Over the past decade, African governments, often under pressure from creditor institutions to act quickly, have sold off thousands of state-owned enterprises. According to the proponents of privatization, the goal is to cut waste, improve economic efficiency, stimulate the private sector and mobilize more foreign and domestic investment. However, the process has been fraught with problems and controversy, causing governments to proceed more carefully. |
Nigerian President Olusegun Obasanjo announced a new privatization programme in July 1999 shortly after becoming that country's first elected head of state in 15 years. He was scathing in his criticisms of Nigeria's large public sector, where some of the more than 1,000 state-owned enterprises have been losing millions of dollars annually. "State enterprises," he declared, "suffer from fundamental problems of defective capital structure, excessive bureaucratic control or intervention, inappropriate technology, gross incompetence and mismanagement, blatant corruption and crippling complacency."
A three-phase programme would be carried out, Mr. Obasanjo revealed,
under a new high-level National Council on Privatization chaired by Vice-President
Abubakar Atiku. First to be sold will be the remaining government shares
in 11 firms already listed on the stock exchange. Then hotels and vehicle
assembly plants will be privatized. Finally, in the third phase, to begin
in 2001, the government will sell the electricity and telecommunications
utilities, national airline, four oil refineries and a fertilizer company.
Although some of these are among the biggest public enterprises in the country,
the programme itself is not as sweeping -- or as controversial -- as a privatization
plan announced by the previous military regime just before it left office.
Nigeria should privatize carefully and not be rushed, President Obasanjo
emphasized. Nor, he added, should it privatize simply to please the International
Monetary Fund (IMF) and World Bank, but to stimulate economic recovery.
Nigeria's national electricity sector is slated for privatization in 2001.
Photo: UN
A similar approach to privatization is becoming increasingly evident across Africa. For years, African governments relied on large public sectors to stimulate economic development -- often because of the extreme weakness of indigenous private business during the immediate post-independence era -- but with the intensified push for economic liberalization by the IMF, World Bank and other creditor institutions, more and more African leaders are agreeing to privatize. This, they are told, will help cut public sector inefficiency and waste, provide greater scope to the private sector, attract more investment, bring in new technology and revive economic growth. At the same time, some governments want to proceed in a measured way, avoiding if possible the pitfalls, conflicts and setbacks that marked many of the privatizations carried out in the late 1980s and early 1990s.
Privatization in Africa remains highly controversial and politically risky. There have been numerous strikes against proposed sell-offs of state enterprises as unions fear lost jobs or reduced benefits. Student activists, academics and others have condemned both the theory and practice of privatization. Some indigenous business groups have criticized the prominent role of foreign companies in the privatization process. Even high-level government officials, such as Gabonese Interior Minister Louis Gaston Mayila, have denounced privatization as a form of "economic recolonization." In a few countries, opposition to privatization has been cited as one factor in the ouster of incumbent governments, either through election or military coup.
Until recently, African governments did little to counter such public views, even as the direct economic benefits of privatization were minimal or not very evident. Privatization attracted limited amounts of new investment, frequently failed to foster a genuine competition and had few linkages to any broader developmental goals. The secrecy with which many sales were concluded also tended to foster a public perception that privatization mainly benefited foreign investors or local entrepreneurs with political connections.
While acknowledging some of these shortcomings, Mr. Oliver Campbell White, a senior public enterprise specialist at the World Bank, argues that "by and large, privatization has been really a great success. Unfortunately, people don't know enough about it." Overall, he told Africa Recovery, privatization has strengthened public finances by reducing the huge subsidies that governments often had to sink into loss-making enterprises. Some enterprises, once privatized, have subsequently gone out of business, Mr. Campbell White conceded. "If they are subject to open competition, it is conceivable that some will fail. There's no guarantee." Many others, he added, have increased their efficiency, expanded operations and hired new workers.
There is still much room for improvement, analysts argue. In recent years, African governments and international institutions such as the World Bank have focused on a number of key privatization issues in an effort to reduce the problems and increase the benefits. So far, they have met with only partial success. These issues include:
The last point is particularly important, according to a 1999 working paper of the UN Economic Commission for Africa (ECA).* Emphasizing that achieving broader national consensus is vital, it states that "a participatory approach to privatization by providing public information and encouraging debate is the best way to secure consensus."
