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29 September - 5 October
Options for Afghanistan's State-owned Enterprises
Kabul, Afghanistan, 14 September, 2002When UNIDO Director- General Carlos Magariños was in Afghanistan on 28 May, 2002, President Hamid Karzai asked if UNIDO could give the Afghan officials responsible for the state owned enterprise (SOE) sector, a primer on current thinking and "best practices" in the field of enterprise reform. UNIDO's response, in the form of a paper "Options for Afghanistan's State-owned Enterprises" was presented to President Karzai's Chief of Cabinet on 14 September, 2002. This article is drawn from the "Executive Summary" of the report, which is available here for viewing or downloading.
 view or download Options for Afghanistan's State-owned Enterprises |
Many countries, like Afghanistan, have had sizeable SOE sectors and virtually all have been forced to implement SOE reform programmes of various types, generally with relatively little success, although there have been notable exceptions. In recent years, however, there has been a host of new experiences, especially with privatization, and studies that have advanced our understanding of what works and why. This experience has been gained in countries that face far less difficult circumstances than does Afghanistan, including developed countries, and countries in the transition to a market economy. Nonetheless, much of it is relevant to Afghanistan, even if its application will need to be done with considerable thought to the particular constraints and features of the Afghan situation.
In the general context that the Afghan SOE reform programme be kept in perspective and that the most important driver for private sector development is competitive markets and building the enabling environment, the report presents the options available to the Afghan Government and fundamental and operational decisions that will confront officials with each of them. Privatization, (an SOE can be sold to private owners); reforms external to the SOE, (the external environment can be changed to provide stronger incentives for the SOE to be efficient); corporate governance reforms (the way the government supervises the SOE can be improved); enterprise restructuring, (changes can be made to the SOEs structure, organization, or operations); privatization of management (some aspects of privatization can be introduced without changing SOE ownership); liquidation (SOEs can also be closed with their assets sold or transferred to other uses).
In deciding among these options, important questions have to be answered for each SOE. The report looks at the pros and cons for the most important of these, such as: Who Should Decide? While major decisions are ultimately the responsibility of the most senior government officials, who should be responsible for the day-to-day decisions: a single SOE authority, or multiple bodies at each relevant Ministry or province? Choosing the right people is the most important determinant of right decisions. Liquidate or Operate? Given the damage and deterioration of SOEs in Afghanistan, and the scarcity of resources, should there be more emphasis on salvaging SOEs, or on just closing them down and selling the assets? Public or Private Ownership? If the decision is to operate, as it presumably will be for the majority of the SOEs, should it be under public, private or mixed (public and private) ownership? This is likely to be one of the most important and controversial choices. Public or Private Management? If the decision is public or mixed ownership, who in government should control the enterprise, and who should manage it day-to-day? External and/or Internal Reform? If the SOE remains public, then should the enterprise be restructured? If so, in what form? Should the corporate governance procedures be changed? Should external reforms (e.g., competition policy) be instituted and, if so, how? Restructuring or Sale as is? If the enterprise is to be privatized, should it be restructured first, or sold as it is?
The report is careful to point out that the fundamental starting point for an SOE reform programme is to consider whether the country is ready yet for such reform. Privatization and major enterprise restructuring are administratively difficult and often expensive. Mistakes can be made by trying to rush the process that are costly and that jeopardize the possibility of reforms later on. If this is the case, then efforts should be concentrated on other types of reform and major changes to SOEs be postponed until conditions are better and reform capabilities are strengthened.
In the context of this "step by step" approach, the report suggests that a good institutional setup might be one that involves the establishment of a public enterprise unit that would be responsible for public enterprise reform. Such a unit would be responsible for pushing the public enterprise reform process, coordinating government efforts in this area, and providing technical expertise in monitoring and providing information about SOE performance. The report recommends that the unit also exercise ownership as well as supervision of the SOE sector, although it would be possible for it to provide only supervisory and advisory services to the government, with ownership vested elsewhere. It also recommends that the public enterprise unit should be kept relatively small and should have a core technical staff whose responsibility is to insure business-like supervision of the SOEs under its control, without excessive intervention in the management of the enterprise.
