Controversy continues to brew over governments plans to privatize [Archives:2002/10/Business & Economy]

March 4 2002

By Mohammed H. al-Qadhi
Yemen Times Staff
Controversy in political and economic circles is brewing over the governents privatization policy. Many people in these circles, in fact, oppose the economic and financial reforms the government has started since March 1995 in assistance with the IMF and WB technical consultation experts.
The government justifies privatizing crippled state establishments by noting that the private sector needs more investment, while the government needs to get rid of bureaucracies which are adding to its deficit and dragging down the economy.
Those opposing privatization say that taking the government out of some services will hurt social equity and slow economic development. Moreover, they say, economic feasibility studies need to be carried out before certain projects are privatized, so that they dont collapse altogether.
The rules of privatization
Without ever giving a formal hearing to opposing views, the Yemeni government has gone ahead and set regulations and laws in place for the transfer of publicly-held assets. It has established a technical office that supervises selling campaigns nd draws up lease contracts. It has also passed the privatization law No 45 for 1999.
Dr. Yahya al-Mutawakel, chairman of Privatization Technical Office, which is affiliated to the Industrial Ministry, said that the government carried out the first phase of privatization program before the law was passed. In this phase, 16 industrial establishments were liquidated and leased. They are now run by the private sector.
Opposition parties headed by the Yemeni Socialist Party have stressed that liquidating successful establishments in particular is a misguided policy. They formed a committee of opposition and independent voices to support the preservation of establishments of the public sector, particularly the successful ones.
The government, meanwhile, stresses that the privatization policy was drawn up to create a proper atmosphere for boosting activities of the private sector. It has tried to convince opposition parties of the necessity of privatizing these public establishments, giving guarantees to settle conditions of laid off workers.
Commenting on the government action, Badr Ba Salem, Industrial and Commercial Chamber GM, said “It is really hard to comprehend the privatization reality. It is true the government can’t bear the heavy burdens and problems of crippled establishments. However, what has so far been done is not privatization. Rather it is liquidation for these crippled establishments.”
He takes the view that the solution lies in creating a good environment that generates the investments process.
Privatized sectors to date
Despite the controversy over privatization and its impacts on low-income people, a number of establishments are already privatized in different sectors. They are as follows:
1) The Financial and banking sector:
Procedures to privatize one of the most successful banks, the Yemeni National Bank, are now over. Another diagnostic study to privatize specialized governmental Banks: Agricultural, Industrial, and Housing Banks, is now underway.
The government announced late last year that it would privatize 60% of the National Bank and it will keep 40% of its ownership. This decision is being opposed by the opposition parties, as the bank is ranked number two in terms of its official importance in Yemen. Besides, it is an active commercial bank with 33 branches in different governorates of the Republic.
Independent economic sources say that the government wants to liquidate the Yemeni National Bank because it was established and developed within a country dominated by the YSP in the then Southern part of the country, before unity in 1990. Therefore, it is a matter of a political decision that has nothing to do with the privatization program, they said.
Sources at the Yemeni National Bank confirmed that the bank, established 30 years ago, made good financial profits. Therefore, it should be kept within the public sector, they believe.
They reveal that profits increased by 46% in the first ten months of 1999 and employment increased by 91%. Moreover, the bank had more investments after the unity, they say, adding that in 1998 profits increased by 23%.
The bank capital has also increased by 37% in the second half of this year, 2000, which makes it stand as a financial competitor to the activity of the main central Bank in Yemen.
However, the cabinet has not considered the financial successes of the National Bank. It agreed last July to give 60% of the bank to the main partners and 20% for public subscription, while keeping 20% for the government.
2) The industrial sector:
In this sector 16 establishments were liquidated and some leased for the private sector including the Dairy and Leather Factory in Aden.
3) The tourist sector:
Nine hotels were restored to their owners after they were nationalized during the socialist reign in Aden before the unity. Seventeen tourist establishments were leased for local and foreign investors.
4) The agricultural & transportation sector:
Government farms and leased establishments have been liquidated. Three other establishments are on sale now and liquidation while shipment and discharging in the National Marine Company are now being privatized.
5) Communication Sector:
President Ali Abdullah Saleh declared last June that within the free market orientation policy, the government will study privatization in the field of communication, as national, Arab and foreign capitals compete to introduce the best services.
