Has Privatisation Benefited the Poor?

Privatisation is often considered detrimental to the poor because it entails the elimination of subsidies and therefore the increase in prices of products and services needed by the poor, such as water, electricity and public transportation.

Nevertheless, countries’ experience shows that not all subsidies applied under public ownership reduce poverty, often because the beneficiaries are the richest groups. Public enterprises have been used to secure rents for relatively small clienteles, offering above-market wages or underpricing.

In urban areas of Ethiopia in 1996, some 86 per cent of subsidies on kerosene were captured by the non-poor, since kerosene consumption increases with income. Even when significant rates of subsidies are applied on the official market, many poor people are forced to buy fromsecondary markets (due to lack of legal access), and low official prices are also enjoyed by the rich.

The evidence shows that privatisation has affected prices in two different ways. On the one hand, in the telecom sector, increased competition, with the granting of additional mobile or fixed line licences, has generally pushed prices downwards. On the other hand, privatisation in power and water has typically led to higher tariffs. Since it had been common practice to subsidise electricity and water tariffs, many holders of concession and lease agreements have had to re-adjust tariffs to costrecovery levels following acquisition. In many cases (e.g.

Uganda, Zimbabwe and Zambia), tariffs were raised before privatisation to reduce the companies’ financing gap and to attract strategic buyers.

There are, however, exceptions. The 1997 concession of Société d’Energie et d’Eau du Gabon (SEEG), led to cheaper electricity and water services. A well-designed concession contract that clearly specified the quality and coverage targets and a decade-long preparatory restructuring phase were responsible.

by Lucia Wegner Privatisation: A Challenge for Sub-Saharan Africa This Policy Insights is derived from the special theme section of the 2003 African Economic Outlook and on a 2004 OECD Development Centre Study To learn more about this author, visit OECD Development Centre's Website.

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