Privatization in Africa: Present and Future Trends

World Bank

African Development Bank Group
1997 Annual Meeting Symposium on "Private Sector Development In Africa"

Jean-Louis Sarbib
Vice-President
Africa Region
The World Bank

Abidjan, May 21, 1997

Introduction: Good News Out of Africa
The Challenge
The Role of Privatization
Phases of Privatization
Lessons from the Learning Phase
The Record So Far
The Present Phase
The Future
Strengthening the Partnership

Introduction: Good News Out of Africa

In many countries in Africa, privatization was launched at a time when their economies were at their lowest ebb. Today, there is renewed and well-founded hope in Africa.

First, for two years in a row (l995/96), economic growth has outstripped the 2.6% population growth:

• 3·4 % in l995;
• 5·0 % in l996; and
• 31 of 48 countries in Sub-Saharan Africa registered positive growth per capita;

Second, countries are opening up politically – with greater participation of civil society. The opening up of civil society and greater participation of ordinary people in the development process augurs well for the future, and their participation in economic decisions will bring social legitimacy to many of the tough choices involved in promoting national growth.

Third, there is evidence of a much greater role of African leaders in solving their own conflicts and problems (Liberia, Great Lakes) but also in mastering their economic destinies.

And, fourth, many countries have embraced modern market economics and are deepening their reforms to make the private sector the engine of growth:

• State-owned enterprises are being privatized.
• Legal and regulatory frameworks are improving. For example:
  • the unified business law in the countries of West Africa,
  • requests to improve the justice system in a dozen countries; and
• complementary investments in human resources and infrastructure are being made. For example,
  • the Maputo corridor,
  • port of Dakar, and
  • village infrastructure in Ghana.

Privatization has been an important part of, and contribution to, these changes.

The Challenge

But these openings are fragile. And the challenge that Africa faces is enormous:

Today 583 million Africans (10% of the world’s population) produce only 1% of its GDP, while 262 million Africans, or 45% of the population, live on less than $1 a day. About 200 million are without access to proper health services, and 47% without access to safe water.

Over the last 3 years, Sub-Saharan Africa (excluding South Africa) received only about 1% of total private capital flows to developing countries and only 3% of total foreign direct investment.

Africa needs to double its economic growth rates, to 8-10% levels in the next 10 years. The question is: how to achieve it?

The Role of Privatization

Today, there is widespread agreement that the primary engine that can pull the African economies to these levels is the private sector – both domestic and foreign direct investment. And that there must be a public-private partnership. This is where privatization comes in.

It is not an end in itself, but it is a key tool for improving the efficient allocation of resources, for mobilizing investment, and for stimulating private sector development. Privatization does this because it:

• brings into the open the inefficiency of state run businesses;
• makes investment opportunities available;
• highlights the need and becomes the catalyst for capital market development; and
• contributes towards openness by forcing government dialogue with the public

Phases of Privatization

We are looking at this topic at an exciting time. Not only have the large majority of countries in Africa already embarked on the process, but many are at last at the threshold of the breakthrough in economic growth and poverty alleviation. All the countries and institutions represented here today therefore have a keen interest in the progress and outcome of privatization.

I want to look at the trends in privatization in three time phases. First, the launch and learning phase in the years up to 1994/95. The experience of this phase points to clear lessons which must to be followed now if present privatization activity is to be successful and contribute to the growth levels we are aiming for. Second, the present, main phase, which began in 1995 and will last to the beginning of the next century when privatization will reach its mature, and third, phase.

Lessons from the Learning Phase

In the first phase, privatization began against a background of: poor economic performance; public mistrust due to concerns about corruption, ownership, and unemployment; weak institutional capacity; and weak or virtually non-existent capital markets. It is therefore not surprising that governments were feeling their way. Efforts were largely directed to privatizing small and medium size enterprises, most of whom were loss-making. During that period many countries, including those which embraced modern market economics, have undergone structural adjustment A key policy measure of that reform was liberalization and that has been important both for privatization and private sector development more widely.

As I have said, privatization has taken off across Africa; but it has not been easy. Governments were hesitant about it; indeed, some still are. We are all aware that there have, at times, been doubts about commitment to privatization. That has changed; it is no longer a question of whether or not – or what – to privatize; it is how and when to privatize. Today, most governments are committed to the process, but they can and should do more to demonstrate it.