Such shifts in approach become all the more important as the pace of privatization picks up across the African continent. Although some African countries began modest privatization programmes in the 1980s, it was not until the 1990s that the numbers increased significantly. A 1998 World Bank study, Privatization in Africa (written by Mr. Campbell White and Ms. Anita Bhatia), reported that nearly 2,700 privatization transactions had taken place in sub-Saharan Africa by the end of 1996. In the three years since then, there have been hundreds more.
Hardly any African country does not now have some kind of privatization
programme. Even such countries as Liberia and Sierra Leone, which have been
devastated by war, have either begun to privatize some enterprises or plan
to when security conditions improve. Rwanda, still trying to recover from
the genocide of 1994, has a very active privatization programme. It finalized
11 sales in a three-month period in 1998 alone. Namibia is one of the very
few with no plans to privatize, largely because its state enterprises are
generally operating at a profit.
In the first half of the 1990s,
many of the public enterprises divested in Africa were small- or medium-sized,
yielding large numbers of privatized enterprises but only modest revenues.
Mozambique, with 548, had the greatest number of privatizations up to 1996
but the average value of the transactions was just $300,000. In contrast,
Zimbabwe sold only four enterprises in that period, but those sales brought
in an average of $6.3 mn each.
From 1996-97, African privatization programmes shifted to larger and more attractive state-owned enterprises such as national airlines, banks, shipping companies, public utilities and telecommunications enterprises. As a result, revenues rose significantly. According to World Bank data, the total sales value of all enterprises privatized in sub-Saharan Africa from 1988 to 1996 reached just over $2.7 bn. This was nearly matched in 1997 alone, when new privatizations brought in a total of $2.3 bn. In addition, the governments of Egypt, Morocco and Tunisia earned $2.4 bn from privatizations in 1997, compared with $3.3 bn in 1995-96 and just $1.2 bn over the five-year period 1990-94 (see graph).
Telecommunications has become a particularly dynamic sector for privatization. Many African phone systems are antiquated and unable to reach more than a small minority of the population. African governments found that selling shares of their telecommunications enterprises to established foreign companies was an easy way to gain access to new technologies and investment resources to modernize and expand their systems. Between 1995 and 1997, portions of telecommunications enterprises in six sub-Saharan countries were sold for a total of more than $1.7 bn (see table) and the new owners or partners announced ambitious plans for additional investments. Eritrea, Cameroon, Gabon, Kenya, Mali, Mozambique, Niger and Nigeria are also now in the process of privatizing their telecommunications systems.
Because of privatization, the size of Africa's public sector has decreased markedly. The World Bank estimates that the number of state-owned enterprises in sub-Saharan Africa fell from 6,069 to 4,058 between 1990 and 1995, a 33 per cent reduction. Though smaller in size, the remaining public sector is generally in better financial health since many of the most inefficient and unprofitable firms were among those sold off or liquidated.
Côte
d'Ivoire illustrates the shift away from state enterprises. With the sale
of more than 50 state firms, the public sector's contribution to gross domestic
product (GDP) declined from 9.5 per cent to 2.8 per cent between 1994 and
1997 and its share of formal employment fell from 22 per cent to 7 per cent
over the same period. Meanwhile, the private sector has been strengthened.
According to Mr. Jean-Claude Brou, head of Côte d'Ivoire's Privatization
Committee, the privatized firms made new investments of CFA 330 bn francs
($600 mn) between 1994 and 1998, thereby "contributing to the strong
growth registered by the Ivorian economy over the past four years."
Much of the initial impetus for privatization in Africa came from creditor institutions, above all the IMF and World Bank, as part of their push for structural adjustment. By 1998, some 34 African countries had World Bank project or programme financing agreements that included privatizations and three-quarters of World Bank loans or credits were conditional, in part, on privatizing state enterprises.
Such conditions have provoked resentment from African governments and fed a popular public view that privatization is basically creditor-driven. Since some of the larger and better publicized cases of privatization involved sales to foreign companies -- often from Britain, France, Portugal or Belgium -- such external pressure also spurred accusations that privatization is in fact a form of "recolonization."
Governments have sometimes been undermined as a result. In 1996, Benin's President Nicéphore Soglo, a former World Bank official, lost his bid for re-election; political analysts attributed the defeat in part to his programme of rapid and sweeping privatization.
Beyond the political repercussions, the ill-prepared and hasty manner with which many of the early privatizations were carried out contributed to the economic and social difficulties that were encountered. "Donors have exerted pressure to privatize without sufficient information," the World Bank's 1998 study acknowledged. "Anxious to see speedy action and results, donors ... have spurred African governments into privatization without understanding the constraints or the resources and time needed to overcome them." In particular, a stress on numerical targets tended to put a higher priority on how many enterprises were privatized, rather than how well privatization was carried out.
