TOWARDS SURVIVAL OF STATE OWNED ENTERPRISES IN SUB-SAHARAN AFRICA: DO FISCAL BENEFITS MATTER?

Abstract

State Owned Enterprises (SOEs) have for many decades delivered essential goods and services in both developed and developing economies. However, in recent times, a majority of SOEs have become a drain on national budgets in many developing countries, partly as a result of poor investments and various structural problems. While the Washington Consensus thought that privatization was going to provide the needed solution through fiscal benefits, the results have largely proved elusive in developing countries. This paper assesses the extent to which fiscal benefits could determine the survival or privatization of SOEs in sub-Saharan Africa. It also examines the nonconventional factors that mitigate against privatization of failing SOEs in these countries. The World Bank’s World Development Indicators for 2018 were the main source of data for the study. A Binary Logistic Regression Model was estimated for the survival of SOEs in a representative sub-Saharan Africa country with substantial experience in development partner induced privatization. The results show that fiscal benefits do not significantly influence SOEs surviving privatization efforts. Real lending rate, inflation rate, and a combined effect of mismanagement, corruption, political and external influence significantly influence SOE survival. Economies of sub-Saharan Africa will have to refrain from privatizing SOEs for short term fiscal benefits and rather concentrate on significantly reducingmismanagement, corruption, political and external influence. Also, managing and assessing SOEs mainly by financial performance must give way to more inclusive management and assessment, which can secure sustainable benefits for SOEs in sub-Saharan Africa.