- Laura Wallace
- Published Date:
- May 1997
Accelerating Public Enterprise Reforms
Edouard Luboya of Zaïre, a representative of the private sector in Zaïre, began the discussion by suggesting that the presentations from Côte d’Ivoire and Mali showed that there was no point in deferring privatization—a rebuttal to some who had advised that countries spend decades establishing sound economic fundamentals, as Asian countries had done, before embarking on privatization. Moreover, Luboya argued, Zaïre’s experience in recent years pointed to the same conclusion about timing. With the country in crisis, the private sector had stepped in and taken the initiative, particularly in the area of infrastructure. As a result, Zaïre now had more than 20 airlines covering the entire national territory, with some of them also able to service international routes. Cellular phones were now available, with prices dropping. And many large companies had training centers with physicians and modern equipment. All of those developments demonstrated that countries could move very swiftly on privatization. At the same time, however, Luboya noted that further progress had been inhibited by the frequent tension between the private and public sectors—a legacy of a misunderstanding that had existed ever since independence—but hopefully those disputes could soon be resolved.
Chérif Bichara of Chad noted that his country, too, had made a great deal of progress on privatization. Chad had decided in 1972 to get the state out of about 50 public and parastatal companies, and it had managed to privatize about half of those, without any major difficulties. His advice to others was fourfold:
- Policymakers needed to communicate the goals of the privatization programs and secure the support of the whole country—particularly unions, parliaments, and political parties.
- Policymakers needed to arrange for staff of the company slated for privatization to be associated with the future company. In Chad, when companies were privatized, 10 percent of the shares were reserved for staff, making them shareholders and thus giving them a say in the management of the company.
- Policymakers should ensure a certain amount of transparency, such as in the call for bids. Otherwise, it would be difficult to build enthusiasm for the initiative, as people would be suspicious about who stood to profit.
- Policymakers should proceed cautiously when it came to privatizing the banking sector, as participants needed to build trust and act with discretion. Indeed, this was the one sector where Chad had run into difficulties with privatization. Banks could not be privatized with a snap of the fingers—meaning that it was not always possible to meet World Bank deadlines.
Responding to John Nellis’s statement that Africa was lagging behind other regions on privatization, Joseph Tsika of the Congo also insisted that Africa was keen to move forward on privatization in recognition of the fact that lame duck parastatals were costing the governments enormous sums of money. In Congo, for example, 150 companies had been slated for action in 1994. Since then, 53 had been liquidated, and the 6 largest were being privatized, thanks to a World Bank credit. So the fact that there were obstacles did not mean that the governments were dragging their feet. That said, it was important to recognize that there was still a certain amount of hesitation on the part of private partners and workers who would need to enter into the privatization process. He asked Jean-Claude Brou to what extent Côte d’Ivoire was able to engage the social partners, such as the unions, in the process, as the Congo’s main problem had been wildcat strikes, largely for political reasons.
As for Yasuo Yokoyama’s comment on taking sufficient time for the process, Tsika asked how countries could hold off privatizing and yet improve their economic fundamentals by not supporting inefficient parastatals. In some instances, that would mean not supporting entire sectors. People would wake up one morning with no telephone, no water, and no electricity. Moreover, donors were saying that if recipients did not privatize by a certain date, disbursements would stop. How were the financing gaps to be filled? It was a vicious circle.
In response to Tsika’s question on involving labor, Brou noted that in all the privatizations, about 5 percent of the shares were put aside for employees. The private operators that purchased the enterprises had to put those shares aside for the employees and create common funds for them. The employees were also informed from the start about the type of approach that would be taken in the privatization process and kept abreast of developments, even though they did not actually take part in the negotiations.
