Graduate School of Development Studies
Privatization policy choice and its
implications on private sector participation in
primary infrastructure investment in Sub-Saharan
Africa
A Research Paper presented by:
George Omondi Mumbo
(Kenya)
in partial fulfilment of the requirements for obtaining the degree of
MASTERS OF ARTS IN DEVELOPMENT STUDIES
Specialization:
[Economics of Development]
(ECD)
Members of the examining committee:
Prof. [Michael Grimm]Supervisor
Dr [Lorenzo Pellegrini]Reader
The Hague, The Netherlands
November, 2010
Disclaimer:
This document represents part of the author’s study programme while at the
Institute of Social Studies. The views stated therein are those of the author and
not necessarily those of the Institute.
Inquiries:
Postal address:
Location:
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Institute of Social Studies
P.O. Box 29776
2502 LT The Hague
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Kortenaerkade 12
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+31 70 426 0460
+31 70 426 0799
ii
Contents
List of Tables
List of Figures
Dedication
With appreciation
Acknowledgement
List of Acronyms
Abstract
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Chapter 1 Introduction
1.1 Background
1.2 Location and scope of the study
1.3 Motivation and Limitation of the Study
1.4 Research Objectives
1.5 Research Questions
1.6 Organization of the Research Paper
Chapter 2 Theoretical Framework and Literature Review
2.1Theoretical Framework
2.1.1 Theory of Private Property Rights
2.1.2 The Agency Theory
2.1.3 Public Choice theory
2.1.4 Dynamics of Privatization Model
2.2 Literature Review
2.2.1 What is privatization
2.2.2 Forms of privatization
2.3 Stages of Privatization Reforms in Africa
2.3.1 Reforms of the 1980s and 1990s
2.3.2 The second phase of the Washington consensus
2.3.3 Diagnostic approach
2.3.4 Rationale for the reform package
2.3.5 Rationale for Government Provision
2.3.6 Rationale for the private sector participation
2.4 Limitation to the Reform Packages
2.4.1 Structural adjustment loans
2.5 SOE Reform and Results of Commercialization Approach
2.5.1 Outcome of the Commercialization Reforms
2.5.2 Obstacles to the Implementation of Reform
2.5.3 Private Participation in Infrastructure
2.6 Privatization Trend in Sub-Saharan Region
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2.7
2.6.1 Private Sector Participation in sub-Saharan Africa
Issues of Controversy and Risk
2.7.1 Institutions and Structures of Regulation
2.7.2 Social and Economic Effects of Regulation on Privatization
Outcome
2.7.3 Corruption and Bureaucratic Malpractices’
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Chapter 3 Empirical Analysis
3.1 The Data and Variable Description
3.2 Descriptive analysis
3.3 Methodology and Model Specification
3.3.1 Quantitative Technique
3.3.2 The dynamics model
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Chapter Four Interpretation of the Findings
4.1 Analysis of the Findings
4.1.1 Telecom Sector
4.1.2 Transport Sector
4.1.3 Energy Sector
4.1.4 Water and Sewerage Sector
4.1.5 Correlation and Confidence Interval Estimates
4.2 Interpretation of Private Investment Participation
4.2.1 Management and lease contract
4.2.2 Concessions
4.2.3 Greenfield Projects
4.2.4 Divestiture
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Chapter 5 The Policy Implications of the Study
5.1 General Policy Implications
5.1.1 Divestiture related projects
5.1.2 Concession
5.1.3 Greenfield
5.1.4 Management and lease contract
5.2 Conclusions
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Appendices
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References
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List of Tables
Table 1: Correlation Coefficients
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Table 2:Total Investment Commitment (%)of Region
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Table 3:Total Disinvested Commitment(%) in the Region
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Table A1: Number of Projects by Primary Sector
defined.
Error! Bookmark not
Table A2: Investment in Projects by Primary Sector (US$ Billion)
Bookmark not defined.
Error!
Table A3: Total Projects by Primary Sector and Subsector (US$ Billion)
Error! Bookmark not defined.
Table A4: Number of Projects by Type
Error! Bookmark not defined.
Table A5: Investment in Projects by Type (US$ Billion) Error! Bookmark
not defined.
Table A6:Total Projects by Primary Sector and Type (US$ Billion
Bookmark not defined.
Error!
Table A7: Total Projects Combined Electric and Water (US$ Billion)
Error! Bookmark not defined.
Table A8: Total Projects Cancelled or Distressed by Primary Sector &
Error! Bookmark not defined.
Type (US$ Billion)
Table A9:Creteria for selection
Error! Bookmark not defined.
Table B1:Infrastructure Projects With Private Participation Reching
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Financial or Contractual Closure In Sub-Saharan Africa In 2008
Table B2 : Telecommunication
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Table B3: Transport
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Table B4: Water and Sewerage
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Table C1:Data Description
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Table C2:Data Summary
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Table C3: Confidence Interval
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List of Figures
Figure 1: Investment Commitment in Primary Infrastructure sector
(1991-2008)
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Figure 2: Investment Commitment in Primary Infrastructure Project
(2005-2008) Implementation Status
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Figure 3: Infrastructure Projects with Private Participation (1990-2008) PPI 36
Figure 4: Investment Commitment to Primary Infrastructure With PPI
(1990-2008)
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Figure 5: Investment Commitments to Primary Infrastructure with PPI
(2005-2008) Implementation Status
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Figure 6: Investment Commitments to Primary Infrastructure With PPI
(1990-2008) Project Status
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Figure 7: Total Projects By Primary Sector and Subsector (Us$ Billions)
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Figure 8: Total Projects By Primary Sector and Type (Us$ Billions)
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Figure 9: Cancelled and Distressed Projects (Us$ Billions)
41
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Dedication
With appreciation
To my parents, Dad and Mum
For all the encouragements and care
To my Brothers and Sisters
For being there for me
To Emma for standing by me
God Bless You All
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Acknowledgement
I wish at this moment to thank God for this far that I have reached
and more so, to my loving parents and siblings for all the support they
have accorded me all this time that I have been in a distant land in
pursuit for my post graduate studies .However, many thanks also goes
to Emma and all other friends who I may not mention herein, for having
stood by me all this time in my stay in Den Haag the Netherlands.
On this occasion I wish also to pass my appreciation to my
supervisor and the second reader for the time and input they have
dispensed into the successful completion of this study here at the
International Institute of Social Study.
Finally, my appreciation goes to all my classmate of the calendar
year 2009-2010, especially the ECD class, staff and the Outgoing
convenor Jan Van Heemst for their moral support and more so making
life worth living here at the ISS. Consequently, I am thankful to the
World Bank and the Japanese Government for the fellowship, material
and financial support that has anchored my career in Development
Economics to the next level.
God Bless You All
viii
List of Acronyms
IMF
International Monetary Fund
ROT
Rehabilitate own and transfer
PPI
Private Sector Participation In Infrastructure
SOE
State Owned Enterprise
RLT
Rehabilitate lease and transfer
OECD
Organisation for Economic Cooperation and
Development
SSA
Sub-Saharan Africa
BROT
Build rehabilitate own and transfer
WB
World Bank
IFI
International Financial Institution
ERP
Economic Reform Programs
SAL
Structural Adjustment Loans
WC
Washington Consensus
SAPs
structural adjustment programs
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Abstract
In the past decade, some insightful appraisal of public policy in line with the
primary infrastructure sectors globally with a tangible shift in direction towards
private management and ownership. A significant change in the perception of
the roles of the public and private sectors in infrastructure development has
taken centre stage in past decade. Meanwhile, the option of private sector
participation in infrastructure services has become a key strategy. However,
these reforms have promoted the desired levels of expectations in Africa as a
continent.
In conformity, great inroads have been made in the telecommunication
sector, which raises the issue of a gap between the suitability of prescribed
policy and the country’s specific institutional frameworks. Notwithstanding,
Africa’s diverse experience and the exceptional socioeconomic circumstances is
such that policy preconditions that are imperative for successful liberalization
and privatization are hardly met. Therefore, this study evaluates privatization
policy choice by appraising the private sector investment participation in
infrastructure (PPI) in sub-Saharan Africa in view of the fact that there is
reliable knowledge around the world from which lessons can be drawn from.
Infrastructure privatization ought to be viewed as a basic means to an end, and
not ideally an end in itself. given, its main objective is to perpetuate an efficient
sector that delivers quality service. These can be achieved in the background of
a suitable market mechanism that is well structured with a properly defined
regulatory system.
The findings can be attributed to the results of a regulatory reform,
implementation of the private sector participation policy, combined with the
influx of private entity’s investment in the primary infrastructure that has
yielded a spectrum of mixed results that is reliable for redesigning future policy
for implementation. Ultimately, PPI as demonstrated in this paper has a
significant role in promoting investment relative to the suitability of the
economic environment and investment portfolio that appeals to the regulatory
framework in place.
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Relevance to Development Studies
Privatization policy choice has a crucial role in addressing widespread
challenges to economic conditions associated with large fiscal deficits in poorly
performing SOEs .hence; privatization has the potential to minimize
misrepresentation in resource allocation and moderate budget deficits. In
practise increased investment, can be attributed to intensified efforts of
creating an enabling environment that propagates confidence in the feasibility
of amicable policy framework and its incorporation into other public policies.
Ideally, this enhances efficiency of resource allocation via sound contract
enforcement regulation, which is an incentive for more private sector
investment and increased accessibility of private sector to financial resources.
Keywords: Infrastructure, Privatization, Policy, Participation, Choice and
Sub-Saharan Africa
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Chapter 1
Introduction
1.1 Background
Reforms in the public sector has been a long process in an attempt to streamline the ills
that are associated with the performance of SOEs especially focusing on Africa historical
path towards achieving efficiency in the public sector . therefore, according to( Ariyo and
Jerome 1999:202), by the end of the 1980s, about 35 Africa states had received World
Bank assistance for privatisation and reform programmes and 67 % of all adjustment
lending targeted public enterprise reform. Subsequently, Privatization became a key tool
for economic reforms for the Sub-Saharan regions in the 1990s, directing focus on private
sector development.
As it stands, at the moment the IFIs had emphasized that developing countries had
to liberalize, stabilize and privatize in order to achieve sustainable economic progress as
prescribed by the Washington consensus. Though, trade liberation was the most
effectively implemented since within a relatively short stint most developing countries had
eliminated quantitative trade barriers on imports and rates of tariffs(Rodrik 2004:1).
Nonetheless, privatisation was crucial for any structural reform that had been proposed
by the Bretton Woods institutions in the 1980sto take any meaningful shape within the
SOEs, subsequently, privatization of state enterprises were initiated in several countries
in Africa that included Senegal, Niger, Kenya, Ghana, cote d’ivoire and guinea just to
mention a few. However, the idea of privatization wasn’t a home-grown supported
strategy by the domestic policy makers but was imposed on the countries by the IFIs.
Bearing in mind that these early reforms were majorly on few divestiture programmes in
the commercial manufacturing sectors but not on infrastructure SOEs (Nellis 2005:16).
Interestingly, the implementation of the reform package was effected much later in the
early 90s after the stabilization programmes took off since it was politically and regulatory
demanding than privatization per se. therefore, until the early 1990s the number of
privatisations per year increased significantly, up to 1995 after which it significantly
dropped (Harsch 2000:9).
Indeed, privatization reforms in Africa was anchored on a range of expectations that
contributed to mixed results, especially with Ghana exhibiting a success story and Senegal
1
the poorest results ( Ariyo and Jerome 1999:207). Particularly, much of the privatizations
reforms were not tailored to suit country’s specifics since there were no efficient
institutional capacity framework, capital markets, and amicable regulation systems. Hence
there emerged a significant opposition that lagged the adoption process.
According to Mbongaya (2008:4) in considering the shortcomings of the privatization
policy choices in the region the need for a fundamental transformation took centre stage.
Regardless of the organizational cultures that stood on the way of the prescribed reforms
and the regional economic environment disparity. Indeed privatization as a reform
instrument was meant to better the social and economic welfare needs of people by
transferring the benefits of competition and excess profits to the taxpayers. Rather, than
creating natural monopolies in the pretext of private sector investment to exploit the
public through increased price, artificial shortages and retrenchments that resulted from
the first phase of the reform packages.
As a result of perennial scarcity of basic utilities in Sub-Saharan Africa the World
Bank and OECD in 2004 concurrently reviewed the policy of privatization in the region
by underscoring the need to include the concept of infrastructural privatization, case
specific approaches, good governance, enhancing competition and regulation without
factoring in institutional capacities of the Public Sectors which apparently was an
extensive service provider of basic utility services in the region. This Notwithstanding,
had a far reaching impact on the society on the implementation of the government social
welfare policies through a typically home grown policy designed to capture the
disappointing result of the initial reform initiatives(Mbongaya 2008:3-4).this was an
oversight on the part of this institutions because it generated a widespread dissatisfaction
at the time of its implementation ,hence , failure was an eminent challenge in the wake of
all the well intentioned policy framework..
Therefore, following the disappointing aftermath of the structural reform policy of
1980s, which was anchored on liberalization, stabilization and privatization in many
developing countries without taking into account the countries specifics. a number of
difficulties in the implementation process were experienced. However, the escalating
dissatisfaction and opposition among policymakers raised serious questions that went
unanswered, given the growing uncertainty on one hand and the perception that
privatization is an ideal model to most economic problems on the other hand. This gap
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leaves behind food for thought that the policy reform packages may have been a
constraining factor to proper implementation of the privatization process and some
serious assessments need to be conducted to unravel the mystery behind this inconclusive
position on which way we should rate privatization and suggest further a compromise line
of strategy that would bridge the gap.
In effect the study will attempts to review the privatization policy choice and
investigate the role it plays at influencing private sector investment participation in order
to draw some lessons for policy implications that is all inclusive and adequately promote
primary infrastructure investment with minimal negative social outcomes. Another point
of focus will be on the analysis policy choice that comfortably accommodates the public
interest goals of maximizing the social welfare needs that were neglected by the initial
reform package.
1.2 Location and scope of the study
The study targets the regional primary infrastructure projects in low and middle income
sub-Saharan African countries. In this case 45 countries within the region are captured, on
the basis of the energy, telecommunication, transport, water and sewerage sectors.
Further, investment trends are analyzed relative to the specific policy ideology of
concession, management contract, divestiture and Greenfield type project over a period
spanning (1990-2008).
1.3 Motivation and Limitation of the Study
The study revolves around the review of the privatization policy choice after the mixed
results of the implementation of the first phase of the structural reform programme in the
1980’s that raised dissatisfaction among policymakers, academia and the political class.
However, the study may not answer all the problems associated with the failure of the
first phase due to inadequate concrete information on the accurate investment
commitment values by the individual stakeholders in the private enterprises mentioned.
1.4 Research Objectives
The general objective of this paper is to evaluate privatization policy choice and its
impact on private sector investment in primary infrastructure project. The proposed
research has also the following specific objectives:
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(i) To determine the role of privatization policy choice in promoting private sector
investment participation in primary infrastructure in the region.
(ii) To evaluate how the policy choice has adequately captured the social welfare
outcomes of privatization.
1.5 Research Questions
The major question that arises in this paper is how has privatization policy choice
influenced private sector investment participation in primary infrastructure in the subSaharan region?
Other Subsequent questions that are equally relevant are as follows
(i) What role does privatization policy choice play in promoting private sector investment
participation in primary infrastructure in the region?
(ii) What policy choice adequately captures the social outcomes of privatization?
1.6 Organization of the Research Paper
Chapter two will
constitute the theoretical
framework
and literature
,subsequently, chapters three will highlight the empirical analysis on
review
methodology
,chapter four will highlight the interpretation of the results and finally chapter five will
indicate the policy implication of the study and the conclusion.
