This is an OPINION page. Every week, a different intellectual writes a FOCUS on a pertinent issue! PRIVATIZATION IN YEMEN: A Lot of Talk, but Little Achievement [Archives:1997/42/Focus]

October 20 1997

By: Jaffer A. Shotah*
Background: A short time after the war of 1994, the idea of establishing the Privatization Technical Office (PTO) began to take shape. A number of decisions and decrees were taken by the Council of Ministers and the President of the Republic towards that end. It was decided to establish three committees to be entrusted with the privatization effort: the Non-Industrial Sector (headed by the then Deputy Prime Minister and Minister of Planning, Mr. Abdul-Qader Ba-Jammal), the Industrial Sector (headed by then Deputy Prime Minister and Minister of Industry, Dr. Mohammed Al-Attar), and the Real Estate committees (headed by the then Deputy Prime Minister, Mr. Abdul-Wahab Al-Anisi). As can be seen, the committees were headed by high ranking officials. The idea was that these committees will regulate the transfer of ownership from the public to the private sector. The first thing that was needed was to issue a law for this purpose. There was encouragement by donor countries for this effort. So the Council of Ministers issued decree number 8 in October of 1995, which had some loopholes and was deficient in certain ways. Moreover, the new cabinet decree called to dissolve some government bodies which had been established by laws. Of course this is legally incorrect. A junior authority cannot nullify the decision of a superior one. According to Decree number 8, sub-committees were formed in the ministries which embody bodies to be privatized. Non-industrial ministries, for example, include transportation, agriculture, trade, tourism, fisheries, etc. There are in addition, about 10 factories to be privatized which come under the authority of the Minister of Industry. Towards the end of 1995, the Prime Minister issued a decision to form the Privatization Technical Office (PTO), and I was appointed as the acting president. Then the shortcomings of Decree number 8 started to become clear and create problems.
The Difficulties:
I have already alluded to one problem – the fact that a government decision is trying to nullify laws passed by parliament and enacted by presidential decree. Second, the committees found it difficult to implement and follow up the process of privatization. They found that the process of privatization needs a political will to see it through. In many other countries, the technical side of privatization is closely linked to, and supervised by, the political leadership. Third, there is no law yet in the country to regulate the privatization process. A draft law has been prepared, endorsed by the Council of Ministers, and was submitted to parliament. Fourth, there is a lot of corruption in the system. For example, many of the officials try to use their position within the government in order to capitalize on the privatization drive. An example would be for these officials to be directly or indirectly involved in the buy-out of public assets. Fifth, the Privatization Technical Office does not carry the prestige and power it needs to carry out its work. The PTO is still headed by an acting president, after almost three years. It has a grand total of 5 employees working for it. It has no independent office, as it is housed in the Ministry of Planning. And it has no budget of its own. Finally, there is a problem of senior officials not giving due credit to the local staff. If a local expert gives an opinion, it is often neglected. If foreign experts give the same opinion, it is as if a major discovery is made. For example, World Bank experts often give a similar opinion to what the national experts have been saying all along. The senior officials accept it when it comes from the foreigners.
First and foremost, the objectives of privatization have to be specified. In Yemen’s case, this is still not clear. The main objective of any privatization process is to expand the base of ownership, to improve efficiency, to reduce government burdens, etc. This effort is often accompanied by the introduction of new technology, a new management, re-invigorating the national economy and expanding the chances for exports. Until now, the PTO has no clear mandate. The first that is needed in this country is to shift control over the the corporations and establishments that are to be privatized to the privatizing agency. If they remain under the authority of their original ministry, there will be resistance to the privatization effort. This is simply because of the conflict of interest. In many examples worldwide, the management of the establishments to be privatized resist the process or simply try to ‘destroy’ the corporations.
Beyond PTO:
There are many important things akin to privatization that are happening outside the PTO mandate. Let’s mention two major issues. The PTO has not been informed of several recent restitution operations where some hotels in Aden and Hadhramaut were returned to their original owners. Restitution is an act of privatization, and the PTO should have been a party to the process. In my opinion, the correct procedures were not followed in the restitution process. For example, tender invitations should have been announced. Another process through which government property is passed on to private owners and users, is the give-away of assets, especially real estate. This has political dimensions to which I don’t want to address myself. But I do want to address myself to the economic dimension. Under the guise of encouraging private enterprise and investment, a lot of privatization of public property is taking place. This has to be regulated, or at least announced.
The Tools:
Privatization is carried out in many ways. The mechanisms include such methods as operation or management contracts whereby the state grants national or foreign firms the right to manage the establishment/s to be privatized. Then, there is joint ownership, whether by new owners or in schemes involving partial buy-out by the workers and employees. There is of course, the direct sale to the public through shares. The whole-sale of a corporation is also possible through tenders and bids, or through open auctions. The Republic of Yemen is trying a variable mix of all these and other methods. Currently, the agricultural equipment leasing station in Seiyoun is being offered for buy-out by the workers and farmers. With the cooperation of the World Bank and the UNDP and a decree by the Council of Ministers, another government corporation is being assessed by a firm for the latter’s sale to the employees. The nation needs a specific body to conduct neutral evaluations and assessments, and to determine the appropriate course of action.
The Plan for 1998
The executive program prepared for the privatization of a number of corporations has suffered some setbacks. There is often lack of cooperation on the part of the managements of these corporations. The plan for 1998 calls for a new wave of privatization. There are about 35 public corporations earmarked for sale during 1998. Though these are mostly in the southern governorates, many are also in the northern governorates. They include the three cement factories in Bajil, Amran and Taiz, the medicine factory (in Sanaa, 5 agricultural equipment-leasing stations, 2 state farms, the Yemen Economic Corporation, the Trade and Grain Corporation, the Internal Trade Company, Nasr Company, Aden International Airport services, the Mukalla Port services, the three specialized banks (Housing, Industrial, and Agriculture Bank), and the National Bank of Yemen. There are also a number of companies and corporations in the travel and tourism sector.
In conclusion, let me say that the privatization drive is an important component of the nation’s economic reform program. Its success or lack of it will inevitably affect our well-being.
* Jaffer Shotah is the acting PTO head, previously deputy minister of justice and Dean of the Law College in Aden.