Alfred H.Saulniers
Most experts would rank the financial performance of francophone Africa’s public enterprises below that of either multinationals or private local firms. This chapter1 suggests that public enterprises may have improved during the mid-1980s, leading to a changed ranking. Before doing so, it examines their origins and importance. Later, it looks at two reform issues which set them apart from anglophone Africa’s public firms:
privatization and contract plans.
Origins
The public enterprise portfolios of francophone Africa owe their origins to a colonial heritage. The pre-Second World War efforts to exert control over natural resources and other key sectors of the colonies’
economies provided the core around which they later grew.2 Thus, mining, transportation, and exporting often formed the early public portfolio.3 For example, Morocco’s phosphate processor, Office Chérifien des Phosphates (OCP), currently and for many years the country’s largest firm, was founded in 1920 as a public enterprise (El Midaoui 1981:23–4).
After the war, Africa’s portfolio growth lagged behind Europe’s. In particular, France’s retributory nationalizations, which boosted the number of public firms after 1945, had at that time no African counterparts. There, colonial governments created agricultural marketing boards, industrial ventures, and a wide range of support firms in the service sector.
Retribution came after independence when, in an effort to africanize the economy, new governments took over firms, or placed them under heavy controls. Often sectors that were held mostly by ‘foreign elites’ from the ex-colonial power, or by those who had collaborated with it, including locally born Asians and Levantines, were subject to africanization.
Later, new firms were added to the enlarged portfolios to provide essential services, and to aid in the post-independence thrust to industrialize. In the absence of a national private sector capable and willing
to provide the levels of capital, risk-taking, or technical expertise deemed necessary by government authorities to achieve the hoped-for industrialization, post-independence African governments invested heavily in large, capital-intensive industries, including steel, fertilizers, basic chemicals, and petrochemicals.
Portfolios also grew as existing public enterprises created subsidiaries, often to escape government controls over their operations, or as publicly owned investment banks took minority shares in private ventures. ‘Rolling privatization’ in selling those shares, once the companies had shown the capacity to survive, and reinvesting the proceeds in new ventures lagged behind expectations, resulting in even more growth.
Today’s portfolios consist of the remnants of the historical process.
From an economic standpoint, some public enterprises were created for rational motives. Others became public accidentally—as subsidiaries of firms swept into the portfolio in broad sectoral nationalizations. The firms are heterogeneous in size and composition, and widely distributed through many sectors of the economy. Portfolios are far from optimal and consequently require major efforts at rationalization.
Importance
Francophone Africa’s 2,000 or more4 public enterprises account for an average of 16 per cent of national GDP and 34 per cent of gross fixed capital formation, slightly more than in anglophone Africa, where the figures are 13.4 per cent and24.6 per cent respectively.5 In 1987, the top 100 public enterprises, ranked by employment, had a labour force of 225,000 (‘Les Leaders’ 1988).
For the few countries with information available for 1987, their share in domestic credit is low, approximately 3 per cent, well below the anglophone African average of 17 per cent.6 No comprehensive data are available on their share in international borrowing.
Rankings
Public enterprises occupy positions in francophone Africa’s industrial rankings. Of the twenty-one francophone countries listed in a recent survey, wholly-owned public enterprises rank first in sales in six and majority- owned ones rank first in another eight.7 Only in one country, the Côte d’Ivoire, does the government not have at least a minority share in the top-ranked firm.
Apart from the top position, non-financial public enterprises are scattered throughout rankings by sales, assets, profits, losses, or employment, which prompts several observations. First, with one exception, there is no type-clustering. Most notably, multinationals
are not all profit-earners, nor are public enterprises the only losers.
While for individual countries, public enterprises may ‘dominate the economies’ (Nellis 1986:4), for francophone Africa as a whole the case is not so clear, since public enterprises only make up about half of every ranking.
Second, public firms are slightly more asset-heavy, measured in part by their net worth, an expected finding due to government investment in infrastructure and primary industry. The conclusion is heavily qualified, however, because financial data may not accurately reflect asset values: countries with high inflation rates may not provide for mandatory periodic revision of the book value of assets; governments may have forced firms to rely on the capital market by refusing to provide funds at the time of creation; or previous losses may have eroded a firm’s net worth.
Third, the one exception to the unclustered data is employment, where public firms are the top employers. Two mining firms each have more than 30,000 employees: Morocco’s OCP and Zaïre’s Générale des Carrières et Mines (GECAMINES). Moreover, at the top ranks public enterprises outnumber all others combined. But if public firms are capital intensive, this does not necessarily mean that they are not a major source of employment (Nellis 1986:8).
