep the deficit falling in future years. Hence, whichever party wins the budget deficit is going to increase significantly. According to the National Statistical Office, by the end of March 2019, UK’s debt (public sector net debt excluding public sector banks) was £1,801 billion which is 83.1% of Gross Domestic Product (GDP). In contrast, according to Trading Economics, Ethiopia’s Debt to GDP ratio by the end of 2018 was 60%, and by the end of this year could reach 65%. As a result, any pressure by the IMF or the World Bank for Ethiopia to reduce its debt to GDP ratio should just be taken as an ‘advisory’ and should not be an excuse for privatisation. Selling off profitable publicly held companies just to reduce debt is short-termism and it may even result in an increase in National Debt, in the long term; when the profit from these companies dries up and ends up in the hands of investors some of whom would like their dividends to be in pounds and dollars. On the other hand, there is no cause and effect relationship between ownership and efficiency.
In the 80’s and 90’s especially under the premiership of Mrs Thatcher, the UK government privatised a number of publicly held companies. Telecommunication, water, power and energy, rail, airline, bus etc companies were sold off. Many of these companies are now owned by foreign companies some of which are themselves owned and controlled by foreign governments.
The labour party has been always against privatisation. However, the government led by Tony Blair and then Gordon Brown, though did not privatise any publicly companies, did not try to reverse and renationalise any of the privatised companies. It had consistently threatened nationalisation unless the privatised companies improve their services to the people.
Now the labour party has made nationalisation a formal policy and has included it in its election manifesto. The opinion polls consistently suggested that the public, by a huge margin, support the nationalisation of Rail, Water and Energy companies.
The party hast officially announced that it will nationalise the big six energy companies that supply gas and electricity to 75% UK households (EDF Energy, Centrica (meaning British Gas), Npower, E. ON, Scottish Power and SSE), National Grid, the water industry, Royal Mail, railways and the broadband arm of BT (British Telecommunications). The labour party will also change the way that companies it does not want to nationalise are supervised by the government. According to the Labour Party this nationalisation would be fiscally neutral ‘as bonds would be issued in exchange for shares.’
This would mean a future Labour Government not only would nationalise some of the biggest companies, but it will also change the regulatory regime for companies that will not be owned by the government
The biggest surprise in this policy announcement is the nationalisation of the broadband arm of BT. The aim of the Labour Party is to make available, ‘free at the point of use’ broadband service for all. Currently the availability of a good broadband service depends on where you live/work and the age of your house or office building. New buildings are better connected to the internet. The Labour party said it will nationalise the telecoms provider BT’s fixed line network to provide free full-fibre broadband for all. According to Labour, ‘the plan would require a sweeping upgrade of Britain’s internet infrastructure that would be paid for by raising taxes on tech firms such as Alphabet’s Google (GOOLE.O), Amazon (AMZN.O) and Facebook (FB. O).’ There is a huge question on the practical implementation of this policy and its impact on government finances.
In any case when the United Kingdom is rethinking its privatisation policy (even a Tory government has brought back a Rail Company and the probation service under public control), Ethiopia is embarking upon a huge privatisation program of some of the biggest publicly held companies. There is nothing wrong in considering the policy of privatisation. In some cases, it may work but careful analysis and consideration is paramount. Privatisation is a huge and complex process some of which could be irreversible or too expensive to reverse. It may result in, as it happened in the United Kingdom, bad service to customers and increases in prices to customers, salary to executives and dividends to shareholders.
The government has recently announced that it intends to complete the privatisation of the profitable Ethio Telecom by the end of March 2020. Why the Hurry? Unless it is pressure by donors and lenders, like the IMF and the World Bank, I can not see any justification for doing it in such haste without much public consultation and apparently without much of the Regulatory Regimes in place.
It is also true that, the current government has no mandate for such a policy. In the United Kingdom, the Tory party put the policy of privatisation in its party manifesto on the basis of which it campaigned and won. As a result, it can claim that it has a mandate from the electorate for the policy of privatisation. The same should happen in Ethiopia.
Hence, the privatisation Program should be delayed to allow time for consultation; genuine consultation. Then if the ruling party is still convinced, that privatising Ethio Telecom is the best option, it should include it in its election manifesto and obtain a mandate from the people who are the real owners of the company which has been put up for sale without their consent.
Getachew Beshahwred BA (Dist.), MBA, BFP, FCA, Cert CII, PMP is the Managing Director of GB & Co Ltd, Chartered Accountants and Management Consultants, London. Getachew can be contacted at email@example.com