Morocco seems to belong to the "speedy privatisers" group which advocates privatization as soon and as far as possible. Though the king of Morocco had first targeted deficit SOEs for privatization in 1986, revenue considerations and a desire to have a few success stories led to slowness in implementation of this policy. Again, in his speech to the Parliament of April 8th, 1988, he announced a major privatization programme including a law proposing the sale of most Moroccan state-owned enterprises. A number of hotels, fisheries, and sugar companies have been privatized accordingly. [26] Later on, in 1989, the king called for privatization of profitable enterprises only. A list of 112 privatizable SOE's included only 14 that are unprofitable. Partial privatization of urban bus services, leases of State-owned hotels and public fisheries were the first steps. Minority shares in a number of foreign firms and majority shares in four sugar mills and three fisheries were sold. (Boratav, p. 33)
The Tunisian privatization programme has been targeting essentially deficit firms. This include the two textile firms, SITEX and SITER, some subsidiaries of a supermarket chain, a SOE specialized in building materials, a mining company (Fluobar), a marble-works (Thala), a woodworking factory and five hotels. In total about 40 state-owned enterprises had been sold. [27]
Privatization in Egypt was rather cautious though it was, for a number of related reasons, at the centre of the adjustment process and the attention of the IFIs. The issue of privatization in Egypt has been on the political agenda since the 1970s and more precisely since the Infitah.
When Egypt concluded a Stand-by Agreement with the IMF in May 1991 and a Structural Adjustment Loan (SAL) with the Bank in October same year, the government was required by the SAL to "undertake a major privatization of the economy" (Bromely & Bush. p. 203). The attention was intensified in early 1992, on economic reforms and privatization while the IFIs representatives repeatedly expressing dissatisfaction with the pace in which privatization programmes are moving. To calm down such worries, the Egyptian government announced, in January 1993, that it has prepared a detailed programme of privatization. The two main lines of the programme related to the offering of certain public assets for sale, and the restructuring of some public enterprises scheduled for transfer to private sector. [28] Yet, by the end of the adjustment programme the government, according to one US economic advisor and the World Bank mission to Egypt in early 1994, had still not prepared 20 companies ready for privatization (Bromely & Bush. p. 206). Therefore, it seems that though privatization has its advocates and champions within the political establishment, the government and the parliament, and outside it, the influential element of state apparatus have resisted a clear-cut and definitive commitment to privatization.
Iraq embarked on a rather comprehensive privatization programme in its scale and intensity comparing with privatisation attempts by other Arab countries.
Between 1987 and 1990, some 80 state owned enterprises were sold out to private sector or converted to a mixed-sector companies in which private investors were invited to take stock in these companies. [29] It seems that privatization has created an encouraging atmosphere for the private sector as evidenced by the number of private companies operating in Iraq. The number had reached a record of 5,308 firms by the end of 1992 according to the Directorate General of Companies Registration. These firms were capitalized at about $8 billion and the government had a minority interest in 42 of the companies. [30]
Some scholars and observers on Middle East and the implemented liberalization, privatization and structural adjustment programmes considered the Iraqi privatization programme by far the most impressive in the Arab World: It was massive, unlike those implemented in Tunisia and Morocco; implemented quickly and without opposition, unlike Egypt and Syria where labour union opposed strongly, and unlike Saudi Arabia where economic elites are the main opponent to liberalization; it was implemented simultaneously with other liberalization policies and administrative reforms and bureaucratic trimming. [31]
Privatization in Algeria began in the agricultural sector since 1982 when new privatization and liberalization policy introduced to gradually increase private ownership. Five years later that policy was enforced further by Law no. 9 of December 1987 for individualization of collective production co-operatives, and for the privatization of land and means of production. [32]
However, the October 1988 price riots have led to the pursuance of liberalization reforms and, paradoxically, to the imposition of a three year austerity programme. The Club of Euro-Maghreb, a group of French and Algerian academics, had recommended in their seminar in Marseilles that the state should be totally disengaged from the management of the economy, but should exercise a regulatory role. They also recommend the continuation of the three year austerity programme. [33] Though austerity measures had been enforced for three years, Algerian leadership found it difficult to accept the normal modalities suggested and insisted upon by the IMF. Prior to the negotiation with the IMF, which began in September 1993, the Algerian Prime Minister, Belaid Abdesselam, had made it very clear and direct that the conditions set by the IFIs, notably the IMF, could create a "social explosion" in Algeria if they were applied. [34]