Commitment is essential, but so too is consensus; and in most countries there has been a lack of consensus in favor of privatization. This has been largely due to the common fallacy that privatization means selling off the "crown jewels". Firstly, as we shall see later, the large enterprises are not being sold outright to foreigners; and, secondly, there has been widespread ignorance about the state of the public sector. Most programs commenced with the public being generally unaware of the extent of government ownership, how poorly the public enterprise sector was performing, and why privatization was a necessary component of economic reform and development. Generally, the public’s – and, at time, even their government’s – knowledge and perception of public enterprises has been such that they have overestimated their performance, condition, prospects and value. To continue the analogy: far from being crown jewels, most public enterprises were (are), at best, only semi-precious stones.

The lack of consensus has been the main factor inhibiting its pace. Here too, the picture is changing: privatization is widespread and gaining acceptance; consensus is growing as governments become more open and the public becomes more informed. Although many governments are taking steps to inform and to consult with all stakeholders, recognition for the need for this communication has come late. Hence, and, combined with ownership issues, this has led to doubts about – if not opposition to – privatization.

Because of concerns expressed about possible negative effects of privatization, there has been a strong tendency to shy away from the difficult issues which privatization has brought to the surface during the launch and learning phase. As a result, there is still a virtual absence of policies on retrenchment and related benefits, social safety nets, land ownership reform, the retirement of enterprise debts, and anti-trust legislation; and, while there has been a lot of talk about broadening of ownership, there has not yet been a determined effort to come up with innovative solutions to achieve this. These are the issues which confront us during the present, main phase and which we must work together to resolve.

Earlier debate and action on these issues would have been difficult but would have contributed to the process of building consensus and to smoother implementation of privatization programs once they were launched. They would also have led to a better understanding of the trade-offs between the desire to broaden indigenous ownership and the need to encourage inward investment. As it is, these unresolved issues continue to cause delays and deter investors. Other problems which have hindered privatization include an overemphasis on enterprise valuation and weak efforts to mobilize investors. In the light of experience, governments have learned that it is the market that determines values, and all of us have learned that we have to do much more to attract investment in Africa.

Many different approaches have been adopted for planning and implementing privatization, including a variety of institutional models; but many programs have been characterized by inadequate design and preparation. Some institutional models have evolved in ways which have resulted in fragmented efforts and weak implementing agencies. Agencies have generally suffered from a lack of sufficient legal authority and insufficient resources on the one hand, and from government interference and delay on the other. These weaknesses are being rectified; while those programs which have commenced more recently have taken account of earlier experience. Experience has shown that, for an efficient and transparent process, a strong central agency should be established that is empowered, independent, and provided with adequate resources. Also, the influence of state-owned holding companies should be neutralized at an early stage - either through privatization or dissolution (whichever is the more appropriate) - since they invariably delay or obstruct the privatization process.

The Record So Far

Despite the myriad of constraints facing African governments and their implementing agencies, privatization is moving ahead throughout the continent. More and more countries have embraced privatization, with activity reported in at least 41 of the 48 countries in sub-Saharan Africa.

The number of privatization transactions has steadily increased.:

Up to the end of 1996, just over 2,700 transactions are reported to have been completed, with a combined sales value of almost $2.8 billion. During 1996 and the first four months of this year, many more utilities, notably in the telecommunications sector, have entered into the privatization process, for example: in Congo, Cote d’Ivoire, Gabon, Ghana, Guinea, and South Africa.

We therefore expect concluded deals in 1997 to be worth well over $3 billion in cumulative privatization sales value; that is, more than a 100% increase. That trend is expected to continue through the next few years. Even though by worldwide standards this is not a great amount, it does mean that Africa is firmly on the privatization map.

The picture across the continent is far from uniform, however. In some countries the pace is picking up, not only in terms of numbers but also in terms of the size and quality of the transactions. Elsewhere, privatization programs are just beginning. In several countries the process has slowed; and this could happen in other countries if governments are not responsive to public concerns about the process. Most privatization activity – in terms of the numbers of completed transactions – has taken place in the following countries:

# Federal Government only; does not include state governments’ privatization transactions.

It is interesting to note that it is neither the Anglophone nor the Francophone countries which have recorded most privatization activity but the Lusophone countries, Mozambique and Angola; perhaps reflecting the need and determination to rebuild their war-torn economies.

Of course, the level of activity in terms of transactions is only part of the picture. We need also to look at the value of the transactions; and here we see a different league table:

# Federal Government only; does not include state governments’ privatization transactions.

Ten countries account for 87% of cumulative sales values. At the end of 1996, the leading countries were South Africa, Ghana and Cote d’Ivoire. Nigeria, for which we currently have data only for privatization of federal government-owned public enterprises, will probably be placed much higher in this table when we have information on privatization at the state level. For the future, given the size of its economy, we can expect to see South Africa continue to record the highest total value of privatization sales.