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Chapter 2 Theoretical Framework and Literature
Review
2.1Theoretical Framework
The Privatization concept is founded on three main theoretical perspectives that have
been used to explain the move towards privatization reforms which revolves around, the
property rights, agency, and public choice theories respectively. The main assumption
underlying these theories is that in a proper macroeconomic environment and the
existence of suitable regulatory market driven forces generally enhances the level
efficiency in organizations (Adams 2006:296-297).
2.1.1 Theory of Private Property Rights
It is a socio-economic association that constitutes the allocation of resources, considering
the fact that owners enjoy the benefits and cause harm to others as a result of the
entitlement (Starr 1988). Furthermore, the more elaborate the rights onto the resources
allocated to the decision maker, the stronger will be the incentive to preserve and utilize
these resources more efficiently (Plane 1997). Moreover, private Property rights entitles
individual owners to an equity claims on the property of a private enterprise (Hanke
1987)as cited in(Adams 2006:297). As such, the three important criteria for efficiency of
property rights are,
(i) Universality
It describes how the scarce resources are owned by individuals and organizations,
such that at any given point in time either the public sector or the private sector is entitled
to ownership of an enterprise, through the different existing forms of ownership.
(ii) Exclusivity
Describes the restricted rights to ownership and management of the enterprise,
especially where politicians and rent seeking bureaucrats are restricted from influencing
decision making processes once a SOE has been privatized as described in the concept
of agency and public choice theories respectively.
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(iii) Transferability
This concept that ensures resources can be allocated from a low to high yield uses, as
demonstrated in the transfer of ownership title in form of concessions, divestiture, and
Greenfield and management contracts. As such, the process of privatization facilitates
transfer of entitlements from one party to another with an objective of enhancing
productivity and efficiency ( Adams 2006:296-297).
Libecap (1989) asserts that private property rights matters, and further provides the
basic economic incentive structure that shapes resource allocation on the premise of
ownership and contract enforcement (Mahoney 2005:111). Ideally, this theory will
attempt to answer the question of transfer of ownership entitlements from the public to
the private sector by highlighting on how policy choice and contractual transactions
influences privatization process with bias on concession, management and lease contract,
Greenfield project type and divestiture.
2.1.2 The Agency Theory
The agency theorist argue that, opposing interests and goals of principals (owners) and
agents (managers) create a conflict where agents focus their attention on maximizing their
personal driven interests at the expense of the owners. Hence, the inefficiencies and low
performance in SOEs may be as a result of agency related cases. Moreover, in most
instances this arises due to lack of incentives for the agents and the presence of highly
compromised monitoring institutions. Therefore, the agency theorists advocate for
privatization of the SOEs as a means of promoting radical changes in corporate
governance and managerial incentives (Acquaah 2005).
Ideally in our case ,the stakeholders in the privatized enterprise take different
positions in the ownership structure, and those that have been contracted to perform
their mandate for instance in management and lease contract project type, will have to
meet the set objectives and standards relative to the performance contract signed between
the principal(owner) and the agent(manager).consequently, the agent is motivated because
the incentive to achieve the desired performance level is commensurate to reward which
is pegged on the market rate. Therefore, the PPI is likely to be significantly impacted
positively as a result of increased accountability and productivity in the enterprise.
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in this case the drive to private sector entitles investors to freely transfer ownership titles
for productivity
purposes and maximizing benefits ,which translates to improved
efficiency and higher residual returns to investment further, it focuses on explaining how
the private sector through, speculation invest in the most rewarding portfolio, which in
turn promotes efficiency (Acquaah 2005).
2.1.3 Public Choice theory
The proponents of this theory took a standpoint that SOEs are generally inefficient and
poor performers due to political related demands and pressure to maximize on the public
interest goals of increasing employment, increasing wages and initiating more
development projects. Normally, politicians capitalize on this to increase their chances of
re-election, which in most cases compromises the operational efficiency and better
performance. However, privatization in practise renounces political control by altering the
enterprise goals from public driven interest to concentrate on efficiency and performance
associated with reduced unemployment, wage expenditure and improved productivity
with better efficiency level (Acquaah 2005).
2.1.4 Dynamics of Privatization Model
This model happens to be the brain child of (Fluck,John and Ravid 1996:280-284) which,
essentially addresses the concept of alternative ownership structures that goes with
privatization processes. The model attempts to describe how the government decides on
which level of privatization policy if adopted will maximize both public and management
relative to the pre-existing macro-economic situation. These choices directly impact, on
private sector investment in primary infrastructure in a particular economy of choice. In
essence the manufacturing, service and production industry of any functional economy
generates profit levels (𝜋) and employment levels (E), relative to the existing market
structure. These set of variables (𝜋, 𝐸), can be generated at a time (t) and forms the
function of the macroeconomic condition of the economy and the level of technological
changes in line with the productivity levels.
However, the limitation of the model is that it captures simply two macroeconomic
state specifications of θ as either Good (G) or Bad (B).in addition another important
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assumption is that the economy revolves around the first order Markov process and the
matrix of transition probability given by
R=
rG
rB
(1 − rG )
(1 − rB )
Where rθ ,stands for, θ = G or B, as a conditional probability of obtaining a good
state and (1-rθ) stands for a bad state at time (t), bearing in mind the economy was in the
state θ, θ=G,B at time (t-1).considering that (rG, rB),fully describes the transition matrix
exhaustively.
The viable vector set of(𝜋,E) can be expressed as f(θ,h) as a function of θ(state of
economy at time (t-1) and (h) representing the level of technology existing in the
economy at time (t-1).however ,it also represents the function of the history of
production in the economy in the past period given by (t-1),that explains the function of
distribution of property rights and ownership structure allowed at (t-1).
i)
Management objective
Apparently, production process is delegated to the new management by means of
corporate governance process in most corporate sector. Further, the distribution of
property rights and the strength of private ownership establish the degree of congruence
of corporate governance process with the government objectives. In this case the degree
of privatization in the economy is represented by ( Ω)where, (0≤ 𝛼 ≤ 1 )being the extent
of ownership in the private sector. For instance, 100%ownershipof the state corresponds
to Ω=0, yet, when government ownership at least 51%which translate to Ω=049, while
Ω=1 signify, a fully privatized economy.
The preference of the management is expressed as M(𝜋, 𝐸, Ω).hence, the functional
dependence of M on Ω(degree of private ownership establishes that the more private the
structure of ownership the further management is inclined to its profit focused owner
hence, less priority is apportioned to employment levels. Moreover, it’s on the extreme
given a bad (B) macroeconomic state. Otherwise when Ω=0 (fully state owned) which
also explains the close linkage of management objectives with that of the state.
In addition, if we represent the preference of the government as U(𝜋, 𝐸, θ, h),
where θ=Good or Bad, macroeconomic state we realize that
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the government values
the profits(𝜋) for the purpose of future supplementary capital and corporation tax
revenue source. this will also raise public confidence on the adopted privatization scheme.
Employment (E); the more opportunities created as a result of the adopted
privatization scheme the better for politician vying for political office. History(h);directly
influences government objectives in line with changes in technology as explained by
the F( θ, h),of possible Feasible output vectors(fluck et al.1996:283).
Note; that direct reliance of history on U(𝜋, 𝐸, θ, ) can be explained by the specific
experience with reference to a history of privatization that become popular or otherwise
without necessarily looking at the profits and employment and employment it produced.
FOR instance the adoption of a privatization reform that led to the choice of
Ω=0.49,hence raising expectations that in case the economy experience subsequent
Bad(B) state then negative and dissatisfaction against the government, though given the
same output(𝜋, 𝐸), then the utility of The government U(𝜋, 𝐸, B, h), with a specific
history of two period IN The stage(I) is relatively lower than U(𝜋, 𝐸, B,O),with no
history in the same stage(I).
ii)
Government Problem of Choice
It identifies the level of privatization in accordance with a governance mechanism
that maximizes the expected utility. Ideally, the government makes decision at a time (t1) based on the existing state of the economy as expressed by θ= B or G.
Production decision is delegated to the new management with the information about
the state of the economy at a time (t), when the choice of profit and employment levels
(𝜋, 𝐸), in maximizing their objective relative to F (θ, h) state of the economy and its
history.
Where the government chooses Ω level of privatization, at a time (t-1) at θ, state of
the economy to maximize utility bearing in mind that output is selected on a delegated
production process as a function of B and G to be achieved at time (t),(Ω)privatization
level and at a history(h).
Since the state θ=G or B
Then maximize rθ U(𝜋G* ,EG* ,h) + (1-rθ )U(𝜋B* ,EB* ,h)…within (0 ≤ Ω ≤ 1) …….a
Where (𝜋G* , EG* )= arg max M(𝜋, 𝐸, Ω)….with reference to (𝜋, 𝐸) ........................b
9
Such that (𝜋, 𝐸)𝜖 F (G, h)…….........................................................................................c
(𝜋B * , EB* )= arg max M (𝜋, 𝐸, Ω)….with reference to (𝜋, 𝐸) ............. …………..d
Such that (𝜋, 𝐸)𝜖 F (B, h)…..............................................................................................e
Apparently, on the account the current state (θ) at a time (t-1), the government
implements the level of privatization ( Ω) at the beginning of the period (t).consequently,
successive uncertainty brings the state(θ) to B or G, which essentially the delegated
management attempts to solve the problems on the equations(b)-(c) or (d)-(e) relative to
the arising macroeconomic condition (fluck et al.1996:283).
In conclusion, the study is focused on the theory of property rights as described above,
basing my argument on, the concept of exclusivity, which is decisively linked to the public
choice and the agency theories respectively.. In addition, the concepts of universality, and
transferability have been describe in the context of private sector ownership of public
enterprises in the phase of privatization reforms. However, the agency and public choice
theories are modalities of efficiency which is associated with proper management, better
productivity and profitability. Ideally, privatization is associated with better management
practices which in essence demands for radical structural changes in the style of the newly
privatized enterprises, hence, the dynamics model identifies the element of choice relative
to a suitable ownership structure that reflects the country specific policy needs on private
sector investment in primary infrastructure
investment commitment.
10
bearing in mind its role of promoting
2.2 Literature Review
2.2.1 What is privatization
Privatization1can be defined as the transfer of operational control of an enterprise from
the government to the private sector. Although operational control can be placed in
private hands through leases, concessions, or management contracts, control is most
often tenable by majority ownership. Therefore, Privatization is characterized by
transactions those results in a government ceding ownership control by decreasing its
equity stake from 50 % or more to less than 50 %. This definition would therefore
amount to equity dilutions and joint venture that leaves the state holding less than 50% of
the ownership (Bhatia and Campbell 1998:159).
2.2.2 Forms of privatization
Privatization can be attributed to many different forms, especially in the private
sector participation at product or service delivery. The most common forms according to
Koma and Pamacheche (2007:4-7)are described below.
(i) Management contract
Here, the main responsibility for provision of services initially provided by a stateowned firm is passed on to a private provider. Ownership though, remains with the state
and all the necessary capital investments continue to be provided by the state. Besides, a
performance contract is negotiated with an outsourced management company. As such,
the benefit from management contracts is the market discipline and technological
knowhow to state owned firms and the efficiency gains of a market-oriented enterprise.
(ii) Lease
A private firm is bestowed with the responsibility of operating and maintaining the
assets of an initially state owned firm. The state retains ownership and responsibility for
financing capital investment .however, the new operator has strong incentive to minimize
1
Privatization in Africa Oliver Campbell White Anita Bhatia
11
cost and improve efficiency by enforcing the agency and public choice theory in the
management of the business.
(iii) Concession
Generally, a private firm takes over responsibility for operating and managing the
assets of a public enterprise, as it is in a lease arrangement. However, in a lease
arrangement, the private firm takes further responsibility of financing long-term capital
investment of the firm.
(iv) Divestiture
In divestiture, state owned assets are sold to a private entity where management and
subsequent capital investment needs become the responsibility of the new private sector
operators. Furthermore, private placement for shares of companies is sold through direct
negotiation, and initial public offering, where shares are sold through a public offering on
a local stock exchange. Finally, Divestiture can either be in partial, sale of 49% of shares
and below or full scale, with total transfer to the private sector.
(v) Joint venture
A partnership between a public enterprise and a private investor respectively, can be
an appropriate solution in a situation where full-scale privatization attracts much
resistance. Risks are shared and any struggle for control can be counterproductive to its
success. However, economies of scale and access to new technologies and management
expertise can be positive outcomes of joint ventures.
(vi) Asset sale
It constitutes the disposal of assets of an enterprise, arising from the termination of
the business operations. However, a number of assets can remain unsold. Chances are
that the selling of public assets is at a giveaway price. Such sales are usually inevitable and
are usually affected by auction Population (Koma and Pamacheche 2007:4-7).
2.3 Stages of Privatization Reforms in Africa
Ideally ,Africa and most of the developing countries ,have had a difficult past in dealing
with the economic challenges that go with structural adjustment programs that were
12
prescribed by the world bank with regards to stabilization, deregulation and privatization.
Particularly, the move towards privatization of poorly performing SOEs entailed an
extensive reform package that called for massive resources, strong political will and a
stable economic environment with market conditions suitable for successful
implementation of desired private investment commitment within the region.
2.3.1 Reforms of the 1980s and 1990s
Apparently, during the 1980s the WB formulated a number of SAL agreements on the
basis of the Washington consensus that emphasized on countries to diminish the
deficit on the state budget and institute a devaluation of the currency as a structural
measure to give private sector opportunities to increase productivity ,efficiency and better
utility of economic resources. However, the SALs of the 1980s failed to produce to
produce the desired economic impacts but produced unexpected social and economic
results. Nonetheless the assessment of the Asian miracle of the early 1990s had a great
lesson on the success of the East Asian countries that was attributed to state
intervention,(Stovring,2004:13).
Consequently, in 1990, john Williamson formulated the Ten Commandments in
acknowledging the East Asian economic management, which came to known as the
Washington consensus to guide policymaking in Latin America. It advocated for the
adoption of policy guidelines that touched on ;fiscal discipline, reorientation of public
expenditure priorities in areas of high economic potential to improve distribution of
income, for instance, primary healthcare ,education and infrastructure. interest rate
liberalization, Trade
liberalization, liberalization of inflows of DFI, Privatization,
Deregulation (to abolish barriers to entry and exit) and finally secure property
rights(woo,2004:3).apparently this first phase of the doctrine focussed on regulating the
prices . Though, it didn’t materialize good outcome in Africa and Latin America except in
Ghana and Chile respectively. However, east Asian countries experienced higher growth
rate regardless of the Asian crises of 1997-1999,due to liberalization of capital account
that began in the 1990s(Woo 2004:15).
In addition, the large scale economic deregulation performed dismally, since, the
removal of interest rate ceiling and entry barriers into the banking system became costly
in many countries. This was as a result of explosion in the number of banks and total
loans fuelled lots of speculation and none performing loans, which essentially bankrupted
13
the banking system. This prompted the government to refund depositors to prevent a
possible a possible economic, social order and political status meltdown.
Apparently, privatization of state assets accompanied sales at heavily discounted
prices to political elites thus replacing public monopolies with private monopolies a clear
path of looting the public resources,(ibid:15). Therefore, in this period African
governments, regardless of any donor assistance, did not succeed in reforming state
enterprises with evolutionary methods such as (commercialization) without ownership
change. This failure gave rise to a reform approach pointing towards private sector
participation and ownership (Nellis 2005:2).
