Did privatisation fail to reduce debt?

One of the false conclusions drawn by some activists is that privatisation in Jordan was a failure because, they argue, it did not reduce public debt.

Why, they ask, did debt continue to rise despite privatisation?

In this respect, one has to stress the fact that privatisation is by no means a cure or a response to indebtedness.

Privatisation does not hinge on the fact that a country is a net borrower or a net lender. For example, some oil-exporting countries with huge surpluses of money undertook privatisation.

Privatisation happens because governments are not good at managing industrial, trading companies, hotels, etc.

The proceeds of the partial privatisation that took place in Jordan over 12 years did not exceed JD1.7 billion, of which JD1.5 billion were used to prepay part of the Paris Club foreign debt at a discount of 11 per cent.

This means that Jordan’s outstanding debt would have been JD1.68 billion higher has it not been for privatisation money.

In any case, the proceeds of privatisation are only a drop in the bucket of debt, which is 12 times higher than the proceeds of privatisation.

In fact, privatisation did not only reduce public debt by JD1.68 billion plus future interest, it also reduced the Treasury’s need to borrow over 12 years by JD3.5 billion, the revenues obtained by the government from the privatised enterprises in the form of profits, fees and taxes, an amount much higher than the companies were paying before privatisation.

If anything, part of those companies used to be financial burdens, rather than contributors to the Treasury. 

And the government is still a major shareholder in the privatised companies.

One should not ignore the fact that the management of the privatised companies invested hundreds of millions of dinars in development and expansion, which the government would not have done had the companies remained under its ownership and management.

Maybe some do remember how telephones used to go dead after a small rush of rain, and the waiting time to install a telephone line could extend to five or nine years.

Another strange observation one needs to look at is criticism of the privatisation committee’s report for being scientific and academic.

What is needed, some claim, is to answer the question of the street about the so-called corruption and stolen funds, a favourite expression of some populist politicians who offer nothing to support their doubts except the claim that the assets were sold cheap even though the valuation was made by major international banks and was fair at the time.

It is true that the share prices of the Arab Potash Company and the Jordan Phosphate Mines Company rose sharply after privatisation and achieved capital gains for the new investors, but at the same time, the value of the shares of the Jordan Cement Factories Company and the Royal Jordanian Airlines dropped after privatisation and caused huge losses to the new owners.