Free Up Trillions to Pay the State Debt
Although the headline sounds ambitious having a closer look at this issue is more than just worth doing. The impressive figures stems from an article in the Economist
– published earlier this year ( Economist : www.economist.com/news/leaders/21593453-governments-should-launch-new-wave-privatisations-time-centred-property-9
The article is on privatization of public property. Discussions on public property very often wind up in protest by states’ representatives and citizens. And if you think about the cultural heritage and property like the Louvre in Paris you need to agree – sometimes even paying back public debt must step back into the second row or priorities.
But: still at this time ignorance to the potential of privatization would not be a good advice.
The Economist published data on the structure and value of Public Property of the OECD countries – and they add up to about $40 trillion. The property consists of State Owned Enterprises, Minority stakes in Companies, Utilities held by local governments, and Non-financial assets like buildings, land, sub-soil resources. The last position valued at about $35 Trillion.
So even if you count out the cultural property or other delicate issues there is much headroom left for tapping the potential.
The Economist lists examples of a number of countries and the ‘Non Critical’ assets they own eg Greece owns more than 80,000 non-heritage buildings and plots of land, the US Federal Government owns nearly 1m buildings (of which 45,000 were found to be unneeded or under-used in a 2011 audit) and about a fifth of the country’s land area,
beneath which lie vast reserves of oil, gas and other minerals. Even Italy with a public-debt burden of 132% of GDP, owns corporate stakes worth perhaps $225
billion and non-financial assets worth as much as $1.6 trillion.
If this was typical for all OECD countries, they could generate about $9 trillion from selling these assets.
Of course this is not very realistic, but even if you assume that they could only sell 30% of their assets public debt rates would be lowered tremendously – and with that the burden we will bequeath the next generations with (for France this would mean a state debt rate of 68% and for Germany 67% – which is close to the Maastricht criterion of 60% – which would also help to stabilize the Euro. )
But now: what does this mean for a vendor of information technology like us? Although the Economist does not refer to this directly they see prerequisites for opening up the potential:
- One of the basics is to have a land and property registry – a single source of truth for all government processes.
- The next one is a real eye opener: many governments still use “cash basis” accounting – so they don’t have transparency into the costs of holding property and don’t have proper balance-sheets. What is needed is an “Accrual Based Accounting” – and they refer to IPSAS as the foundation for it. “A better accounting makes it easier to ascertain what might be better off in private hands.”
- And last but not least: for the remaining assets they see a need for improved management of public assets by employing experienced managers, work with private-sector-style financial benchmarks, utlize a professionally managed holding company for state assets… .
If this doesn’t ring a bell, this will: many clients worldwide use our SAP systems for purposes like that – and we don’t only refer to the Accrual Based Financial that we can easily configure in an IPSAS compliant way as required by the client.
Land and Real Estate registers across the globe are run by solutions like Land Use Management or Real Estate Management. They also help to manage public buildings. Just think of clients like the City of Cape Town or the Federal Agency for Real Estate in Germany.
So even if there always remains a drop of bitterness in the idea of privatization (selling assets is a one-off, sell-offs may enrich insiders and lead to backlashes… ) you can lower risk by managing assets properly, making the right decisions and making the process transparent to citizens.
If you want to do that the best way, manage it with Information Technology from SAP.