Introduction

The period 1980 – 1990 saw a dramatic shift from the policy of public sector-led economies to a more market-based system around the world. The move was seen as an attempt to enhance effective employment of resources and improve productivity and economic growth. This is mainly due to the argument that state-owned enterprises (SOEs) are often associated with inefficiencies owing to government failures arising from high degree of political interference in SOEs, lack of performance monitoring systems in SOEs and agency problems, among others. Privatisation was therefore a centre of attraction for many countries. For developing countries, in particular, privatisation was also seen as a means by which governments could reduce fiscal burden of providing inefficient subsidies to unprofitable SOEs at the expense of other priorities such as infrastructure development etc. In some instances, it also formed part of World Bank’s (WB’s) and International Monetary Fund’s (IMF’s) economic and financial assistance conditionality during 1980s debt crisis (Auriol and Picard, 2009:2). Privatisation is therefore widely advocated to improve economic well-being; economic growth, poverty reduction, employment creation and improvement of government fiscal position among others. Nevertheless, developing nations are still experiencing widespread poverty, poor growth and unequal distribution of income, despite theoretically overwhelming economic benefits of the reform. This raises an important question of whether the privatisation program is a successful policy in developing countries or not? If not, what are the main challenges facing its implementation in developing countries? Thus the main objective of the essay is to address these questions in the context of the new literature on the role of the quality of institutions in the process. Following this introduction, section II provides a brief overview of the implementation process and impact of privatisation in developing countries. Section III highlights some of the challenges of privatisation in developing economies; perspectives on the role of quality institutions. The last section concludes. Download the full article