Transforming the Cimerwa Cement Manufacturing Company in Rwanda through Privatization to Enhance Profitability
1David Nyambane and 2Uwayo Irene
1Faculty of Business and Management, Kampala International University, Western Campus, Uganda.
2Faculty of Business Administration of Mount Kenya University Kenya.
ABSTRACT
The research targeted the challenges encountered in the privatization process impacting the profitability of Cimerwa Cement Manufacturing Company in Rwanda. This investigation held significance for CIMERWA, the researcher, and future scholars. Adopting a case study approach, the research engaged 172 CIMERWA employees, with a sample size of 64 selected through stratified and random sampling methods. Questionnaires and documentary analysis facilitated primary and secondary data collection, while reliability and validity of the instruments were validated via pilot research using Cranach’s Alpha and expert evaluations. SPSS software was employed for data analysis.Findings indicated that inadequate privatization strategies at CIMERWA hinder long-term sustainable performance and goal attainment, leading to escalated capital and maintenance costs, ultimately impacting the company’s prosperity. The study emphasized that CIMERWA’s efficiency in profitability hinges on its focus on crucial aspects such as material handling systems, warehousing, cost-effective profitability measures, supply chain and inventory management, all pivotal in organizational management. In terms of the benefits derived from privatization efforts, 23.4% of respondents affirmed that these services ensured accountability for profitability, while 60.9% attested to their role in ensuring profitability accountability. Employing the Pearson correlation coefficient in SPSS revealed a strong 96.3% correlation between privatization efforts and profitability.
Keywords: Privatization, CIMERWA cement, Profitability, Accountability, Employees.
INTRODUCTION
When a government has decided to privatize, it instructs its team of legal, financial and technical consultants to develop the bid documents, prescribing how potential bidders should present their offers. Most contracts are now tendered through competitive bidding, to promote transparency. The bid documents need to be delicately balanced to satisfy the needs of both the government and the users and present an attractive opportunity to the bidder. Once the private operator is in place, it carries out more detailed assessments of the infrastructure, and may well find that it had underestimated the quality and/or coverage. In such cases, they start to renegotiate relevant terms of the contract. However, companies may also submit bids to underbid the competition, even if the financial viability of the bid is doubtful [1]. Surprisingly, so much emphasis has been placed on competition in the privatization process in the United States, especially when a look at private contractors in the waste field shows tremendous concentration among private contractors [2]. According to [3], the worldwide era of privatization has been picking up momentum in recent decades, making it a fairly new trend in the area of economic policy. The modern idea of privatization as an economic policy was pursued for the first time by the Federal Republic of Germany in 1957 when the government eventually sold a majority stake in Volkswagen to private investors. The next big move in privatization came in the 1980s with Margaret Thatcher‟ ‘s privatization of Britain Telecom and Chirac’s privatization of large banks in France. The political and economic policy of privatization, broadly defined as the deliberate sale by a government of state-owned enterprises (SOEs) or assets to private economic agents, is now in use worldwide. Since its introduction by Britain’s Thatcher government in the early 1980s to a then-sceptical public (that included many economists), privatization now appears to be accepted as a legitimate often a core tool of statecraft by governments of more than 100 countries. Privatization is one of the most important elements of the continuing global phenomenon of the increasing use of markets to allocate resources. It was not until the successful British Telecom initial public offering in November 1984 that privatization became established as a basic economic policy in the UK. A series of increasingly massive share issue privatizations (SIPs) during the last half of the 1980s and early 1990s reduced the role of SOEs in the British economy to essentially nothing after the Tories left office in 1997, from more than 10 per cent of GDP 18 years earlier [[4]. The government of Nigeria then opted for a privatization policy as a result of the inefficiency and ineffectiveness of the SOEs. Privatization policy is a global principle and guideline that invests public ownership of SOEs and gives rise to private ownership. Privatization came as an integral part of adjustment credits and the policy was aimed at enhancing the efficiency of resource allocation of government [5]. According to [6], privatization in Kenya is one of the strategic management options generally prescribed for the objective of sustainability in the water sector as promoted by the theory of market conservation. The privatization of water in Kenya has generated considerable policy debate. The debate began with a working paper by [7] that considers lessons from the failures of earlier attempts (pilot schemes) to privatize urban water. The privatization of parts of the Rwandan public sector provides opportunities for private-sector investment.
According to [3], privatization as a method of reallocating assets and functions from the public sector to the private sector appears to be a factor that could play a serious role in the quest for growth. In recent history, privatization has been adopted by many different political systems and has spread to every region of the world. The process of privatization can be an effective way to bring about fundamental structural change by formalizing and establishing property rights, which directly create strong individual incentives. A free market economy largely depends on well-defined property rights in which people make individual decisions in their interests. The literature indicates that both in developed and developing countries, privatization structure and performance have been the subject of an important and ongoing debate in the corporate literature, but the decisions related to the contribution of privatization to the profitability of the company are still weak [8]. Rwanda is one of the Least Developed Countries (LDCs) and privatization is among the strategies that Rwanda is using to achieve the Vision 2020 Program, whereby Rwanda country needs to become a middle-income country. However, privatization is not clear in different domains in Rwanda (Services Proprietary Limited, 2012). Therefore, from the above background; the researcher needs to carry out this research with the case study of CIMERWA as among of companies whose management is already privatized.