But on the privatization issue, and after three years of study by the Algerian Central Bank, the government had decided to allow foreign banks and financial institutions to open branches in Algeria for the first time since the nationalization of the bank sector in the 1960s. [35] This and other reform measures had facilitated the conclusion of the above mentioned negotiation which ended in March 1994 leading to the conclusion of an accord between the two. Under the agreement, Algeria could obtain a stand-by balance of payments loan of up to $500 million and additional $300 million to compensate for declining oil export revenues and increases in the prices of goods imported by Algeria. [36]
Speaking before a meeting in New York the Algerian Minister of Finance, Ahmed Benbitour, stated that Algeria intends to continue its economic liberalization programme. The objectives of the programme are: the integration of the Algeria into the international economy through price deregulation, foreign trade liberalization, and the opining of all sectors to foreign investment; strengthen macroeconomic management, and to boost production through the restructuring of public enterprises, the banking system, and the regulatory environment. [37]
A privatisation commission became operational in March 1995 "to ensure transparency of rules, safeguard state interests, as well as scrutinize equities in the development of assets or shares disposal". The formation of the commission is a step towards creating a new ministry to be in charge of privatisation and passing new laws authorizing privatisation. The Algerian government is forecasting its total withdrawal from tourism, trade and service sectors in the next three years. Furthermore, Algeria is looking to convert its private debt into shares by foreign creditors according to the Industrial Restructuring Minister, Mourad Benachenhou. [38]
Privatization entails redefinition of the role of the state in economic and social matters. This redefinition might bring about fundamental changes or significant contraction in the role of the state by giving way to the private sector and the roles of market forces.
Apart from the main macroeconomic and developmental issues, privatization touches general and specific social issues. These include privatization effects on employment environment; on income and wealth distribution; on levels of poverty and vulnerable groups; on compensatory and protective measures etc. All such effects form the "social balance sheet" of privatization
One school of thoughts see the impacts of privatization largely depends on how close one is to the state. In other words those who are directly dependent and benefit from the state are the ones who are close to the state and thus will suffer most. Said El-Naggar, for example, identified the managers and high level functionaries of public enterprise and trade union leaders, among the losers in privatisation programmes. [39] In addition to the above group listed by Naggar, Löfgren identified the "privileged elements in the private sector" among the "groups most closely connected to the state machinery" who will be hurt by liberalization and privatisation. [40] However, both Naggar and Löfgren identified part of the work force among the losers through losing their jobs or through the gradual reduction in the wages of state employees. The position taken by both Naggar and Löfgren is obviously and expectedly was a reflection of the resistance to privatization experienced in Egypt and, as we have mentioned before, the cautious approach Egypt had chosen on this matter.
By using this, which I call "centre-periphery" or "distance from the state" thesis one could argue that "the poorest of the poor" are the least affected by the negative effects of these programmes simply because they have not been benefiting from the public sector and SOEs to start with. In fact this argument was advanced in relation to the impacts of SAPs on the poor.
The other school of thoughts, of which I am among, though agreeing with the analysis of Naggar and Löfgren on who is going to be hurt from privatisation, see the poor both urban and rural as well as women and lower strata in employment structure as the groups who are hard hit by the hardship inflicted on them by privatization and liberalization.
This second school of thoughts agrees that the groups identified by Naggar and Löfgren might or will oppose and work to delay or derail privatisation, nevertheless these managers, state bureaucrats, well connected private industrialists, and high ranking government officials are least vulnerable among the various strata in the employment structure. This group of "state eliets" includes variety of large number of politically, socially, professionally, or economically influential and powerful individuals who can use their influence to extract concessions from the state and make use of privatisation programmes as pretext to legitimize private rent-seeking, tribute making-taking, and other forms of similar acts.
Numerous evidences and examples from many Arab countries support this assertion.
When many of the light industries were privatized in Iraq from 1988 onwards, it was "often with former managers retaining a key role". [41] In Egypt, many senior officials and politicians are directly or indirectly large landowners and controllers of other economic assets. [42] In Iraq, as another example, it was deliberate party policies to provide its senior member with free of charge of good and well located agricultural land/plot since mid 1980s and many have developed agricultural and poultry projects with sufficient and subsidized state financing. Some of the very senior party, army, security members had even used soldiers, para-military and junior party members to work for the development of such project without payment.
The "state elites" also use their influence to enrich their families and relatives; Many of the privatised, through long term leasing, petrol stations in Baghdad area were awarded to family members of senior officials at the Ministry of Oil.
