FEEM FP6 project

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FEEM FP6 project

• Privatisation and regulatory reform in the
  Southern Mediterranean (MEDA) area
• B Belev, A Goldstein, C Kauffmann, M Mezouaghi, E
  Pérard and L Wegner
• OECD Development Centre
• Prague 17 February 2007

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What is MEDA?

• The Barcelona Process is the cornerstone of the
  EU policy in the Mediterranean region
• Algeria, Egypt, Israel, Jordan, Lebanon, Morocco,
  Syria, Tunisia, Turkey, Gaza/West Bank

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What have we done?

• Database
• Political economy analysis
• Case studies
• Telecoms
• Water and sanitation

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OECD PRIVMEDA a brand new database!
Number
Proceeds in million

Source PRIVMEDA
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Country composition
Source PRIVMEDA
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Average proceeds per transaction
Source PRIVMEDA
7
Sector composition
Source PRIVMEDA
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Deal types
Source PRIVMEDA
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Fiscal impact

• Short-run effect
• One-off revenues how have they been used?
• Long-run effect
• Subsidy savings, broadening of tax base.
• Potentially high in competitive sectors, delayed
  in utilities

Average annual sale values ( of government revenue), 1990-2006
Algeria 0.1
Egypt 3.4
Jordan 3.0
Morocco 6.2
Tunisia 4.6
Turkey 2.5
Average selected MEDA countries 3.3
Mean OECD 1.6
Mean Transition economies 5.5
Mean Latin America 8.4
Av. Sub-Saharan Africa 2.2

Source IMF and PRIVMEDA
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Financial markets and private sector development

• Stock market development about 16 per cent of
  transaction through public floatation
• - in Algeria, three quarters of privatisation
  transactions have been conducted through public
  floatation,
• - in Egypt, public floatation has been the
  most common method of privatisation (for 28 per
  cent of transactions).
• - In Morocco since the inception of
  privatisation in 1993, the Stock Market
  capitalisation has multiplied by 48
• Development of local private sector
• - sales of companies through Management buy
  out (13 per cent Morocco) or employees
  shareholding (28 per cent in Egypt)
• - Major constraints poor management
  capabilities and lack of access to affordable
  financing for further investment
• - Privatisation has an impact on PSD only if
  part of a broader package of reforms (on business
  environment and financial market), successful
  experiences in morocco and Tunisia

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Efficiency gains

• In Competitive sectors generally met
• In Telecoms very high (Tunisie Télécom , Maroc
  Télécom (MT) owing to increased competition
• In Water tariff normally increase but access and
  quality improve if a proper regulatory framework
  is in place
• Employment outcome
• competitive sectors immediate redundancies
  followed by stabilisation/ increase of labour
• power and water sector heavy cuts rarely
  compensated by new recruitments gt necessity of
  safety nets.

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Privatization politics in OECD countries

• Standard approach (e.g. Bortolotti and Pinotti
  2005)
• - existence of political institutions curbing
  the bargaining power of veto players and
  enhancing executive stability
• - political preferences, with market oriented
  governments involved in spreading share ownership
  among domestic voters

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The Limits of Forced Freedom

• Objectives of the study
• - analysis of the phenomenon of politically
  controlled privatization (forced freedom) in
  MENA for the period 1996-2006 on the basis of two
  typical country cases - Egypt and Tunisia
• - explanation of politically controlled
  economic opening and with a reference to the
  general outcomes of public sector reform in
  another region CEE
• - critical evaluation of the role of
  privatization as an element of market-oriented
  reforms and better understanding of
  privatizations limitations
• Methodology
• - new institutionalist-sociological approach
• - interviews with government officials,
  consultants, investors and academics involved in
  the process of privatization or its study
• - difficulties in conducting the research due
  to insufficient statistical data, lack of primary
  policy analysis and low scholarly interest

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Results of the Study

• privatization in MENA - designed as a strategy to
  introduce certain amount of change just enough
  to solve medium-term governance problems and at
  the same time to allow governing elites to remain
  in control and preserve major parameters of the
  state-society relations
• continuity of the process of privatization
  stability of objectives, limited involvement of
  domestic actors, discretionary decision-making
  and persistence of governance structures
• pros of politically controlled privatization
  potential for greater efficiency of reform
  process (assumption developmentally minded
  government)
• gt success by numbers
• cons of politically controlled privatization
  low effectiveness in building capacity of the
  individual actors to function according to the
  rules of a market economy and adequately
  transforming the business environment
• gt privatization as a permanent state of
  affairs with limited
• liberal content

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Implications for Further Research

• diminishing interest in privatization among
  political economists studying MENA progress in
  social science depends on the attitudes of
  political authorities
• need for further study of the issue of reform
  sequencing lack of political reform as a major
  roadblock to economic reform
• need for empirical studies of privatization
  (e.g. before and after comparisons, studies of
  individual company cases)
• need to stimulate general policy analysis in
  MENA

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Water Supply

• Review of the scope of private sector
  participation in water supply and its different
  forms in the world.
• Focus on the MEDA experience analysis of the
  water organizational framework in MEDA countries
  and study of the development of private sector
  participation in the context of urban water
  crisis.
• Design a water institutional scorecard to monitor
  the water regulatory reforms progresses of MEDA
  countries.
• Propose policy recommendations in order to
  increase efficiency in water supply.

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Water Supply - Methodology

• Review of institutional communication of private
  operators, international organizations and
  governments on private sector practices in water
  supply in the world.
• Extensive survey of empirical tests and of case
  studies on private sector participation in water
  services in the world.
• Detailed examination of laws, decrets and
  official publications on the organization of the
  water supply sector in MEDA countries.
• Inventory of the majority of private water
  contracts in the MEDA region.

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Water Supply - Results

• The broad review of empirical tests and case
  studies shows that private sector participation
  per se in water supply does not systematically
  have a positive effect on efficiency.
• Reforming the water supply institutional
  framework is an essential prerequisite for
  delegating water services.
• The study reveals great differences of
  organizations among MEDA countries
• Private sector participation in water supply
  concerns only Jordan, Morocco, Algeria and
  Lebanon.
• Water regulatory reforms are well on track in
  Morocco and Algeria.
• The example of Tunisia shows that managing
  efficiently public water delivery is also
  possible.
• In other countries, Jordan and Egypt, the
  situation is more concerning.
• Based on the water institutional scorecard (21
  indicators), the study proposes major regulatory
  reforms for Algeria, Egypt, Jordan, Morocco and
  Tunisia.

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Water Supply Next Steps

• Extend our analysis to more countries of the MEDA
  region (i.e. Turkey and Lebanon). Apply the water
  institutional scorecard and propose key
  regulatory reforms for these countries.
• Continue monitoring the progress of MEDA
  countries in reforming the institutional
  organization of their water sector.
• Project of roadshow to private water companies,
  Suez and Veolia, to get feedback, to improve the
  scorecard and to amend policy recommendations.
• Project of presenting the conclusions of the
  study at leading international conferences on
  water the SIWI World Water Week in Stockholm in
  August 2007, the World Bank Water Week

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Telecoms research questions

• Issues from the opening to competition in MENA
• Implementation of a convergent institutional
  framework based on competition, restructuration
  of the public operator and creation of a
  regulatory agency (inspired from the european
  regulation model)
• Positive effect access, quality, price,
  technological change
• But significant differences in performance (main
  line / mobile / Internet teledensity) and
  productivity
• How to explain these differences in performance ?
  
• Market dynamics and institutional discrepancies
  (anti-competitive practices, market opacity)
• Role of the  independent  regulatory agency in
  a centralized State context
• Reform management and public policy

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Differences in performance Diversity of
liberalization trajectories ?
Evolution MENA countries 2000-2005
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Methodology

• Studies focused on positive effects of reforms in
  developing countries (Wallsten, 2000, 2002), and
  in MENA (Gentzoglanis 2001, Goldstein, 2003
  Rossoto, Sekkat and Varoudakis, 2003).
• Opening to competition is a complex process
  (Mansell, 1993 Laffont and Tirole 2000). There
  is no  one-best-way .
• Institutional complementarities structure could
  explain the coexistence of several models of
  liberalization (Aoki, 2001 Boyer, 2002, 2003).
• Between two kinds of regulatory pattern (public /
  liberal regulation), more hybrid configurations
  characterize the liberalization process.
• Empirical study factoral analysis (based on
  qualitative data) including performance and
  market variables.
• Panel thirty countries (MEDA emerging
  economies)
• Year 2005

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Main Findings (1)
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Main Findings (2)
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To be done

• Introduce new variables in the empirical
  framework (for instance prices and productivity
  when availables on a homogeneous basis)
• Complete two case studies on privatization
  Morocco and Turkey (focus on the main lessons)
• Correct and finalize the draft paper