DISCUSSION
This section focuses on the findings of the research according to the research objectives. The obstacles faced in the privatization of CIMERWA, the benefits brought by privatization operations in CIMERWA and the relationship between privatization and profitability of CIMERWA.
The Obstacles Faced in Privatization of CIMERWA
About the first research objective, the study revealed that the respondents perceived that skilled workers, number of hours worked, changes in fuel and transport efficiencies, government policies and road standards capacity are the determinants that affect privatization in CIMERWA. Therefore, the above-mentioned determinants are the best key factors that any organization should focus on so that it can improve its level of performance through privatization activities. The study also revealed that the other obstacles faced by CIMERWA in privatization are terrain, procurement procedures, and lack of an adequate number of employees.
The Benefits Brought by Privatization Operations in CIMERWA
Concerning the second research objective; the benefits brought by privatization operations in CIMERWA out of 64 respondents, 23.4% of employees confirmed that privatization services were used to ensure accountability of profitability efficiency, 60.9% did not reveal that privatization services were used to ensure accountability of profitability efficient and 15.6 % were not sure; according to the importance of privatization as a factor of improvement profitability operations, where 76.6% revealed important, 10.9% revealed important and 12.2% revealed not important at all. The study also found that in CIMERWA, privatization influenced ownership, competition, innovation, public interest, productivity, quality of the product and fragmentation of the industry.
Relationship between Privatization and Profitability of CIMERWA
Concerning the third research objective, using the views and opinions of respondents, this study used a correlation coefficient through the SPSS program and found that privatization operations correlate to profitability at the rate of 96.3%. Hence, there is a positive and very high correlation between the privatization and profitability of CIMERWA.
Concerning the first research question, the study concluded that, poor services of privatization activities in CIMERWA do not create a long-term sustainable performance and goal achievement, where the cost of capital and maintenance costs should be increased and affect the wealth of CIMERWA; efficiency in profitability of CIMERWA cannot be achieved without its focus on material handling system, warehousing, profitability cost, supply chain management, inventory management as among of the drivers of organizational management. The study revealed that CIMERWA focuses on financial reports, budget preparation processes and management of human resources. Other fields, like procurement reports and management of assets, have been neglected by the management of CIMERWA, while these are useful tools in the planning and organization of the institution. Therefore, CIMERWA should improve the level of asset management and procurement system to achieve its level of performance and reduce bureaucratic delays in its operation. The success of any supply chain can be judged by its management and privatization operations. Hence, various decisions need to be made, whereby the most important of these factors are those relating to cost. The study revealed that the respondents perceived that skilled workers, number of hours worked, change in fuel efficiency, change in profitability efficiency, government policies and road standards capacity are the determinants that affect profitability operations in CIMERWA. CIMERWA profitability activities play a pivotal role in the welfare of Rwandan society in terms of the profitability sector. The management and technical staff of CIMERWA need external support like training and consultants in the field of privatization and profitability operations. Regarding the third research question, using Pearson’s theory, the researcher found that there is a positive and very high correlation between privatization operations and efficient profitability. The profitability system is the most important economic activity among the components of business privatization systems. The improvement of the item of higher operation costs can get better effects. Hence, managers must comprehend profitability system operation thoroughly. In the privatization system cost could be regarded as a restriction of the objective market. It is the planning of all these functions and sub-functions into a system of goods movement to minimize cost and maximize service to the customers that constitute the concept of business privatization. The system, once put in place, must be effectively managed.
According to the research findings and conclusion of this study, the researcher recommended CIMERWA and the Government of Rwanda that, privatization systems must have interdependent relationships that management needs to perform its activities and meanwhile, a successful privatization system could be developed to improve the environment and development. Since public institutions contribute the highest cost among the related elements in privatization systems, the improvement of profitability efficiency could change the overall performance of a privatization system in both Government and private sector policies. The government of Rwanda should improve managerial skills related to privatization so that capacity building should play an important role in the privatization system and its activities appear in various sections of privatization processes. Without the linking of profitability, a powerful privatization strategy cannot bring its capacity into full play.
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CITE AS: David Nyambane and Uwayo Irene (2023). Transforming the Cimerwa Cement Manufacturing Company in Rwanda through Privatization to Enhance Profitability. IAA JOURNAL OF SOCIAL SCIENCES (IAA-JSS) 9(2):36-52. https://doi.org/10.59298/IAAJSS/2023/1.4.11000