Indeed, the data provide tentative support for the hypothesis that they are prone to overstaffing (Shirley 1983:19).
Fourth, wholly- or nearly wholly-owned public enterprises are francophone Africa’s biggest losers. A Congolese sugar mill, a Côte d’Ivoire electric company, and the Gabonese railway lead the list According to the 1988 rankings, they each lost more than $US 30 million.
Fifth, and contrary to the previous conclusion, public enterprises are also the biggest money-makers. Six of the seven most profitable firms are wholly or majority government-owned, while the seventh has a 49 per cent government share. Each had profits exceeding $US 25 million. One factor may explain their dominance of the profit ranking: five of the seven are natural-resource-linked to bauxite mining, petroleum, or petrochemicals, and they may have benefited from rising terms of trade since 1985.
For financial firms, however, definite clusters appear in the rankings.8 First, public banks have the most assets, accounting for nine of the top ten and fourteen of the top twenty-five positions. However, six of the top ten are Algerian, and represent a phenomenon more closely linked to Algeria’s industrial organization than to the state of public enterprises in Africa. Second, public banks, including six in Algeria, have high profit levels, holding the top ten positions. Third, a different cluster appears for the rate-of-return data; multinationals occupy eight of the top ten and thirteen of the top twenty-five positions. Their apparent lead disappears
when looking at more than the top fifty, where public enterprises out number them.
Financial indicators
The financial performance of public enterprises in francophone Africa appears to have improved during the mid-1980s.9 The data in Table 8.1 indicate that, in 1987, profit ratios of large public or large private local firms averaged above 16 per cent, although they were, undoubtedly, operating in different markets and trying to meet different goals.10 In marked contrast, the multinational firms’ ratio was less than 8 per cent.11 The ratio of profits to sales was also highest for public firms (6.3 per cent) and lowest for the multinationals (0.1 per cent). The startling figures are supported by other indicators; there were fewer large public enterprises with losses (both in absolute and in relative terms) than similar multinationals, and there were fewer public enterprises with negative net worth: five compared to seven multinationals.12
The opposite ranking for 1982 supports the conventional wisdom, when both multinationals and private local firms did substantially better than the public enterprises’ dismal average of 4.6 per cent of net worth and less than 1 per cent of sales. Also, more public enterprises showed losses than did either private national firms or multinationals.
The comparison of financial data between 1982 and 1987 indicates an initial, tentative hypothesis that the institution of reform measures may have had beneficial effects on portfolio performance.
The hypothesis bears further attention, since Wilson indicates that about 80 per cent of the World Bank’s work on public enterprise reform in West Africa is done in francophone countries (Wilson 1988b:196, n. 8).
Public financial firms also did well in 1987, as also shown in Table 8.1, with profit ratios above 18 per cent, better than both private national firms and multinationals.13 However, their rate of return to assets, 1.2 per cent, lagged behind. Joint ventures outperformed all other categories of financial firms.
Transfers to government
Francophone Africa’s public enterprises consistently transfer funds to government budgets. Table 8.2 shows the revenue from public enterprises as a percentage of central government consolidated current revenue from 1977 to 1984. The figures show that, on average, in francophone nations they account for a greater and improving share of government revenue than they do in anglophone ones: 6 and 4.7 per cent respectively.14
Table 8.1 Financial indicators for francophone Africa, 1982 and 1987
Sources: Data from ‘Entreprises’ 1983; ‘262 leaders’ 1988; ‘Les leaders’ 1988 Notes: + not applicable; rate of return to assets; GT greater than; JV joint venture.
Table 8.2 Revenuea from francophone African public enterprises as a percentage of current revenue of consolidated central government, 1977–84
Source: International Monetary Fund 1986a
Notes: aRevenue defined as the sum of net profits or interest transferred from nonfinancial public enterprises and public financial institutions, cash operating surpluses of departmental enterprise sales to the public with a surplus, profits of fiscal monopolies, profits of entities engaged in the monopoly purchase and sale of foreign exchange at different rates, and the profit of export or import monopolies (International Monetary Fund 1986b:127–8)
bBotswana, Ethiopia, The Gambia, Ghanac, Kenyac, Lesotho, Liberia, Malawic, Mauritiusc, Nigeriac, Sierra Leonec, Somaliac, South Africa, Sudanc, Swazilandc, Tanzaniac, Ugandac, Zambiac, and Zimbabwec
cAs a percentage of current revenue of budgetary central government.
