(a) What is privatization? [4 marks]
(b) Give four reasons for government participation in economic activities in your country [16 marks]
Explanation
(a) Privatization is the transfer to private ownership and control assets or enterprises which were previously under public ownership.
(b) Reasons for government participation in economic activities:
(i) Necessity: Sometimes private investors are unwilling to undertake businesses with low profit.
(ii) Inadequate domestic capital: At times, domestic private capital is not available or is inadequate for large and risky projects. Hence the government comes in
(iii) Ideology: Some governments establish or take over certain enterprises on ideological/political grounds e.g. a government wishing to change from capitalist to socialist system would place most industries In the public sector
(iv) For national self preservation: Projects in this category are usually for defence or strategic needs rather than. economic, such as production of ammunition, petroleum, electricity, etc.
(v) Protection from private monopolies: Private monopolies tend to create artificial scarcity so as to raise prices and so the government comes in.
(vi) To avoid waste through unnecessary competition. Leaving certain enterprises in private hands may result in too much duplication, with too many firms each producing under capacity.
(vii) Where it is felt that government control is necessary for carrying out government policy e.g the Central Bank.
(viii) To avoid subsidizing a private enterprise for too long. Some industries are unable to support themselves and have to be subsidized by Government for long periods. As such it is better for the Government to take over.
(ix) To provide employment
(x) To provide basic amenities
(xi) To create wealth for the common good. (xii) To bring about even development.