The privatisation model being proposed by the Opposition would be another round of selling off the family silver to supply a short-term demand. It does not provide a sustainable solution to the major problem affecting the Barbados economy which is, not earning enough revenue.
Privatisation does not automatically make an entity profitable. It just shifts the ownership and responsibility for the entity from the state to other interest, be it local or foreign.
For the entity to turn a profit it would require substantial financial injection so that it can boost its revenue potential and it would also have to make some cuts in expenditure either through wages or reduction in the purchase of supplies and materials.
So what does this means for the entities which the government can potentially privatise? It means that the new buyers would have to make significant financial investments to purchase them, include wiping out all of the debt and have funds available to run these entities for the first three to five years before a profit is realised.
It also means as a way of reducing the expenditure the entities may reduce employees or cut back on the services offered. To increase revenue the entities would more than likely introduce fees for services which the public did not pay for directly.
Say, for instance, that CBC and Sanitation Service Authority are privatised you will have to pay for these services. Fees for garbage collection and possible a subscription service for television. Or you may find yourself in an environment where advertising rates are increased.
The Barbados Labour Party recently had a paid advertisement stating that since 2008, 10,000 jobs were lost in Barbados. If the figure is to be taken as correct, these jobs were all lost in the private sector.
Government has made the commitment at the start of the recession that it would keep persons employed as this was seen as critical to maintaining the safety net in Barbados. Sending home persons from the public sector in a situation where the private sector is not able to absorb them would cripple the Barbados economy.
Therefore, if more of the responsibility is passed on to the private sector through privatisation, government has no influence in keeping those persons employed. This could possibly result in a jump in the unemployment rate. Possibly to close to 20 per cent.
Let us use as an example the situation with Almond Beach Hotel. Heywoods Resorts was owned by Government and was sold to BS&T as part of the structural adjustment programme of the 1990s. At that time BS&T was a large Barbadian conglomerate. Around 2006-2007 under the BLP administration BS&T was sold to Neal & Massy, a Trinidad-owned company. Earlier this year we witnessed the closure of Almond Beach Resorts due to a decision made by the Neal and Massy Board.
This resulted in over 500 persons being sent home and the loss of critical room stock from the Barbados tourism product. This was a tremendous loss which Government would have preferred not to occur. However, the hands of Government were somewhat tied. The interest of Neal and Massy was to secure a return on investment for its shareholders so it did what it had to do achieve this.
This example highlights three things:
1. Privatisation limits Government influence in the ultimate decisions made by the new owners. Therefore, we need to ensure that entities which are privatised do not have major control on activities which are critical to the delivery of key social services.
2. After privatisation the power of control or the major decision makers do not always remain in Barbados. Therefore our level of influence on the direction of the company is reduced.
3. Privatisation does not always mean that the new entity will be efficiently managed.
After we sell off the family silver and the problems still remain what would be our next course of action? What will we sell next? The Owen Arthur Administration took this approach by selling the land for its highest economic value. This resulted in a doubling of land prices in Barbados which resulted in a housing crisis for the average Barbadian. Do we seriously want to go back to that situation? I suggest that we look for sustainable solutions and not get-rich-quick campaigns.
We need to be careful with the way we go about privatisation of state entities. The current Administration has embarked on a policy to increase the efficiency in publicly run entities, which I believe is the more sustainable approach to take. Timing is also important when we look at privatisation.
The Barbados Labour Party had ample time during the 14 years of plenty to approach privatisation in a more sustainable manner. In an environment where the entities selected had a better chance of surviving. Yet they did nothing! In this current environment there is too much at stake.
When we discuss privatisation we should do it in a rational and methodical manner. Let us drill down to what it really means and what is needed for it to work. Do not sugar-coat it with a get-rich-quickly campaign as this is intellectually dishonest and robs the validity of the argument. There is some possibility for privatisation, but the approach and the timing need to be carefully thought out.
* Senator Andre Worrell is President of The Young Democrats.