Desktop version

Home arrow Economics

  • Increase font
  • Decrease font

<<   CONTENTS   >>

Structure of State Shareholdings

The initial interest of Arab states in establishing and maintaining SOEs was supported by a number of well-known academic arguments, notably those advanced by post-World War ii developmental economists such as Alexander Gerschenkron who argued that the state needed to take a leading role in capital accumulation and infrastructure development in order to ‘catch up’ with advanced countries. At the time, local private sector actors were perceived as weak and short-term oriented, interested in catering to consumer demand rather than in long-term investment and national competitiveness.

More recent arguments put forth advocating state interventionism in the economy include private sector coordination failures, fear of the emergence of private monopolies, and ‘externalities’ in production that may benefit the whole economy but in which private sector actors may invest less than is socially optimal. In recent years, the systemic risks associated with ‘too big to fail’ private sector firms have also entered the equation as a motivation for government ownership.

Most of these rationales for state ownership found their echo in the Arab world when governments decided to establish soes, and arguably continue to resonate today, although the structure and challenges of SOE sector reform differ by country, as highlighted in Table 6.1. Significant differences can be noted in terms of the number and size of SOEs in countries of the region and of the mechanisms of control used by governments. In Morocco, the Ministry of Finance reports that it owns 241 SOEs in addition to 44 companies in which the Treasury has a direct interest, some of which are newly created (Semmar, 2012). The Tunisian government holds a portfolio of approximately 200 SOEs, in addition to smaller stakes in 480 firms nationalised following the revolution in 2011. In Egypt, the Ministry of Investment holds a portfolio of approximately 150 SOEs in sectors as diverse as insurance and cotton production in addition to over 660 joint ventures between public and private firms as well as an undisclosed number of strategic firms held by sectoral ministries or the military (Bremer, 2012).

The sectoral orientation of SOEs is similar in each of the sub-regions comprising the Middle East and North Africa (the Mashreq, the Maghreb, and the Gulf). The range of sectors in which state companies are present owes its variety both to earlier development approaches and to the recent use of SOEs and Sovereign Wealth Funds (swfs) as instruments of economic diversification and industrial competitiveness, especially in the Gulf countries. As a result, SOEs are mostly concentrated in the minerals and hydrocarbon sectors, service sectors (e.g. utilities, capital-intensive modes of transport, banking, and telecoms) and industrial sectors (e.g. heavy industry operations such as steel and cement) (OECD, 2013).

The extent of state ownership in listed companies—the only available metric of state ownership in the region—indicates high and growing levels of government participation in the economy. Sovereign investment ve- hicles—historically important players in local capital markets—are reported to have been increasing their participation in capital markets both for commercial reasons and, occasionally, to ‘support’ market valuations in times of crisis (e.g. in Saudi Arabia in 2006). For instance, the stake of the Public Investment Fund in Tadawul-listed companies had increased by 26 per cent in August 2014 year-to-year, exceeding 20 per cent of the overall market capitalisation.

table 6.1 Classification of mena soe sectors


Characteristics of state ownership

Reform priorities

Iraq, Yemen, Libya

Numerous unincorporated enterprises; soes major recipients of state subsidies; the state seen as an employer of last resort; underinvestment in soes

Corporatisation and valuation of soe assets; creating mechanisms for reducing redundant employment in the soe sector; reviewing the soe legal framework; attracting investment in soes

Algeria, Egypt, Syria, Tunisia

Large soe sectors owing to the socialist legacy; banking sector historically dominated by soes; high non-performing loans in state-owned banks as a result of lending to other soes; the state seen as an employer of last resort

Rethinking the role of the state in specific sectors (e.g. textiles, agro industries); reorganisation of the state-ownership function; reducing political interference in soe boards; streamlining legal frameworks applicable to soes




Rationalised by privatisation during the 1980s and 1990s; the state present in selected sectors and is generally not seen as an employer of last resort; soes are not highly present in the financial sector but remain active in network industries

Reviewing state ownership in loss-making enterprises; better co-ordination of the state’s ownership function; improving the skills and independence of soe boards; reducing political interference in boards

Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates (uae)

Hydrocarbon soes unlisted; minority stakes in nonstrategic soes listed in part to develop capital markets; new soes being established in recent years; Sovereign Wealth Funds (swfs) and holding companies increasingly exercise ownership

Improving soe transparency; preparing listings of equity stakes or debt issuance by some soes; consolidating soe ownership under professional management; reproducing successful ownership experiences


<<   CONTENTS   >>

Related topics