2.3.2 The second phase of the Washington consensus
It focussed on getting the institutions right ,though more ambitious than the initial
reform package(Woo,2004:18).since the augmented Washington consensus focused
heavily on institutional and governance, which attempted to address the problem
encountered in the implementation of the original agenda which had the right fix on
problems but implementation and effectiveness were impaired. It suggested that the
reason for failure of privatization and subsequent opposition was due to inappropriate
regulatory systems. Further, financial crises caused by the financial liberation were due to
weak prudential regulation and corporate governance systems.
However, it also reflected what the rich countries already looks like and the
institutional reforms did not describe what countries ought to do to develop.
Furthermore, it did not correspond to what developed countries did during their initial
development stages but where they ended up once they developed. Consequently, the
level of administrative competency, human resources and political related capital required
to complete this institutional reform agenda was farfetched in the developing
economies(Rodrik 2004:5-6).
Notably, the first phase of the Washington consensus, concentrated on limiting
government interventions for a much less control of the economic activities, whereas
the second phase, the state is acknowledged as a conductor of the economic activities in
providing and maintaining the infrastructure that facilitates the efficient operation of
the private market economy. However the first and the second phase appreciated the fact
that without the state intervention market operation may not be as effective compared to
when the state is involved (Woo 2004:18).this reform packages faced more challenges at
14
the implementation stages thus paving way for a yet more interactive strategies for
reforms.
2.3.3 Diagnostic approach
It focused at identifying significant bottlenecks and marshalling efforts in alleviating
distortions that directly stand on the way of the prescribed reforms. All together the
initiative attempted to optimize on the administrative cost and resources that would have
been required to achieve the desired reforms to avoid going after numerous targets. The
approach clearly pointed out why different fixes subscribed to different country
specifications, given that, the strategy was targeted to match policy priorities with
diagnostic signals. Being a bottom-up approach it empowers countries to perform their
own diagnostic strategy, however, the augmented approach presented each country as an
identical institution with a list of reforms that were absolutely contrary to the diagnostic
one which was sensitive to political and administrative constraints that was being
practised. Furthermore, the approach recognises the dynamics and the nature of the
binding constraints overtime, hence presenting a more favourable environment for
implementation of the reform packages.
Consequently, the approach happened to have embraced strategic measures like
resource mobilization and financial sector reforms in countries with investment
constraints due to lack of investible funds and high cost of capital. Hence, foreign
investment would be the best option to unlock the constraint on condition that a
relatively high demand and an equivalent return to private investment prevailed in the
market (Rodrik 2004:9-12).
As such, private sector oriented reform strategy has produced some notable
successes in Africa, as indicated by increases in the quantity and quality of service offered
by the private sector, especially in telecommunications sector. Most previous studies of
private participation in infrastructure though, indicate that performance generally
improved, compared to what could have been logically expected to have happened under
continued public ownership and operation (Nellis 2005:2).
15
2.3.4 Rationale for the reform package
On the other hand, Jerome (2002:10) argues that “following the apparently successful
privatization programme in Britain-privatization gained a considerable momentum in
developing countries given its endorsement by the multilateral financial institutions as a
major plan of adjustment policy and reinforced by the need to reduced government
expenditure in the face of burgeoning fiscal deficits” took centre stage in Africa.
Consequently, after this dispensation, African governments fell under pressure from the
donor community to adopt privatization policy. This followed a series of disposal off
thousands of state-owned enterprises. Categorically, proponents of privatization
expressed the need to minimize waste, improve economic resource efficiency, revitalize
the private sector and mobilize supplementary foreign and domestic investment. Though,
the process encountered a spate of controversy, governments had to proceed more
carefully and cautiously with the issue of privatization in light of the previous results of
the first implementation phase of privatization (Harsch 2000:8).
Unprecedentedly, privatization mushroomed in the subsequent period, which went
contrary to the tradition of reliance on previously monopolies in the public sector that
serviced the market demand, just because of the weak private sector structures that were
in existence during and after independence time. But with the increased clamour for
economic liberalization by the IFIs and the donor communities, more African countries
acknowledged the essence of privatization. This was under the guise of, decreasing public
sector inefficiencies, widening the scope of the private sector, attracting more investment,
adopting new technology in an attempt to revive economic opportunities. At the same
time, some governments were cautious to proceed more carefully as earlier mentioned in
avoiding if possible the uncertainties, conflicts and drawbacks that marked many of the
privatizations operations initiated towards the end of 1980s and early 1990s (Harsch
2000:8).
2.3.5 Rationale for Government Provision
According to world bank(2004) as cited in(Adhia 2004:1 ) claimed that services such as
water, electricity and transport are of strategic importance to be left in the motivations
and penalties of the market, hence, the state control is essential. Secondly, the state will
ensure fare distribution in furthering its social equity goals. Finally, these services
16
constitute high set up costs and economies of scale, which is a fertile ground for natural
monopoly to thrive in a free market. Hence, may lead to exploitative practices. Therefore,
this justifies monopoly utility enterprises owned and controlled by the local government.
2.3.6 Rationale for the private sector participation
Due to the disappointing performance of state owned monopolies, as a result of no
motivation from competitiveness, low labour productivity, declining fixed equipment and
service qualities, the need to subject it to market discipline.
Ideally, the price structure of SOEs is highly influenced by political underpinnings than
on the cost structure, which has given rise to resource allocation distortions and serious
revenue service shortage and insufficient investment capital for expansion (Adhia 2004:1).
2.4 Limitation to the Reform Packages
Most significantly, African privatization process particularly in infrastructure is
constrained by socio-economic upheavals. Given its trail of history, the increasing
hostility towards privatization and the inadequate information on the subject, there the
need for an incisive appraisal of infrastructure privatization in Africa is urgent. Moreover,
a significant gap currently exists in the literature where a Comprehensive evaluation of
infrastructure privatization in Africa are limited to studies conducted mainly by
international financial agencies with a skewed interest in the privatization process for
instance (Kerf and Smith, 1996; Nellis, 2003; OECD, 2004) on country specific (Ayogu
2001; Azam, Dia and N’Guessan 2002; Ariyo and Jerome, 2004) on sector specific as well
as (Bayliss 2001, Karekezi and Kimani, 2002).their findings point out that results of a
decade long of regulatory reform, implementation of the privatization process and
liberalization agenda, coupled with the increased private investment in infrastructure have
categorically produced mixed results of particular success and dismal performance in the
rejoin (jerome,A.2004:3).
Although private sector participation in infrastructure services has revolutionized
into a new tradition, specific reform packages have not materialized to date in Africa.
Notwithstanding, the unabated success in the telecommunications sector, there has been a
significant gap that explains the mixed results pointed out by the previous literature
studies. Surprisingly, Africa’s socio-economic characteristic constrains the policy
17
preconditions that are obligatory for effective liberalization and privatization realization
(Ariyo and Jerome 1999:207).
2.4.1 Structural adjustment loans
As a result, Infrastructure sector reform packages in Africa are not designed inline
to solve the inherent challenges in the sectors, but implemented in compliance with SAL
provisions set by the multilateral development banks and the regional, global trade
accords. However, one cannot deny the fact that sub-Saharan region’s experiences,
opposition and dissatisfaction of privatization initiatives that can be attributed to its
dismal performance in the region (Jerome,A 2004:4).
2.5 SOE Reform and Results of Commercialization Approach
Privatization of SOEs revolves around major policy tools for the realization of the
objectives of ERP, due to the poor performance of SOEs with enormous strain on public
revenue in the form of non-recoverable loans and annual subventions from the treasury,
therefore, a growing quest for privatization was grounded on the persistent dissatisfaction,
worsening economic environment and severe fiscal crises that had bedevilled the African
continent in the 70s (Ariyo and Jerome 1999:201-02).
Subsequently, in the 80s, the IFIs particularly the World Bank formulated several
SAL agreements based on the Washington consensus, which prescribed countries to
diminish the deficits on state budgets by instigating currency devaluation. The reason
behind these structural reforms was to give the private sector greater scope so as to
promote growth though enhanced efficiency in productivity and utility of the economic
resources where there is less direct state intervention in production and resource
allocation, but govern the regulatory framework for market and economic policy
(Stovring, 2003:13).
Moreover, until the late 80s the WB had provided assistance on privatization to 30
governments in the sub-Saharan region, specifically, supporting restructuring of SOEs
that will remain under state control and which serve socially vital purposes such as water,
transport, energy and telecommunication and further to assist governments increase the
efficiency of both the state and business. ideally, privatization assistances took place in the
context of macroeconomic policy reform such as liberalization of trade regimes, pricing
18
reform, demand management and elimination of monopolies (Kikeri and Nellis
1989:665).all these prescription were against the backdrop of addressing inefficiencies in
the SOEs; focusing on the degree of government intervention in markets, extent of
macroeconomic distortions, imperfect competition in the internal market(ibid:664).hence,
its wasn’t surprising that privatization failed to achieve the desired impact in several
countries(Ariyo and Jerome 1999:207).
2.5.1 Outcome of the Commercialization Reforms
Apparently, the reform process took centre stage with the move to privatization and
commercialization packages launched in 1988as a major component of SAPs initiated in
1986,(Jerome and ariyo,1999:205),where ownership was vested in government whereas
management and financing was coordinated by government regulatory along bureaucratic
lines. In this case the path to privatization entailed four main stages for instance;
commercialization; where user charges are introduced and followed by full setting of
commercial performance objectives. Corporization; where the SOE is created usually by a
statute, Restructuring; an intermediate step required where SOE hasn’t been operating in
a commercial environment before. These, prepares the SOE for divestiture, though, it
may be vital in improving the performance and efficiency of enterprises under state
ownership. Finally, Divestiture; entails the sale in stages of partial or the whole all of the
government’s shareholding in a SOE (Stovring 2004:14).
However, the implementation of privatization and deregulation in Africa has
produced relatively weak results compared to Latin America and South East Asia,
(Stovring 2003:12). However, the outcome of divestiture was mixed, though generally
positive in Jamaica, guinea, Togo and Niger, for WB supported reforms, yet, for nonbank supported reforms in Malaysia, Mexico and Thailand, for instance had significantly
enhanced financial performance. Moreover, despite of the challenges of technology and
political complexity such as inadequate policy framework, weak capital markets, heavy
liabilities, reluctance to sell to foreign investors labour union and bureaucratic opposition.
Nonetheless, government commitment, public campaigns, WB presence and other donor
community may have contributed to the positive results obtained. In addition, divestiture,
as a method of privatization was desirable since it promotes both widespread and
domestic ownership(Nellis and kikeri, 1989:667).However, the East Asian success in
particular Malaysia, was attributed to the concerted
19
state intervention in economic
activities which was in line with the second phase of the Washington consensus(Stovring
2004:13).further, the poor performance of the Malaysian private sector was entirely as a
result of the initial economic reforms but this trend changed drastically after the country
specific intervention of vision 2020 initiative and its implementation (Ariyo and Jerome
1999:209).
Finally, according to (ABD:2001)as cited in(Adhia 2004:10) claims that privatization
benefits are much though thinly spread over a huge population over a long time period,
however, its cost on job losses and business is accrued to a section that can successfully
mobilize resistance to privatisation. Notwithstanding, the achievement of lowering costs
to consumers that has increased the number of options, yet it has not convinced the
opponents but furthered the discontent overtime.
2.5.2 Obstacles to the Implementation of Reform
The implementation process may have slowed down due to governments attempt to
counteract the adversity of the process of divestiture of increased unemployment, foreign
ownership, concentration of property in the wrong hands, plant closure and pricing
problems. Other issues that also contributed grossly to this backdrop was lack of
transparency in making specific deals of sales at unstated prices, to dubious purchasers
without a competitive bidding procedure (Nellis and kikeri,1989:667).
However, the two writers (Ariyo and Jerome1999:207-09)give a caution that the
implicit assumption that public bureaucracies and sector are endemically inefficient
whereas the private sector is inherently efficient may not be valid in several developing
countries. Especially where there is a harmonious relationship between the two sectors
and also where the culture of private enterprise has not fully developed. Moreover, the
role of foreign capital in financing public sector reforms and foreign participation in
privatization may have been misinterpreted as concentration of wealth in foreign hands,
yet it was essential, particularly for countries that considerably weak private sector. for
instance “by 1992 in Sudan, firms from Scandinavia, Britain, the US and the Arab states
dominated as bidders for SOEs slated for privatization under the country’s National
Economic Salvation program introduced in June 1990”(ibid:203).
Nellis and kikeri (1989:664), further claim that reforms without involving ownership
change had mixed but modest results, given that economic theory views competition
20
more crucial than ownership in determining efficiency outcomes. This point of view is
supported by the assertion by opponents of privatization in developing countries that in
substituting shareholders for civil servant supervision there will be no need for ownership
change, because the same factors accounting for inefficiency in the public sector
performance will equally influence private sector performance. Therefore, there is no way
the private sector will perform better than the public sector, given the degree of
government intervention in markets, prevailing macroeconomic distortions and the
imperfect competition in the internal markets.
However, Vickers and yarrow (1991) had the opinion that competition directly
improves monitoring as an incentive for efficiency in production hence justifying private
enterprises leverage over SOEs given a competitive environment. Nevertheless, in a none
competitive with possibly natural monopoly privileges the effects of privatization remain
unclear (Boubakri and Cosset,,1998).furthermore, Vining and Boardman(1992)as cited
in(Omran 2004:1023) assert that there is an insignificant difference between public and
private ownership at low level of competition given both forms are likely to adopt similar
rent seeking behaviour.
However, in an increasing and competitive environment, the private entity has more
incentives for managers (agents) to adopt optimal profit objectives (Alchian 1977, stano,
1975:277).this is acknowledged further by D’souza and Megginson(1999) as cited
in(Omran,2004:1023) that privatized enterprise in a competitive industry like
telecommunication would yield significant economic returns without macroeconomic
distortions. An argument that is similar to that of parker and Hartley(1991) whose
assertion that much efficiency gains arises where competition replaces monopoly
without necessarily relying on ownership status, and that if both the public and private
enterprises would yield similar
allocative efficiency if subjected to
competitive
environment without considering the structure of ownership(fare, grosskopf and
logan,1985)as cited in (Omran,M. 2004:1023). Otherwise according to (Cook and
Kirkpatrick, 2003; Shirley and Walsh, 2001; Adam et al 1992),as cited in(Adams 2006:
298)claim that as a result of market failure SOEs are likely to efficiently maximize on
social welfare gains in a situation where private manger(agents) optimize on profit and
welfare benefits. Consequently, Shirley and Walsh (2001) as cited in ( Adams2006:298)
21
acknowledge that in developing nations, monopolies tend to be predominant due to
perennial market failures, imperfect information and high cost of entry into the industry.
Alternatively, Nellis and kikeri,(1989:664-5) claim that to enhance SOEs performance
the government should create appropriate incentive systems that will attract and reward
good
managers, as
well as
isolating SOEs
from excessive and inappropriate
supervision, institute performance contracts and in a nutshell provide commercial and
industrial SOEs with basic set of goals and proper managerial autonomy that will
facilitate the attainment of good performance levels under state control.
Otherwise, the governments can as well promote privatization for other legitimate
reason than efficiency and reduction of budgetary burden posed by SOEs through,
reconstructing local capital markets, encouraging foreign investments, regulating the
power of public sector unions, which are the main goals the state has attempted to
achieve through the divestiture programs. This perception comes in handy given that
SOEs aren’t performing to the expectations and a broad range of reform strategies have
attempted to address the endemic inefficiencies.
2.5.3 Private Participation in Infrastructure
In the Early years of 1990s, infrastructure industries under, energy, ports, railways, roads,
telecommunications and water & sewerage were in most cases exclusively in the domain
of the public sector control. Consequently, this gradually led to Private corporations
currently constituting of at least 45% of the key sectors of the large-scale service delivery
enterprises. On average it is higher in developed countries than for developing countries
and for particular sectors than for others (Estache et-al. 2005:1).