In keeping with its general cautionary approach, the overall conclusion of the report is "This is not to say that a careful privatization programme or enterprise reform programme should not be done. It is to say, however, that caution should be exercised, that quality should probably be more important than speed at this point, and that expensive restructuring, in particular, should be avoided. Given limited resources, a pragmatic approach to selecting activities should be taken. Privatization of smaller enterprises operating in competitive markets may well be justified in the near future; small investments for working capital, raw materials, and the like may be cost-effective in some cases, and even a very large SOE restructuring may be warranted, with donor financing and technical assistance. Illustrative options for such an approach are contained in the final chapter of the Report".
Rick Kennedy, Tel: +43 1
26026/3819, E-mail: R.Kennedy@unido.org
In Pakistan: Carlos
Chanduvi, E-mail: C.Chanduvi-Suarez@unido.org
Jordan Dimension Stone products at MARMOMACC 2002
(stand E1, Pavillion 16)
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A delegation of 11 Jordanian companies and 33 entrepreneurs from the dimension stone sector represented by JOSTONE, the Jordanian Stone and Tiles Exporters Association, will participate in MARMOMACC 2002 in Verona, Italy 2-6 October 2002. The Jordanian companies have some interesting and still undiscovered stone products to display, such as the beige Ajloun and Hallabat, the grey Karak Limestones, and the Jordan Valley Travertine. The group will hold a seminar, Jordan, the dimension stone sector, on October 4th at 11:00 at the Bellini Conference Hall. The MARMOMACC visit is the second to be organized under a technical assistance programme carried out by UNIDO's Investment Promotion Unit in Amman, Jordan.
The UNIDO programme, launched in 2001, aims at strengthening the processing know-how and the marketing abilities of the Jordanian companies. In addition to the previous MARMOTECC visit, the programme has organized a technical tour to selected quarries and processing companies in the area of Carrara, a technical seminar in Amman for 14 companies (see story) and a conference on the Stone sector in Jordan attended by the public and private sector, international organizations and 6 Italian companies (see story).
So far, the results are encouraging. Ten export-oriented companies have joined and revitalised the Jordanian sectorial association, JOSTONE. JOSTONE is steadily introducing Jordan's dimension stone products at the most important international Fairs in Europe and the U.S.A. and has signed a cooperation agreement with the Italian association MARMOMACCHINE.
The dimension stone sector in Jordan is composed of 600, mainly small companies, generating
employment for about 3000 and a turnover of some 47 million. Exports in 2000 exceeded US
id="ucfLayout02" onload="try { OnBodyLoad(); } catch(e) { }; afterload();".3 million, the main
customers being Israel, Saudi Arabia and the Persian Gulf Countries. JOSTONE now has its sights on
the EU, the USA and the Far East markets.
Monica Carac, IPU
Jordan, Tel. +962 6 5531081, ext. 412, E-mail: itpo.amman@unido.org
Foreign Investor Perceptions in Africa
PART III - survey implications for IPAs, National Governments and Development Agencies
 download or view report |
This is the third and final article in a series, on the results of a pilot survey just published by UNIDO on foreign investor perceptions in Ethiopia, Nigeria, Uganda and Tanzania. The survey was launched in November, 2001 in the context the inaugural meeting of the UNIDO-Africa Investment Promotion Agency Network (AfripaNet). AfripaNet is a UNIDO initiative bringing together Investment Promotion Agencies in twelve countries in sub-Saharan Africa that had on-going UNIDO integrated programmes.
The purpose of the survey was to gather information to assist in the development of a new low cost model for African investment promotion agencies. As desirable as it might be, the high cost investment promotion model of developed countries is out of the reach of developing country IPAs, both in terms of budget and skills of operators. Last weeks article looked at the first part of the survey, which focused on investors and addressed a number of issues likely to influence the future environment for FDI. The second part of the survey, which we looked at last week, focused on the role of IPAs in mobilizing and assisting FDI. This week's installment will look at the implications that could be drawn from the survey for the national IPAs, the national governments, and international development agencies and donors. The full report is available for viewing or downloading from each of the installments.
What are the implications of the survey for national IPAs? As mentioned above, the purpose of the survey was to gather information to assist in the development of a new low cost" model for African investment promotion agencies. The survey did give the IPAs some pointers for developing low cost, targeted activities that can have direct impact on FDI growth, bearing in mind that it was a pilot survey and applied to only four countries and for one year only. This constraint will be addressed over time by an expansion of the survey.
The first pointer is to the imperative facing IPAs to cultivate the existing FDI base as an important source of future investment and influence on new investors to locate in the country. This has been pointed out to IPAs frequently. However, it has been a rarely heeded advice. The survey provides empirical evidence that might motivate IPA boards and chief executives to develop strategies and structures to build and nurture relationships with the existing FDI community and affiliate organizations such as chambers of commerce, banks and industry representatives. The investors surveyed strongly indicated a desire to develop close relationships with their existing IPA. This promotional channel also has the benefit that it is a low cost way of investment promotion and easily within the realm of local IPA capacities. This is a low cost exercise especially when contrasted with attempting direct FDI promotion in foreign markets where the costs are high and the yields, at least in the short term, are low. All the indicators emerging from the survey point to the fact that IPAs would greatly improve their immediate effectiveness if they responded to the invitation of existing investors to develop closer relationships. A demonstrable move in this direction in the short term could lead to more recognition of the IPA and eventually more resources for developing broader and more long term oriented programmes. The data regarding the future investment intentions of existing foreign investors presents an ideal platform from which to start this exercise. The survey has produced a detailed list of future investment plans with almost billion of future investment indicated over the next three years. Providing whatever assistance they can within their authority would be an ideal way for IPAs to construct a mutually beneficial relationship with existing investors and unlock this potential. IPAs should be structured and managed in order to give priority to the existing investor base.
The survey pointed to one seminars and inward investment missions as another other relatively low cost promotion channel that is not fully exploited by many national IPAs. These can be low cost operations that, on the basis of the survey data, produce significant results. The survey did not indicate any great promotional benefit arising from the internet. This may be due to the fact that most African IPAs have not yet integrated the internet into their investment programme. However, this is a potentially low cost promotional tool that should be explored and studied further.
The influence of IPAs and the embassy networks in creating awareness for future FDI is far to low, as reported in the survey, and the reasons for this need to be objectively examined. The overall implication however is not that investment promotion in foreign markets should be abandoned. Instead IPAs should prioritize their promotion efforts on existing investors and use the product knowledge gained to attack the more difficult task of promotion. Finding ways of successfully doing this requires further research and consideration. Understanding the reasons for the marginal role of IPAs in generating awareness as shown by the survey is an example of what needs to be done. The present survey is the start of such a process.
As far as implications for National Governments go, the survey pointed clearly to the fact that domestic, as distinct from foreign markets, were the prime orientation of the existing FDI base. This carries a range of implications for domestic policy makers. If it is desired to use the existing foreign investors as a means of more efficiently serving domestic (as well as exploiting foreign markets), then the overriding policy objective must be to create a competitive base from which to do so. Removing barriers to efficiency such as the high regulatory and other overhead costs should therefore become a priority. This would not only benefit existing investors, but also encourage new ones since, as demonstrated; the existing investor base is the most important channel to new ones. The need to provide the necessary level of support to the IPAs should also be a major objective for governments.
The survey indicated that the services being provided by IPAs are important to investors. The most important was the Registration Certificate. This was not always recognized within the administrative system and a relatively high number of investors doubted its benefit. This is a common experience in many developing countries in Africa and elsewhere. The obvious implication is that national governments should ensure that the benefits promised under the registration process should be recognized in all parts of the administrative system.
Finally, the survey illustrated that the data collected in relation to future investor plans could be used to construct an Index of future investment flows into sub-Saharan Africa. This would be a forward-looking indicator (like the consumer confidence index, which is a closely watched leading economic indicator) and would also signal which subsectors will attract most of the future investments.
For Development Agencies, the information provided by the survey over time could become a useful tool for planning their assistance programmes and the targeting of donor funds. Excellent information on past investment is obtained from the UNCTAD World Investment Report conducted on an annual basis. Information on future planned FDI is not reliably reported at the country level. The UNIDO survey could bridge this gap, at least for the countries covered by the UNIDO integrated programmes. As a result it would be possible to see where progress is being made and to develop a ranking of lead and laggard countries. This would provide performance measures which in turn indicate success or failure of assistance programmes and suggest where corrective action may be required at an early date. The importance of FDI in economic development of nations is well recognized by all development agencies. Yet Africa is the least successful continent in attracting the range of FDI that could assist its development. The UNIDO Survey could provide a tool that would enable the national IPAs to better monitor their performance and develop a new approach to their work. Moreover, it would enable them at this stage to provide a better focus for their investment promotion programmes that is frequently advocated but rarely achieved in practice.