A thorough study of Zaïre showed that public enterprises transferred ten times as much to the government as they received from it (Gray 1985).
From 1981 to 1983, they transferred a net of 4.1 per cent of GDP. The estimate is low since, while the study considered tax arrears as transfers from government, except for a few isolated cases, it neither estimated government arrears in paying for goods and services or losses arising from below-market price sales to government, nor did it track down all taxes paid.
Published IMF accounts provide inadequate detail to permit the calculation of gross or net transfers to public enterprises.15 In particular, they do not always distinguish subsidies paid to public enterprises from those paid to private ones, or from transfers to other levels of national government, to nonprofit institutions, to households and transfers abroad. Moreover, even if published in detail, the IMF definitional anomaly that does not separate government transfers to publicly owned financial firms from transfers to private ones would mask the net flows.
Even if correctly defined and published, the true picture still would not be revealed, because many countries force hidden profits transfers from non-financial firms to financial ones or to the government (Saulniers 1988b:167). In Morocco, for example, firms with the legal status of ‘public establishments’ have to deposit their available funds in special accounts in the national treasury.16 The treasury pays a paltry 1 per cent interest on funds, compared to an average of 10 per cent paid by the commercial banks. The difference constitutes a hidden profits transfer to government.
The IMF-reported figures cover only part of public enterprise transfers to governments. For instance, they do not include taxes they pay on their own income, imports, exports, sales, or other operations.17 Taxes paid by public enterprises are combined with those paid by the private sector under the appropriate tax revenue category. The legal basis for taxation is important where public enterprise prices may act as taxes; tobacco monopolies illustrate the point. Government revenues from tobacco taken as profits of a fiscal monopoly figure separately in the IMF classification as, for example, in Burkina Faso; but excise taxes collected by a tobacco monopoly, as in Morocco, show up as revenue with no public enterprise link.
Another unreported transfer consists of the increase in arrears when government delays payment for the purchase of goods and services. Since accounts receivable are rarely disaggregated by type of debtor, data on arrears are difficult to obtain. One indication of arrears’ importance was that in Senegal they were the major cause of non-compliance with several contract plans (Nellis 1988:34). An increase in tax arrears constitutes the analogous current account transfer to public enterprises. Capital account arrears arise when governments fail to deliver budgeted capital grants.
Data problems plague the issue of trying to determine the nature and magnitude of transfers between public enterprises and governments. Only a generalized acceptance of the need for greater transparency in accounting—and its implementation—can enable the analyst to shed more light on the question.
Privatizations
Privatization has sparked intense debate in Africa. The arguments touch on the issues of microeconomic efficiency, macroeconomic stabilization through reduced government subsidies, economic nationalism, the role of multilateral or bilateral aid agencies, employment policy, and shifts in Table 8.3 Francophone African privatizations by type
Sources: Portfolio size: International Monetary Fund 1988; Sales and contracts:
Vuylsteke 1988: 169–72; Liquidations: Berg and Shirley 1987:21–30, and Hemming and Mansoor 1987:33–9
Note: *The Gambia, Kenya, Liberia, Malawi, Nigeria, Sierra Leone, Somalia, Sudan, Uganda, and Zambia.
domestic economic or ethnic power bases (Wilson 1988a).18 However, apart from the debate and irrespective of ideology, experiments with privatization clearly set the francophone nations apart. Table 8.3 shows that with similar portfolio sizes, they have sold assets or equity in eight times as many firms, placed management contracts in twice as many, and liquidated four-and-a-half times as many as have anglophone nations.
Placing Table 8.3’s figures on a per-country basis, francophone nations averaged nine equity or asset sales, three management contracts or leases, and ten liquidations or closures each; anglophone countries averaged two per category.
Most privatizations have occurred through sales of equity and assets.
Three countries led the category: Guinea, Niger, and Côte d’Ivoire.
Typically, small- or medium-sized firms in manufacturing or services have been sold. A less common technique was to close down a firm or, in a limited number of instances, to liquidate it (Nellis 1986:45–6).
Closure avoids the thorny political problems that can materialize around price or purchaser when a firm is sold, by keeping open the option that the firm could reopen. Liquidation closes even that option. Senegal led the list with twenty-five closures or liquidations, followed by sixteen in Guinea, fifteen in Côte d’Ivoire, and eleven in Zaïre. Leasing or management contracts form the third major category. Togo’s eleven firms accounted for a fourth of those reported. Leasing has been most common for service firms.
