Policy Paper on Public Enterprises Reform

The Government of Kenya (GOK) is implementing a comprehensive Public Enterprise1 Reform Programme with the overall aims of: (a) enhancing the role of private sector in the economy, by shifting more of the responsibility for production and delivery of products and services from the public to the private sector, to create

  • a more level playing field by eliminating preferential treatment, including monopoly rights, and to enable the private sector enter the areas of activity of the Public Enterprises (PE’s) on an equitable basis;
  • reducing the demand of the Public Enterprises on the Exchequer so as to improve the use of Kenya’s scarce resources, and to enhance the returns on those resources by achieving greater efficiency in both Private and Public Enterprises through greater responsiveness to market signals and commercial criteria,
  • reducing the role and rationalizing the operations of public enterprise sector,
  • improving the regulatory environment by selecting more economically rational means of regulation, thereby reducing conflicts of interest between the regulatory and commercial functions of public enterprises, that are consistent with Government policy, and
  • broadening the base of ownership and enhancing capital market development.

The two instruments that will be used to achieve these aims are a public enterprise reform programme (PERP), and a privatization programme. This policy paper sets out the objectives, principles, scope and other significant aspects of the Public Enterprise Reform Programme in PART I, and the principals and procedure that will guide the Parastatal Reform Programme Committee (PRPC) and its Executive Secretariat and Technical Unit (ESTU) to facilitate the privatization process in  PART II.

While the PRPC and the ESTU will coordinate the privatization components of the programme, The Department of Government Investment and Public Enterprises (DGIPE) will be responsible for those aspects of the reform Programme that are related to strategic parastatals which are to remain in State hands.

Scope of the Reform Programme

There are two hundred and forty (240) commercially oriented public enterprises with direct, or indirect government ownership through ICDC, IDB, KTDA, KTDC, and other entities. Of these the Government has designed thirty three (33) PE’s (see Annex 1) as “strategic enterprises” and intends to retain its ownership and active Board participation in them for the time being. The remaining two hundred and seven (207) PEs (see Annex 2) have been classified as “non-strategic enterprises” and they constitute the Government’s privatization Programme. Of these enterprises the PRPC has selected 45 PEs (see Annex 3) to begin the first phase of the privatization Programme, leaving one hundred and sixty two (162) PEs to be processed for subsequent privatization.

The scope of the PERP will cover the following:

  • The 33 PEs deemed to be strategic, the core of which will be retained in the public sector. Of this total, 5 enterprises with major impact on the economy and the government finances will be selected for early restructuring, and
  • The 162 non-strategic PEs, as mentioned above, are targeted for later privatization and will meanwhile be made as efficient as possible.

In this context, GOK defines PEs as a “strategic” if they provide essential services or are considered to play a key role from the view points of national security, health and protection of environment.

Companies where the government has minority holdings are not strictly parastatals, but are to be divested through the ESTU for reasons of active portfolio management by the Development Financial Institutions (DFls) and for budgetary resource mobilization for the Government.

Grounded projects in which the Government or OFIs have a majority or minority shareholding will be divested by the ESTU to encourage private sector to complete the projects and thereby create employment opportunities.

Privatization is an integral and visible element of the Government’s overall parastatal reform programme and it should not be viewed as an end in itself, but as a progressive effort to promote productive efficiency, to strengthen competitive forces in the economy and to support entrepreneurial development.

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