Maximizing Revenue from Government-Owned Assets

Privatizing government assets is just one way to improve fiscal health or invest in new infrastructure. To create value for the public, all options should be considered.

October 2014 | by Daniel Burk

Selling public assets can be an effective way to improve fiscal health but can also be unpopular, slow, and risky. It is also just one of many available options. From real estate and roads to state-owned agencies and monopolies, there are multiple approaches to create new sources of general revenue that governments can use to improve finances or invest in new infrastructure and other key priorities.

As financial deficits remain high in much of the developed world and spending needs continue to rise, full asset sales will be an important option for meeting these needs. In the United Kingdom, for example, the government has announced a £20 billion (US $33 billion) target for asset sales.

The Australian government announced plans to raise up to AU $130 billion (US $120 billion) from asset sales. And there is substantial scope for such sales: eurozone governments hold €4 trillion of fixed assets, and the US government owns an estimated 45,000 underused or underutilized buildings.

But privatizations are only one way to raise funds from government-owned assets. Our work with infrastructure and other assets of regional and national governments suggests there is a substantial ability to monetize value short of an actual sale—in one case, sixty percent of asset value was realized through sales, and forty percent, totaling multiple billions of dollars, was better realized through other means, such as making operational improvements and restructuring the financial model. Often, these types of changes can be easy, quick, and ultimately have the potential to create substantial value for the public.

Four steps, which we explore further in the sections below, are needed to make any approach to monetizing government assets a success:

  • First, understand the motivations and policy concerns of the current government. Subtlety matters—different objectives point to different assets and to different strategies for monetization.
  • Second, scan and sift. A full and detailed scan of assets is needed, tracking data to the most detailed operational and financial level possible. These data stimulate ideas for value creation at an asset level that go beyond outright sale.
  • Third, identify the opportunities. Rapid diagnosis of the current and future operating and financial potential, asset by asset, with fine-grained benchmarking and interviews, can often reveal substantial opportunities to unlock value, including cost-reduction programs and partial equity sale, sale-and-leaseback, contracting for operations, and obtaining a credit rating.
  • Fourth, execute with care; carefully manage stakeholder, legislative, accounting, policy, and other barriers.

With an explicit understanding of motivations, a thorough scan and sift of assets, rapid diagnostics to identify opportunities, and execution with care, governments can create new sources of revenue. By exploring the range of options from asset sales to alternative approaches, governments can create unexpected value for the public.

 

Executive Editor

 Ms Anna Sullivan

Ms Anna Sullivan