However, there are other comparisons we can make. In terms of the cumulative sales value of privatization deals as a percentage of annual GDP, some of the smaller economies figure prominently:

On this measure, we see that privatization has made most difference in Mozambique, Cape Verde, Guinea Bissau, and Ghana. Even so, it is clear from the average of only just over 1% across Africa that privatization sales proceeds have so far had little impact on the majority of economies.

Another comparison is the cumulative sales value per capita:

Here again, some of the smaller economies also figure prominently. Overall, privatization proceeds have only amounted to $5 per capita across Africa.

A wide range of privatization methods has been used, but capitalization (the mass participation scheme designed for Bolivia) and voucher-based mass privatization schemes have not been tried. The following table shows the methods that have been employed in Africa up to the end of 1996:

Although sales of shares through competitive tender is the principal method, formal liquidations and asset sales represent a significant proportion of transactions, reflecting the poor state of many state-owned enterprises. And you will note that a significant numbers of transactions have been through non-competitive methods over and above sales to shareholders with pre-emptive rights. That reflects a degree of non-transparency; and that has fueled skepticism about privatization. However, concerns about transparency are receding as implementing agencies make more information available to the public. This improvement has also been bolstered by increasing involvement of the private sector in the privatization process.

The state of the capital markets has restricted both the pace of privatization, in terms of how many enterprises could be put up for sale, and the methods available for broadening ownership. That limitation has been of great concern to all governments, and a lot of effort is going into capital market development alongside financial sector reforms.

Broadening ownership is frequently cited as an objective of privatization but, with a few exceptions, major efforts have not been made in this direction. Public offerings and some directed group schemes have given more Africans the opportunity to invest; and, in a small number of enterprises, management buyouts and employee participation have extended ownership to more individuals. But more needs to be done in every country to reach out to the majority of the people who are poor, have little or no savings, and are therefore unable to participate in privatization given the methods currently employed.

We must expect that where it proves impractical to achieve broad share ownership - and for some countries it is late in the day to consider this - there will be increasing pressure to show that ordinary people are benefiting from privatization. This will call for more than references to new employment opportunities and the enhancement of services provided by privatized enterprises, since these too will not necessarily reach the majority of the poor, especially in rural areas. Hence, measures should be taken to apply proceeds in ways which will benefit more ordinary people through increased spending on health, education and rural infrastructure.

Some governments still retain equity interests in privatized firms, but most governments have exited completely from more than two-thirds of the companies privatized:

Overall, between 1990 and 1995 the total number of public enterprises in Africa is estimated to have fallen by about 37%; but bear in mind that many of the privatized enterprises were small and that the reported transaction included many liquidations of non-operational companies. Even so, a different league table arises when we look at these numbers, with Chad, Gambia, Guinea, Benin, Angola, Cape Verde, and Mali registering the biggest reduction in the number of public enterprises.

The Present Phase

Now that most countries have gained experience of the process and have developed their capacity to manage it, privatization has entered its main phase. This phase has four noteworthy features which have important implications for the privatization process:

• emphasis on large enterprises;
• increasing demand for public information and accountability;
• creation and growth of capital markets; and
• much greater efforts are underway to stimulate private investment.

Because of the growing acceptance of privatization, and their own and worldwide experience, governments are much more confident of the process. Hence, the major companies, such as ZCCM in Zambia, and utilities everywhere are coming on stream during this phase. Among utilities, there are already many enterprises in the telecommunications sector that have already gone to or are preparing to go to the market; and the power and railway sectors are following close behind. The privatization of utilities is focusing attention on the need for a competitive framework and regulation. While regulation is being examined as part of individual sector initiatives, these efforts are not always coordinated across sectors and effective implementation is sometimes being left to follow privatization instead of being put in place concurrently. We must work together to bring the development of regulatory mechanisms up to speed.

With the larger enterprises coming into the process, there may be need in some countries to pay more attention to managing the social impacts of privatization. Where this is so, it will mean advising and convincing people of the social impacts of not privatizing as well as improving communications and introducing measures to alleviate hardship.

