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