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Policy Transfer and Globalization: a

case study The Privatization of


Kenya Airways
Presentation: week beginning 5th October 2015,
Andrew Massey
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Aims of the talk


Explore the context of policy transfer
Discuss it in the context of privatization,
encouraged and abetted by the Bretton Woods
Institutions
Discuss the process and success of the
Privatization of Kenya Airways (KQ)

Some Preliminary remarks


This small case study illustrates the importance of
context, of people, politics and of place. It shows
the need for decision makers to structure
institutions and procedures in such a way that the
desired results may be attained.
the need to secure a punctuation point within the
day to day administration of an institution in order
to move away from current practice and break the
cycle of decline (Pollitt, 2008, p. 46).

Change in Public
Administration
For a generation radical change has been endemic
globally within the public sector, it has not always
been driven by these primary concerns, but more
often reflected politicians perception of what a
market approach or efficiency driven programme
would require. In different countries and at
different times this change has variously been
labelled as re-engineering, new public
management, and modernization and has been
driven by forces such as technological innovation,
political fashion, Europeanization or globalization.
Public institutions, are always means and never
ends and we need to remain aware of that.

Development and Public


Administration
In developing countries, the concern for good governance as a
way of ameliorating poverty and economic tardiness can be
traced to the independence struggles during the colonial era.
Colonial governments established parastatals on the
understanding that they would be the most appropriate
mechanism for providing services that were not provided by
the private sector including to oversee agricultural
production and marketing (Mwaura, 2007, p. 42).
The governments of the newly independent states built on this,
developing public enterprises and nationalised industries in
order to maintain a high degree of public control over
national resources as a means of facilitating national growth
and promote social justice (Ikiara, 2000, p. 445). Substantial
state directed resources were used to develop the provision
of education, health and physical infrastructure in Africa in
the immediate post-independence period

Development and Public


Administration
Many sought an African socialism route, seeking
funds and support from the Soviet Union and
China;Tanzania, Zambia, initially Ghana as well,
though a military coup ended that one. Became
part of the Great Game in the Cold War, which
ensured the Western toleration of Rhodesia and
apartheid South Africa.

Not nation states?


Colonial boundaries left as they were
But this created polyglot nations
Kenya and Uganda both multi-ethnic, multi-faith
and multi-lingual.
Likewise just about every other sub-saharan state
Identification with tribe and family not with state

Issues of governance
Small elites shared income and sometimes
usurped each other in military coups.
Investment went into Western banks and property
Rampant corruption roads that went nowhere,
dams that were of poor quality
Aid simply stolen and dictators tolerated because
of the Cold War and it was easier simply to buy
them off

NPM comes to Africa


During the 1980s and 1990s, western countries implementing modernisation NPM, the
WB and IMF were exploring ways of reforming the morass that had enveloped African
economies by using some of these prescriptions almost as though they were a panacea

For the most part these prescriptions were untested. There had been very little real-world
research (as opposed to mathematical modelling based on a series of bureaumetric
assumptions) as to how they would work in an African context.

To use Pollitts (2008,p. 7) phrase, they decontextualized policy in that they neglected
the importance of history and culture.
It was a period when the IMF and WB tried to impose a new consensus on how to
develop and run emergent countries. The Bretton Woods institutions said the policy of
privatization had been good for those economies that had taken it the furthest, the
USA, UK, Australasia and the Tiger economies of the Far East; they said it would also be
good for the former Soviet Union and Africa. Advisors from the WB and other influential
NGOs pushed African governments into copying western patterns of liberalisation and
state restructuring, while often loans, aid and favourable trading agreements were
contingent upon such reforms.