In accordance with the poor performance report of African SOE, the reforms
corresponded with a major shift in economic thought that took centre stage towards the
end of the 20th century (Stanislaw and Yergin 1998) as cited in (Nellis 2005:18).Arguably
the Keynesian assumption that the public interest was served better by government
intervention, and subsequently the Hayekian notion that “government failure” was more
of a problem than “market failure.” This was in retrospect of the collapse of the USSR
and successive revolutions in the satellite states, which paved way to a strong and
sustained growth in OECD countries and spurred increase in private capital available for
22
investment in emerging markets that were channelled to technological innovations in
infrastructure production and distribution, especially in telecommunications. These
approach to reform gave in to an extensive reworking of economic conventional wisdom
on policy items of natural monopolies, contestable markets, and the nature and functions
of privatization contracts that designed the emergence of reform packages in the early
1990s that promoted the optimal economic course of action, targeted at restraining
governments and unleashing markets (Nellis 2005:18).
In the process African nations embraced these policies without much choice. Unlike
many decision makers in the ex-communist states and Latin America, most African
leaders were not convinced that emphasis on this private initiative was applicable and
appropriate in their settings. But due to much reliance on donors and the IFIs African
governments had little choice but abide by the policies prescribed by their financiers.
Neither, would they amend the content , scale and slow the pace of the implementation
of the policies, nor employ passive non-compliance to water down and interrupt their
impact, but, as divestiture and PPI emerged as the central premise of IFI-supported SOE
reform and conditionality, most if not all borrowing African governments
unenthusiastically complied (Nellis 2005:18).
.
Further, the privatization experience of the 1980s led the IFI policy analysts to
acknowledge that a country’s privatization prospects varied according to the income level,
institutional capacity and individual country circumstances. “In low-income settings
privatization is more difficult to launch, and the chances of a negative outcome are
greater.” (World Bank: 1992:29) as cited in (Nellis 2005:18). The same report noted the
specific obstacles facing infrastructure privatization in the African region. It described
that, the poorer a country is with SOEs operating in the utility sector in a noncompetitive environment, the more guarded one should be in moving towards
privatization. Notwithstanding the concern of theoreticians in the Bank itself, in the
period 1989-92, the average annual number of World Bank privatization operations
worldwide rose rapidly(Nellis 2005:18).
In the 1990s, donors came to view rehabilitation as legitimate towards the road to
liquidation, divestiture or PPI. Previously, four-fifths or more of World Bank SOE
reform conditions had focused on restructuring, with one-fifth or less on privatization.
23
These percentages substantially turned around and discredited since there were some
industrial enterprises in which public ownership and operation was essentially justified. In
consequence, all SOEs producing tradable goods became fair game for privatization.
(Nellis, 2005:18).
2.6 Privatization Trend in Sub-Saharan Region
Notably, shifts in approach become all the more important as the trend of privatization
picked up momentum across the African continent. Although a handful of African
countries began major privatization programs in the 1980s, and subsequently in the 1990s
the numbers increased significantly. According to White and Bhatia (1998) as cited
in(Harsch 2000:9), Nearly 2,700 privatization transactions had been effected in subSaharan Africa by the end of 1996.subsequently, after 3years more than a hundred
transactions were in the pipeline (Harsch 2000:9).this, can be attributed to the improved
investment environment that followed the post independence period and the quest for
efficiency in the poorly performing public enterprises. However, following the new
dispensation, a class of political elites and rent seekers cropped up with the main motive
of acquiring entitlements in the newly privatized firms within the region.
Currently, 45 African countries have some form of privatization program. Such countries
include Liberia and Sierra Leone, which for a long time have been ravaged by war, and
have either begun to initialize the process or plan to do so in situations where security is
an issue. Rwanda for instance, after the genocide of 1994 rolled out a very vibrant
privatization program ever since And has further finalized 11 sales in 1998 alone. On the
other hand, Namibia being one of the very few with no plans to privatize for all the
reasons that its state enterprises are relatively operating at a profit (Harsch, 2000:9).
As such, ‘between 1996 to1997, African privatization initiatives took another turn to a
larger and more attractive SOEs such as national airlines, banks, shipping companies,
public utilities and telecommunications enterprises. As a result, revenues scaled up
significantly. According to World Bank data, the total sales value of all enterprises
privatized in sub-Saharan Africa between 1988 and 1996 reached just over $2.7 billion.
Moreover, the governments of Egypt, Morocco and Tunisia earned $2.4 billion from
24
privatizations in 1997, compared with $3.3 billion in 1995-96 and just $1.2 billion over the
five-year period 1990-94’ (Harsch, 2000:9).
Furthermore, telecommunications become predominantly a dynamic sector for
privatization. Most African mobile phone systems were unable to reach more than a small
minority of the population. Hence, African governments found that selling of shares in
the existing telecommunications enterprises to foreign companies was the best option of
accessing new levels of technology and investment capital meant to modernize and
expand their systems. Therefore, in the period of (1995 to 1997) a section of
telecommunications enterprises in 6 sub-Saharan countries were disposed off for a total
of more than $1.7 billion and the new owner’s cum-partners declared further plans for
additional investments in the sector. Eritrea, Cameroon, Gabon, Kenya, Mali,
Mozambique, Niger and Nigeria have now privatized their telecommunications systems to
date ( Harsch, 2000:9).
Indeed, because of privatization, the size of Africa's public sector has remarkably
declined. For these reason, the World Bank estimated the number of SOEs in subSaharan Africa to have dropped from as high as 6,069 to 4,058 in the period of 1990 to
1995, a significant 33 % reduction. Even though smaller in size, the remaining public
sector was particularly in a better financial strength given that many of the mainly
inefficient and unprofitable enterprises were among those disposed- off ( Harsch, 2000:9).
In conclusion, many African governments had bought the idea of privatization to
a larger extent though the main
challenges that
arose was in the process
of
implementation .this stage would have marked a turning point , primarily because it’s
the most important in determining the economic path for take-off.to better level of
efficiency and productivity.
2.6.1 Private Sector Participation in sub-Saharan Africa
However, according to, Thomsen, (2005)as cited in(Thoenen,2007:3) in 1990 investment
level in primary infrastructure with private sector participation rose from US$ 13 billion
to a first peak of US$114 billion in 1997(world Bank, PPI database 2006).This rise was
partially due to the realization of the need for adequate infrastructure financial support
relative to the existing socio-economic and fiscal constraints alongside regulating the
25
macroeconomic environment. As such, many governments softened their stand and
accommodated the influx of private investors (Thomsen 2005) as cited in (Thoenen
2007:3).
“Many participatory poverty assessments reveal how much the poor value
infrastructure services which provide direct benefits to them. In a summary of the views
and opinions expressed by the poor themselves in a recent worldwide survey, Narayan
(2002) notes that “the lack of basic infrastructure particularly roads, transportation and
water is seen as a defining characteristic of poverty.” The effects on women are often
especially severe (Jerome 2004:7).
In retrospect, infrastructure is generally viewed as a fundamental determinant of
convergence and a step in the right direction in the reduction of endemic disparity across
regions. All the more, reliable evidence exists for Argentina and Brazil, where upgraded
access to sanitation and roads was a significant determinant of convergence for the
poorest regions (Estache and Fay 1995). There is also a substantial evidence on the
importance of adequate infrastructure services in facilitating an enabling environment for
viable business opportunities ( Jerome 2004:7).
This according to (Pamacheche, Koma, 2007:3), through privatization, sub-Saharan
African countries can materialize an expanded and more dynamic private sector, through
an efficient and effective infrastructure provision coupled with increased investment.
These positive elements of privatization will subsequently lead to the achievement of
government economic goals, and create an enabling economic environment for job
creation in these countries. However, many water privatizations in Africa failed to achieve
the desired result in several African countries. since, the expected price reduction and
improved services, adversely impacted on the poor who ended up paying more for the
water, which in effect is the contrast of the. Poverty alleviation strategies lay down to
avoid this kind of a scenario. In addition, this has brought to question the nature of
privatization objectives of countries in West Africa that tend not to include, references to
ownership, in contrast to East and southern African countries that have it in place.
Nonetheless, Case studies indicate that the principal incentives for many African
countries to divest from the public corporations ,to the private sector, was due to
,Political change that followed post-independence restructuring ,the conditions laid down
26
by the World Bank, IMF and donor financial assistance, the quest for better productivity
and to ameliorate the precarious state of some public enterprises. Meanwhile, maintaining
employment levels; and, to satisfy vested political interests (Oliver C. Campbell&
Bhatia1998:27).
An important assertion is that, despite an expressed desire to increase and facilitate
ownership, in practice little has been done to achieve this objective. Apart from initial
public offerings in several countries and a very small number of innovative transactions,
however, several, studies show that there are few opportunities for common people to
participate in the process. And this flags a serious concern on privatization’s contribution
to development, this implies therefore, that unless an amicable modalities for the poorest
sections of communities are instituted either to participate in the process or obtain
measurable benefits from the proceeds, such as enhanced social services, privatization will
benefit the rich to get richer and only in some way contribute to the fight against poverty
(Oliver C. Campbell& Bhatia 1998).
2.7 Issues of Controversy and Risk
The analytical framework used implicitly assumes that SOEs are endemically inefficient
whereas private sector as inherently efficient owing to the fact that privatization has
been adopted against a background of extremely distressed economic scenario for the
African continent ,this contributed to the gross failure to realize the desired impact in
several countries in the region. As a result of these crises ,most of which externally
imposed reform packages by the multilateral agencies faced insurmountable opposition
on the account that it is ‘believed to empower and enrich foreigners at the expense of the
locals’(Pamacheche and Koma2007:11).
However, despite the uprising wave of democratization ,most regimes were
autocratic and couldn’t seek the approval of the legislature and bureaucrats towards the
formulation and implementation of the policies(Jerome and ariyo,1999:207-8).however,
on a lighter note ,privatization has raised the overall sector rationalization and efficiency
by reducing the total number of companies previously supervised by the states oversight
personnel.
Nonetheless, reform packages need to be tailored to suit individual country specifics
since most countries in the sub-Saharan region are severely inhibited by weak regulatory
environment in an attempt to privatize and at the same time reap the benefits of
27
privatization. This is so due to the presence of nascent capital markets, scarce financial
resources, opposition to foreign ownership locally and inadequate institutional
arrangement, thus raising the need to give priority on developing necessary policy and
regulatory framework followed by the sequencing of these reforms to fit in the
privatization program, (Nellis and kikeri, 1989:669).
Furthermore, according to Samuel Adams (2006: 295) argument that the transfer of
SOEs to the private entities, has grown to be a universal economic policy tool in
competitive economies of the world.. The trend toward privatization, however, has been
crippled with controversies. Indeed, the debate that has taken centre stage is between the
economic viability of the private and public sectors over the past four to five decades.
Moreover, Walsh and Shirley (2001) as cited in (Adams 2006: 296).conducted a
review of 52 empirical studies on the debate between the economic supremacy of SOEs
and private enterprises. As a result 35 outcomes favoured the private firms, with 14 giving
indefinite results and only 5 indicating that SOEs were economically superior. Although ,
both the theoretical and empirical studies did not in its entirety settle the debate , the
discussion seem to have justified private ownership, for all the reason that there was
enormous and rising government debt, unabated macroeconomic instability and generally
a declining world economy that was experienced in the 1980s.
In the meantime, widespread adoption of privatization and the positive economic
assessments of what privatization could do, has raised a number of critics-sometimes
including the general public-have expressed strong reservations about privatization's
fairness and sometimes its efficiency impact. Fuelled by some recent problematic and
highly visible cases, this scepticism continues, despite the growing number of empirical
assessments concluding that in the main privatization improves profitability and efficiency
and increases returns to shareholders, particularly for firms in competitive or potentially
competitive markets. For these reasons, questions have been brought forward on, what
are the strands of the anti-privatization argument? (Adams 2006: 295).
2.7.1 Institutions and Structures of Regulation
First of all, Institutional frameworks are weak in many African nations. As such,
imprecise property rights, regulation have complicated privatisation processes. The theory
of regulation attempts to describe and predict social and economic outcomes of the
process of privatization process in situations where changes in the distributive structure
28
take place (Alhussaini and Molz 2009:394).
Therefore, regulation purposes to achieve
specific public interest outcomes where the market fails to deliver (Baldwin and cave,
1999:19).
(i) Institutions of regulation
These include “bodies that act on behalf of the central government but not central
departments of the state” (Baldwin and cave,1999:69).such agencies are; self regulators,
local authorities, parliament, courts and tribunals, central government departments,
regulatory agencies and directors general(ibid:63).these
institutions have limited
bureaucracy distant from political interests and having expertise with relevant skills to
execute the formulation of rules ,enforce and evaluate better than the public department
(Alhussaini and Molz 2009:395).
(ii) Rationale for regulation
Ideally, to protect the interest of the public the setup institutions facilitate a level playing
ground to address matter that may amount to market distortions in the process of
liberalization. Therefore, regulation will check monopolies
from raising prices and
lowering output, promote benefits of scale economies, transfer benefits of excess profits
to taxpayers, externalities; that compels producer not to transfer entire cost of production
to consumers, information asymmetry of market operations, avert anti-competitive
strategies of phasing out competitors, allocation of scarce public commodities,
standardization that’s aimed at securing efficiency that will lower transaction costs that
limits market economies. Planning aimed at protecting and coordinates future altruistic
motives (Baldwin and cave, 1999:17).
Nonetheless, the process of privatization and liberation at some point requires the
intervention of regulatory institutions(Alhussaini and Molz 2009:395) This action is called
for especially where privatization In the utility sector is transforms from a state and
private monopoly(Parker,2003:77).there is also the pressing need for the economy to
ensure that there is continuity in the accessibility of the basic services in the utility sector
and to make sure that enterprises stay in business(Baldwin and Cave,1999) as cited in
(Alhussaini and Molz 2009:395).
(iii) Strategies for implementing regulation
29
According to Baldwin and cave (1999) as cited in (Alhussaini and Molz 2009:395) these
strategies fall in three levels Command and control: here the regulatory agencies
determine the quality of service, and standards for penalties arising from noncompliance.
Incentive based; this is done through price capping
that entails the agencies
negotiations with the enterprise management on the maximum possible product price and
motivating them to maximize profitability by scaling down production cost(Parker,2003)
as cited in (Alhussaini and Molz 2009:395).
Self regulation; may not be efficient at post privatization period since the profit
maximization attitude will defeat the purpose of social welfare benefit objective
(Alhussaini and Molz 2009:395).
2.7.2 Social and Economic Effects of Regulation on Privatization Outcome
Regulation agencies can directly deal with issues on product price, accessibility, and
quality standards. Nonetheless, to be all inclusive the government can design a
privatization contract that accommodates for social impact of the privatization outcomes
as described below.
(i) Regulation and job security
The state can institute measures to guarantee workers security of tenure by directly setting
rules by regulatory institutions to condition newly privatized firms to retain a specified
employee ratio over a period of time. Furthermore, provide a justification in cases of
service termination; specify appropriate time for dismissal notification, and proper
compensation (Alhussaini and Molz 2009:395).
(ii) Price and regulation
The aspect of introducing competition is appropriate in ensuring standardized pricing
systems. However, regulation institutions can further negotiate with the privatized
enterprise to strike a compromise price that is suitable for the consumer and the investor,
motivate the enterprises to lower costs and enhance economies of scale and transfer the
benefits of price cuts to the consumer.(Parker 2003)as cited in (Alhussaini and Molz
2009:396).
