Proper Regulation Is Crucial to Ensure Welfare Gains
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Free Download - Summary: HUMAN CAPITAL FORMATION AND FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES By OECD Development Centre |
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
Proper Regulation Is Crucial to Ensure Welfare Gains - To learn more about this author, visit OECD Development Centre's Website.
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