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Why did it work


elsewhere?
This approach was overly simplistic. The successful
policy transfer of liberalization and NPM to
Malaysia, South Korea and Singapore reflected
very different socio-political constructions and
relationships between the political elite and civil
society, even then the transfer took place mutatis
mutandis and was not a straight copy but an
interpretation of the western approach (Common,
2001). Privatization worked in those countries
because it was done in a way that integrated it
with the prevailing social, economic and political
institutions, without challenging those institutions.
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Privatisation can fail


African commentators had long been concerned
that they may be faced with the simplistic one
size fits all approach adopted in the former Soviet
Union, where Russia had become a case study in
privatization gone wrong, and was now identified
with the demise of major industries, the collapse
of parts of civil society and the rise of new antidemocratic elites, often entwined with brutal
organized crime gangs

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Successful NPM
presupposed an independent judiciary, fully functioning civil society and a largely
incorrupt public service.
In much of Africa that simply does not exist.
Indeed, some observers have compared Kenyas rulers to Russias lootocracy
Noting how corrupt authoritarian regimes use privatization:

To transfer monopoly from the public to the


private sector. The same inefficiency that
characterised public enterprises could then
resurface in privatized firms. With little interest
in entrepreneurship but a large appetite for
looting public assets, this elite would soon sell
the assets so acquired and move their wealth
elsewhere, thereby undermining capital
formation in the economy. (AnyangNyongO et
al., 2000, p. viii)

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Successful Good
Governance
NGOs need to be:
transparent;
accountable for their actions; accountable not just for their actions, but also
in terms of their management, project implementation, financial
management, and information disclosure;
operate ethically;
operate beyond the boundaries of, race, ethnicity, religion, culture and
politics;
respect and support individual human rights

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So What Happened in the Case of


KQ?
Kenya divided and corrupt got worse under Moi. (Kenyatta, Moi, Kibaki)
The Kenyan Vice President, Professor George Saitoti appointed a probe
committee under the Chairmanship of Isaac Omolo Okero in May 1990 to:
1. evaluate the qualifications, experience and appropriateness of the staff
of Kenya Airways and to recommend optimum staffing levels;
2. look into the financial management and capital sources of the Airline and
to recommend improvements in general revenue generation;
3. examine the management and operations of the Airline and recommend
improvements to enable the Airline to operate at optimum level;
4. examine the fleet of aircraft and recommend the proper level of
equipment and type of aircraft;
5. investigate the affairs of KQ and make recommendations regarding
strategic development .

The Omolo Okero report was presented to the Minister


in September 1990; it was devastating in its critique
of the status quo, comprehensive and incisive in its
analysis, and far-reaching in its recommendations.

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Okero and his


recommendations
Okeros background
KQ bankrupt and corrupt. Rump of old East Africa
Airways. Corrupt ground staff, pilots, cabin crew,
managers and agents. Corrupt ministers and civil
servants
Wrong aircraft.
Wrong routes.
Nairobi ought to be a hub.
Root and branch restructuring and privatisation,
or simply close it down.
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How Did they do it


New Board appointed under Philip
Ndegwa (Chairman) Isaac Okero
(Deputy Chair).
Brian Davies, from British Airways, new
MD Ndegwa gave him day to day
control and provided political cover
Monica Oyas, Head of HR, from a large
private Western bank. Made everyone
apply for their own job, sacked
thousands

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Ndegwa secured a Presidential edict from Moi delivering KQ


from the strictures of the State Corporations Act, KQ had
therefore secured its initial first taste of autonomy through its
trading fund and its independence from ministers,
but it was an independence that had to be reiterated on a
regular basis to keep ministers at bay.
ministers and civil servants had fought to keep control over
the company and some were determined to wrest it back One
executive recalled the need to be rid of the evil crews
stealing money and equipment and how exemption from the
strict civil service procedures of the State Corporations Act
allowed this,
Another recalled the need to get rid of the four or five General
Managers who were there as Presidential Appointees,
whose job it was to milk the company. They had their own
godfathers outside who were bleeding us.