(iii) Access, quality and regulation
These agencies are in a position to ensure private enterprises
access the services and
products to rural areas at the same price and possibly quality, a case in point is where
30
partial privatization strategy is used to subsidise the provision of the same product price
and quality to remote regions of the society. On the other hand ,the agencies ensure
private enterprises disclosure of information particularly on matters related to health,
water and food in an attempt to address the imperfect market information
on
quality(Florio 2004)as cited in (Alhussaini and Molz 2009:395).
However, according Bayliss (2000:11)regulation is quite a challenging initiative in
developing nations, since, its institutionally demanding given the scarcity of sufficient
expertise, the presence of smaller and less competitive markets and in low income
countries with the agencies in place the structure is based on the industrialized country
model.
2.7.3 Corruption and Bureaucratic Malpractices’
According to the public choice theory, privatisation is indispensible given that the public
sector consists of self-seeking bureaucrats. However, it is these self-seeking bureaucrats
who are expected to implement and adopt the privatisation policy in a non-self-interested
way this raises concern over the fate of the prescribed policy. However, Privatisation
needs an effective public sector and the people who are vulnerable to the policy are the
ones expected to oversee its implementation (Hirschmann 1999) as cited in (Bayliss
2000:14). Though, without proper regulation in place the award of concession contracts
and fundamentally the process of privatisation in its entirety becomes a major loophole
for corruption (Hall 1999)as cited in(Bayliss 2000:14). Thus it is apparent that the staff of
both public and the private sector firms may be skewed towards pursuing their own selfinterest. And instead of averting this, privatisation creates an amicable breeding ground
for such activities (Bayliss 2000:14).
Alternatively, some argue that even if privatization promotes enterprise efficiency,
the bulk of the benefits are accrued to the privileged few stakeholders such as ordinary
shareholders, managers, domestic or foreign investors, and those linked to political elite.
However the ultimate costs are borne, particularly by the taxpayers, consumers, and
workers, hence reducing overall welfare trickledown effect. In addition, many are
concerned that endemic corruption and lack of transparency in privatization related
transactions have reduced the gains due to perennial challenges of governance.
31
Consequently,
the fundamental concern is that privatization has been implemented
without considering the each country’s specific economic and social conditions, more so
at the interest of external and donor community(Sunita Kikeri, and John Nellis 2004:88).
32
Chapter 3 Empirical Analysis
The empirical
analysis
entails
the construction of data ,methodology and model
specification, and the descriptive analysis results relative to the interpretation and policy
implications for this regions policy makers.
3.1 The Data and Variable Description
The main objective of this research is to evaluate the role of, privatization policy choice
on private sector investment participation in primary infrastructure in the context of subSaharan Africa region. A time series data analysis running from (1990-2008) is used in
capturing investments in four main primary infrastructure sectors that includes; transport,
energy, telecommunication, water and sewerage. In addition, private sector participation
has been categorized into four main investment portfolio levels of concession, divestiture,
Greenfield, management and lease contract respectively.
The data used is sourced from the World Bank group on private participation in
infrastructure Projects (P.P.I) Database (May 2010) it reflects
the social and economic
context in which specific privatization policy takes place within the selected sub-Saharan
Africa regions. The data further includes primarily the medium-sized and large projects as
reported by the media and other public sources. Small-scale projects are particularly not
included due to lack of public information. Additional investment in some projects may
have been omitted for the same reason. Investment data are reported in 2008 U.S.
dollars, using the U.S. consumer price index and 2008 as the base year (World Bank,2009
PPI database. http://ppi.worldbank.org/reports).
The conceptual framework use has captured the multi-dimensional relationship that
privatization as a policy interrelates with the concepts of property rights, public choice
and the agency theory. The above mentioned variables are explained in details
33
3.2 Descriptive analysis
This section of the research will analyse the correlations of the variables, and further
discuss the relationship between privatization policy choices and the subsequent
primary infrastructure investment portfolios with the aid of graphical presentations. In
answering the main research question of how privatization policy choice has played a role
of influencing private sector participation in primary infrastructure investment, the study
breaks down the pattern of investment into portfolio choice and the subsequent primary
infrastructure projects.
In Table:1 below the relationships between total investment in primary infrastructure
sector and the investment portfolio, which in this case exhibiting a 5% significant level.
Therefore a strong and positive correlation between investment and concession,
divestiture and Greenfield exists with an exception on management and lease contract
project type respectively.
Table 1: Correlation Coefficients
Newpro~t invest~t
Newproject
investment
conc
Div
Greenfield
lease
Energy
Telecom
Transport
Watersewar~e
conc
1.0000
0.5521 1.0000
0.6195 0.5896 1.0000
0.6075 0.7720 0.2254
0.4346 0.9844 0.5035
0.1750 -0.0332 -0.0053
0.7837 0.6566 0.5614
0.4245 0.9699 0.4564
0.5408 0.6582 0.6915
0.3160 0.3374 0.0549
Div Greenf~d
lease
1.0000
0.7029 1.0000
0.1363 -0.0811 1.0000
0.6108 0.5834 -0.0839
0.7962 0.9665 -0.0121
0.3035 0.6376 -0.0693
0.5175 0.2948 0.2589
34
Energy Telecom Transp~t Waters~e
1.0000
0.5756
0.3874
0.3619
1.0000
0.4709 1.0000
0.3871 -0.0568
1.0000
Figure 1: Investment Commitment in Primary infrastructure sector(1991-2008)
2008 US$Billions
15
12
9
Energy
6
Telecoms
3
Transport
0
Water and sewerage
Primary Sector
Source: Adapted from the World Bank Private Participation in Infrastructure Database.
The telecom sector registered the most successful sector, attracting 75% of the
regions investment giving an indication that the sector is competitive in terms of private
investment commitment compared to transport 14%, energy 11.23% and water at 0.321%
respectively. However, the shocks and inconsistencies in the subsequent period can be
attributed to the cancelled/distressed projects due to nullification, non-renewal and
possible withdrawal from the contract agreement, in the preceding year.
Figure 2: Investment Commitment in Primary Infrastructure Project (2005-2008) Implementation Status
2008US$Billions
12
9
6
3
0
Energy
Telecoms
Investment in new projects, 1st semester
Water and
sewerage
Transport
Investment in new projects, 2nd semester
Additional investment in existing projects
Source: World Bank Private Participation in Infrastructure Database.
35
In the first semester, virtually all the sectors registered a declining trend except
telecoms with a positive rise in the investment in new projects. Therefore, this is an
indication that the initial stages of implementation faced lots of administrative and
structural challenges for the investors in the primary infrastructure sector.
The second semester experienced increasing investment commitment levels owing to
the fact that most investors had solved many of the challenges faced during their initial
period of investment. Its also an indication that is confirmed by the upsurge in the
additional investment over time.
Figure 3: Infrastructure Projects with Private Participation (1990-2008) PPI
Number of New Projects
25
20
15
10
5
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Project type
Concessions
Divestitures
Greenfield projects
Management and lease contracts
Source: World Bank Private Participation in Infrastructure Database.
Greenfield projects type had 55% of the total number of new projects in the
region, concessions project operators accounted for 73 which translates to20% of the
total, subsequently management and lease contracts and divestiture registered a low of
15% and 5% respectively. There is quite a significant rise in the new projects under the
Greenfield portfolio arrangement.
36
Figure 4: Investment Commitment to Primary Infrastructure with PPI (1990-2008)
15
2008 us$ Bilions
12
9
6
3
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Project Type
Concessions
Divestitures
Greenfield projects
Management and lease contracts
Source: World Bank Private Participation in Infrastructure Database.
Concession project had an investment commitments accounting for 10.2% of the
total regional investment .however, a significantly high investment increment were
registered in 2005 and 2008. However, the portfolio is generally had some investment
incentive to the investors over the time period.
Divestiture project had a total of investment commitments accounting for 22.7% of
the total regional investment. Though, a significant and increasingly gradual but unstable
investment trend was registered indicating some investment incentive to investor across
the period
Greenfield project type investment commitments accounted for 66.9% of the total
regional investment .this is indicative of high level of competitiveness and returns that
the investment portfolio offers to the investor which also motivates and attracts a
significant level of investment in the private sector.
Consequently, management and lease contract posted the least investment
commitment levels in the entire region total investment. This is quite unpopular
investment portfolio with a very the least investment incentive in the region.
37
Figure 5: Investment Commitments to Primary Infrastructure with PPI (2005-2008) Implementation
Status
4
3.5
2008 US$ Billions
3
2.5
2
1.5
1
0.5
0
2005
2006
2007
Concessions,
2008
2005
2006
2007
Divestitures,
Investment in new projects, 1st semester
2008
2005
2006
2007
Greenfield Projects
Investment in new projects, 2nd semester
Source: Adapted from the World Bank Private Participation in Infrastructure Database.
The second semester, records a significant increase in the level of investment
commitment in divestiture, concession and Greenfield
projects respectively with a
stabilized trend towards the end of 2008.initial stages indicates low investment enthusiasm
relative to the later stage. Possibly the rewards of the former stage may have caused the
upsurge in the trend, coupled with changes in the macroeconomics levels
38
2008
2008 us$ Billions
Figure 6: Investment Commitments to Primary Infrastructure With PPI(1990-2008) Project Status
14
12
10
8
6
4
2
0
years
Operational
Merged
Distressed
Concluded
Canceled
Source: Adapted from the World Bank Private Participation in Infrastructure Database.
Operational status in new projects, which provide services to the public have
significantly, maintained a rising trend in the level of investment. Whereas, investment in
merged projects over the period was quite insignificant, Concluded projects investment
were generally low and stable along the years. Distressed projects were also significantly,
low on investments over the period. Finally, cancelled projects were relatively insignificant
on investment over the years.
Energy
Telecom
Transport
Utility
Treatment plant
Seaports
Roads
Railroads
Airports
Telecom
Natural Gas
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Electricity
US$Billion
Figure 7: Total Projects By Primary Sector and Subsector (Us$ Billions)
Total/inv
Water and
sewerage
Primary & Subsector
Source: Authors own creation
Generally, much of the investments in the energy sector are inclined to electricity
generation indicative of its high utility demand it commands in the region. Though,
telecommunication commands the highest investment given the competitive industry
39
that’s driven by high level of technological input. Furthermore, under the transport sector,
railway and seaports have a relatively higher investment value compared to roads and
airports due to the non competitiveness in the sectors. This also applies to water and
sewerage, treatment plant and utility sectors as well.
Energy
Telecom
Transport
Management and lease contract
Water and
sewerage
primary/Type of PPI
Total/Inve
Source: Authors own creation
Apparently, the Greenfield project type commands the highest incentive for
investment commitment in the telecom and energy sectors. Divestiture and concession
investment portfolio command a stronger commitments in the telecom and transport
sectors respectively than the other portfolios. Hence, further investigation is required to
establish the reason as to why concession, divestiture, management and lease contract are
giving distorted investment patterns in one project and a distinctive result on the other.
40
Greenfield project
Concession
Management and lease contract
Greenfield project
Divestiture
Concession
Management and lease contract
Greenfield project
Divestiture
Management and lease contract
Greenfield project
Divestiture
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Concession
US$Billions
Figure 8: Total Projects By Primary Sector and Type (Us$ Billions)
Energy
Telecom
Primary/Type of PPI
Management and lease
contract
Divestiture
Concession
Management and lease
contract
Greenfield project
Divestiture
Management and lease
contract
Greenfield project
Divestiture
700
600
500
400
300
200
100
0
Concession
US$ Billions
Figure 9: Cancelled and Distressed Projects (Us$ Billions)
Total Investment
Transport
Source: Authors own creation
Apparently, concession and divestiture present a notable amount of disinvestment
across the board an indicator that investors may not be secure with the returns to
investment as they would have in the Greenfield project. Another, observation is that the
more competitive the sector the lesser secured is the investment hence, the higher the
disinvestment.
41
3.3 Methodology and Model Specification
In this part the researcher is obliged to elaborate further on how the main and sub
questions are going to be addressed using the most suitable techniques that brings out a
precise and conclusive results with policy implications.
3.3.1 Quantitative Technique
This technique is suitable in finding out the main contentions of the research questions,
therefore, the use of a quantitative comparative analysis technique between investment in
primary infrastructure and private sector participation in project type that attracts equity
ownership. This analysis aims at reviewing investment policy in the primary infrastructure
sector (energy, railroad, telecom, water and sewerage) to clarify the extent to which the
private sector has committed their funds relative to how the investment portfolio appeals
to prospective investors.
In achieving the desired results, several tests has been conducted on the available data
information, one such test is done on the establishing the significance of correlation
coefficient between all the investment variables. Furthermore, a confidence interval test is
conducted to justify the degree of significance, at 95%. This goes a long way to establish
whether a positive or negative nature of relationship exists relative to private sector
participation in infrastructure investment.
(i)
Correlation estimates
This is to establish the reliability of the relationship that exists between the
investment portfolio and the primary sector projects relative to investment. Furthermore,
to what significant level can we be able to justify the relationship as statistically positive or
negative at predicting whether the data is reliable for drawing an acceptable result from a
sample population. Besides, its major weakness is that it’s misleading in suggesting the
existence of more co variation than it exists in the real sense, and gets vague as the
correlation approaches the zero.
(ii) Confidence interval estimates
Apparently, this is a tool that clarifies the shortfall of correlation technique, since, it
consists of a range of parameters constructed to have a specified chance of including a
true value of the parameter, usually, the 95% level means that the range should at anytime
42
contain the true value of the average variable. This, test caters for any variation from a
sample mean that may be used to describe the behaviour of the entire population. so this
is a supplementary test to confirm the level of significance.
Confidence interval checks first whether the study is unbiased, by answering the
question of “what is the range of real effects that is compatible with these data?” This
allows us to take two steps. First, in a case where the confidence interval embraces the
mean value then the findings are non-significant. If the confidence interval does not
embrace the mean value, hence the findings are said to be statistically significant.
However, the upper and lower end of the confidence interval explains how large or small
the real effect might be and yet still give us the observed findings by chance (Crombie and
Davies 2009:4).
3.3.2 The dynamics model
This model describes the process through which the government identifies the
appropriate privatization levels or forms of ownership structure to adopt based on how
the pre-existing macroeconomic situation.
In reference to the diagnostic approach to reform, the policy choice model embraces
the countries specifics in determining how private sector will participate according to the
contract specifications, though it limits investments commitments to profitability,
employment and productivity relative to the level of technology. It breaks down the
possible implication of each project type chosen by giving justifications how its relevance
to country specifics, this practise ensures that only private investments in the main
sectors are prioritized at a particular point in time ,with specific expectations attached to
each.
Ideally, the model identifies the optimal privatization level to be adopted relative to
the sector specifics. This translates into determining the preferable pattern of investment
portfolio that appeals to the private investor with regards to the management utility
function, and the objective alignment between the government and the pivate
management. As elaborated further in the Appendix:B.
43
Chapter Four Interpretation of the Findings
4.1 Analysis of the Findings
The main idea that cuts across in the study is the theory of property rights, with a
conceptual framework based on the dynamics of privatization model .apparently, the
private sector investment participation in primary infrastructure takes shape in many
forms that ultimately translates to portfolios of investment that meet the demands of
social and economic needs of the SSA region.
