World Bank wrong on pace of African privatisation.

The pace and scale of privatisation in Africa is far greater than current World Bank statistics indicate. A new study by the UK-based Institute for Development Studies challenges World Bank data and comes to the conclusion that privatisation in Africa is well and truly under way.

Past World Bank analysis of the privatisation of state-owned enterprises (SOEs) in sub-Saharan Africa has been based on very incomplete and out of date material, according to new findings. Previous research suggested that only very limited progress had been made in this field since the mid-1980s but new evidence suggests there has been a generally much higher level of privatisation activity than indicated by existing data sources and that there has been a marked increase in the number and overall value of privatisation transactions since the early 1990s.

Until this year, most analyses of privatisation in Africa have been based on two World Bank sets of data. The first, compiled by Mr Candoy-Sekse, Techniques of Privatisation of State Owned Enterprises, V.3, World Bank Technical Paper No. 90, covers the period 1980 to 1987 and lists only 27 transactions either completed or in the process of completion for the whole of sub-Saharan Africa.

The second, Privatisation and Foreign Investment in the Developing World 198892, World Bank Staff Working Paper 1202, reveals a similar story of slow, often faltering, privatisations, with only 172 transactions listed. Both reports concentrate on no more than a handful of countries. The first focuses on Cote d'Ivoire, the Gambia, Guinea, Niger, Togo and Uganda, and the second looks at Ghana, Mozambique and Nigeria.

Even the latest World Bank statistics in A Summary of Privatisation of Public Enterprise: African Development Indicators, 1996, appear to under-estimate the progress made with a total of just 1,019 sales listed.

"One of the problems is that, until last year, some countries such as Madagascar, were not included in their data set at all," explains Dr Paul Bennell, a Fellow at Sussex University's Institute for Development Studies (IDS) and the author of a new study about privatisation in sub-Saharan Africa in the 1990s. This study lists a total of 1,165 transactions up until mid-1996. "When you look in detail at a particular country there are quite a number of transactions that are not included by the World Bank: it is missing both countries and also data in listed countries."

In Mozambique, for example, the IDS study found that the total number of sales transactions between 1980 and mid-1996 was 647. Even discounting the large number of very small privatisations, this figure is about three times as high as those recorded by the World Bank's two data sources covering the 1980 to 1992 period and nearly double the Bank's final 1996 figure of 394.

Other problems with the World Bank's figures include the fact that its privatisation data only includes transactions valued at $50,000 or more, and that since 1992 there has been a marked increase in privatisation activity in sub-Saharan Africa. Other analysts agree that the African experience of privatising SOEs has been varied.

"In some countries it's very far ahead and in others it's quite slow," says Mr Michael Power, Director of Institutional Group Affairs for Africa and the Middle East at Barings Asset Management, whose "Simba" fund has invested $30m in the continent. "In places like Mozambique, Uganda and Zaire, they have been fairly radical in terms of their privatisation campaigns and have got things going." This view is echoed by Ms Christina Quattek, an Africa specialist at the Economist Intelligence Unit, London.

"Levels of privatisation very much depend on the individual country. There are quite a number that so far have only paid lip service to privatisation," she says. "In Zimbabwe the process hasn't actually advanced that much, whereas in other countries, over the last few years there have been progressive steps taken towards privatisation and commercialisation."

Incredibly badly managed

In those African countries where SOEs have dominated the formal economy, comprehensive privatisation programmes are regarded as being of crucial importance - particularly by the World Bank and the IMF - in the development of a strong private sector, which has in itself become the super-ordinate medium to long term objectives of adjustment programmes throughout the continent.

"Most firms have been incredibly badly managed under the state sector for the past 20 to 30 years," says Mr Francis Beddington of the Overseas Development Administration (ODA). "A lot of these institutions are a heavy drain on government resources that could otherwise be used for health, education and so on."

World Bank officials agree with this analysis. "Privatisation is important because most state-owned companies were operating at a major loss, they were a burden to the economy and a lot of them were sustained by subsidies from the state," Mr Eric Chinje, World Bank External Affairs Officer for Africa, told African Business from Washington. "A lot of these companies could be operating at a profit, so evidently there is a direct connection between state management of these companies and their potential, or lack of it, for making a profit."

But not everyone is convinced that the way privatisation is being pursued is beneficial to the majority of African people. "I think the problem in a lot of contexts is that privatisation has become a euphemism for the creation of a private sector monopoly. This doesn't necessarily address many of the problems it was supposed to," says Mr Kevin Watkins of Oxfam's policy unit.