Leasing, closure, and liquidation avoid recourse to Africa’s thin or missing domestic capital markets, as do private sales to local or foreign investors. Another way of avoiding the capital market constraint is abolishing government-granted monopolies and opening the possibility of competition. This constitutes a non-divestiture privatization that has been subject to little systematic analysis. Indeed, many writers call it something else: change in ‘the regulatory environment’ (Berg 1987: 30);
‘economic policy reforms such as demonopolizing certain activities’
(Vuylsteke 1988:8); or the ‘reassignment of property rights from the public to the private sector’ (Berg and Shirley 1987:2). Others, however, refer to it as ‘partial’ privatization, because, while it transfers operating rights, it has the advantage of a low political profile (Glade 1986:13). In contrast to divestiture, it does not involve the asset transfers that may lead to questions about buyers and prices.
Morocco has tried partial privatization. Monopolies were lifted for municipal bus services in Rabat and Casablanca and private firms received franchises, resulting in the rapid alleviation of urban transport bottlenecks, and giving passengers more transport options with less waiting time.
Morocco’s most striking use of this policy was in demonopolizing the large export service firm, OCE, ranked third nationally in sales in 1982.19 Within a few months after demonopolization in 1984, producers, co-
operatives, and new private firms made up of former OCE staff had captured most of OCE’s business—at a lower cost to exporters. Now, OCE maintains a paper existence, kept alive by its holdings in agro- processing subsidiaries. Its withering away attracted negative political
attention, with questions raised in parliament and editorials in the opposition newspapers. Nevertheless, the decision appears irreversible.
Many francophone African countries have prepared privatization programmes, some with external assistance, as part of broader public enterprise reforms.20 With World Bank funding, Morocco has drawn up an ambitious privatization plan that, according to a draft law submitted to parliament, makes all but six of the more than 680 state holdings
‘privatizable,’ with the exceptions made largely for perceived national Table 8.4 African contract plans by country
Sources: Shahrokh 1987:15, 20, 28–45
Note: *Requirement status of twenty-nine contracts unavailable, twenty-two of them in Senegal. No IBRD requirement among the first ten Senegalese contracts completed.
security interests.21 While the version that emerges from parliament may be more lax in restructuring the portfolio, the Moroccan adminis- tration has opened a dialogue on the need for a drastic overhaul.
Contract plans
The contract plan consists of a signed statement of the mutual rights and obligations of government and the public enterprise that are agreed for a fixed term, usually for three to five years. Usually it results from a long negotiation process between both parties to define or clarify company goals, clearly demarcating strictly entrepreneurial or managerial goals from the political. It often sets performance criteria to be monitored against the strictly commercial goals, while stating that politically inspired deviations from them are subject to reimbursement. It spells out government commitments which may have an impact on management, notably those concerning the institutional environment in which the firm operates, government- allowed price or tariff schedules, and resources for the firm, including payment of government arrears.
The use of contract plans sets francophone Africa apart. A census of ninety-six African contract plans from 1973 to 1988 found only seven in anglophone nations (Shahrokh 1987:15). Of the ninety-six, forty-four were in the drafting or planning stages, while fourteen had been completed, ten of them in francophone countries. Table 8.4 lists the plans: Senegal leads with thirty, followed by the Congo’s eighteen, and Morocco’s ten.
One reason francophone African countries use contract plans may be the plans’ country of origin: France. The Nora Report of 1967 s u g g e s t e d u s i n g c o n t r a c t p l a n s t o i n c r e a s e a u t o n o m y a n d responsibility for French firms and to provide ‘mastery of their own decisions’.22 In Senegal, that link to Africa is clear, since French government advisers helped set up the process (Shirley 1983:80).
Another reason has been conditionally of some World Bank loans;
of the thirty-seven IBRD-required contract plans, thirty-three were in francophone countries.
Plans have been used in many sectors, most notably in public utilities, water, electricity, communications, and transportation. They have helped improve strategic planning at the company level. In Senegal, companies have been forced to identify the sources of their operating deficits and to define their medium-term operating and investment goals and to calculate the cost of loss-making, government-imposed services (Shirley 1983:80–
7). In Morocco’s recently negotiated electric utility plan, the principle of government payment for its imposed loss-making services was accepted (Royaume du Maroc 1988: art. 5, para. 5).