Contrary to popular belief, large enterprises are not being sold outright to foreigners. African governments are introducing core investors with the technical know-how and investment capital; but they are also being careful to safeguard their national interests and to respond to public concern about ownership and exploitation. Take the case of recent Ghana Telecoms deal where, through a competitive bidding process, the Government sold only a 30% equity stake to a consortium led by Malaysian Telecoms which has assumed management control. First, the consortium includes private Ghanaian investors. Second, the Government will later sell some more of its shares to Ghanaian investors through a public offering. Third, at the same time it concluded the deal, the Government licensed a second general telecoms operator to open up competition and to try to ensure investment in a rapid expansion of services. And, while these deals were going through, the government has been licensing more cell phone operators so as to provide services to rural areas not covered by the main network.

Since most of the larger enterprises will not be fully privatized, governments will remain important shareholders, and there will be increasing pressure on them to manage their investment portfolios professionally and for the national good. To date, little progress has been made in improving the management of public investments; and it is an issue to which we should all pay more attention. Given the past experience of governments’ inability to manage investments prudently, a failure to improve the discharge of this responsibility may only add force to the argument for more extensive privatization.

Today some enterprise managers and employees still regard privatization as a threat; others see it as an opportunity. Either way, the presence of privatization has helped bring about a culture change in the public enterprise sector. Everyone has witnessed the decline in the number of these enterprises in the first half of 1990s and can expect at least a third more to be divested by the end of the century. The term "divested" is used in this context because many enterprises have been "privatized" through the sale of their assets, not through their sale as a going concern. Until a few years ago, most governments were reluctant to wind up non-viable public enterprises. Today, "liquidation" is no longer an option of absolute last resort. Governments can and do go to the market and dispose of businesses which fail to perform. The inevitability of privatization, with governments exiting from profitable companies and liquidating non-viable businesses, has brought about an improvement in public enterprise corporate governance because directors and managers are aware of the consequences to them and their businesses if they do not respond to the need for efficiency and accountability.

Until last year, privatization throughout Africa focused primarily on small enterprises. At the end of 1995, not only were the larger enterprises in Africa, predominantly utilities, not included in privatization programs, in many cases they were specifically excluded. In the power sector, only two utilities – in Côte d’Ivoire and Guinea – had been privatized, although there were two cases (Gambia and São Tomé & Principe) where management contracts had been entered into. There is a long way to go from those four utilities to privatizing the remaining 53 power utilities across Africa.

Because the major enterprises have not entered the process until very recently, the impact of privatization – in terms of fiscal deficit reduction, economic efficiency, foreign investment, and employment – has so far been small. This highlights the result of governments deciding not to give priority to the major enterprises, particularly utilities and some of the biggest loss-makers. To give you some idea, look at the energy sector in Africa:

Transactions concluded during 1997 are expected to show a much greater impact in terms of:

• foreign investment, both to acquire shares and concessions, and in the businesses themselves;
• improving enterprise operational and financial performance;
• better and cheaper products and services for consumers; and
• employment generation.

An early measurable impact will be the level of foreign investment. We can expect significant foreign investment in utilities and other major enterprises both for the purchase of shares and concessions, and for rehabilitation and expansion of the businesses themselves. It is the capital invested in the businesses which is the key to the longer term sustainable impact of privatization. Our research data on some medium-size enterprises privatized before 1995 suggest that at least as much has been invested in the businesses themselves as was spent by investors in acquiring assets or shares. This is an encouraging trend which we expect to continue.

Our research also shows that, while a small number of privatized businesses have failed, overall the impact of privatization at the enterprise level is encouraging, with clear evidence of improving operational and financial performance. A recently completed study by the Government of Mozambique on the impact of its program attests to this. Incidentally, that study and our own research on the progress of privatization in Africa have been among the few efforts to collect information on how enterprises are performing since they were privatized. So let me take this opportunity to urge all the institutions represented here today to coordinate efforts for the systematic collection of post privatization performance data.

It was expected that, to improve efficiency, managers of privatized enterprises would seek to reduce costs, including unit labor costs. So it is not surprising therefore that available data indicate that privatization in Africa has resulted in some job losses. However, while I do not want to understate what this has meant to those affected, the fact is that, overall, the number of job losses after privatization has not been significant.

Indeed, with new investment in many of the privatized enterprises, we are seeing improved performance, expansion and new jobs being created. And that is the message that we must get across to labor leaders and politicians. They know that privatization will focus attention on poor resource allocation, inefficiencies, and weak corporate governance. But they must also understand that it is bringing in:

• the investment that is needed in new technology, people and marketing;
• better value products and services which benefit local consumers;
• better working conditions and pay; and, in the longer term
• more sustainable employment.

