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Privatization in Africa: What has Happened? What is to be Done?

J Nellis  (2003)
34 pages (781KB)

Sub-Saharan African states urgently need expanded and more dynamic private sectors. What is the experience of privatisation in Africa? Is privatisation the best way to achieve more efficient infrastructure, utility provision and increased investment? This working paper, produced by the Centre for Global Development, calls for the creation and reinforcement of institutions that underpin market operations.

Generally, African states have been slow and reluctant privatisers. A large proportion of industrial and manufacturing sectors remain under the control of the state, as does most of the infrastructure. Public hostility to privatisation is widespread and defensible, yet costly. African governments and donors have little choice but to experiment with externally supplied substitutes for gaps in local regulatory and legal systems.

Infrastructure controlled by the largest and most economically important state-owned and operated companies (SOEs). Water privatisation in Guinea reflects Africa’s struggle with privatisation. Problems of privatisation, in Guinea and other African states include:

  • Post privatisation when essential commodities became less affordable. In Guinea, water prices went up seven fold between 1989 and 1997, although water quality improved.
  • Whilst the physical water network expanded in Guinea, the rate of growth of provision was less than anticipated. The government was still involved in key parts of the water business and it’s performance continued to be weak.
  • Often, historically, it is the fiscal/ financing problems growing more acute that leads to privatisation and not a failure of efficiency per se. Hence the argument that problems can be tackled by means other than privatisation.
  • When the World Bank and the International Monetary Fund (IMF) become more directly involved in terms of design and implementation, ownership is seen as diverging out of the hands of Africans themselves.
  • Most African leaders would rather the SOE problem be addressed by means other than ownership change. Privatisation is not widely considered the ideal solution.
  • African states have privatised a smaller percentage of their SOEs (about 40 per cent) than other regions and far less than Latin America. SOEs that have privatised are usually smaller, less valuable concerns.

The African privatisation dilemma, at least for the largest, higher potential firms, is unresolved. Outsourcing and the reliance on external measures are often politically unacceptable and regarded as infringements of sovereignty or suggestive of African incompetence. The real answers lie in the internal evolution of institutional and political frameworks, unlikely in the foreseeable future. However, interim and innovative measures for infrastructure provision include:

  • Outsourcing institutional provisions. For instance by contracting regulatory and monitoring activities from skilled outsiders.
  • Using private firms to carry out administrative functions that usually impede investment and privatisation. For example British Crown Agents are used to handle procurement of government contracts in Mozambique thus speeding up the contracting process and lowering transaction costs.
  • Promoting offshore commercial arbitration mechanisms. For instance, several small island states in the Caribbean use British courts to arbitrate contractual disputes between governments and private providers.
  • Using respected Non-Governmental Organisations (NGOs) to vet transactions. For example, Transparency International oversaw the telecommunications licence auction in Slovakia.
  • Offsetting risk for investors can help mobilise financing. The World Bank may offer investors partial guarantees against sovereign, political and regulatory risks.

Source: Nellis, J., 2003, ‘Privatization in Africa: What has happened? What is to be done?’, Center for Global Development, Working Paper No. 25, Center for Global Development. Washington D.C.

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