Joseph Kinyua of Kenya underscored the progress Kenya had made on privatization in recent years, pointing to its commitment in its Policy Framework Paper to sharply reduce the public sector over the next three years, leaving only a few strategic parastatals. In the short term, improved efficiency of investment should become clear, and in the medium term, the impact on the overall economy should become evident. He also took issue with Nellis’s statement that the economic weight of the Kenyan state was only slightly less today than it had been in 1985. Kinyua emphasized that there had been a substantial improvement in terms of the government’s burden arising from either subsidies or resource transfers. Moreover, debt payments on behalf of the parastatals had dropped to 1.5 percent of government revenue from 5 to 6 percent three or four years ago.
Ben Ibe of Nigeria also pointed to recent successes in his country in privatization and streamlining of public enterprises but conceded that progress was not at the level that the World Bank would want. In some industries—such as airways, shipping, railways, and steel—enterprises were so run down that no one was interested in buying them. In a few other industries—such as power, hydrocarbons, and telecommunications—huge foreign debts needed to be settled before interested buyers would proceed. Then there was the question of appeasing labor and interest groups before companies could be put up for privatization. What advice could the World Bank offer?
Mary Muduuli of Uganda, emphasizing the need for Africa to better manage structural reforms, seconded the notion that a major obstacle to privatization was a lack of public awareness of its benefits. She also noted that, similarly, governments had failed to sell civil service reform, inadequately preparing the public and especially the affected employees. Uganda was only now waking up to the need to use advertisements in the media and drama shows to explain the advantages of privatization, an important step in ensuring smooth implementation and participation of citizens in the future ownership arrangements for the privatized enterprises.
Kwesi Botchwey of Ghana observed that as soon as governments announced that they planned to privatize enterprises, the immediate question asked was who would be the buyers. Opposition parties took advantage of the situation by telling the public that the government was abandoning them. To the extent that notion took hold among supporters of privatization, it tended to undermine the process—in part because it was accompanied by the reality that privatization would involve reengineering and downsizing, meaning job losses. Thus, communicating clearly the benefits of privatization to the public was important—even if they were not immediate.
In response, Nellis agreed that privatization was inevitably an intensely political process, a problem that could not be swept under the rug. It raised serious issues, such as the impact on labor, the nationality—or sometimes even the ethnicity—of the purchaser, and the use by opposition parties of the privatization programs to advance their own political interests.
Nellis conceded that privatization often negatively affected labor in the short term, although he was very pleased to hear of many instances where privatization had actually led to an increase in employment. But the sad fact of the matter was that many of the enterprises were overstaffed, with a key feature of their poor performance being excess employment. What advice could the World Bank offer? The institution had found that successful privatization programs around the world had usually been associated with programs of severance packages, sometimes more generous than required by law in order to entice people to accept the programs. That had been the case in Argentina, as well as in other Latin American countries, where privatization had gone forward at a rapid rate. Perhaps what African countries needed was a trade union for the unemployed—those individuals whose interests were going to be advanced by liberalization. After all, the data suggested that the private sector created jobs, while the public sector only maintained them.
Turning to the need for public relations at an early stage of privatization, he noted that that was something the international financial institutions had previously neglected—by viewing privatization as a technical, rather than a political and social, problem. And in their technical response, they had overlooked the need for governments to use every means at their disposal to alert people to the costs of inactivity, the costs of poor performance, and the benefits of privatization. Even so, it was true, as Botchwey had commented, that the costs were immediate and focused, while the benefits were long term and diffused, making privatization a difficult sell for politicians.
Yasuo Yokoyama responded to several speakers who had taken issue with a long time-horizon for reforms by citing Mozambique’s recent efforts to privatize the CFM, the national railway. Although the deal remained to be finalized, it appeared that only about 30 percent of the shares would be left in Mozambique hands, with the remainder going to foreigners (e.g., in the United Kingdom and South Africa). Yokoyama questioned whether that could be called an optimal form of privatization. By contrast, Japan had considered the privatization of its railway company for many years before finally, a few years ago, launching a divestiture, a strategy that proved to be quite successful.