Where major layoffs have occurred, these have not usually been the result of privatization, but have generally taken place prior to privatization as a result of the application of a hard budget constraint.

What is surprising is that, despite concerns about the social effects of privatization, little has been done to monitor employment or to gauge the welfare consequences on the families of retrenched workers. This is clearly an area to which we must all pay greater attention. Here again, more and better information will enable policy-makers and donors to respond appropriately.

As governments open up, they are realizing the importance of public relations both nationally and internationally. At the same time, the technology revolution is contributing to the process of democratization by providing more information and, in turn, stimulating an increasing demand for information and accountability. Hence, in response to public distrust of privatization, we now see governments taking steps to address the lack of publicly disclosed information on divestiture procedures, concluded deals, the impact of privatization, and on the use of sales proceeds. This is a healthy trend which we should fully endorse and support. As I have said, many citizens have yet to see or feel the benefits of privatization. They need convincing that privatization is good for the country and for them; and that means keeping them informed. With increasing demand for information and transparency, all the more important now that the major enterprises are on stream, implementing agencies will have to pay attention to improving public relations and communications.

Through the need for greater scope to broaden ownership – using such mechanisms as investment funds and public offerings – and the need for secondary markets for tradable instruments, privatization has given the spur that was needed to create and develop capital markets in Africa. Capital market development has come late, but at long last it is happening. But, both for privatization and investors’ interests generally, we shall have to monitor progress carefully to ensure that the new regulatory bodies function effectively to prevent any occurrence which could affect public confidence in the way the new markets operate.

Privatization is not only bringing about a change of ownership or management control; it is also encouraging much needed new investment in these businesses. There are clear signs that Africa is becoming the new frontier for foreign direct investment and privatization is spearheading that movement. This progress is due to the greater efforts which are underway to stimulate private sector investment. For example:

• In Ghana, the government has been organizing joint trade missions of government officials and businessmen overseas, often led by the President. One such trip to Malaysia in 1995 resulted in significant investments by Malaysian investors in joint ventures with Ghanaian entrepreneurs in areas as diverse as banking, communications, palm oil and real estate.
• In Madagascar, the Government is funding a match-making scheme which sends groups of businessmen on targeted investment promotion to Asia.

Already, there are clear signs that private capital flows to Africa are beginning to respond to the fact that African countries are reforming their economies and creating a better climate for the private sector. In 1993, net private flows were still negative. In 1995, net private capital flows increased by 75%, and an estimated 30% in 1996, reaching $11.8 billion.

And there have been some notable foreign direct investment success stories:

• Uganda where foreign direct investment rose by 38% in 1995 and an estimated 28% in 1996;
• Tanzania, where foreign direct investment rose by 200% in 1995 and an estimated 27% in 1996.

Or take portfolio equity flows, where:

• Cote d’Ivoire received $30 million in 1996 up from $3 million in 1995; and
• Kenya received $15 million in 1996 up from nothing the year before.

The major international private investors with a long track record in Africa know that the return on capital here in the past five years was 5% higher than in the other regions. But how many investors generally know that between 1990 and 1994 rates of return on foreign direct investment in Africa averaged between 24-31%, compared with 16-18% for all developing countries? Clearly there is still more to be done to improve and project the image of Africa. Successful privatization does not happen simply because attractive investment conditions are in place; potential investors need to be informed and enticed to the table. This means using the media and technology to the maximum extent possible.

The Future

Most countries should enter the mature phase of privatization in the early years of the next century. But its timing will depend much on economic growth and the pace of private sector development which, in turn, are affected by progress on the many issues which confront us today: governance, capacity building, judicial reform, competition policy, corruption, and the overarching need to invest in people through education, health, and advancement in gender equality.

There are two lessons from East Asia which are relevant to Africa. First, before the "East Asian miracle", many of the economies had characteristics similar to African economies today. Foreign investment and investment in developing human capital were crucial elements to success. Africa can now do likewise with the added advantage of being able to use much cheaper and advanced information technology to skip a generation in development. The second lesson is that you need good infrastructure for rapid growth. And it is here that we can see the need for more private participation in infrastructure. This is in its infancy in Africa right now but looks set to become the principal means for the much needed developments in the electricity, water and transport sectors. According to one estimate, investment needs in infrastructure in Africa over the next ten years total some $17 billion. This can only be met through a combination of privatization and private participation in infrastructure.

