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Keith Jefferis Comments on: “Privatisation – Cross Country Experiences” September 17, 2009. Structure of Presentation. Introduction Comments on Dr Steytler’s Paper Elaboration of Privatisation issues in the banking sector in Africa. Introduction.

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Keith Jefferis

Comments on: “Privatisation – Cross Country Experiences”

September 17, 2009


Structure of presentation
Structure of Presentation

  • Introduction

  • Comments on Dr Steytler’s Paper

  • Elaboration of Privatisation issues in the banking sector in Africa


Introduction
Introduction

  • Privatisation now well established on the policy agenda – and plenty of evidence against which to evaluate experiences

  • To what extent has global financial and economic crisis changed the environment for privatisation?


Comments on the paper
Comments on the paper

  • Comprehensive review of global privatisation developments

  • Good use of WB privatisation database

    • Privatisation alive and well

    • Maybe a pause due to global crisis

  • Useful summary of privatisation impact

    • In general, positive macro, micro and welfare impacts

  • No major disagreements – a few suggestions for improvement or follow-up


Presentation of data
Presentation of data

  • More analysis and comparison of regional trends in WB database

  • Presentation of annual regional totals by both value and number

  • Use graphs – for example


Future privatisation prospects
Future Privatisation Prospects

  • Is the slowdown in privatisation during the crisis temporary or more permanent?

  • Is the stock of SOEs slated for privatisation becoming exhausted?

  • Is the form of privatisation changing?


Opposition to privatisation
Opposition to Privatisation

  • Despite successes, privatisation remains a controversial topic – why?

    • Fragmentation of beneficiaries

    • Impact of failures – used to attack principles rather than design of specific privatisations

  • Perhaps a need to examine the anti-privatisation literature more thoroughly

  • Could lead to more detailed consideration of conditions necessary for privatisation to succeed



  • Extensive state-owned banks in Africa

    • Typically inefficient, loss making, high NPLs, poor service, frequent recapitalisation, obliged to finance loss-making SOEs

    • Associated with highly regulated financial sectors

  • Banking privatisation part of broader financial reform process

    • Removal of direct controls

    • Market based monetary policy

    • Withdrawal of state from direct ownership

    • Encouragement of FDI in financial sector


Banking privatisation results
Banking Privatisation - Results

  • Mixed experiences; best when:

    • Govts fully relinquish control and preferably fully divest shareholding

    • No post-privatisation restrictions

    • Privatisation to strategic investors rather than IPOs

    • Open bidding, including foreign investors

    • High level of competition in banking

    • High quality banking regulation

  • Can lead to major micro and macro gains, but may be conflict between political and economic objectives


Impact of global crisis
Impact of Global Crisis?

  • Banking sector crisis in developed economies – major extension of state ownership

  • Negative attitudes towards banks

  • Is this the case in Africa?

  • Has privatisation been affected?


Results of central bank survey
Results of Central Bank Survey

  • 3 questions addressed:

    • Is there a backlash against financial sector reform and liberalisation?

    • Is privatisation being affected?

    • Are govts considering a greater direct role in ownership of banks?


Backlash against reform
Backlash against reform?

  • No evidence for backlash

  • In general, benefits of financial reform are evident and appreciated

  • Reform is entrenched and continuing – no suggestion of reversal


Negative impact on privatisation
Negative impact on Privatisation?

  • No significant impact

  • Benefits of privatisation appreciated by public:

    • Improved efficiency, profitability, range of products and services

    • Privatised banks superior to old state-owned banks

    • Boosted by entry of foreign banks

  • Banks in Africa have avoided problems of toxic assets, major losses, bankruptcies – no calls/need for government intervention

  • Privatisation ongoing


Greater state ownership role
Greater state ownership role?

  • No evidence of increased govt ownership role (except Nigeria!)

  • No real need for intervention or recapitalisation

  • Understanding that proper role for governments in financial sector is regulation and development

  • Focus is on reviewing/updating regulatory structures


Future prospects
Future Prospects

  • Banking privatisation likely to continue, but

    • Most govt. owned commercial banks now privatised

    • Future privatisations may be more difficult (e.g. development banks)

    • Renewed focus on regulatory quality


Conclusions
Conclusions

  • Review of banking privatisation in Africa confirms Dr Steytler’s more general conclusions

    • Can lead to significant micro and macroeconomic gains, but no guarantee of success

    • Privatisation must learn from earlier experiences

    • Should be tailored to local conditions

    • Must be accompanied by competition and appropriate regulation

    • Transparency should be enforced, with open and competitive bidding



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