The Ministry of Communication presented suggestions before the Yemeni Cabinet including privatizing 60% in the field of communication keeping 40% for the governmental sector. This has the objective of encouraging investors making them take part in enhancing the economic development in the country.
6) Aden Refinery and Airport Services:
The government has also sought partial privatization of Aden Refinery administration, which refines oil at more than 100 thousand barrels a day. It also sought to privatize part of Sana’a International Airport Services.
Structural reform and privatization
The government says that privatizing these establishments will bear fruits in terms of encouraging ownership and private investment in a competitive atmosphere, leading to combat monopoly.
Another advantage it sees is that privatization will relieve the burden of debts which resulted due to the government support to these establishments. The government believes this will guarantee the flow of new investors and modern technology to the country, which, in turn, will boost industrial production and encourage the establishment of stock market.
Therefore, privatization law stipulates in one of its articles that crippled establishments are not to be sold until they are highly assessed, and then put on sale through defining shares of public subscriptions selling the government shares in the mixed sector.
Experts believe that establishing a stock market will help the government put shares up for public subscription. However, selling these establishments out of this market will only increase the rampant financial and administrative corruption in these establishments.
Dr. Taha Alwan, administrative management teacher in the Faculty of Economy and Administration in Aden University, points out that obstacles facing privatization in Yemen are attributed to some legal limitations, that is difficulties to define and specify duties of public and private sectors and lack of information pertaining to future results of privatization.
In his study on “Privatization in Yemen”, Alwan warns against many hazards posed by globalization. He views that achieving a successful privatization policy depends on the availability of a competitive atmosphere.
Monitoring privatization
As the privatization process means the disposal of public wealth, the Central Organization for Control and Audit (COCA) was authorized by the government to monitor its implementation and evaluate its outcomes.
In this program, COCA has two goals: the first is called “Commerce, Economic & Legal Skills” which is to define the costs, revenues, and profits made by the project that is intended to be privatized.
The second duty called “Personal Skills,” in terms of active contact with high administrative units to explain the organization views on the feasibility of privatizing establishments and their social, cultural and environmental outcomes.
The point is that the performance of this organization is very much questioned by opposition parities, for its decisions are not taken seriously on the part of high authority institutions.
Future plans
In the second phase of the privatization program, the Yemeni government plans to involve the private sector in establishing expanding projects in three cement factories through defining shares with defined rates. It also plans to privatize the Yemeni Drug Company (YADCo) which is one of the most successful companies in the public sector and the best in administration and production.
The technical privatization office is preparing a list of consultative companies interested in preparing privatization feasibility studies of other projects such as electricity and water services.
Revenues of privatization
Yemeni privatization law indicated in Article 32 that revenues of privatized establishments are to be put in a special bank account called Privatization Revenues Fund. This account is included in the state budget as a separate fund to support social and economic development projects.
However, Dr. Abdulrakeeb Muqbel, teacher of the Trade Law, Hodeidah University, comments on this and said “The public sector plays a substantial role in terms of creating job opportunities and enhancing living stability for many families. Therefore, in carrying out privatization program, the Yemeni government has to tackle the negative outcomes in terms of finding solutions to the increased number of poor people below the poverty line and increased unemployment rate which will result due to laying off workers in these privatized establishments.
WB, quick implementation of privatization program
The government is trying to take consultations and recommendations of the WB in carrying out its privatization program,WB Middle East unit chairman, said.
“If Yemen carries out this program in a transparent way, privatization will attract foreign investment which will work as an income source for the government. The government may focus on activities of much interest to the private sector. In the coming reform phase Yemen has to move fast towards privatizing big projects in cement, electricity and Aden port fields, all of which will attract big foreign investment.
Social outcomes
Critical of recommendations of the WB, opposition parties oppose the privatization policy , it does not guarantee compensation and security for workers in these establishments.
Despite the government endorsement to establish Sustenance Fund to support laid off workers, privatization faces many challenges including lack of social security alternatives .
Some laid off workers commented on this fund by saying that the fund was a temporary measure that did not ensure their social security.
They believe that reforming conditions of crippled establishments could only be achieved through reforming the administrative units, giving incentives to workers so as to achieve the desired production and expected profits.
By and large, disputes over the implementation of the privatization policy in Yemen has slowed the government course to implement the program, to avoid its negative results and social turmoil.