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After two years the outflows were stemmed and a


modest profit posted after 17 years of losses.
As one former executive wryly commented, You
cant turn round a business that quickly, so the
losses were largely due to theft, we sacked the
thieves and lost the losses
Now prepared for privatisation

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New fleet of modern aircraft


Stopped president using them as personal flight
They brought in the International Finance
Corporation (IFC) the private sector arm of the WB.
This was a shrewd strategy as under Kenyan law
any privatization had to go before the State
Privatization and Reconstruction Committee (SPRC),
a ponderous process that could have undone many
of the reforms. Using Ndegwas influence and the
presence of the (rather suspicious) IFC, KQ
executives persuaded the SPRC that airlines were
far too technical to be dealt with by the full
committee, but required a specialist approach.

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Put out request to other airlines to buy a share


and 50 applied. Four were shortlisted, BA,
Lufthansa, KLM and South African Airways, BA and
Lufthansa then withdrew
Ndegwa died and Okero appointed Chair. Utterly
uncorruptable. But anti-privatisation group in
government tried to halt the sale.

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Ring-fencing from the Government


KLM paid the Government for 26 per cent of the company and secured
a partnership deal with their part ownership, placing key managers
onto the Board and ensuring, to begin with, that the insulation of KQ
from the Kenyan political system and its integration into the global
airline establishment would continue.
Several barriers to progression remained, one of which was the
companys debt originating from the bad decisions on aircraft
purchase and loan identified in the Probe Report. The first part was
dealt with in a relatively straightforward way; the 1.2bn Kenyan
Shilling debt to the Government was rescheduled. The second debt
was more problematic; it amounted to 4.2bn Kenyan Shillings
resulting from the purchase of new aircraft. KQ had defaulted on the
debt and could not privatize with this impediment. The Board and
senior management simply called the creditors bluff and said they
would not pay, if the creditors seized aircraft then the company
would fold and blame those institutions, everyone would lose. A deal
was done and the default debt was ring-fenced and taken over by the
Government as sovereign debt, KQ then paid off the original loan and
the privatization continued.

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What happened then?


Tie-in with KLM proved successful in the initial years,
company assisting in modernizing a range of technical
aspects and providing the expertise to establish
Nairobi as a hub airport, an essential prerequisite to
delivering substantial profits. Profits grew each year.
Omolo Okero insistent the money used to invest in new
equipment, especially new aircraft.
No dividends or low dividends were paid in these years.
The company took delivery of new Boeing 737300
aircraft in 1997 and in 2004 and 2005 took delivery of
a total of three state-of the-art Boeing 777s. In 1999,
it was voted African Airline of the year, and again in
several subsequent years, also recording record profits
up to 2006, the year Omolo Okero retired as Chairman.
Davies had returned to the UK some time after
privatization, around the middle of 1999, replaced by a

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Conclusion 1
The privatization was successful because a constellation
of factors came into alignment. These included:
1. realization, that certain parastatals had been bled
dry and should either be reformed and privatized or
closed down. But given the experience with other
privatizations both in Kenya and elsewhere where
there was the lack of an impartial incorrupt public
administration, there had to be a further explanation
with regard to KQ.
2. This is the second lesson; a conjunction of leaders
came together who exercised their leadership in very
different ways, If any of these factors had been out
of alignment then none of it would have happened.
3. Policy initiatives, such as privatization, can be
transplanted to different countries and cultures, but
only if full and proper cognizance of local conditions

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Conclusion 2
The third lesson is that this was done by provoking, or
aligning with, a punctuation point or a fork in the
road, to adopt the path dependency perspective
(Pollitt, 2008). This had to be done with stealth, speed
and courage (there were genuine threats made to the
lives of some managers during this process).
Insulating KQ from the political system as far as
possible and integrating it within its international
context; it involved therefore changing the context and
culture of the airline and thereby changing the paths
upon which it was dependent. This was done moja kwa
moja. Reform must give due deference to the needs,
fears, concerns and abilities of those being reformed,
and they in turn need to reflect in the modernization
process the requirements and standards of the new
global economy. KQs success could be repeated and
exported, but only if similar constellations of

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