This type of personal relationship between state elites and vested interest is not peculiar to the privatized enterprises or emerged as new phenomena in consequence to privatization. Not at all. This relationship has manifested itself in many popular terms in almost all the Middle Eastern societies. Such as"supply Mafia" and "al-munfatihun" in Egypt, "commission entrepreneurs" in Saudi Arabia, "wasta" [43] in Iraq, Syria and many Arab countries, and even a state created "detachment formal" in Tunisia. [44]
Professionally, it is the public sector and SOEs who are endowed with and recruited over the decades the administrative, managerial, technical, technological, legal, financial, and other expertise. Obviously the private sector can attract such expertise with least difficulties and cost within the general atmosphere of privatization. [45]
In conclusion, though hypothetically as well as empirically, the state elites might be affected by privatization, they nevertheless are well placed, properly connected and professionally equipped to minimize such impacts upon them and capable to turned out to be among the few beneficiaries from such programmes. After all, they are the ones who implement such programmes; evaluate the assets, conclude the necessary contractual and financial requirements and documentations, supervision etc. It is rather naïve to assume they will sign their own redundancy notes quickly, willingly, and without safeguarding their own interest.
Going back to our balance sheet, broadly speaking the impact on employment appear itself on many issues such those related to job security, labour retrenchment, working conditions, labour relations, trade union and workers associations, fringe benefit, and wages.
Income inequality, wealth distribution, and property concentration dimensions of privatization depends largely on to whom the SOE is sold/transferred, at what price, how the deal was concluded etc. The impacts of privatization on poverty levels and vulnerable groups is a combination of the above cited impacts plus the effect on consumer welfare which is expressed in terms of prices, access to secure supply, quality of the goods and services, and, as far as absolute poverty is concerns, food security. Issues related to compensatory and protective measures against possible adverse impacts of privatization includes various forms of SSNs: Social Safety Nets such as SAP: Social Action Programmes, ESF: Emergency Social Funds, and SIF: Social Investment Funds. [46]
In the following pages I will address the major social aspects of adjustment and privatisation programmes.
Undoubtedly, the national concerted efforts in many Arab countries to put the affairs of their economies in order by implementing economic reforms, stabilization, structural adjustments and privatization programmes had led to some positive results and improvement in may macro economic variables. However, these results were not impressive, lower than anticipated and hoped for, and probably unsustainable. Budgetary deficit, for example, in most adjusting countries have been on the decline between 1988 and 1991 from US$17.8 billion to US$3.7 billion, but this trend was reversed a year later when it increased to US$9.5 billion in 1992 and to more than US$15 billion in 1993. [47] International indebtedness of the Arab countries had been eased in 1990 when it was reduced from US$159.2 billion in 1989 to US$154.8 in 1990, mostly due to Egyptian debt forgiveness, but increased again in the following to US$155.4. [48] Trade balances for all adjusting countries are still in the red and the aggregate has been on the rise from US$12.9 in 1989 to US$18.5 billion in 1993. [49]
In spite of any improvements which might have taken place in the economies of the Arab countries as consequence of these programmes, the growing body of evidence suggest that little, if any at all, has been done to revers these impacts and protect the poor and most vulnerable from the hardship created by the same programmes. To this I shall turn in the following pages.
Price increases becomes even more probable in a situation when demands exceeds domestic supply and trade regulation limits imports. Furthermore, price de-regulation due state withdrawal from price control responsibilities does serve to give clear-cut green light for price increases.
Most basic needs such as food, medicine, energy, clothing, as well as education, housing, and health are subsidised, or made charge-free, by the state in the Arab countries. Such subsidisation is made by one or combination of the following: indirectly via an over-valued national currencies or directly from state budget in the forms of actual subsidy or low indirect tax.
Food and state subsidy for this basic need occupy an important position the economies of the Arab countries. The pressure exerted by demographic factors is really effective. These factors are: high population growth, large family size, and significant portion of population are under working age. The combination of these factors leads to higher dependency ratio in one hand and higher effective demand for food on the other. When these factors are coupled with increasing rural-urban migration and declining agricultural production this will lead to a situation in which an increasing proportion of demand for food has to be met by imports.