Ideally, privatization policy choice has had a relatively mixed impact on the level of
investment that it has elicited in the primary infrastructure sector, going by the outcome
of the comparative analysis performed on the available data we realize that the
government pays a pivotal role in regulating the nature of the investment portfolio that
ultimately generates maximum government utility of social welfare alongside the interest
of the private sector. Therefore the table below indicates the analysis of outcomes from
the private participation data inTab:A1
Table 2: Total Investment Commitment (%) of Region
Concession
Energy
Telecom
Transport
Water and
sewerage
Divestiture
Greenfield
project
2.289%
0.000%
7.843%
0.092%
1.579%
20.942%
0.204%
0.000%
7.354%
53.780%
5.631%
0.160%
10.223%
22.725%
66.925%
Managemen Total %
t and lease
contract
0.006%
11.229%
0.000%
74.722%
0.051%
13.729%
0.069%
0.321%
0.125%
100.000%
Table 3: Total Disinvested Commitment (%) in the Region
Concession
Energy
Telecom
Transport
Water and
sewerage
Total %
Divestiture
Greenfield
project
0.608%
0.000%
0.057%
0.000%
0.000%
0.691%
0.200%
0.000%
0.392%
0.612%
0.000%
0.000%
0.664%
0.891%
1.004%
44
Management
Total %
and lease
contract
0.000%
0.999%
0.000%
1.303%
0.000%
0.257%
0.011%
0.011%
0.011%
2.570%
Note: This represents the total value of projects cancelled /distressed over the
period.
4.1.1 Telecom Sector
The telecom sector attracted a resounding 75%of the regions total investment this can be
attributed to the liberalization of mobile telecommunications market that attracted more
market players and users in a span of 6years,from(1998-2003),within which competition
spread from (4 to 30) countries(Jerome 2004:24).besides, the existence of a competitive
setting in the sector posted the most lucrative results, since competition replaces what
would have been a private sector monopoly however, the sector is equally in a
competitive industry with massive technological input(parker and Hartley 1991) as cited
in(Omran,2004:1023). On this premise the Greenfield project type constituted 53.7%, of
the total investment share in the industry ,this can be attributed to the fact that merchant
sub-type of PPI, attracted most telecom investment commitment given that its
characterized by the least public choice and agency related drawbacks in the management
of the enterprises. Furthermore, African governments found that disposing -off shares in
the local telecommunications firms to foreign investors was the best option of accessing
new levels of technology and investment capital meant to modernize and expand their
systems. Hence during (1995 to 1997) a section of telecommunications enterprises in 6
sub-Saharan countries were disposed off to the new owner’s cum-partners who later
declared further plans for additional investments in the sector( Harsch, 2000:9).this is
evidenced by the additional investments recorded in fig:2.
However, divestiture at 20.9% and management and lease contract 0% of the
investment indicate the factoring in of social welfare objectives of the government in the
contract agreement that may have directly reversed the rising trends. However, in Tab 3
projects cancelled or distressed in this sector constituted 1.303%of the total disinvested
value, with divestiture at0.69% and Greenfield project type at0.612%, of the
disinvestment value respectively. This in effect, indicates that the sector optimized on the
policy choice as indicated by the investment commitment share. This point of view is
acknowledged further by D’souza and Megginson(1999) as cited in(Omran,M. 2004:1023)
that privatized enterprise in a competitive industry like telecommunication would yield
45
significant economic returns without macroeconomic distortions. However, in my
opinion the sector has proved otherwise by posting positive outcomes even in economies
that have had perennial macroeconomic distortions like Sudan, and Zimbabwe.
4.1.2 Transport Sector
The transport sector accounted for 14% of the total investment commitments;
however, a strong public intervention in this sector has been justified for local, political
and strategic reasons despite the poor quality services offered by public enterprises, in an
attempt to guarantee accessibility to the market for goods and the population.
Nonetheless, Governments legitimacy for doing so is to ensure remote regions can catch
up with the urban region as well as protecting national security concerns especially at the
entry points of airports and ports. However, on the demand side the governments have
acknowledged that transport users are highly exposed to risks due few or no substitutes
making the demand for transport service a preserve of the providers at the expense of the
users .these captive users are literally exposed to exploitation by monopolistic service
providers. Although, this may not be sufficient reason to justify state control as proposed
by (Estache and Gines 2000:6).
Apparently, on another note the same authors assert that most of the highly
demanded transport services are politically sensitive to the state due to the fact that they
amount to private goods status, that are exclusive to users and are also characterised by
rivalry condition that may leave other users indifferent due to their high demand if left in
the hands of the private sector. Such include bus services, congested roads, ports and
airports. Likewise, in the PPI project type concession project attracted 7.8%, compared to
divestiture at 20.4%, Greenfield at 5.6% and finally, management and lease contract at
5.06% of the total investment commitment respectively. Nonetheless, disinvestment
accounted for 0.257%of the total, with divestiture at 0.2% recording the highest
compared to concession 0.057% and management and lease contract at 0%,
disinvestment value respectively. However, as a result of reforms in this sector the
potential role of the private sector in line with the technological changes have altered the
nature of the supply side of the transport sector since its promoted a substantial level of
competition. However, technological constraints limit full competition in the sector due
to the new regulatory strategies involved thus replacing regulators (public monopoly) by
46
smaller and specialized private monopolies that are limited by the existence of well
established cartels, and mergers. Hence ,the main challenge of the reform package is
anchored on the course of specific reforms, the extent of entrenching competition and
the choice of particular private sector participation strategy that is relevant(Estache and
Gines 2000:8-9).
4.1.3 Energy Sector
The energy sector accounted for 11% of the total investment ,traditionally, electricity
utilities in the region has been under monopolistic hold over the national electricity
industry and this is purported to have grossly contributed to underperformance in the
delivery of electricity services(Karekezi and Mutiso,2000)as cited in(Jerome 2004:19)this
has degenerated to unreliable power supply, low capacity, deficient maintenance, high
transmission and distribution losses. However, the region has lagged behind at
implementing reforms which in most cases has been limited to concessioning of utility
management to private foreign power utility operator. furthermore, the process
constituted the deregulation of prices ,creating market systems for trading electricity in
wholesale and retail outlets and privatizing of the existing supply industry(Jerome
2004:20).
However, Greenfield project drew 7.35%, compared to concession at 2.3%,
management and lease contract at 0.6%, and divestiture at 1.58% respectively.
Nonetheless, concession project type accounted for 0.608% of total disinvestment,
compared to divestiture at 0%, Greenfield at 0.392%, and management and lease contract
at 0%, disinvestment level respectively. Generally, dominant contract arrangements in
this region are in the management and lease contracts with concession element to private
entities over a period of as many as 20years which happens to be consistent to public
ownership of assets and price regulation. However the emergence of independent power
producers (IPP) a form of private sector participation increased as a result of privatization
which increased the private sector involvement in the supply side. On the other hand, the
emphasis on profitability has adversely slowed down expansion of the electrification
projects to the rural areas as a priority item (Jerome 2004:21-22).
47
4.1.4 Water and Sewerage Sector
This sector accounted for 0.321% of the total investment, with a significantly low
investment commitment over the period. This is attributed to contract withdrawals due to
bad relations between government and investor and negotiation breakdown during
contract renewal (Jerome 2004:18).moreover, these items can be attributed to the intense
and effective resistance campaigns against water privatization in the Sub-Saharan region
notably in Ghana, Kenya and south Africa(Hall et-al,2002)as cited in (Jerome
2004:18).Likewise, in the PPI project type management and lease contract had low levels
at 2.069%, concession at 9.2% and Greenfield projects at 0.2%, investment levels
respectively. Since, this service entails construction of heavy and costly infrastructure and
the fact that it’s a natural monopoly oriented sector. It therefore, follows that in
delegating the operations of its distribution and production to the private sector and
setting aside the construction of the major equipments in the hands of the state, will go a
long way to break the natural monopoly by through creating competitiveness thus
attracting more investment commitments in this sector (Adhia 2004:11).
However, creating competition in the market for water services is essentially cost
inefficient and problematic given that factors such as technology of water provision,
nature of product, cost of organising long-term concession contracts and weak regulatory
capacities, that hinder the possibilities of making the industry more competitive at the
expense of motivating the
private investor(Jerome 2004:31). apparently, this sector
exhibits a natural monopoly characteristics and the government will tend to maximise on
the social benefit objective to address some of the underpinnings of socio economic
outcomes of privatization that may arise out of a situation where the it would have
otherwise been privatized(ibid:11).
4.1.5 Correlation and Confidence Interval Estimates
In conducting further analysis, the data available was run through a correlation
procedure in an attempt to establish whether the variables exhibit a statistical dependence
or independent relationship from the values indicated on the correlation matrix.
Therefore, the correlation between concession project type and primary
infrastructure sector projects such as energy (0.5614), telecom (0.4564), transport
48
(0.6915),water and sewerage(0.0549),is such that the energy and transport exhibit a slightly
strong positive and statistically dependent relationship indicating some incentive for
investment commitment. However, water and sewerage indicated a much weaker private
investment possibility.
Secondly, in divestiture related project type the statistical relationship is such that,
energy (0.6108), telecom (0.7962), transport (0.3035), water and sewerage (0.5175), had a
positive statistically dependent relationship. This is indicative of the presence of a strong
incentive for private investment in the sectors above hence a good policy item for
consideration.
Thirdly, in Greenfield type of project the correlation coefficient for respective
primary sector exhibits a strong statistically positive relationship except for water and
sewerage, which had a weak value. The levels of correlation were as follows, Energy
(0.5834), telecom (0.9665), transport (0.6376), water and sewerage (0.2948).indicating a
strong incentive for private investment with a very low incentive in the water and
sewerage.
Finally, the management and lease contract project types had the least level of
relationships between the variables with the sectors recording a statistically negative
dependence relationship, except for water and sewerage that depicts a positive value. As a
result, the values for the variables are as follows, energy (-0.0839), telecom (-0.0121),
transport (-0.0693), water and sewerage (0.2589).the estimates confirms the fact that a
relatively low private investment incentive though a slight indicator in the water.
In conclusion, the correlations of variables are generally high indicating the presence
of multicollinearity. Ultimately, further procedures using confidence interval measurement
on the same variables indicate that the mean value for all the variable are statistically nonsignificant this in effect suggest that the data is consistent within 95% confidence interval
and can be used to draw a reliable sample result that is reflective of the entire population.
49
4.2 Interpretation of Private Investment Participation
4.2.1 Management and lease contract
Apparently, this is the type of PPI had the least positive impact on infrastructure
investment, since it accounted for 0.127% of the regions investments in the primary
infrastructure sector. This can be attributed to the fact that, the investment portfolio
appeals to the non-competitive industry that is naturally a monopoly, mainly because of
the nature of the product which amounts to a social welfare good. However, the
government through the dynamics model ensures that it regulates the involvement of the
private investor by transferring the benefits of excess profits to the tax payers. However,
the major role of this investment portfolio is to propagate the mainstream objectives of
social welfare alongside the incorporation of the private sector participation to harness
the expertise and innovation without necessarily having fiscal benefits to the state which
undertake all financial and investment responsibility for that matter(Estache and Gines
200:8).
This in effect adversely affects the investor commitment on the right to own
property and regulate the resources at will according to the concept of property rights,
and from the analysis the level of investment commitment indicates that the policy on this
investment portfolio cannot adequately revitalize the level of infrastructure in this sector
unless a radical redesigning of this package is enacted. Furthermore, for reasons of
political interference chances are that the politician’s interest might conflict with the
efficiency of the enterprise which will ultimately degenerate to low levels of investment
commitment. However, it addresses the social welfare aspect by adequately optimizing the
utility function of the government.
Management contract system is unpopular in enhancing PPI, given the bureaucracies
involved in the contract arrangement. However, in accordance to the dynamics model the
investment portfolio promote the optimization of social welfare benefits at minimal cost
with a regulatory approach on the operational managements utility and objectives
functioned aligned to that of the state in a shared supervision and monitoring
arrangement with the public (Fluck at-al. 1996:281). Nellis and kikeri,(1989:667)also
acknowledge that the government’s attempt to address the social and economic outcome
of divestiture such as unemployment, reduced foreign ownership, plant closure and price
50
distortions through specific policy choice that enhance the implementation of the desired
reforms as explained in (chapter 2:20).
Lease contract appreciates exclusivity concept more elaborately compared to
management contract. Moreover, the principal and agent’s related conflicts are essentially
low though the political environment may indirectly downplay some of the operational
management initiatives. This can be evidenced from the low proceed on the quite
insignificant investment in the water and sewerage (0.069%) transport (0.051%) and
energy (0.006%) respectively. Notably, the contract period for most of the project is one
year and at most two years. Furthermore, Pamacheche and Koma (2007:3)acknowledge
that many water privatization attempts in the region failed due to unexpected price
increases of improved services, that resulted to increased cost in the accessibility of this
basic
commodities for the poor. However,
this was attributed to the fact that
privatization objective of countries in the west African reform framework did not include
ownership claims as the east and south African countries had(chap2:26).
The investment portfolio is predominantly a disincentive to private investment
participation due to the non-competitiveness of the nature of product and massive
government intervention in the management of the enterprise. This however, can be
essential for in situations where there is market failure.
4.2.2 Concessions
This investment portfolio appeals to the transport, energy and water sector given that
the public sector has predominantly maintained their share of ownership to promote
the ideals of maximising on the social welfare function of provision of welfare goods
and services at minimum cost to the public. Therefore, the absence of a competitive
environment or industry has grossly contributed to low private investor commitment
since their objective function of profitability may not be adequately captured in these
infrastructure sectors. Given that the public monopoly status will overshadow any
meaningful private investment that may want to enter the industry.
Tab: 2and 3, clearly indicates under the concession investment portfolio the transport
sector is the most competitive compared to the energy sector since it has also registered a
relatively lower proportion of cancelled projects at 0.057% than the energy sector at
51
0.608%.this further explains why the energy sector has been under public monopoly for a
long time given the low investment commitment coupled with a higher distress level
compared to the transport sector. This in effect is attributed to the safeguarding price,
regulation and accessibility of product to the general public.
Essentially, the performance of this investment portfolio is rated after Greenfield and
divestiture project types with a 10.223% proportion of the entire investment, thus raising
questions on its viability as a policy item in promoting investments participation, since, its
hardly 50% to be able to be justified as valid for future implementation. On the other
account its competitiveness in drawing more participation alongside the other portfolios
is highly controversial given the monopoly characteristics. Hence, there arises a need to
embrace some of the reform agendas that reflect on the need to equalize the objective
functions of both the state and the private management in order to address the wide
variation that exists between the two and further, incorporate the competitiveness in the
water sector.
4.2.3 Greenfield Projects
Apparently, this happens to be the most relevant investment portfolio that has
accommodated the interest of the private sector investors owing to the widespread
competitiveness that cuts across all the sectors except in the water sector. Therefore, the
policy reform strategy has inherently revitalized private participation especially in the
telecom sector. Apparently, this form of privatization (under merchant sub-type project )
thrives well in a competitive industry environment with a focus on achieving the highest
level of efficiency since competition increases monitoring which is an incentive for
productivity than in the SOEs. In Which case, in a non competitive industry with natural
monopoly characteristics privatization outcome wouldn’t be optimal (Boubakri and
Cosset 1998) as cited in (Omran 2004:1028).
However, its viability rating is above average which makes the policy reform an
incentive to private sector investment given its scope that captures the objective of social
welfare benefit of price regulation, employment creation as a result of a competitive
environment that allows many players. Though this situation remains on condition that
the industry retains the competition, otherwise, the social benefit will cease to exist once
the market turns monopolistic (dominated by few players) who exercise control over the
52
market. However, better outcome may not last given that an enabling environment is
relative, since, most countries in the region may not have proper institutional capacities,
experience low income levels and a varied socio-economic circumstances as argued by
Nellis(2005:18)in page 23.nevertheless, this is contrary to the evidence given on the levels
of cancelled projects in transport(0%) ,energy(0.392%) ,telecom(0.612%),water and
sewerage(0%) sectors respectively which are depicting low disinvestment levels regardless
of the macroeconomic situations in most countries in the region.
