Keith Jefferis Comments on: “Privatisation – Cross Country Experiences” September 17, 2009

1. Keith Jefferis Comments on: “Privatisation – Cross Country Experiences” September 17, 2009

2. Structure of Presentation • Introduction • Comments on Dr Steytler’s Paper • Elaboration of Privatisation issues in the banking sector in Africa

3. 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?

4. 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

5. 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

8. 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?

9. 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

10. Banking Privatisation in Africa

11. 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

12. 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

13. 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?

14. 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?

15. 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

16. 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

17. 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

18. 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

19. 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

20. Thank You