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EDITORIAL: The privatization debate

EDITORIAL: The privatization debate

Sun, November 11, 2012 - 12:00 AM

The purchase of local companies and other property by Trinidadian interests continues to provoke much debate among Barbadians.

In the run-up to the last general election, the sale of Barbados Shipping & Trading (BS&T) evoked political responses from the then Opposition Leader, who spoke of revoking that sale before the ink was dry if he became Prime Minister.

Now, the present Government and other local shareholders of what was the Barbados National Bank (BNB) have received an offer to purchase their 35 per cent of the share capital from the Trinidadian parent company (Republic Bank), owners of the majority (65 per cent) shareholding.

The transaction is similar but not identical to the BS&T deal, for of the 35 per cent shares still in local hands, the Government and the National Insurance Scheme (NIS) own about 28 per cent and private investors the remaining seven per cent.

Economics professor Michael Howard, a director of the bank, feels that the bank should be privatized. Banking, he says, is concerned with the management of risk in a sometimes volatile market and he urges the shareholders to sell.

His university colleague, senior research fellow Dr Don Marshall, thinks the Government and the NIS should put in a bid to recapture the bank, for developmental purposes, among which he seems to include venture capital. He urges holding on to the shares.

And Minister of Finance Chris Sinckler was on record as favouring sale of the shares, but that was before this latest offer.

That this situation has arisen in the context of a wider general debate about privatization of some Government assets as a deliberate policy makes the situation one requiring careful thought, and some leadership at the national level, for unlike the BS&T scenario, the shares held by the Government and the NIS are public property and so the issues go deeper.

A private shareholder may maximize his profit when faced with an attractive offer, but the profit motive may be a minor consideration only when placed alongside issues of national policy and public benefit, although both profit motive and national policy may sometimes happily coincide.  

In the early 1990s, when the Sandiford administration sold Heywoods Hotel and the shares in Cable & Wireless, the public was told that foreign exchange was sorely needed, and most Barbadians understood and supported the motivation to sell.

Later still, former Prime Minister Owen Arthur sold shares in BNB and the Insurance Corporation of Barbados and explained that the proceeds were to go towards the construction of a modern Hilton. Critical debate followed, but the facts were on the table. And then, not so long ago, the present Government sold some of the NIS shares in Barbados Light & Power to Emera.

In this latest case, the offer value of the Barbadian shares needs to be addressed. The offer price is $5 per share, but the shares are trading at $5.50 on the local Stock Exchange. It may not be relevant at all, but the shares in the parent company are trading at BDS$36.54 per share, and to the mind of the average investor such issues, if left unexplained, may prove troublesome; and confidence in the market is such a valuable asset that such issues need to be clarified.

Even in the best of times, governments are faced with making decisions which often generate wide and sometimes emotional discussion, and the sale of national assets is one such issue.

Yet only recently, the Governor of the Central Bank indicated that we have adequate foreign reserves cover, based on the accepted criteria. In the face of that assurance, we await some further comment from the Government on its response to this offer, since boosting the foreign reserves may not be a motivating factor to a sale of the shares in the light of Governor Dr DeLisle Worrell’s statement.

We hardly think the profit motive could be a major selling point; and if that is so, one wonders what then might inform any decision to sell. In the meantime, the debate must continue.

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