Parastatal is a form of business that is separate from the government, but its activities serve the state either directly or indirectly. It is an intergovernmental organization.
The company provides essential goods and services and it is a legal entity. Examples if parastatals include: Public Service Pension Fund and Motor Vehicle Accident Funds.
Pros of Parastatals
- Provides employment to people
People seek employment opportunities in parastatals which makes them earn a living hence improving their standards of living.
- Provision of essential goods and services to people
Parastatals provide essential goods and services to people as the company’s main aim of its formation is to bring goods and services near to the consumers. Their products are always at cheaper prices which makes it favorable for people.
- It is a source of income to the government
During its operation, it pays tax to the government which acts as a source of revenue to the government. The money is used by the government to improve other areas of the economy hence development in the country.
- Assist in the implementation of government policies
This is done by setting the prices of the commodities. As the parastatals produce the commodities they put into consideration the number of resources they put in and from that, they are able to calculate the price of the commodity without exaggerating it.
- Avoids duplication of the products
The parastatals do this by ensuring that they produce commodities of high quality as they verify them with the Kenya Bureau of Standards.
- Availability of capital from the government
The government provides capital to the parastatals as it is an investment in that it will be a source of revenue for the government.
- High economies of scale
The parastatals enjoy high economies of scale because they produce commodities in large amounts.
- Limited liabilities
There are limited liabilities as they are not owned by an individual which makes it possible to meet the cost of their liabilities.
Read More: Pros and Cons of Cooperatives
Cons of Parastatals
- Expensive to maintain
Parastatals are expensive to maintain and run as they are comprised of many departments that need the services of different people for them to operate efficiently.
- High bureaucracy
All the products produced by parastatals need to be certified by the bureau of standards which is a long process hence making it inefficient to produce large amounts of products.
- Easy to produce poor quality products
As they monopolize the market, it can easily lead to the production of poor quality products which may affect the consumers in the long run.
- Political influence
They can be influenced by politics as its activities are either directly or indirectly linked to the government hence it can affect its production.
- Decision making is slow
As it comprises of many people, decision making is not easy as each and everyone has different views about an issue.
- Lack of competition
Because of the monopolistic nature of the company, they do not face competition hence it can affect the production of its products.
Read More: Pros and Cons of Joint Venture
Parastatals produce good quality products if they do not face political influence hence the best products come from the parastatals.