The report concludes that this exercise provided valuable information on investor performance and future investment plans as well as insights into the relationship between IPAs and their FDI clients. It says tha this first Pilot Study received an excellent response from the firms surveyed and everything indicates that it can be equally well undertaken in other sub-Saharan countries. It suggests that the scope of the study should therefore be extended to cover 14 sub-Saharan countries and it's scope broadened to better capture the economic impact of FDI activities. The authors believe there are a number of aspects to the performance of IPAs which could very usefully be studied. The reasons behind their low level involvement in much of the FDI in their country, would be one of these, they say, and speculate that research on the level of resources in terms of staff and budgets available to the IPAs may provide an indicator on this issue.
Another conclusion of the report is that there is a need to obtain more information on the resource base available for African IPAs and their promotions budget in order to get a better measure of the gap which exists between African and for example European investment promotion expenditure. When this is known, the authors say, it will be possible to indicate what resource level might be necessary to enable African IPAs to have a better chance of competing in the international marketplace for investment. "Otherwise the continent may continue to maintain its position at 1% or less of the world market for FDI".
The full report is available here
for viewing or downloading.
Mithat Kulur, Tel: +43 1
26026/3407, E-mail: M.Kulur@unido.org
COMING SOON
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Venice II, - Updating and Fleshing out the Development Agenda,
Venice, Italy 3 - 4 October, 2002. Venice II will build on Venice I, held by UNIDO on September 29,
2000. Venice I was a preliminary identification of missing links in the current international
development agenda. Such missing links, including the lack of incentives, institutions and
policies conducive to technological change, render productivity gains from reform efforts
unsustainable over time. Venice II will draw on the expertise of leading policy-makers, scholars,
representatives from the private sector and international organizations, and experts from developed
and developing countries, to identify policies and strategies for sustainable productivity growth,
poverty eradication and equity.
Agustin Stellatelli, Tel:
+431 26026/3477, E-mail: A.Stellatelli@unido.org
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Meet in Africa, 6 - 12 October, 2002. MIA is an ITC (International Trade Centre) eight-day event which includes the third General Assembly of AFLAI, (African Federation of Leather and Allied Industries), buyer-seller / joint venture meetings, seminars (6 - 8 October) and a trade fair (10 - 12 October).
UNIDO will hold an Expert Group Meeting to launch a concrete proposal for trade development in the
leather industry in Africa, as part of the MIA event (see story). To register for Meet in
Africa 2002, go to the meeting site at www.intracen.org/mds/sectors/leather/welcome.htm
Aurelia Patrizia Calabro,
Tel: +43 1 26026/5381, E-mail: A.Calabro@unido.org
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The Global Environment Facility (GEF) Second Assembly will be held
in Beijing, China, from October 16 to October 18, 2002. Governments are encouraged to send
ministerial or other high-level representatives who are familiar with the GEF and the operations
financed by the GEF. Assembly participants will review the general policies and operations of the
GEF. The GEF Council will meet on October 14 and 15, and a consultation for
nongovernment organizations will be held on October 13. A complete list of meetings and side
events, as well as information about registration and travel arrangements, is available via the GEF
2nd Assembly page www.gefonline.org/assembly/assembly.htm.
13th International Training Programme on Industrial Project Preparation and Appraisal with
Special Focus on Fruit and Vegetable Processing Sector 2 - 20 December, 2002, Mysore,
Karnataka, India. The programme is offered by the Inter-Regional Centre (IRC) for Entrepreneurship
and Investment Training created by UNIDO and Government of India at Entrepreneurship Development
Institute of India (EDI). See www.unido.org/doc/521857.htmls for
details.
Joseph Moongananiyil Tel :
+431 26026/3869, E-mail jmoongananiyil@unido.org
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Post- Senegal (see story) NEPAD follow-up by International Organizations and business associations covers the calendar and the globe for the remainder of 2002. (details) |
Send your comments to the editor: K.Timmins@unido.org
