Cutting the risk of corruption out of privatisation
Cutting the risk of corruption out of privatisation

The privatisation of SOEs is accompanied by multiple challenges and one of these challenges is the risk of corruption. The sheer magnitude of divestment proceeds, the nature of assets being privatised and the complex nature of privatisation transactions make them particularly prone to corruption.

Privatisation trends

Technology is transforming the global economy and the privatisation landscape is no exception. The rationale for state ownership is disappearing in a number of sectors as digitalisation lays them open to market competition. This has put a fresh emphasis on a long-standing problem: the transfer of assets from public ownership to private ownership enables incentives for self-profit among political decision makers, SOE corporate insiders and the ultimate buyers of assets. As privatisation becomes steadily more dependent on outside advisors, the risk of conflicts of interest also comes to the forefront.

102 of the world’s largest 500 enterprises are now wholly or majority owned by sovereign governments

The number of SOEs operating in the global economy has tripled in less than two decades – largely due to the growing importance of SOEs in emerging markets. Global privatisation activity is trending upwards in parallel. Privatisation revenues more than doubled from around USD 110 billion in 2008 to USD 266 billion in 2016. Most of these revenues came from divestments originating in emerging and post-transition economies. Capital market developments confirm this trend. OECD research shows that the public sector in 10 out of 30 selected markets holds more than 20% of the share capital of listed corporations. As emerging economies, many with large state sectors, expect to grow briskly, divestment activity will continue to rise, with partial privatisation through stock market listings being one of many possible exit options for the state.

The relationship between privatisation and corruption

The complex nature of privatisation transactions and the plethora of actors involved. The decision to privatise is a complex one clouded by evolving governmental priorities, political cycles, and changing paradigms about the merits/demerits of public ownership.  It also involves a plethora of actors from the government to the company to its employees, and a large number of intermediaries and advisors, which risk instrumentalisation for personal or political gain.

What can be done?

The OECD’s Policy Maker’s Guide to Privatisation draws upon over 40 years of national experiences in both OECD and non-OECD countries. The Guide accompanies policy makers in the privatisation process. It sets down measures to be taken leading up to, during and after privatisation. A special section describes how to prevent corruption each step of the way. The Guide further supports implementation of the OECD Guidelines on Corporate Governance of State-Owned Enterprises – the so-called golden standard for professionalised state-ownership and governance practices.

This Guide helps us to heighten awareness of the issues, engage in policy dialogue, build further consensus and work with partners and stakeholders to implement the high standards needed to mitigate corruption risks in the privatisation process.