The investment portfolio has the highest incentive levels as can be evidenced from
the 66.9% of the entire investment commitments making these a very significant policy
agenda item that appeals to all the primary sector projects
4.2.4 Divestiture
This investment policy portfolio secured 22.725% of the entire investment out of
which 20.942% is in the telecom sector. Surprisingly, the energy, transport and water
sectors had a dismal investment commitment; however, this can be attributed to the
nature of competitiveness in the sectors in terms of the structure of the policy, which in
this case allows for full privatization on one account and partial on the other. Moreover,
the former may have highly contributed to the high private investment turnout due to the
exclusion of any sort of public intervention in the management which is an incentive to
the private sector but on the contrary, the partial divestiture captures the social welfare
function given the governments’ direct control of the ownership shareholding capacity.
This portfolio is essentially viable due to the alternative it offers to those investors
with huge capital investment and through public offer where the individuals and
companies can subscribe to shareholding capacity. This is also argued by Harsch (2000:9)
that African governments chose to sell the shares of the existing telecom firms to
foreign companies as an option of accessing new levels of technology(h) and investment
resources to modernize the enterprise which expanded the telecommunication sectors in
Gabon, Cameroon, Kenya, Mali, Niger and Nigeria between(1995-1997). This is also
evidenced by the 20.942% share of investment commitments of the total 22.725% of the
total portfolio investment commitment. However, most intellectuals and officials who
are dissatisfied with this form of privatization assert that it stand the risk of empowering
and enriching the foreigners at the expense of the indigenous citizens as demonstrated
53
in the telecom industry where most competitive firms in the industry are in the hands of
foreign investors (Pamacheche and koma 2007:11).
This perception is shared by Stovring (2004:12) assertion that the implementation of
privatization and deregulation produced weak results in Africa compared to Latin
America and south East Asia. On the other hand it’s a desirable portfolio on the account
of promoting both widespread and domestic ownership through public offer of share
subscription (Nellis and Kikeri, 1989:667).this view is also supported by Pamacheche and
koma (2007:6) ‘that public enterprises are usually a drain on government operating
budget, hence divestiture is desirable since it has the potential to stop the negative flow.’
54
Chapter 5 The Policy Implications of the Study
5.1 General Policy Implications
Privatization reforms have followed a trail of challenges which has transformed the public
sector perception and systems of performing business in the sub Saharan Africa setting.
Furthermore, the policy choices that have so far been successfully implemented have
had far reaching outcomes that attest to the fact that improvement in efficiency
,productivity and profitability is attainable given the right macroeconomic environment
and a suitable regulatory and institutional framework..
The study has categorically, identified the two phases of reform packages that were
formally prescribed by the IFIs, where the first phase of the Washington consensus
advocated for limited government interventions with price control in mind within a
liberalized market. However, the second phase routed for the state intervention in
facilitating the efficient operation of the private market economy. Therefore, the two
phases of reform packages appreciated the fact that without state intervention the market
operations may not be as effective compared to when the state is actively involved.
Subsequently, the diagnostic approach to reform accommodated the country specifics in
effectively transforming the public sector at minimal administrative cost.
Therefore, the concept of policy choice has played a great role of essentially
identifying the appropriate portfolio that fits into the specific primary infrastructure
sector needs in the region .ostensibly, the idea of privatization policy choice influenced
to a greater extent the level of investment commitment in the primary projects as follows;
the
5.1.1
Divestiture related projects
This portfolio has one characteristic with high private sector investment commitment
incentives, since; the full and partial divestiture options perpetuate both widespread and
domestic ownership through public offering at the stock markets. Therefore, the
government should privatize further to attract more investment commitments in the
transport, energy, water and sewerage sectors .although; these are basic utility sectors the
contract can be redesigned to accommodate for the social welfare benefits at a regulated
55
price to enhance service delivery and quality standards without necessarily scaring away
the investors.
5.1.2 Concession
It’s an investment portfolio that registered a relatively steady but low levels of
investment commitment ,especially in the telecom ,water and sewerage sectors, therefore,
the government should relax the terms of the contract to reflect on the aspirations of the
Developer especially when the macroeconomic environment seems not favourable so as
to create more investment incentives for the existing and prospective investors. This is an
appropriate portfolio given that it appeals to the non-competitive industries such as
transport, energy and water.
5.1.3 Greenfield
It’s the most appealing portfolio for the competitive industry in the economy; however, it
captures the non-competitive industry investment commitments quite significantly.
Therefore, the government should create an enabling environment that ensures investors
with low capital levels can participate in this nature of investment through equity share
holding in public offering. These option will further address the needs of small scale
investors without necessarily infringing into the private developers privileges especially
,on the part where the government provide revenue subsidies ,it should allow for public
subscription to access that capital through public borrowing.
5.1.4 Management and lease contract
These portfolio arrangement should be redesigned to accommodate the private
developers, operations risk by delegating sections of the contract that are not sensitive to
public service delivery to sub-contractors , because this will make the portfolio more
competitive at delivery of services, doing so will create more room for high risk potential
investors which in effect will translate to a monopolistic competition market orientation
that deals with close substitute products that are also price sensitive relative to market
needs.
56
5.2
Conclusions
The study was focused on the role of policy choice on the private sector investment in
primary infrastructure projects with a bias on the concession, divestiture, Greenfield and
management and lease contract project types respectively. It has answered the questions
on what role the policy choice has played in promoting PPI in the region on two different
accounts. First and foremost, the theoretical conceptualization followed by the analytical
view of the concepts put forward.
The element of policy choice plays a key regulatory role of determining the most
optimal project type that would suit the country specifics with regard to the investment
climate of particular countries, however, certain choices promoted the opposite of what
was expected such as low private investor commitment turnout with increased socioeconomic outcomes relative to the macroeconomic conditions. Furthermore, the
investment portfolio discussed directly captured both the objective function of the
government and that of the private management quite extensively.
The study found out that some of the socio- economic outcomes of the first phase of
the reform agenda characterized by increased layoffs and product price were effectively
addressed by the competitive and non-competitive sectors in which investors participated
in evidenced by the increase in the investment value over time .
The analytical part indicates the consequences of the policy choices and shows how
the investment portfolios have directly channelled resources from private investors to the
primary infrastructure sectors. Ideally portfolios contracts with more elaborate private
property right characteristics of exclusivity appeared to have more incentives for private
sector investment commitment than those without, especially in the Greenfield project
type under merchant and in the full Divestiture related projects .this portfolios exhibited
less of the agency and public choice related issues, and promoted the delegated
management’s optimal utility function. However, the other investment portfolios were
indicative of operating under partial government regulatory controls with shared
objectives functions that factored in the prospect of optimal social welfare gains. As such
the government played a pivotal role of controlling their portion of shares under the
pretext of monitoring the overall activity of the private developers.
This indirect regulatory approach to privatization has largely contributed adversely to
the level of investment commitment in the energy, transport, water and sewerage.
57
Apparently there appeared to be more government motive to maximize on the provision
of social welfare benefits of subsidizing the prices for basic utility services, enforcing
privatization contract that only allows enterprise to maintain a desirable proportion of
employee, and propagate continuity of provision of utility services without artificial
shortages. The portfolios that were affected by this kind of engagements were
management and lease contract, concession and Greenfield related projects.
Greenfield investment portfolio had a positive and significant incentive for private
investment commitment attracting potential investment from both highly competitive and
non-competitive industries hence it has successfully addressed to a larger extent the utility
functions of the public and private sector respectively
in essence the governments
objective and its regulatory measure capture some of the possible socio-economic
outcomes associated with the reform packages.
Divestiture and concession investment portfolios generally indicated a significant
outcome but most of the investment commitments were conditioned to transport, energy
and water which are natural monopolies in that they are subjected to government
regulatory measures to ensure the interest of the public are protected in the provision of
social welfare goods. Hence, it played the role of creating an incentive for the private
sector to partner with the government in the ownership and management of the
enterprise. However, in management and lease contract, investment incentives were the
least of all the other portfolios in terms of accommodating the interest of the private
sector, though, much of the infrastructure that appeals to this kind of portfolio are non
competitive sectors due to the difficulties involved in marketing these nature of products
such as water services which is naturally a monopoly both in the hands of the public and
private sector.
Generally , there has been a widespread level of private sector investment commitment in
both
the competitive and non-competitive industries hence fulfilling one of the
privatization objective of distributive allocation of resources, rather, than concentrating
resources to a particular monopolist in the industry.
The theories put forward and the conceptual framework to has been given a strong
backing in the study such that in the presence of a well established regulatory framework
58
that protects the interest of the public from monopolies, imperfect information of the
market and price distortions, only then will the consumer reap the full benefit of
privatization, however, the level of private sector investment thrives in a relatively clearly
laid down rules of the game as prescribed by the regulation bodies/agencies with
respective state intervention that are designed to interpret on the nature of privatization
contract to be adopted in accordance to country specifics.
The aspect of policy choice implicitly captured the main social economic underpinnings
that characterized the outcome of reform implementation, such that under Greenfield
PPI, with sub type BOO, BOT, gives the state a leverage to institute it social welfare
objectives on a rather equal footing with the private developer. This also applies to the
concession PPI, with sub-type ROT, RLT and BROT. Furthermore, partial divestiture
propagates the transfer of the benefits of excess profits to the tax payers since the
regulatory role of the state interventions in privatization ensures the primary role of social
welfare of job security, price control, accessibility and quality services are supplied without
exploiting the public.
The study may not have addressed into detailed other factors that may have contributed
significantly to the trend of investment commitment such as the income levels of the
investors, the information accessibility of these kinds of investments and the rate of
return to investments which play a crucial role in promoting the investment levels. So I
would suggest further research to fill this gap in the future.
59
Appendices
Appendix A: The secondary data obtained from the private participation in infrastructure
Project database (the World Bank Group) as at May 2010
Table A1: Number of Projects by Primary Sector
Financial Closure Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Grand Total
Energy
1
1
0
3
4
3
4
6
5
7
5
7
3
7
4
12
11
7
7
97
Telecom
0
0
3
3
3
10
9
17
15
13
18
16
3
9
10
6
10
15
3
163
Transport
1
1
0
2
2
2
4
5
7
6
5
2
1
9
5
21
7
2
3
85
Water and Sewerage
0
1
1
1
0
1
1
0
1
5
1
4
2
1
0
1
2
2
2
26
Total
2
3
4
9
9
16
18
28
28
31
29
29
9
26
19
40
30
26
15
371
Source: World Bank Private Participation in Infrastructure Database.
Table A2: Investment in Projects by Primary sector(US$ Billions)
Investment Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Grand Total
Energy
40
0
0
0
76
77
428
754
715
537
451
713
484
1,297
56
1,359
616
1,192
522
9,315
Telecom
0
0
20
1
553
677
961
1,755
1,467
2,846
2,787
4,049
3,635
4,715
4,512
4,918
7,028
10,336
11,727
61,988
Transport
0
0
0
0
49
63
28
469
336
1,087
181
484
78
280
223
2,472
4,179
205
1,255
11,389
Water and Sewerage
0
0
0
0
0
0
20
0
0
82
31
3
0
9
0
0
0
121
0
266
Source: World Bank Private Participation in Infrastructure Database.
60
Total Investment
40
0
20
1
678
817
1,437
2,978
2,517
4,553
3,450
5,250
4,196
6,301
4,792
8,749
11,823
11,853
13,504
82,958
Table A3: Total Projects by Primary Sector and subsector(US$Billions)
Primary Sector
Energy
Subsector
Electricity
Natural Gas
Total Energy
Telecom
Total Telecom
Transport
Telecom
Airports
Railroads
Roads
Seaports
Total Transport
Water and sewerage
Treatment plant
Utility
Total Water and sewerage
Grand Total
..
Project Count
91
7
98
163
163
11
20
11
44
86
4
22
26
373
Total Investment
7,254
2,249
9,503
61,003
61,003
495
4,769
2,238
3,904
11,407
133
134
266
82,178
Source: World Bank Private Participation in Infrastructure Database.
Table A4: Number of Projects by Type 1
Financial Closure Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Grand Total
Concession
1
1
0
0
1
3
1
2
3
5
4
1
1
11
5
23
5
3
3
73
Divestiture
0
0
1
0
0
3
1
5
2
2
4
7
0
0
1
1
4
6
1
38
Greenfield
0
0
2
3
6
8
11
18
22
19
19
16
4
10
11
14
17
16
9
205
Management and lease contract
1
2
1
6
2
2
5
3
1
5
2
5
4
5
2
2
4
1
2
55
Total
2
3
4
9
9
16
18
28
28
31
29
29
9
26
19
40
30
26
15
371
Source: World Bank Private Participation in Infrastructure Database.
Most infrastructure projects with private participation fit in one of these four categories. But the
boundaries between these categories are not always clear, and some projects have features of more
than one category. In these cases projects have been classified in the category that better reflects
the risk borne by the private sector.
61
Table A5: Investment in Projects by Type (US$ Billions)
Investment
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Grand Total
Concession
Divestiture
Greenfield
40
0
0
0
31
103
28
720
27
1,041
493
70
99
298
243
2,794
936
305
1,255
8,482
0
0
0
0
0
65
408
1,441
1,148
1,787
1,517
2,007
1,088
1,542
1,112
380
1,683
2,491
2,184
18,852
0
0
20
1
647
650
977
817
1,343
1,693
1,440
3,169
3,009
4,452
3,401
5,576
9,205
9,057
10,065
55,519
Management and lease
contract
0
0
0
0
0
0
24
0
0
32
1
3
0
9
36
0
0
0
0
105
Total
Investment
40
0
20
1
678
817
1,437
2,978
2,517
4,553
3,450
5,250
4,196
6,301
4,792
8,749
11,823
11,853
13,504
82,958
Source: World Bank Private Participation in Infrastructure Database.
Most infrastructure projects with private participation fit in one of these four categories.
But the boundaries between these categories are not always clear, and some projects have
features of more than one category. In these cases projects have been classified in the
category that better reflects the risk borne by the private sector.
Table A6: Total Projects by Primary Sector and Type(US$ Billions)
Primary Sector
Energy
Total Energy
Telecom
Total Telecom
Transport
Total Transport
Water and sewerage
Total Water and sewerage
Grand Total
Type of PPI
Concession
Divestiture
Greenfield project
Management and lease contract
Divestiture
Greenfield project
Management and lease contract
Concession
Divestiture
Greenfield project
Management and lease contract
Concession
Greenfield project
Management and lease contract
..
Project Count
17
8
55
17
97
27
134
2
163
54
3
14
14
85
2
2
22
26
371
Source: World Bank Private Participation in Infrastructure Database.
62
Total Investment
1,899
1,310
6,101
5
9,315
17,373
44,615
0
61,988
6,506
169
4,671
42
11,389
76
133
57
266
82,958
Table A7: Total Projects Combined Electric and Water(US$ Billions)
Type of PPI
Concession
Divestiture
Management and lease contract
Grand Total
Project Count
3
1
8
12
Total Investment
660
0
0
660
Source: World Bank Private Participation in Infrastructure Database.
This table reports projects with private participation that provide both electricity and water
services. These projects are reported with energy as primary sector to avoid project doublecounting in sector data and because energy services usually account for most of the committed
investment.
Table A8: Total Projects Cancelled or Distressed by Primary sector &Type(US$Billions)
Primary Sector
Energy
Total Energy
Telecom
Total Telecom
Transport
Total Transport
Water and sewerage
Total Water and sewerage
Grand Total
Type of PPI
Concession
Divestiture
Greenfield project
Management and lease contract
Divestiture
Greenfield project
Management and lease contract
Concession
Divestiture
Management and lease contract
..
