1. 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

2. 2 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

3. 3 What have we done?  Database  Political economy analysis  Case studies  Telecoms  Water and sanitation

4. 4 OECD PRIVMEDA – a brand new database! Source: PRIVMEDA NumberProceeds in million $

5. 5 Country composition Source: PRIVMEDA

6. 6 Average proceeds per transaction Source: PRIVMEDA

7. 7 Sector composition Source: PRIVMEDA

8. 8 Deal types mix 5.6% Joint venture 0.4% Concession 5.3% Management agreement 1.3% Lease contract 0.3% Management buy out 5.9% Sales of shares and assets 60.2% Public floatation 15.7% Liquidation 5.2% Source: PRIVMEDA

9. 9 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 Algeria0.1% Egypt3.4% Jordan3.0% Morocco6.2% Tunisia4.6% Turkey2.5% 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

10. 10 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

11. 11 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 => necessity of safety nets.

12. 12 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

13. 13 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 privatization’s 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

14. 14 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) => 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 => privatization as a permanent state of affairs with limited liberal content

15. 15 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

16. 16 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.

17. 17 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.

18. 18 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.

19. 19 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…

20. 20 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

21. 21 Differences in performance = Diversity of liberalization trajectories ? Evolution MENA countries : 2000-2005

22. 22 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

23. 23 Main Findings (1)

24. 24 Main Findings (2)

25. 25 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