Over time, some of the creditor institutions, including the World Bank, began to partially reassess their approach and exhibit a new degree of flexibility. In May 1996, the Senegalese government announced that it was rejecting all the offers to buy the state groundnut marketing and processing enterprise, Sonacos, since they were far below the company's estimated value. Some officials worried that the rejection would stir World Bank anger. Instead the Bank representative in Dakar, Mr. Cadman Atta Mills, praised the Senegalese authorities for turning down such "ridiculous" offers. He also pledged not to suspend an agricultural adjustment loan which included privatization of the enterprise among its conditions. As of early April 2000, the groundnut enterprise remained under majority government ownership.
During a December 1995 visit to Washington, Eritrean President Isaias Afewerki noted that the US Agency for International Development (USAID) had become less aggressive in insisting on rapid privatization. "The language and approach of USAID has completely changed," he said. "I remember three or four years ago they told us: 'you should privatize companies within six months.' That kind of thing was a constant source of friction between us and USAID officials."
While it may have eased, the pressure to privatize has not ended. Privatization has remained a common and central feature in many World Bank and IMF loan agreements. Officials of the two institutions have publicly complained about what they regard as the slow pace of privatization in Cameroon, Comoros, Ghana, Malawi, Zimbabwe and other countries. In December 1997, the IMF halted lending to Niger under an enhanced structural adjustment facility when the government, under fire from a wave of bitter labour strikes, failed to move toward privatization of 12 major enterprises. The Fund resumed lending the next year when the government again promised to push ahead with privatization.
Mr. Campbell White argues that continuing pressure from the World Bank stems from a concern for the broader process of economic reform even at the expense of greater attention to issues like employment or social equity. "Unfortunately," he says, "the drive to get the reform process moving and to keep it on track tends very often to result in this institution pushing: privatize, privatize, privatize. Perhaps some of these humanitarian issues do get a little bit sidelined, but that's not due to disinterest. It's merely that there's a bigger agenda of reform that has to take place."
From the beginning, the most publicly persistent and organized opposition to privatization in Africa has come from the labour movement. Most recently, in 1999, there were strikes or threatened strikes against privatization in several countries including Benin, Cape Verde, Gabon and Niger. Sometimes workers succeeded in blocking or slowing down the privatization of specific enterprises or influencing negotiations for a privatization agreement. At other times, responding to external pressures, governments have simply brushed labour opposition aside, leaving a legacy of anger and political tension.
Usually, workers are reacting against threatened jobs or the possibility that benefits might be jeopardized under new management. Fears are heightened by the fact that some of the early privatizations did result in job losses. These either came with the arrival of new management, or earlier, as governments restructured financially troubled enterprises to make them more attractive to potential buyers. In São Tomé and Principe, agricultural labourers not only lost their jobs when state farms were privatized, they also were evicted from the plantation housing where they and their families lived.
There has been almost no follow-up monitoring of privatized enterprises, so accurate figures on pre- and post-privatization employment levels are generally unavailable. The World Bank conducted a survey of 54 privatized enterprises in Benin, Burkina Faso, Ghana, Togo and Zambia and found that between the time of privatization and the first quarter of 1996, overall employment in the companies had declined by 15 per cent, ranging from a steep fall of 36 per cent in Benin to a very slight increase of 0.1 per cent in Burkina Faso. In 1999, the Sudan Workers Trade Unions Federation charged that some 40,000 workers had lost their jobs in that country since privatization began in 1992.
Government and donor officials argue that many of these jobs might have been lost anyway since governments simply could not keep subsidizing crisis-ridden public enterprises indefinitely. Through privatization, they say, the enterprises have been placed on a sounder footing and in some cases have been able to expand operations and hire additional workers (or rehire some of those who were initially retrenched).
Nevertheless, governments and privatization commissions are now more attentive to job concerns. Frequently, when a state enterprise is offered to private bidders, retention of existing staff is either an explicit criterion or a major consideration when the government assesses offers. In Burkina Faso, the government received four offers for its giant sugar complex in Banfora in 1998. It immediately turned down one company that wanted to cut 700 staff and ultimately sold to a bidder that offered the lowest price and pledged to maintain the entire workforce while making significant new investments.