"For public utilities, like water distribution, the case for public ownership is very strong. The problem has been that donors and the World Bank have pursued this agenda in a very ideologically driven way, without looking at the specific circumstances of particular industries."

Oxfam has pointed out that in the case of Zambia, there was a strong case for increasing private sector equity in the copper mining industry, but a much weaker one for privatising the grain marketing board. "We are not saying there shouldn't be a private sector involvement in grain marketing," stresses Mr Watkins, "but where you have a very large segment of the population that depends on public facilities in order to get access to markets and in which the private sector might not wish to operate because it's not profitable, then there is clearly a tension between the pursuit of private sector profit and the public good - in a lot of these sectors words like 'profit' and 'loss' are somewhat dubious."

The IDS Working Paper delineates three groups of countries in sub-Saharan Africa: major privatisers, where a minority of SOEs have been divested, include Benin, Guinea and Mali. Modest privatisers, where typically less than 10% of the total value of public assets have been divested include Burkina Faso, Cote d'Ivoire, Gambia, Ghana, Niger, Nigeria, Senegal and Togo in West Africa, and Kenya, Madagascar, Mozambique, Tanzania, Uganda and Zambia in East and Central Africa. The third group of minimal and non-privatisers comprises 25 other countries.

Of the 1,165 transactions in 32 countries recorded by mid-1996, 52.1% were in the manufacturing sector. Agriculture, finance, hotels, tourism and trade accounted for a further 27.7%. The largest SOEs which account for the bulk of public assets are utilities, mining and transport enterprises, but there have been very few divestitures in these sectors.

The actual value in dollar terms of sub-Saharan African privatisation is only a tiny fraction of the global total. For the period from 1988 to 1995 the total value of transactions was $2.73bn which was only 1% of the value of all divestitures worldwide.

The data covering the 1,165 SOE privatisations (895 sales, 168 liquidations, 102 other) between 1980 to 1995 easily exceeds past World Bank estimates. But the IDS report argues that progress as measured against privatisation programme country targets has been poor in most countries.

"In part this is because of the typically three to four year delay before privatisation programmes have begun to be seriously implemented. And in other countries political commitment remained consistently throughout this period," the IDS report states. According to some analysts, political opposition, though present, is not the factor it once was.

"Political opposition to the handing-over of strategic industries possibly to foreign ownership is far less of an issue compared to the late 1980s," says Dr Bennell.

"In countries like Tanzania and Zambia there are concerns about indigenous people having the resources to buy these enterprises, but when it comes to the crunch, the governments haven't objected to local white and Asian capital buying these enterprises off or the limited involvement of foreign companies in the very big enterprises." In Uganda, for example, over half of all privatised SOEs have been repossessions by their mainly Asian owners, in particular the Mehta and Madhvani families.

Most analysts agree that the privatisation of SOEs in sub-Saharan Africa can only continue to gather pace, despite the numerous problems the process faces. "I definitely think that most countries have embraced the free market and the necessity to scale down governmental involvement in the market. I do think that a lot of countries will take the next step," says Ms Quattek. "A number of countries have been preparing state owned enterprises. Uganda has been preparing state owned banks - it has been a drawn out process to prepare them for privatisation because of the large amount of bad debt that the banks had. But I think it will go ahead in the next year. I do see it picking up."

Mr Power agrees with this analysis. "The elections in Ghana and Zambia at the end of last year will probably see a further pick-up in privatisations this year," he says. "There will be a couple of big privatisations in places like Kenya. These are the ones I tend to look at because there is a stock market to back them up. Countries where there aren't stock markets - Mozambique, Tanzania, Uganda and places like that - have seen privatisations continuing fairly quickly too. There will be a couple of newcomers; Malawi will join the game as well."

Mr Beddington agrees: "African privatisation will increase dramatically. I think increasing numbers of countries are realising that they simply cannot afford to run these loss-making parastatals. They are inefficient and they are losing a fortune."

Dr Bennell argues that the privatisation process will accelerate throughout 1997 and beyond. "My view is that in five to seven years time, most of these state-run enterprises will have gone," he says. "I really believe that the major push now is to restructure the state, to create or rejuvenate the private sector, and that is why privatisation is at the top of the World Bank's agenda as well as those of other donors and even governments too.

"I think that many governments now appreciate the importance of getting higher levels of investment. If you can't brave a successful privatisation programme then you are obviously going to have major problems in your investment drive. Ten years ago the key question for most governments in sub-Saharan Africa was why they should privatise. Now, they are primarily concerned with how privatisation programmes can be designed and implemented most effectively."