The effects of privatisation on living conditions of the population, and, in particular, on improved access and quality, are mixed and depend on the regulatory framework in place and the capacity of the state to co-operate with the private sector. In particular, the impact of privatisation policies on the welfare of the population and ultimately on the poor requires:
• strong commitment and ownership by the state to ensure the credibility of the reform to the private investor; • proper sequencing of the process, including: a restructuring phase and the appointment of a regulatory body prior to the divesture; • independent and well-enforced regulation to discipline the private sector and provide the appropriate incentives to undertake investments (e.g. extension network).
The 1990 privatisation of the Compagnie Ivorienne d’Electricité (CIE) with strong political commitment, good co-ordination between the government and private sector, and an appropriate regulatory framework led to the success:
improved access, expansion of generation capacity, and increased revenue for the state. Similarly, the privatisation of Sonatel in Senegal was successful due to the early establishment of a regulatory body and a long preparatory restructuring phase of the company before the sell off.
Conversely, in countries lacking proper regulation, despite the presence of competition, profit-maximising behaviour has led privatised companies to keep investments below the necessary levels, with the result that rural communities and the urban poor were further marginalised. The 1997 experience of Ghana Telecom is an example. The contractor, Telekom Malaysia, failed to respect its undertaking to extend lines because the National Communication Authority (NCA) was too weak.
The privatisation of Sonel (Electricity Company) in Cameroon is another example of failure which reflects the absence of a proper sequencing of the process.
Privatisation does not thus imply the withdrawal of the state, but, requires strong institutional capacity to ensure that the privatisation contract is binding on the private investor and enforceable. For instance, specific targets for electrification of rural communities and poor urban neighbourhoods could be included in the licences of concessionaires and private power distributors, making the license renewal conditional to the minimum requirement.
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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