Although not yet a widespread practice, employee shareholding schemes are becoming more common as governments try to win workers' acceptance of privatization by giving them an ownership stake. When Senegal's telecommunications enterprise was sold in 1997, the workers were permitted to buy 10 per cent of the shares at a special discount. In Benin, employee equity participation is part of the privatization law, although it has yet to be implemented.
"One of the mistakes we made in privatizing in Africa," notes Mr. Campbell White, "was not talking to labour leaders early on." Now union representatives are gradually gaining a limited voice, in some cases in the enterprises and, in others, with a formal role in the national privatization agency. In Ghana, the central labour federation was eventually given a seat on the Divestiture Implementation Committee (DIC), which oversees the sale of state assets. The Ghana Trades Union Congress complained that it was not involved when the committee was first established. However, "it is better late than never," notes the federation's Secretary-General Christian Appiah Agyei. Despite continuing skepticism about the privatization programme, he said that the union decided to take an active part in the DIC to ensure that workers get the benefits due to them. "What we have achieved for our members who were declared redundant might not be the best but, as a popular saying goes, half a loaf is better than none."
In other countries too, unions have shifted from outright opposition to privatization to trying to influence the way it is carried out. In Niger, telecommunications workers went on strike in August and September 1999 to protest government plans to break up and sell the mobile phone network. The workers felt that such a move would undercut the value of the business for potential investors and might jeopardize its prospects after privatization. The government relented and agreed to sell the enterprise as a single entity.
Privatization often has an impact far beyond a firm's immediate employees and their families. Some public enterprises were originally established with broader development goals in mind: to build infrastructure, stimulate production in the absence of a strong private sector, spearhead industrial diversification or extend essential economic and social services to previously neglected sections of the population. In the initial rush to privatize, those goals were sometimes forgotten.
In the late 1980s, agricultural marketing boards and rural development agencies were dismantled or partly privatized in a number of African countries. Farmers generally welcomed the removal of price controls on their crops but they soon found that credit and agricultural inputs became more expensive or simply disappeared. The private sector did not rush to fill the gaps in the marketing chain, especially in poorer or more remote rural areas where profit margins were small. In Senegal, associations of small-scale farmers in the Senegal River Valley complained about the disruptions caused by the sudden elimination of state agricultural marketing and input supply operations.
The Zambia National Farmers Union supported the privatization of maize purchasing but is critical of the hasty manner in which it was carried out in the early 1990s. Smaller-scale Zambian farmers within the organization and in the rival Peasant Farmers' Union charge that agricultural prices now are far more unpredictable than in the past. In 1997, the main organization of cocoa farmers in Côte d'Ivoire criticized the ongoing privatization of the cocoa marketing and price stabilization board, pointing out that the agency funded the expansion of rural infrastructure and that private companies were unlikely to do so. Despite their concerns, the board was dissolved in January 1999.
Drying cocoa: privatization of marketing board functions can lead to lower quality exports.
Photo: Ghana Information
Services Department
In the case of major export crops, governments sometimes worry that privatization of marketing boards will lead to a decline in the quality of the crops sold abroad. This happened when Nigeria's cocoa marketing board was abruptly dissolved in 1986; it had selected only high-grade cocoa for export and its dissolution brought a decline in quality and lost Nigeria its premium niche in the world market. Ghana, which has long enjoyed a high premium abroad for its cocoa exports, is resisting IMF proposals to liberalize the export business, even as internal cocoa buying has been liberalized. Partly for similar reasons, a number of francophone West African countries are reluctant to privatize their state cotton enterprises.
On occasion, inequities within countries have also become an issue. In largely francophone Cameroon, chiefs and local political dignitaries from the anglophone South-West Province met with national officials in February 1999 to oppose plans to privatize the Cameroon Development Corporation (CDC), one of the country's largest agro-industrial enterprises. They stressed the CDC's historical role in helping develop their province.
In Uganda and Tanzania, the governments, unions and local financial communities all raised concerns that selling major state banks to foreign institutions would lead to the closure of smaller and less profitable rural branches and deprive many people of basic banking services. The Ugandan government has indicated that a potential buyer's commitment to maintaining a nationwide network of branches will be one of the criteria for the sale of the Uganda Commercial Bank.
To many ordinary Africans, privatization is a very distant process in which they have no hope of participating. World Bank officials cite figures to show that most privatized firms are sold to nationals, but these are generally the smaller ones. Many of the largest and most profitable go to foreigners -- often from the former colonial power -- fueling opposition to the perceived sell-off of "national assets."
