PRIVATIZATION: IS IT REMEDY OR ROBBERY? [Archives:1999/46/Business & Economy]

November 15 1999


Dr. Saadaldeen Talib,
Member of Parliament
Privatization generally means the transfer of ownership from the state to the private sector. It achieves a variety of goals which may be economic, social, political and sometimes, budgetary. Different countries aim to achieve different ends in their privatization policy. In the global trend towards economic liberalization, privatization has contributed a major component in the package of economic restructuring.
This package, or plan, of economic restructuring may be voluntary or conditional to financial aid presented by global policy formulating institutions such as the World Bank and IMF.
In Yemen, the government began disposing of some small and medium sized establishments about 2-3 years ago. There was no law to discipline these sales and the results were tragic. The assets were sold at a fraction of their market value and 90% of the employees were sacked, except for one or two establishments which were sold to its employees. There was public uproar and a parliamentary committee investigated the issue. This resulted in parliament directing the government to cease all privatization until a “Privatization Law” was enacted.
The proposed law was presented to parliament about mid-1998 and has resulted in much debate and dispute especially on articles on “what to privatize” and “how to privatize.”The government, represented by Min. Mutahar Al Said, had shown extreme resistance to any limitations and guidelines suggested by parliament on these two vital issues. It took several months before government was able to dismantle parliamentary resistance and eventually choose an opportunistic day when parliament had less than 50 members to vote and pass the law. The voting was definitely NON-CONSTITUTIONAL. It is sad that such an important law was passed in such a humiliating manner.
In the presidential election campaign candidate Najeeb Qahtan Al Shaabi, had made privatization as a major campaign issue, calling it non-contributional and disastrous, calling upon the President not to pass the law and return it to parliament.
The president, after winning the elections, did refer the law to Consultative Council which produced a stinging criticism of the law in its report.
The president did return the law to parliament, but only on a procedural issue regarding “the returns of privatization.” The law was voted again and later passed by the president.
The report of the Consultative Council must be made available to the relevant parties – even the public for the sake of transparency and truth. Now that the law is forcibly, and irregularly, passed, examination of its important articles is necessary.
Article (3) names the goals of privatization as establishing market economy, reduce state’s burden of expenditure, improve efficiency of economic establishments on competitive basis, encourage investment (private) without monopoly, achieve new investment and technology and wider base of ownership by public share offering and finally encourage the establishment of financial markets.
The ways to achieve these goals were listed in Article (5) which was the center of a major dispute and argument. The final draft of this article was as insisted by government and it states:
Privatization is not to be executed in army sector before such sector until after its “liberalization” and supreme privatization committee is to present parliament with all documents of any privatization transaction within one month “after” such transaction.
Privatization is to be carried out in “any” of following ways:
1. Public share offering – to be given priority to achieve goals of this law.
2. Employees purchase of all or part of establishment.
3. Partnership contracts in capital or management.
4. Contracts for management or hire.
5. Sale of asset constituents owned by state.
6. Sale of shares owned by state in mixed ownership sectors.
7. Return of assets confiscated previously by state to its legal owners.
The difference between this article and that suggested by parliamentarians is in making the choice of method compulsory and not voluntary, by putting appropriate method for relevant asset – especially in public share offering in important large assets eg. Cement Factories, banks, etc. The aim was to widen the scope of ownership among the people and prevent the monopolization of the whole privatization process among the few strong capitalists in Yemen.
Also the public works sectors (water, power, communication, etc.) must be guarded against monopoly. Strategic assets (refinery, air transport, ports) must not be privatized before real competitive conditions actually arise.
Mere liberalization does not guarantee competition.
Another important question is whether our economic and political conditions today are favorable to privatization. Is our investment environment conducive to foreign investors with capital and technology? Has corruption been contained for us to guarantee that there will not be any mismanagement and fraudulent disposal of public assets.
How can we protect the public against greedy monopolistic buyers and corrupt officials as sellers? There was an actual experience of this previously and one only has to look at the Russian privatization drama to understand the dangers.
Thousands of employees stand to loose their livelihood with no real plan of re-training and new employment.
The total amount of loans in the Y2000 budget is only about $70 million; is less than 3% of government expenditure. Are we selling our heritage and souls for a bowl of rice?
For privatization to succeed and achieve its declared goals some conditions need to be established. First, a stock market must be started where shares can be sold and translated amongst the public and make it possible to sell small lots of share at favorable times. The Yemenis emigrants will also be able to invest in such market and become an active part of our economy.
No privatization process is known without a stock market.
Secondly, some reasonable stability and security must be reached in the economy to create the right investment atmosphere to encourage foreign capital and technology to the introduced and enhance growth and employment.
Thirdly, corruption must be dealt with and “clean” governance put in place. Competence and credibility in government are a necessity to attract investment.
Fourthly, the judiciary must be effective and free from corruption. Deliverance of justice must be swift and reliable.
Finally, anti-monopoly laws must be enacted to protect the public from exploitation.
Privatization can become a driving force in pushing the economy forward in promoting investment and creating new jobs.
This has happened in many economies. It is the meticulous and careful management of the process that achieves this expertise and honesty of decision makers and their effective monitoring and transparency are crucial.
Accurate estimation of the economic and social effects must be made and plans of confronting them be thought of and prepared. Experiences of other countries must be studied to prevent any ill-effects encountered by them.
Haphazard and hurried push to privatization has serious economic and social consequences that may need a long time of hard work to remedy.
Privatization is like a delicate and dangerous surgery – the patient may come out better or, on the other hand, completely crippled or simply dead! Dear sirs, we need an expert surgeon. Please reconsider.