2009:Comments on ‘Privatisation – Cross Country Experiences

Keith Jefferis

Comments on: “Privatisation – Cross Country Experiences”

September 17, 2009

Structure of Presentation

• Introduction

• Comments on Dr Steytler’s Paper

• Elaboration of Privatisation issues in the banking sector in Africa

Introduction

• Privatisation now well established on the policy agenda – and plenty of evidence against which to evaluate experiences

• To what extent has global financial and economic crisis changed the environment for privatisation?

Comments on the paper• Comprehensive review of global privatisation

developments• Good use of WB privatisation database

– Privatisation alive and well

– Maybe a pause due to global crisis

• Useful summary of privatisation impact – In general, positive macro, micro and welfare impacts

• No major disagreements – a few suggestions for improvement or follow-up

Presentation of data

• More analysis and comparison of regional trends in WB database

• Presentation of annual regional totals by both value and number

• Use graphs – for example

• Is the slowdown in privatisation during the crisis temporary or more permanent?

• Is the stock of SOEs slated for privatisation becoming exhausted?

• Is the form of privatisation changing?

Future Privatisation Prospects

• Despite successes, privatisation remains a controversial topic – why?– Fragmentation of beneficiaries

– Impact of failures – used to attack principles rather than design of specific privatisations

• Perhaps a need to examine the anti-privatisation literature more thoroughly

• Could lead to more detailed consideration of conditions necessary for privatisation to succeed

Opposition to Privatisation

Banking Privatisation in Africa

• Extensive state-owned banks in Africa– Typically inefficient, loss making, high NPLs, poor service,

frequent recapitalisation, obliged to finance loss-making SOEs

– Associated with highly regulated financial sectors

• Banking privatisation part of broader financial reform process– Removal of direct controls– Market based monetary policy– Withdrawal of state from direct ownership– Encouragement of FDI in financial sector

• Mixed experiences; best when:– Govts fully relinquish control and preferably fully divest

shareholding– No post-privatisation restrictions– Privatisation to strategic investors rather than IPOs– Open bidding, including foreign investors– High level of competition in banking– High quality banking regulation

• Can lead to major micro and macro gains, but may be conflict between political and economic objectives

Banking Privatisation - Results

• Banking sector crisis in developed economies – major extension of state ownership

• Negative attitudes towards banks• Is this the case in Africa?• Has privatisation been affected?

Impact of Global Crisis?

• 3 questions addressed:– Is there a backlash against financial sector reform and

liberalisation?– Is privatisation being affected?– Are govts considering a greater direct role in

ownership of banks?

Results of Central Bank Survey

• No evidence for backlash• In general, benefits of financial reform are

evident and appreciated• Reform is entrenched and continuing – no

suggestion of reversal

Backlash against reform?

• No significant impact• Benefits of privatisation appreciated by public:

– Improved efficiency, profitability, range of products and services

– Privatised banks superior to old state-owned banks– Boosted by entry of foreign banks

• Banks in Africa have avoided problems of toxic assets, major losses, bankruptcies – no calls/need for government intervention

• Privatisation ongoing

Negative impact on Privatisation?

• No evidence of increased govt ownership role (except Nigeria!)

• No real need for intervention or recapitalisation• Understanding that proper role for governments

in financial sector is regulation and development• Focus is on reviewing/updating regulatory

structures

Greater state ownership role?

• Banking privatisation likely to continue, but– Most govt. owned commercial banks now privatised– Future privatisations may be more difficult (e.g.

development banks)– Renewed focus on regulatory quality

Future Prospects

• Review of banking privatisation in Africa confirms Dr Steytler’s more general conclusions– Can lead to significant micro and macroeconomic

gains, but no guarantee of success

– Privatisation must learn from earlier experiences

– Should be tailored to local conditions

– Must be accompanied by competition and appropriate regulation

– Transparency should be enforced, with open and competitive bidding

Conclusions

Thank You