Such views are not limited to opposition parties or trade unions; they are also held by indigenous business organizations. In early 1999, the national business forum in Cameroon -- the Groupement interpatronal du Cameroun -- complained that the qualifying conditions for bidding for the national water and electricity companies discriminated against local investors and favoured French companies. In Kenya, the National Chamber of Commerce and Industry suggested that a portion of privatization revenues be set aside for a credit fund for indigenous small-scale enterprises.
Even when national investors do take a leading role in a privatized company, there is sometimes public resentment that businessmen from certain ethnic groups have an undue advantage. Moreover, the frequent secrecy or lack of public information about how buyers are selected lends credence to press reports that some privatization programmes are riddled with corruption or tend to favour political insiders.
The ECA working paper mentioned earlier argues forcefully that broadening ownership is vital for the long-term success of privatization in Africa. "Broadening local participation in privatization satisfies national aspirations. It can also activate political acceptance of privatization and, ultimately, it can boost domestic savings."
Nevertheless, only scattered efforts have been made so far in Africa to give local people greater ownership in privatized firms. Employee equity schemes are one method. Most common is the floating of shares on local stock markets, which ECA regards as "the easiest way to reach as many people as possible." Many of Nigeria's privatization transactions were carried out in this way. Regional quotas achieved an equitable geographic distribution of shares. Often, part of a large enterprise is sold to an external "strategic investor" while a certain percentage of shares is floated through the stock market. This happened with Kenya Airways and Ashanti Goldfields in Ghana.
The ECA notes the limitations of such public share floats. Many African stock markets are still in their infancy. In any case, most people are far too poor to buy shares. This has prompted governments to retain minority holdings of privatized enterprises for future public offerings; either directly or through special trustee funds, such as Zambia's Privatization Trust Fund (PTF), created in 1994. The PTF "warehouses" up to 30 per cent of shares in companies for later sale to the public. Rwanda is planning a similar trust fund.
While encouraging the strengthening of African stock markets as the best long-term route to broader ownership, ECA regards "directed group" ownership schemes as a promising medium-term solution. These involve offering equity shares at discounted prices or on deferred terms to people who have little capital but are directly involved in a particular production sector. One example is the Uganda Tea Growers' Corporation where tea farmers gradually buy into the corporation's factories as they sell their tea. Initial subscriptions are as low as 5,000 shillings (about $3.30).
Privatization "is both an economic and political exercise but more the latter," notes Mr. Bernard Verr, director-general of Nigeria's Bureau of Public Enterprises and a member of its National Council on Privatization. Therefore, he adds, privatization requires "the commitment of the highest political authority."
Some countries, like Nigeria, have placed their privatization programmes directly under the offices of the president or vice-president, or at the cabinet level. Others have created strong or semi-autonomous privatization commissions with participation from government, business and other sectors. In Botswana, the Chamber of Commerce and the trade unions were involved in the creation of the Public Enterprise Monitoring and Privatization Agency in 1999.
One of the key tasks facing such agencies and commissions is ensuring greater transparency and accountability in the privatization process. In a number of countries, separate auditing and parliamentary oversight committees have been established to help monitor privatizations. In Uganda, revelations about corruption in some privatization deals not only brought the resignation of the privatization minister but also prompted the parliament in late 1998 to order a temporary suspension of the entire privatization process until it had completed an inquiry (which led to the sacking of several more officials).
Some World Bank and IMF officials express concern about the suspension in Uganda, but Mr. Campbell White observes that such delays may be inevitable as policy discussions about privatization become more inclusive and open. "We need to pay a lot more attention to garnering information on people's views and getting people to participate in the formulation of policy. Yes, this may well slow up design, preparation and implementation early on. But once you get that out of the way, [a privatization programme is] very much more likely to be successful."
How the profits of privatization are used is another area in which greater transparency is needed, analysts point out. Often, governments give very little indication of how such income is spent, further fueling speculation about high-level corruption or the diversion of funds for pre-election spending or to plug budgetary deficits.
In some cases however, governments have enhanced public confidence by not only giving a public accounting of privatization revenues but also by specifically targeting them to vital development needs. After the sale of Senegal's telecommunications enterprise, the minister of finance, in a supplementary budget bill, allocated a portion of the revenue to social programmes.
Such moves have not eliminated all the problems facing privatization in Senegal -- or elsewhere in Africa -- but they have opened the way for greater public engagement and debate in a process that is now a central feature of economic change throughout the continent.
