Commercialization vs Privatization: What Works Best?

Public Enterprise Reform Is About Performance, Not Ownership Alone

State-owned enterprises (SOEs) play a central role in Tanzania’s economy, particularly in energy, transport, water, and strategic industries. Reform debates often focus narrowly on ownership, public versus private, yet the real objective should be improved service delivery, financial sustainability, and economic impact.

Commercialization Retains Public Ownership While Improving Incentives

Commercialization introduces private-sector management principles into publicly owned entities. This includes performance contracts, cost recovery, operational autonomy, and clearer accountability frameworks. The state remains the owner, but enterprises are expected to operate efficiently and reduce reliance on government subsidies.

Commercialization Works Best in Strategic and Essential Services

In sectors such as electricity, water, ports, and railways, full privatization can raise concerns about affordability, access, and national control. Commercialization allows the government to protect public interest while improving efficiency. With strong oversight, these entities can become financially viable without sacrificing social objectives.

Privatization Transfers Risk and Control to Private Investors

Privatization involves selling or leasing state assets to private actors, shifting operational risk away from the government. In competitive sectors such as manufacturing, telecommunications, logistics, and hospitality, privatization has often improved productivity, innovation, and investment levels.

Competition Determines Privatization Success

Privatization delivers better outcomes when markets are competitive. Without competition, privatized monopolies may simply replace public inefficiency with private rent-seeking. Strong regulators are therefore essential to prevent price abuse, ensure quality standards, and protect consumers.

Regulatory Capacity Is the Deciding Factor

Both commercialization and privatization depend heavily on regulatory strength. Weak regulators undermine privatization outcomes, while poor oversight limits commercialization effectiveness. Institutions that monitor pricing, service quality, and investment commitments determine whether reforms benefit the public.

Fiscal Impact Should Guide Reform Decisions

Loss-making SOEs place pressure on public finances through subsidies, bailouts, and guarantees. Commercialization can reduce these burdens gradually, while privatization may generate one-off revenues and eliminate future liabilities. However, short-term fiscal gains should not override long-term service delivery considerations.

Employment and Social Impacts Cannot Be Ignored

SOE reforms often involve workforce restructuring. Poorly managed privatization can lead to job losses and social resistance, while commercialization may allow gradual adjustment. Social safeguards, retraining programs, and transparent communication are critical for reform legitimacy.

Evidence from Tanzania Favors a Mixed Reform Model

Tanzania’s experience shows that neither approach is universally superior. Privatization has improved efficiency in competitive sectors, while commercialization has stabilized performance in strategic services. Hybrid models  including public–private partnerships and concession arrangements, increasingly bridge the gap between the two.

Ideology Should Not Drive Reform Choices

Reforms driven by ideology rather than evidence risk poor outcomes. The key question is not whether the state or private sector should own assets, but which arrangement delivers efficiency, affordability, and sustainability in each sector.

Bottom Line: Public Value Should Guide Ownership Strategy

Commercialization and privatization are tools, not goals in themselves. What works best for Tanzania is a context-specific, evidence-based approach choosing the model that maximizes public value, strengthens accountability, and supports long-term economic development rather than ideological preferences.