Privatization and X-Inefficiency in Selected Sub-Sahara African Countries: Is Privatization Politically Induced?

This paper examined theoretically and empirically privatization episodes in a sample of Sub-Sahara African countries that were under military regimes as of 1970. The theoretical analysis employed a principal-agent model to investigate the mutually beneficial profit-sharing collaborations between the principal (government) and the agent (privatized firm). The empirical model identified a set of variables designed to act as a proxy that creates the right circumstances for an expedient agent to collaborate with the government (principal) based on religious or ethnic biases and control of the country economically and politically. A rudimentary probit model has been used for the empirical work. The results in general are supportive of the basic hypothesis that privatization in the sample countries is politically motivated. Because of the simplicity of the probit model developed in this study, it is important to take the empirical results with caution. The model can be refined by incorporating more explanatory variables, and more importantly, by considering different subperiods and better specifications of the dependent dummy variable. Notwithstanding its limitations, however, the model explains that privatization can be politically driven.