In 2010, the world's governments raised around €160 billion from the sale of public assets. In the coming years it will be Europe's turn.
A new big wave of privatizations has started. After the bailouts in the financial sector and beyond, the state (re)starts to withdraw from the economy. During 2010, globally, governments collected about 160 billion euros. This is one of the highest values ever recorded in history, second only to the 184 billion euros of 2009, a value however drugged by the repurchase of shares by American banks which alone was worth 118 billion euros.
However, 2010 is the year of records: the sale of 15% of Petrobras, which earned the Brazilian government 52,4 billion euros, is the largest public offering of all time, as is the initial public offering of Agricultural Bank of China for 16,5 billion euros. The 15 billion euro placement of General Motors, which returns to the market after its nationalization in 2008, is the largest IPO ever on the American stock exchanges.
If we look at the aggregates, the United States is at the top of the ranking, with almost 36 billion privatizations, but ahead of all are the BRICs, with 80 billion, half of the total. The countries of the European Union carried out operations for 33,1 billion euros, equal to 20,6% of the total. France of national champions is the European country that has privatized the most; during 2010, with approximately 10,5 billion euro of sales, followed by Poland and the United Kingdom. However, Italy boasts a small record of its own thanks to the sale of 30 percent of Enel Green Power which, with a value of 2,6 billion euros, is the most important privatization for OPV recorded this year on European markets.
Beyond the figures, it is useful to relate the return of privatizations to the deep trends of emerging and more developed economies. The governments of emerging countries take advantage of the good market conditions and the strong growth of their economies to enhance their public companies through privatisation, further opening them up to national and international private capital, making them more financially solid and therefore more competitive. The privatizations of advanced countries are instead linked to the weakness of the economy and the consequent critical conditions of the public finances. Faced with the risk of default by sovereign states, Western governments are therefore relaunching privatizations, the only policy that allows the necessary deleveraging to be achieved without affecting public spending and welfare, which is essential for social stability in times of crisis.
A coherent privatization program also generates another dividend: it progressively reduces the scope of corporate policy discretion, increases the credibility of economic policy and therefore ultimately improves the market rating of the sovereign state, with positive effects on spreads. It is no coincidence that European leaders have demanded an ambitious privatization plan from the Greek government to give the green light to the new tranche of aid. Almost all PIGS are doing the same, having already declared their intention to sell asset for about 35 billion euros by 2013.
It's Italy? As unfortunately often happens, Italy is a case in itself. The outcome of the so-called referendum on the privatization of water paradoxically makes it more difficult to reopen the dossier precisely when it is needed. Italy is not at risk of default, but as the recent Barclays report reminds us, the sustainability of our debt in the medium to long term cannot be taken for granted in the absence of structural interventions. And if extraordinary measures are needed, a privatization plan should be at the top of the list.
Certainly, there is no shortage of public assets to be sold: between equity investments, real estate, concessions, credits, services to be outsourced and many other assets, Italia SpA was worth 2004 billion euros in 1340, leaving out the more than 7000 companies in the galaxy of municipal capitalism . So you can privatize. However, it is necessary to tackle the issue without populism and ideologies, starting from accumulated experiences but updating models and procedures to the new context in order to achieve a new and healthier balance between the state and the market in the general interest.
* Bernardo Bortolotti, professor of economics at the University of Turin and founder of the Privatization Barometer
* Alessandro Carpinella, corporate finance director, KPMG