Project Count
5
1
2
3
11
4
11
1
16
1
1
2
4
3
3
34
Total Investment
504
0
325
0
829
573
508
0
1,081
47
166
0
212
9
9
2,132
Source: World Bank Private Participation in Infrastructure Database.
Table A9: Criteria for selection
Featured Indicator, 1990-2008
Value
Infrastructure Sectors Reported
Energy, Telecom, Transport, Water and
sewerage
Number of countries with private participation
45
Projects reaching financial closure
371
Sector with largest investment share
Telecom (75%)
Type of PPI with largest share in investment
Greenfield project (67%)
Type of PPI with largest share in projects
Greenfield project (55%)
Projects cancelled or under distress
34 representing 3% of total investment
Source: World Bank Private Participation in Infrastructure Database.
63
Appendix B: Information on the Primary Sector Projects Type
Sector Analysis
(source: Private Participation in Infrastructure Projects Database, Mailstop MC4 419, 1818 H St. NW,
Washington, DC 20433 © 2009 The World Bank Group, All Rights Reserved. Terms and
Conditions. Privacy Policy. | [email protected]
To be categorized in a particular sector, subsector, and segment, the project should be in that
specific business, rather than simply having some of those assets. Projects designed to serve a
customer or group of customers exclusively are not included. PPI projects generally all into four
broad sectors: energy, telecommunications, transport, or water.
Energy
Energy includes the activities directly related to the provision of electricity or natural gas to users
as a public service.
• Electricity: Activities required for the provision of electricity. It includes the segments of
generation, transmission, and distribution of electricity.
o Generation: Facilities needed for production of electricity, including the power plant.
o Transmission: Facilities needed to transfer power produced from the power plant to the
distribution facility, such as the grid. Excludes the cables connecting the power plant to the grid,
because they are captive transmission lines. For instance, a power plant may need a secondary
transmission line to transfer its electricity output to the grid. But the existence of that secondary
transmission line does not imply that the corporate entity that owns the facilities is in the business
of providing transmission capacity for facilities that sell electricity directly or indirectly to the
public.
o Distribution: Facilities needed to transfer power transmitted from the grid to the users, such
as the cables connecting the grid to the converter and the cables connecting the converter to the
users.
• Natural gas: It includes the segments of transmission and distribution pipelines. Excludes gas
exploration and production. Note that if the gas is used as an input by a power plant, the project
belongs to electricity subsector and the generation segment.
o Transmission: Facilities required to transfer gas from gas field to the main pipeline system,
such as pipes, pressure regulators, etc.
o Distribution: Facilities required to transfer gas from the main pipeline system to individual
users, such as pipes.
Telecommunications
Telecommunications includes activities required for the transmission of information between
users as a public service. It includes the segments of:
• Fixed access: Networks that connect individual users for telephone service with fixed or limited
mobility phones in a defined geographic area within a country.
• Mobile access: Networks that connect individual users for telephone service with mobile phones in
a defined geographic area within a country.
• Long distance: Networks that connect individual users for telephone service located in different
geographic areas defined as local areas within a country, or with individuals in other countries.
No other telecommunication services, such as facsimile, paging, radio communications, or valueadded services, such as data transmission or videotex, are included. Resellers of long distance
services, which usually operate by leasing circuits or capacity from long-distance carriers, are also
excluded.
Transport
64
Transport includes assets or facilities required to move people or freight from one location to
another as a public service.
• Airport includes physical infrastructure (terminal, runway, tower), but no rolling stock or stands
under concession.
o Runway: Facilities required for take-off and landing of planes and air traffic towers.
o Terminal: All airport physical facilities (e.g., terminal buildings, airplane hangars, connecting
transport links within the immediate vicinity of the airport), except runway, shopping,
restaurant/lodging, and other services. Note: A 30-km motorway connecting city to airport would
be listed under the Road subsector.
• Railway includes track, terminals, rails, and rolling stock. Subway systems and/or monorails are
also considered railway.
o Passenger: Provision of transport service for people and also rolling stock within a
metropolitan area or between multiple metropolitan areas.
o Freight: Provision of transport service for goods and also rolling stock within a
metropolitan area or between multiple metropolitan areas.
o Fixed assets: Facilities for provision of rail service within a metropolitan area or between
multiple metropolitan areas, including rails, signal devices, communications equipment, etc., but
not including rolling stock.
• Road includes all facilities necessary for land transport, but excludes buses and automobiles.
o Bridge: Facility for elevated land crossing, including attached toll collection equipment.
o Tunnel: Facility for below-ground crossing, including attached toll collection equipment.
Note: the UK channel train would be classified as Road/Tunnel, not as Rail.
o Highway: Facilities for overland transport, including attached toll equipment.
• Seaport includes terminal facilities and surrounding waterway, but excludes shipping companies.
o Terminal: On-land terminal.
o Channel dredging: Construction and maintenance of waterways surrounding docking facilities.
Water
Water and sewerage activities are those needed to provide potable water to users or to process or
dispose of wastewater as a public service.
• Treatment plant: Includes all facilities necessary for storing and delivering potable water to users or
processing wastewater.
o Potable water treatment plant: Facilities for processing water for human consumption,
including allocation of water resources; capacity construction for storage; bulk supply generation;
and desalination.
o Sewage treatment plant: Facilities for storage, processing and disposal of wastewater, such as a
wastewater treatment plant. The facilities should treat wastewater from water utilities.
o Potable water and sewage treatment plant: When the two types of plants mentioned above are
included in the project.
• Utility: Includes all facilities necessary for storing and delivering potable water to users, including
pipes and devices for measuring consumption, for transfer of potable water to individual users.
o Water utility without sewerage: Facilities necessary for storing and delivering potable water to
users, but do not include sewerage services
o Water utility with sewerage: Facilities necessary for storing and delivering potable water to
users and include sewerage services.
o Sewerage collection: Facilities for intake and routing of wastewater, such as sewers, pipes, and
cesspools.
65
o Sewerage collection and treatment: Facilities for storage, processing, and disposal of wastewater,
such as a wastewater treatment plant. The facilities should treat wastewater from water utilities
The Dynamic Model of Privatization
The model equations for optimization of the appropriate level of privatization according to
be adopted is described by (Fluck et al, 1996:282) as follows.
The government problem equation that need to be optimized for making appropriate decision on
which privatization level is viable FOR adoption is given as
Maximize rθ U(𝜋G* ,EG* ,h) + (1-rθ )U(𝜋B* ,EB* ,h)…….within (0 ≤ Ω ≤ 1) …..........….a
Where (𝜋G* , EG* )= arg max M(𝜋, 𝐸, Ω)….with reference to (𝜋, 𝐸).................................b
Such that (𝜋, 𝐸)𝜖 F (G, h)…......................................................................................................c
(𝜋B * , EB* )= arg max M (𝜋, 𝐸, Ω)….with reference to (𝜋, 𝐸) …....................................d
Such that (𝜋, 𝐸)𝜖 F (B, h)….....................................................................................................e
Where:
Macroeconomic State of the economy given by θ=Good or Bad
U(𝜋, 𝐸,θ,h) is the utility function of the government
M (𝜋, 𝐸, Ω)….the utility preference of the management of the enterprise
𝜋=the profitability, Ω= the level of privatization within the range of (0 ≤ Ω ≤ 1)
Since, the government is limited to the three main feasible level of optimization of S,I and P we
can work out the solution to the government problem using the following methodology
First, we assume that the government utility(U) in equation (a),F(G) in (c)and F(B) in(e) don not
rely on history(h).also known as history independent
The possible solution to b& c given θ=G, and d& e given that θ=B, directly relies on the
privatization level available of Ω=S,I,P and the state θ at a time t. therefore, in creating a solution
to our problem UΩθ = U(𝜋θ* , Eθ* ) AT θ=G or B and also where (𝜋θ* , Eθ* ) is positioned in
equation-b and c for θ=G and also for d and e ,where θ=B For each of the values of Ω=S, I ,P
Hence, we derive the following deduction or assumptions that
USB ≥ UIB ≥UPB .......................................................................................................................f
UPG≥ UIG ≥USG.......................................................................................................................g
Given an economy arriving at a bad state at time t, government will prefer adopt fully SOEs to
prevent a huge layoff at the expense of lost profits. Nonetheless, on the second equation (g) on
realization of a good state at a time (t) the government would recommend for privatization given
that private enterprises attain higher profits and high employment levels too. .
(i)
Assumptions of the Model
It’s possible for the government to vary private ownership over a range of (0 ≤ Ω ≤ 1) in
reality, though in my case I will focus on the three leaves of private ownership, where
Ω=0,Ω=0.49, and Ω=1,which clearly sorts out the three broad methods of distributing ownership
and control rights (fluck et al,1996:283).
a) 100% state owned (S) where, Ω=0
b) 51% Government-owned,49% owned by investors(state controlled(I) where Ω=0.49
c) 100% Owned by private investors(full privatization)(P) where Ω=1
Therefore, given the above assumptions of the model and the history independent
assumption as well, the above privatization problem in (a-d) is decomposed to the following:
66
Given the state of θ= G or B at a time (t-1), then it follows that
Maximization[rθ USG +(1-rθ )USB , rθ UIG +(1-rθ )UIB , rθ UPG +(1-rθ )UPB ]
Finally, given θ=G or B,we evaluate the three expected utility terms above by substituting the
probability values of rθ in determining the maximum. And therefore the degree of privatization
that has the maximum utility is the optimal choice at [ΩG (t) or ΩB (t)] by government
67
Table B1:infrastructure projects with private participation reching financialor contractual closure in sub-saharan africa in 2008
Energy
Country
Project
name
Project status
Sub-sector
Type of
PPI
Private
equity (%)
1
Angola
Operational
Electricity
2
Kenya
Aggreko Luanda
Temporary Power
Stations 1 and 2
Mumias Power
Plant
Construction
Electricity
3
Kenya
Rabai Power Plant
Construction
Electricity
Greenfield
project
(rental)
Greenfield
project
(BOO)
Greenfield
project
(BOT)
4
Togo
Centrale thermique
de Lome
Construction
Electricity
5
Uganda
Construction
Electricity
6
Uganda
Construction
Electricity
7
Uganda
Bugoye
Hydroelectric
Power Project
Mpanga
Hydropower
Project
Namanve Power
Plant
Operational
Electricity
Greenfield
project
(BOT)
Greenfield
project
(BOT)
Greenfield
project
(BOT)
Greenfield
project
(BOT)
Capacity
size and
type
60 MW
Contract
period
(years)
..
Main sponsors
100
Investment
commitment
(US$ millions)
..
100
35
35 MW
..
Mumias Sugar Company
Limited (100%, Kenya)
100
155
90 MW
20
100
190
100 MW
25
Aldwych International Ltd. (..%
United Kingdom), Mitsui
Engineering & Shipbuilding Co
Ltd. (MES) (..%, Japan)
ContourGlobal (100%, United
States)
100
35
13 MW
20
Tronder Power Limited (100%,
Norway)
100
14
18 MW
20
100
93
50 MW
6
South Asia Energy Managemen
Systems (SAEMS) (100%,
United States)
Jacobsen Elektro (100%,
Norway)
Aggreko Plc (100%, United
Kingdom)
Source: World Bank Private Participation in Infrastructure Database.
Table B2 : Telecommunication
Telecommunications
Country Project
Project status
name
Segment
Type of PPI
1
Ghana
Ghana Telecom
Second
Divestiture
Operational
2
Ghana
Operational
3
Uganda
Globacom
Ghana
Orange Uganda
Fixed access,
mobile access,
and long
distance
Mobile access
Construction
Mobile access
Divestiture
(partial)
Greenfield
project
Greenfield
project
68
Private
equity
(%)
70
Investment
commitment
(US$ millions)
900
Capacity size
and type
Main sponsors
1,400,000
connections
Vodafone (70%, United
Kingdom)
100
50
..
Globacom (100%, Nigeria)
100
..
..
France Telecom (53%,
France), International
Investments House (47%,
United Arab Emirates
Table B3: Transport
Transport
Country Project
name
Project
status
Sub-sector
Type of
PPI
Private
equity (%)
1
Congo,
Rep.
PointeNoire
Container
Terminal
Operational
Seaports
Concession
(BROT)
100
Investment
commitment
(US$
millions)
735
Government
cash support
(US$
millions)
n.a.
Type of
government
support
Capacity
size and
type
Main sponsors
n.a.
200
throughput
(thousands)
Bollore Group
(60%, France),
Societe
Congolaise De
Transports Sarl
(Socotrans)
(40%, Congo,
Rep.)
Asset &
Resource
Management Ltd.
(ARM) (..%,
Nigeria), Larue
Projects
International Ltd.
(..%, Nigeria)
DP World
(100%, United
Arab
2
Nigeria
Lekki-Epe
Expressway
Operational
Roads
Concession
(BROT)
100
382
n.a.
n.a.
50 km
3
Senegal
Dakar
Seaport
Operational
Seaports
Concession
(BROT)
100
134
n.a.
n.a.
250
throughput
(thousands)
Source: World Bank Private Participation in Infrastructure Database.
Table B4: Water and Sewerage
Water and sewerage
Country Project
name
1
Côte
d’Ivoire
2
Mauritius
Project status
Sub-sector
Type of PPI
Société de
Distribution d’Eau de
Côte d’Ivoire Renewal
St. Martin Wastewater
Treatment Plant
Operational
Utilities
Operational
Treatment
plants
Management and lease
contract (lease
contract)
Management and lease
contract (management
contract)
Source: World Bank Private Participation in Infrastructure Database.
69
Investment
commitment
(US$ millions)
n.a.
Capacity type
Capacity
Main sponsors
Population
(thousands)
9,000
Bouygues (46%,
France)
n.a.
Cubic meters
per day
(thousands)
70
Berlinwasser
International AG
(100%, Germany)
Appendix C:Data description, Summary tables and Confidence Interval
Table C1:Data Description
variable name
storage display
type format
Newproject
investment
conc
Div
Greenfield
lease
Energy
Telecom
Transport
Watersewarage
int
int
float
float
float
float
float
float
float
float
value
label
%8.0g
%8.0g
%9.0g
%9.0g
%9.0g
%9.0g
%9.0g
%9.0g
%9.0g
%9.0g
variable label
number of new projects
Total Investment Commitments
Concession
Divestiture
Greenfield project Type
Management Lease Contract
Energy Sector
Telecom Sector
Transport Sector
Water & Sewarage Sector
Table C2: Data Summary
Variable
Obs
Mean
Newproject
investment
conc
Div
Greenfield
19
19
19
19
19
19.52632
4366.263
446.4737
992.2632
2922.211
lease
Energy
Telecom
Transport
Watersewar~e
19
19
19
19
19
5.526316
490.3684
3262.474
599.4211
14
Std. Dev.
Min
Max
11.19707
4319.363
690.6323
854.0922
3304.888
2
0
0
0
0
40
13504
2794
2491
10065
11.5632
443.9027
3421.243
1061.652
32.56788
0
0
0
0
0
36
1359
11727
4179
121
Table C3: Confidence Interval
Variable
Obs
Mean
Std. Err.
[95% Conf. Interval]
Newproject
investment
conc
Div
Greenfield
19
19
19
19
19
19.52632
4366.263
446.4737
992.2632
2922.211
2.568783
990.9298
158.4419
195.9422
758.1932
14.1295
2284.397
113.5996
580.6039
1329.306
24.92313
6448.129
779.3478
1403.922
4515.115
lease
Energy
Telecom
Transport
Watersewar~e
19
19
19
19
19
5.526316
490.3684
3262.474
599.4211
14
2.65278
101.8383
784.8869
243.5596
7.471584
-.0469684
276.4142
1613.487
87.7213
-1.697215
11.0996
704.3227
4911.46
1111.121
29.69721
.
70
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