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Has Privatisation Benefited the Poor?

Written by: OECD Development Centre

Article Overview: 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.

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

Related Articles
  Lessons Learned
  Proper Regulation Is Crucial to Ensure Welfare Gains
  The Efficiency and Labour Market Impact Have Varied Across Sectors
  Privatisation: A Challenge for Sub-Saharan Africa
  A Limited Impact on Private Sector Development

Article Tags: beneficiaries, concession contract, consumption, electricity, exceptions, gap, kerosene, lease agreements, public transportation, rents, sahara, subsidies, telecom sector, two different ways, underpricing, urban areas, wages, water services, water tariffs, wegner



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