State-Owned Enterprises in the Middle East and North Africa

State-Owned Enterprises in the Middle East and North Africa

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Author(s):
OECD
Publication Date :
21 Oct 2013
Pages :
122
ISBN :
9789264202979 (PDF) ; 9789264202962 (print)
DOI :
10.1787/9789264202979-en

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State-owned enterprises (SOEs) are an important feature of the economic landscape in the Middle East and North Africa region and yet, their contribution to the local economies has not been subject to a systematic investigation. SOEs in the region are generally perceived as inefficient and subject to sub-optimal governance arrangements but at the same time, and somewhat paradoxically, they are often charged developmental mandates that typically go beyond their stated commercial objectives. This phenomenon owes to the historically prominent role of the state in the economic development in the region and the recently renewed interest in using select SOEs as anchors of national industrialisation and competitiveness strategies.

This publication contributes to the limited existing literature on the role of SOEs in the economic development by examining the contribution of MENA SOEs to industrial development, diversification, poverty elimination and the provision of goods and services to the public more generally. Second, it provides an overview of the diverse mandates and roles of MENA SOEs and assesses the costs of these obligations with a view to isolate ownership and governance practices that have contributed to the success of some companies and poor performance of others. Recommendations to policymakers as well as management and boards of SOEs are made based on these observations at the end of the publication.

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    Foreword

    State-owned enterprises (SOEs) are an important feature of the economic landscape in the Middle East and North Africa (MENA) region and yet, their contribution to the local economies has not been subject to a systematic investigation. SOEs in the region are generally perceived as inefficient and subject to sub-optimal governance arrangements but at the same time, and somewhat paradoxically, they are often charged developmental mandates that typically go beyond their stated commercial objectives. This phenomenon owes to the historically prominent role of the state in the economic development in the region and the recently renewed interest in using select SOEs as anchors of national industrialisation and competitiveness strategies.

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    Executive summary

    State-owned enterprises (SOEs) constitute an integral feature of almost all economies in the Middle East and North Africa (MENA) region, and yet, unlike family-owned or listed companies, they have for the most part not been subject to systematic research, either in a regional or in a country-specific context. The OECD publication of country case studies of SOE sector reform in the MENA region entitled Towards New Ownership Arrangements in the Middle East and North Africa aimed to address this gap, highlighting the progress made and the challenges tackled by governments in recent years in privatising SOEs and upgrading the regulatory frameworks for companies remaining under state control.

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    Introduction to state capitalism in the MENA region

    The purpose of this introductory chapter is to provide a context to the emergence and the ongoing development of state capitalism in the Middle East and North Africa region. This chapter presents the factors leading to the establishment of state-owned enterprises in the region and examines diverse considerations such as industrialisation objectives, emergence of sovereign wealth vehicles, and the slowdown in privatisation that have resulted in the constant and important role of MENA governments as owners of commercial assets. The chapter also comments on the clarity of the scope of MENA SOE sectors which has been improving in some jurisdictions but still needs to be clarified in order to allow for a more informed discussion of the options for improving SOE performance and efficiency.

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    Objectives and roles of MENA state-owned enterprises

    A number of arguments have traditionally been put forward as a justification for state ownership. This chapter provides an overview of these arguments, with a particular focus on how they have been employed in the MENA region. The objective of this section is to provide an overview of the sectoral distribution of MENA SOEs and to discuss the performance of SOEs operating in service, minerals, hydrocarbon and industrial sectors. A variable performance of SOEs operating in each of these sectors is noted and illustrated via company case studies. Factors leading to the positive performance of some SOEs operating in each of these sectors are highlighted and will be further explored in the concluding section of the report.

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    The role of state-owned enterprises in MENA development and competitiveness

    This chapter is focused on exploring the role of MENA SOEs as engines of economic development and industrial competitiveness. It highlights the variable use of SOEs to achieve established socio-economic outcomes such as urban development, creation of housing for the poor, development of sectoral clusters and other socially beneficial outcomes. More generally, this analysis looks at SOEs as one mechanism for subsidisation of basic goods and services, on which the social contract in most MENA countries relies, at least partially. Examples of commercial companies which are also mandated to fulfill certain social objectives and how they are compensated for their extra-commercial objectives are also provided.

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    Implications of the diverse objectives of MENA state-owned enterprises

    Extra-commercial objectives pursued by SOEs have a number of implications on MENA economies. First, SOEs, much as the overall public sector, are often forced to create employment opportunities in order to absorb excess labour force, in detriment to their productivity. Secondly, SOEs’ social objectives and the manner in which they are compensated for fulfilling them, have serious implications for the emergence of a level-playing field between state-owned and private sector incumbents. Third, the lack of transparency and accountability in some SOEs has led to the emergence of allegations, and in some instances evidence, of corruption in these companies. Taken together, these trends have created a situation where many SOEs are either unprofitable or loss-making, weighing heavily on government budgets which are under significant strain in recent years in most countries of the region. Good corporate governance for SOEs is increasingly seen as part of the solution to the corruption and even performance-related challenges faced by SOEs.

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    Avenues for reform: Towards efficient state-owned enterprises in the MENA region

    This last chapter of the book provides policy recommendations stemming from the foregoing analysis of the role and contribution of MENA SOEs to the economic and social development of the region. These policy recommendations are aimed at the ownership entities, state audit bodies, boards and management of SOEs. Suggestions are made to optimise the ownership efficiency, improve the contribution of SOEs to developmental objectives, manage SOEs’ impact on fiscal budgets, ensure that SOEs do not negatively affect the level-playing field, as well as address SOEs’ role as employers.

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    Strategic state-owned enterprises in the MENA region
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