In terms of large investment, attention is currently focused on telecommunications and the mining sector. In the third phase, major investment in infrastructure will probably be directed more towards power, water and transportation. This, in turn, will stimulate new investment in the agricultural and tourism sectors.

In the mature phase of privatization we expect virtually all small and medium size public enterprises to have been privatized. As the fear of loss of sovereignty recedes, as citizens understand the benefit of investing savings in equities, and as consumers see the benefit of a competitive environment, so the case will diminish for government retention of an equity stake in most large enterprises. The scope and pace for further divesting government-owned assets and shares in the large enterprises will depend on:

• progress in capital market development;
• progress in financial sector reforms and judicial reforms – including the enforcement of updated corporate, insolvency, labor and property laws - which will determine the level of improvement in the investment climate and corporate governance of businesses generally; and
• improvements in the performance of the large part-privatized enterprises.

We can expect attention to turn to other areas where privatization can help improve efficiency. This will open up opportunities for contracting out many of the services currently operated within many central and local government departments. These include such services as catering, cleaning, building and vehicle maintenance, printing, registries, research, and security. Some of these services, notably road maintenance - through, for example, AGETIP arrangements - have already been or are being privatized. But there is still a lot of scope for further involving the private sector in the provision of these services. Maybe attention should focus on them much sooner. While we should definitely encourage such a move, we do not want to see resources and attention diverted from the privatization of large enterprises which is already long overdue.

As yet, it is difficult to forecast how far this will extend to the privatization of social services. Certainly, there is wide scope for the more efficient delivery of government financed social services, but through the private sector. This opens up a whole new range of options including, for example, vouchers schemes which would provide public funding for privately owned and managed schools and clinics.

Strengthening the Partnership

Before we get carried away postulating what might happen in privatization ten years and more from now, let us turn again to the present and immediate future. What do we in The African Development Bank, the World Bank and other lending and donor institutions have to do to assist in strengthening the public-private partnership which is critical to the growth levels we are aiming for? We have a wide range of lending and other instruments to assist, including some to directly assist the private sector. But it is not just a matter of money. It is also the provision of information; and information technology can enable Africa to skip a developmental generation. A good example of how we can help in improving information is to support the introduction of post privatization monitoring and reporting on employment and on the performance of privatized enterprises so that we can assess the extent to which privatization has brought about sustainable benefits.

In the Africa Region of the World Bank we already have two initiatives under way to help improve information flows:

• we are working with privatization agencies and the Africa Privatization Network to organize workshops for a cross-section of stakeholders to disseminate the findings of research on privatization in Africa and to discuss the major unresolved issues to try to find workable solutions; and
• the Africa Region of the Bank is working in conjunction with MIGA’s IPAnet to set up an information service, called Investorlink, on the World Bank’s website. This will alert investors at an early stage to investment opportunities becoming available through privatization and will help implementing agencies to identify and transmit information to potential investors.

Our efforts in the Africa Region are supplemented by work in other parts of the Group, the Bank, IFC, and MIGA, including the Project Finance and Guarantees Group and the Foreign Investment Advisory Services (FIAS).

What more must we do to promote and support privatization? First and foremost we must get the message across that privatization is making a real difference, that it is not a threat but an essential major step in private sector development. Second, we must encourage governments to be more open and share information about privatization transactions. This will not only help their constituents feel more comfortable about the transparency of the process, it will also help stimulate the desire of ordinary people to participate as small investors. Third, we must encourage governments to exit from ownership except where national interests are truly at stake. There is, for example, no rationale for a government to retain an equity interest in a hotel. Fourth, we must encourage maximum participation of the private sector in the process. Fifth, donor institutions must improve coordination in their support. We can and should combine efforts to monitor the progress of privatization in Africa.

But our efforts in support of privatization must also be consistent with the larger picture. All of us here today have a vested interest in bringing Africa fully into the global market place but we can only do this through partnership. Privatization is an important element of the public-private partnership we need to develop. For the multilateral lending agencies, how we approach this is the same as it is for all our efforts to support economic and social development. And today that means that we have to do business differently. We have to ensure participation of all stakeholders, of ownership of programs, and be selective in the allocation of our resources. We can no longer lend money to governments which have no intention of carrying out policy reforms or no ability to sustain them, because lending in such circumstances does not help them or their people. At the same time, we need to recognize how politically difficult it is to hold fast to macroeconomic stability against a background of competing social demands; and when poverty is rife.

All of us must work together resolutely to meet these challenges. For we all know that our success or failure depends on the success or failure of Africa.