Sunday, February 13, 2005

Privatization ... Why Not?

I always believed that political reforms are worthless without economic reforms. On a scale from 1 to 10, survival and satisfying natural needs come atop. Political rights, while essential, come after.
Privatization is one way to go, especially in societies where corruption rules. Stakeholders play the role of the watchdog on corporations and their managements. Performance is closely analyzed, corruption is strongly protested. So are the ills of bureaucracies, such as nepotism and red tape, because they affect the bottom line, and are immediately reflected in the market as they eat away profits and bring down stock prices.
More important, the press is freer in Third World countries to discuss and criticize private sector performance than it is when it comes to the politically powerful public sector. No question then that privatization is our best way to restructure the formidably obstinate state and semi-state firms.
Much is needed to clean up the corrupted, bureaucratic public-sector environment. Only an elected board of directors, mandated management, and measurable performance can upgrade fat, slow and unprofitable businesses to world standards.
Britain did this in the 1980s and brought the staggering state and socially oriented economy to the forefront of Europe’s top performers. With an iron hand, Prime Minister Margaret Thatcher made the likes of the notoriously inefficient telecom company one of the best in the world. The Iron Lady gave the rest of us a good lesson to learn from and a great example to follow.
Saudi Arabia has been down this road for a while now. The first step was selling 30 percent of the state-owned petrochemical company SABIC in mid-eighties. This was followed by the sale, more than a decade later, of 30 percent of another giant, Saudi Telecom.
Saudi Airlines was supposed to be next but it took its management so many years to plan for the move, and they are still planning! There also was talk about selling a stake in Petromin, part of the state oil company, Aramco. Altawnia, the biggest Saudi insurance company, is expected to be sold in the coming months.
All those steps are positive and in the right direction. But they are much less than the market could absorb and the modernization and restructuring project requires. Why?
The obstacle is that we ask people who are part of the problem to solve it. The last people who would care to see state firms privatized are those who run them. It doesn’t make any sense to ask managers who would lose their privileged, secured, comfortable jobs to administer a transition that would probably bring in new management or annoying auditors, stock holders and unfamiliar transparency. As the slow steps show, they would stall and stall to the last minute of their tenure, and the next managers won’t be any faster.
The solution, then, is to bring in outsiders. Hired specialists and private consultants on a short leash, with specific mandate and deadlines would be more motivated to accomplish the task in good faith and on time. That is if we seriously mean business, as we should. Our application for the World Trade Organization membership depends on this, not to mention our whole reform project.
While higher oil prices may help us solve some of our immediate problems, long-term challenges, like opening up to foreign investments, providing million of badly needed jobs, and upgrading vital services require more effective steps. These include restructuring, democratization, transparency, just distribution of resources, updating and documentation of laws and regulations, more rights and opportunities for women and minorities, more freedom of expression, better education and huge investments in infrastructure.
Privatization is a major part of the restructuring process. The sale of more state-stake in SABIC, Saudi Telecom, the National Commercial Bank, Riyad Bank, as well as selling every other public company, such as Saudi Airlines and Aramco will also help absorb billions of private cash looking for safe and productive venues.
This was clearly manifested when more than fifty billion riyals were thrown on the new telecom company, Ettihad Etisalat, even though, only a billion-riyal worth of stock was on sale.
The rest (80 percent) of stock was divided between government and private firms. More billions were wasted on illegal investments by illegitimate investors. No more reasons are needed to make the point for faster and bigger steps to privatize public firms, so I rest my case.
Is it not ironic that the US government would turn a blind eye when the Iraqi authorities close down newspapers and arrest journalists for criticizing the government? Wasn’t freedom the justification and excuse for overturning Saddam’s regime? What is the difference between rules that imprison people for criticizing Allawi and those punishing the critics of Saddam?

No comments: