Disadvantages (Demerits/ Costs) of privatization

1. It encourages wasteful competition through duplication of goods and services.   This leads to misallocation of resources in the economy.
2. It leads to emergence of private monopolies. This increases   consumer   exploitation    as private monopolies   restrict output and charge high prices with the aim of maximizing   profits.
3. It leads to income inequalities in economy. Privatization if not  well  controlled   leads  to income inequalities   whereby    production    enterprises   may  be  concentrated    in  the  hands   of  a  few  .rich individuals.
4. It leads to profit repatriation. Privatizing public enterprises   to foreign investors   leads to capital outflow in form of profit repatriation.   This leads to low capital formation   in the economy.
5. Privatization undermines the provision of basic essential goods and services which are non- profit making. This is because the private individuals   aim at venturing   in activities   in which they maximize profits.
6. It limits the foreign exchange earnings of the country. Privatization   mainly aims at producing goods and services   for domestic   consumption.   This limits the export potential   of the country hence low foreign exchange earnings.
7. It leads to short run unemployment. Unemployment    in the’ short  run  results  from  retrenchment of  workers    and   inefficient    firms   being   pushed   out   of  the  production    process    due   to  stiff competition.
8. It encourages   rural-urban    migration.   This    is   because    privatization     encourages     the concentrated    of business    activities   in urban   centers   due to presence   of market   and   better infrastructures.   This leads to congestion   and increased cost of living in urban areas.
9. It increases foreign control of the economy. This is through foreign direct investments    which are set up in the economy which sometimes   act as agencies of foreign influence.   This undermines the national sovereignty   of the country.
10. It leads to over exploitation of natural resources. This is because   private   individuals    aim at maximizing   profits.  This leads to environmental    degradation   and failure of the economy   to be self-sustaining   in the long-run.
11. It makes planning by the government difficult. This is because privatization puts a large part of the economy outside the direct control of the government.      .

12.  There are some areas where privatization cannot be efficient.  For example   the production of fire arms if left   to the private sector might cause insecurity.