Privatization and its financial implications : the case of Malta

Abstract

Purpose: This study evaluates the phenomenon of privatisation in Malta and its financial implications on former Maltese state-owned entities (SOEs). In doing so, the study reveals the extent of the success of privatisation in Malta. Design: Both quantitative and qualitative research methods were adopted to achieve the objectives of this dissertation. Indeed six performance measures, incorporating an aggregate of sixteen ratios, were employed to test for significant changes in performance in the post-privatisation period. Furthermore, semi-structured interviews were conducted with management representatives of the selected sample firms as well as with a government official responsible for the Privatisation Unit (PU). Findings: The Maltese Government’s main privatisation goal is to increase economic activity, followed by political and financial motives. The findings indicate that although most privatisation goals have been or are being achieved, there is no change in the amount of subsidies granted to former Maltese SOEs, and there has been minimal achievement in stimulating competition and shrinking the public sector. The Maltese privatisation process as conducted by the PU is similar to the process outlined in foreign literature. Indeed, it is quite detailed and is subject to a high level of professionalism. Furthermore, the findings indicate that after going through such a complex process to shift ownership, selected former Maltese SOEs experienced a statistically insignificant improvement in their financial and operating performance during the first three years as private entities. Also, the Maltese Government was unable to substantially improve its revenue through taxes in the post-privatisation period. Moreover, although these entities are able to benefit from huge infrastructural improvements and gain access to more advanced technology under private ownership, respondents pointed out that entities may be subject to public controversy, while employees experience a drastic decrease in job security once the entity is privatised. Conclusion: This study concludes that although privatisation appears successful from a government point of view, privatisation goals can be better achieved if a monitoring unit is established to oversee entities’ actions following privatisation. Moreover, from the selected former Maltese SOEs’ perspective, privatisation success requires time before it can be ascertained. Privatised Maltese SOEs take time to adapt, and struggle to grasp new opportunities arising from privatisation which lead such entities to generate statistically significant performance improvement. Value: It is hoped that the recommendations provided will contribute towards the achievement of more future privatisation success, for both Government and Maltese SOEs.