During the 1970s the bill of imported foodstuff have increased substantially and created serious and unprecedented drains on government coffers. The decade of the 1980s was not better at all. The aggregate imports of various agricultural products of the Arab countries have increased from US$ 21.8 billion in 1980 to US$ 22.4 billion in 1985 and to US$ 23.3 in 1990. In fact if we exclude the rich Gulf states, most of the other Arab countries have imported more of agricultural products and foodstuff in 1990 than in 1980, and in terms of magnitude stand Egypt, Algeria, Iraq, Libya, and Morocco on the top of the list. Furthermore, the overall Arab ratio of dependence on imported food, which indicates the food security and vulnerability to external shocks, had deteriorated from 21.7 per cent during the period 1969/71 to 38.1 per cent 1986/8. [50]
Under such conditions of increasing demand and declining national agricultural production policy maker usually has three options: higher food prices coupled with higher nominal income/wages (the inflationary option ); higher food prices and declining real wages (austerity option); or keeping both food prices and nominal wages at parity (subsidy option).
All the Arab countries had avoided the inflationary option; those who undertook the structural adjustment programmes were advised or pressurised to adopt the austerity option by cutting subsidies; and those who can afford it or those, for social peace and political stability considerations, have chosen the continuation of subsidy option.
The dynamics and the socio-political adverse effects of the austerity and subsidy options are illustrated by what the adjusting countries have experienced in the violent "bread" or "urban riots".
Looking to the impacts of privatization and structural adjustment packages from the "streets" of the capitals and major cities of the Arab countries one can form a realistic view on who has been hardhit by these programmes.
From 1977 to 1989, many serious and severe riots rampaged major cities of Algeria, Egypt, Morocco, Sudan, Jordan and Tunisia. They were provoked by austerity measures linked to one form or another of structural adjustments, stabilization, liberalization and privatization programmes resulting in sudden rises in food and fuel prices.
The famous 1977 riot, the more moderate urban riot in 1984 and the violent riot of 1986 have rendered the Egyptian government to be more careful in adjusting food subsidies. [51]
However, the 1977 riot in Egypt have been revisited with rather new PR interpretation. Wahba concluded, and Löfgren agreed with him, that the 1977 riots were a reaction to the style with which the subsidy cuts were announced than the cuts per se. [52]
In Morocco 1978 the government attempted to introduce some reforms by reducing state investment, increase taxes, reduce credit, and freeze wages. But due to the price increase of both domestic and imported goods and the social unrest provoked by those measures, they were abandoned in the following year. Then in October 1980 Morocco embarked on a second stabilisation programme and concluded an agreement with the IMF according to which the food subsidies were reduced and that had led to 50 per cent increase in the prices of essential consumer goods. Again these price increases had sparked widespread riots in Casablanca in the spring of 1981 and, together with other factors such as drought and falling phosphate prices, forced the government to abandon the programme. When riots broke out again in response to price increases in January 1984 the government, once more, abandoned its plan to introduce sudden price increase. [53]
In Tunisia also the "bread riots", in January 1984, were strong enough to force the policy maker to repeal the reduction in food subsidy. Even in 1986 when the severe fiscal and foreign exchange crisis made the government to accept the IMF recommendations, the decision maker was careful not to let the consequences of these recommendations to be shouldered by the working class. By undertaking the price-wage parity option, the Tunisian authorities had allowed wage rates to be steadily increase to keep pace with inflation. [54]
When price riots erupted in Algeria in October 1988 with between 150 and 300 civilians, mostly teenagers, were killed by the army, the event induced the then Algerian President, Chadli Bendjedid, to pursue a course of liberalizing reforms. Nevertheless and in spite of the civil unrest and political instability which shattered Algerian society and economy, many saw no viable but the austerity option. As mentioned above the Club of Euro-Maghreb had recommended the continuation of the three year austerity programme. The decision maker and the political establishment seems to sense the reality in a rather alarming, but realistic, way in which the conditions set by the IFIs, which includes austerity and subsidy reduction, could create "social explosion" in Algeria if they were applied. [55]
In March 1989 price riots broke also in a less state controlled economy of Jordan, and, like the situation in Algeria five months earlier, the Jordanian government addressed the popular discontent with promises of far-reaching political reforms.
