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Abstract
1.1. Problem of Study
The last decades have shown mounting concerns over rising unemployment, income inequality, and the provision of poor health and inadequate education. Public sector brought in its wake an unprecedented range of social, economic and political problems, such as the collapse of the industrial sectors and public finance, waves of unemployment, and widening inequalities. Societies and economies struggled to make the difficult movement toward market economies and democracy. It was the determination of millions of people to bring the scale of economic and social legacies to an end. Privatization was seen as a remedy for such illness and collapse. Some policymakers and practitioners sincerely believe that the only way to eradicate poverty and social exhaustion is through the maximum market freedom, while others believe that the need for a reformed state to play key regulatory, guidance and investment role in order to insure that the benefits of privatization are sustainable, equitably shared and yielding its maximum benefits. Privatization needed to be managed to ensure transparency, equity and fairness.
Since then privatization has transcended its origins as a policy instrument to become a policy in itself. Privatization has been a key component of structural reform programs in both developed and developing economies, it has become largely a worldwide phenomenon, due to its ability to improve performance and reduce the cost of government.
Egypt first became committed to privatization of its public sector enterprises in 1991, when it came to an agreement for a structural adjustment with the World Bank and the International Monetary Fund to stabilize the economy. The cornerstone of this agreement concerning privatization was the proliferation of Law 203, which re-organizes 314 public sector enterprises under 27 holding companies, to encourage them to become profitable, market oriented and independent of the state in management, generates higher productivity, sustainable growth, and as a consequence higher efficiency. However, until 1996 the privatization program proceeded slowly and only a few transactions were effected from 1992 through 1995. Egypt’s privatization program has effectively been under way since May 1996, by the end of the first quarter of 2000; a total of 142 Law 203 companies had been privatized and re- incorporated as private companies.
Economists offer several arguments in favour of and against transferring government run firms and enterprises to the private sector. One of the basic arguments in favor of privatization is that it leads to improvements in economic efficiency. While there is no doubt that the privatization of government enterprises is a major achievement, there is presently very little information available about the post privatization performance of these companies. Thought all writings regarding privatization process (causes and effects), assessing the significance of various consequences associated with privatization such as economic efficiency and its measure, are not available, and needed to be investigated, and that appears clearly in the Egyptian economy, only a tentative conclusions may therefore be drown from company’s reports and case studies, with many questions concerning the impact of privatization on economic efficiency remaining unsolved. Greater policy attention is urgently needed to tackle some economic and social issues.
The overall impact of privatization is not always positive; there are many empirical studies about the impact of different types of privatization on enterprise performance. In order to evaluate the impact of privatization, performance of privatized and state firms must be compared. The present study will consequently examine before and post privatization economic efficiency of a sample group of 22 privatized companies and seek to evaluate the degree to which they are becoming better off or worse off after privatization. An evaluation criterion has been created in an attempt to categorize each company’s performance and the extent to which it is technically and price efficient. The evaluation criteria will be presented thereafter. This study is a try to estimate both technical and price efficiency, using before and after analysis. Also other economic and social dimension will be discussed.
1.2. Hypothesis
Privatization process leads to improvement in both technical and price efficiency of privatized companies.
1.3. Objective of Study
The study aims to test the hypothesis that, privatization process leads to improvement in both technical and price efficiency of privatized companies.
Other objectives,
-To specify privatization process in Egypt.
-To specify economic efficiency: components and measurements.
-To estimate economic efficiency for a group of privatized companies before transfer of their ownership and afterward, in order to identify the degree of improvement in efficiency after privatization took place.
-To identify the basic factors controlling the degree of improvement or deterioration of the economic efficiency.
1.4. Methodology
1.4.1. Theoretical framework
A review of the related literature and a theoretical framework will be presented, including relationships between economic variables controlling both privatization (independent variable) and economic efficiency (dependant variable), then specification of relationships between privatization and economic efficiency, using previously related theories and studies.
1.4.2. Empirical Framework
Different methods will be used to test relationships that have been specified in the theoretical framework.
A. Mathematical analysis, such as functions, equation and regression analysis.
B. Statistical analysis, by using tabulated results and visual summaries (graphs and charts).
C. Case Study, a sample group of privatized Egyptian companies will be tested, to estimate technical and price efficiency by using a set of data before and after privatization, comparing actual results with estimated ones, it is expected there will be a positive deviations to some companies (improvement in efficiency), and negative ones to others (deterioration in efficiency), causes of such deviations will be study to be able to maximize positive deviations and minimize the negative ones.
1.5. Contents
Chapter two presents a short review of related literature and a theoretical framework about privatization, its definition, the economic approaches compete in explaining the theory of privatization and why state-owned enterprises are inefficient, reviewing the theories of privatization at the microeconomic and macroeconomic level that support the idea that private ownership is preferred to public ownership in terms of being inherently more efficient, as well as it will induces a better public financial health; the political,Privatization was seen as a remedy for illness and collapse caused by public sector, privatization in Egypt is clearly moving forward, government continues to sell public enterprises, but assessing the significance of various consequences associated with privatization such as economic efficiency and its measure, is not available, the impact of privatization on economic efficiency remaining unsolved and needs to be investigated.
The objective of the study was to test the hypothesis that, privatization process leads to improvement in both technical and price efficiency of companies that have been privatized, and evaluate the post privatization efficiency of former state owned enterprises (SOEs) which have been sold off by the Egyptian government as part of the privatization and public enterprise reform program.
Consequently a sample group of 22 privatized Law 203 companies were examined, to estimate the post and before privatization efficiency and to evaluate the degree to which they are becoming better off or worse off after their privatization. The twenty two privatized companies classified into four groups; each group reflects a specific sector, food manufacturing companies, transport companies, manufacturing companies, and cement companies. Different methods have been applied in order to privatized companies in Egypt, the most applicable ones were public offering on Cairo and Alexandria stock exchange, sale to anchor and strategic investors, lease management contracts, or through employee stock ownership program. The firms’ specific technical efficiency was estimated using the stochastic frontier production function methodology. The analysis was based on data for a cross-section of the sample privatized firms, values estimates were obtained from an Ordinary Least Squares (OLS) regression. The analysis investigates if the simple adaptive technical and price changes after privatization have a significant and positive effect on efficiency and productivity in the sample firms or not.
Deviations from this maximum output are ascribed to efficiency. Firm-level technical efficiency in a given industry is measured relative to the best performing firms in that industry.
Over-all findings of this study can not be seen as being entirely encouraging for the Egyptian privatization program. After privatization 12 companies are better off 9.