The situation was rather different in Iraq though the results were similar. In 1987/8 the regime in Iraq embarked on an ambitious privatisation programme in agricultural, light manufacturing industries, tourism, banking, and other services. Nearly all industries producing consumer products for domestic market were sold totally to the private sector or partially to the mixed sector. At the same time price controls were lifted in order to allow free market forces to operate uninterrupted. Prices began to rocket and many complains began to emerge in the local, though controlled and censored, newspapers. The price rises and the surfaced public cry generated by it seemed to had "forced" the government to reinstate the central pricing committee on April 12, 1989. Two months latter, it announced price freeze for one year of state produced goods and services and obliged retailers to put price tags on all goods, warning them that the prices would be monitored. Finally in 1 July same year the government announced the first pay rise in 10 years for state employees and the continuation of the annual $750 million food subsidy. [56]
Such action did not hold the prices for long and soon the prices of other products started to climb again, and the complains began to surface accordingly. One letter mentioned that what consumers had gained from privatization were products of inferior qualities at higher prices. An example was cited regarding Baghdad Factory for Asbestos Industries which had increased the prices of its products by five folds soon after the factory was sold to the private sector. [57]
From the cases considered above it seems, as many have observed, that food subsidy issue is a problem for which there are no easy solutions. In one aspect, food share in the households budget is very significant, hence food subsidies had an immediate and direct impact on livelihood of the household and its standard of living, and it therefore had a net redistributive effects. According to Morrisson (p. 1638) food subsidies constituted 20 per cent of the expenditure of the urban poor households in Morocco. And since the poor spent 80 per cent of their budget on food, their food consumption would have fallen by one-quarter without subsidies. On average the Moroccan family spend 40 per cent of its annual income on food (WDR 1992. Table 10. p. 236)
In rural Egypt, as we shall see later, the reliance on food subsidies was substantial. On the national level, food amounted to 50 per cent of the Egyptian households consumption. (WDR 1992. Table 10. p. 236). Adjustment policies had caused food subsidies to be reduced significantly. Actually these subsidies which constituted about 17 per cent of total Egyptian public expenditure in the mid 1980s had went down to about 2 per cent in 1990. [58]
The "Households Surveys" in Iraq shows that expenditure on food absorbed in 1988 around 48.9 per cent of the monthly per capita expenditure in the urban households as compared with 54.5 per cent in the rural households. [59] The annual US$750 million food subsidy constituted 1.2 per cent of Iraq's GDP in 1989.
On the socio-political level food subsidies has been seen as part of a tacit social contract between the state and the people, and the people exercises power by threatening to destabilize the political situation and challenges regime's legitimacy if the government violates its commitment in the social contract. The issue of food subsidy as part of the social contract has been expressed, mostly in Egypt, by claiming that "bread is not an economic commodity; it is a social and political commodity". [60] In a wider context the "social contract", as put by Waterbury, "is centred on the commitment of the state to provide goods and services to the public in exchange for political docility and quiescence". [61]
The emphasis has been so far, and for good reasons, placed on food subsidies. State subsidies, however, have been provided for other necessities such as housing, transport, energy, imported medicine, clothing etc. The general reduction of state subsidies will, undoubtedly, push the prices of all these commodities and services up, thus generating a domino-effect on the general price level.
One of the suggested mechanisms to deal with these short term issues is the creation of safety nets. Data provided by UNCTAD indicates that only two Arab countries have established such a facility; Somalia and Egypt. In 1989 Somalia created the Social Assistance Fund (SAF) and the beneficiaries includes those unemployed due to reform. Though the programme showed early success and rapid implementation, it was, regretfully, interrupted by the civil war at end of 1990. The Egyptian Social Fund started in 1991 and, like the Somali Fund, includes the unemployed public employees among its 290,000 targeted population. The Egyptian Social Fund suffered from several flaws and strong government control. [62] The Fund has a budget of US$ 500 million supported by the government and 18 foreign donors, and more than half of the external funding comes from two donors.
In Tunisia, it seems that privatization has little impacts on employment since, as reported by Eva Bellin, "the labour code has not been "rationalized" to make labour dismissal more "flexible," despite insistent recommendations to that effect by foreign experts". [63] Unlike the Tunisian example, Morocco had not done much to protect the interest of the laid-off employees as one can infer from what Boratav had reported on the Moroccan export office which was closed soon after lifting the state monopoly on export and "employees sacked without prior notice". [64]
The pattern in Iraq was rather dramatic: the regime's dissolved the labour Union, abolished the minimum wage, nullified the Labour law, and gave the new owners of the privatized enterprises a free hand to trim labour costs dramatically. In Egypt, voluntary termination of employment or early retirement of employees is to be financed by the proceeds from sale of privatized firms. [65]
The union rights were abolished and exemption from labour laws was granted to the partially privatised (mixed) companies in Syria who enjoy other far-reaching privileges and exemptions such as custom, import, export, and currency regulations. [66]
