TuJ II ti s ______ - Foreign Investment Advisory Service _ = _ Occasional Paper 5 Privatizing Public Enterprises and Foreign Investment in Developing Countries, 1988-93 Frank Sader Foreign Investment Advisory Service a joint facility of the International Finance Corporation and the World Bank Foreign Investment Advisory Service Occasional Paper 5 Foreign Investment Advisory Service a joint facility of the International Finance Corporation and the World Bank Privatizing Public Enterprises and Foreign Investment in Developing Countries, 1988-93 Frank Sader The World Bank Washington, D.C. i 1995 The International Finance Corporation and the World Bank 1818 H Street, N.W., Washington, D.C. 20433 All rights reserved Manufactured in the United States of America First printing July 1995 The Intemational Finance Corporation (IFC), an affiliate of the World Bank, promotes the economic development of its member countries through investment in the private sector. It is the world's largest multilateral organization providing financial assistance directly in the form of loans and equity to private enterprises in developing countries. The World Bank is a multilateral development institution whose purpose is to assist its developing member countries further their economic and social progress so that their people may live better and fuller lives. The findings, interpretations, and conclusions express in this publication are those of the authors and do not necessarily represent the views and policies of the International Finance Corporation or the World Bank or their Boards of Executive Directors or the countries they represent. The IFc and the World Bank do not guarantee the accuracy of the data included in this publication and accept no responsibility whatsoever for any consequences of their use. The material in this publication is copyrighted. Request for permission to reproduce portions of it should be sent to the General Manager, Foreign Investment Advisory Service (FAS), at the address shown in the copyright notice above. FHAS encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. The backlist of publications by the World Bank and certain of those by its affiliates is shown in the annual Index of Publications, which is available from Distribution Unit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, or from Publications, Banque mondiale, 66, avenue d'Iena, 75116, Paris, France. Library of Congress Cataloging-in-Publication Data Sader, Frank. Privatizing public enterprises and foreign investment in developing countries, 1988-93 / Frank Sader. p. cn. - (Occasional paper / Foreign Investment Advisory Service ; 5) Includes index. ISBN 0-8213-3362-3 1. Privatization-Developing countries. 2. Investments, Foreign- Developing countries. I. Foreign Investment Advisory Service. II. Title. III. Series: Occasional paper (Foreign Investment Advisory Service) ; 5. HD4420.8.S23 1995 338.9'2-dc20 95-23164 CIP CONTENTS Abstract v Preface vi Acknowledgment vii Executive Summary viii 1. INTRODUCTION 1 2. THE EXTENT OF PRIVATIZATIONS IN DEVELOPING COUNTRIES 3 Latin America and the Caribbean 4 Europe and Central Asia 5 East Asia and the Pacific 7 South Asia 7 North Africa and the Middle East 7 Sub-Saharan Africa 8 3. SECTORAL DISTRIBUTION OF PRIVATIZATION 9 Infrastructure 10 The Financial Sector 11 The Primary Sector 11 Manufacturing 12 4. FOREIGN PARTICIPATION IN DEVELOPING COUNTRY PRIVATIZATION PROGRAMS 13 Portfolio Equity Investments 14 Direct Investment Foreign 16 iii 5. PRIVATIZATION TECHNIQUES AND FOREIGN PARTICIPATION 19 Available Techniques 19 The Actual Use of Different Techniques 21 Foreign Participation under Different Privatization Techniques 23 6. DO PRIVATIZATIONS ATTRACT FOREIGN DIRECT INVESTORS? 26 7. CONCLUSION 33 APPENDIX 34 REFERENCES 45 iv Abstract Privatizations in developing countries were an important element underlying the rapid increase in foreign direct investment to these countries in recent years. Especially Latin America, East Asia, and countries in Eastern Europe managed to attract substantial amounts of foreign investment through the sale of state-owned enterprises to foreign buyers. However, countries with strong privatization programs also witnessed a growth in foreign direct investment inflows that went beyond the direct impact of foreign participation in these sales. The privatization of infrastructure services, in particular, seems to have had a strong effect on the decision making process by foreign investors, advertizing a country as a more attractive investment location. I Preface Privatization has been one of the driving forces underlying the rapid increase in foreign direct investment (FDI) in developing countries in recent years. Many countries actively sought participation by foreign investors in their privatization programs in order to enhance the outcome of these sell-offs, both in terms of revenue generation as well as regarding the future viability of these enterprises. For many large enterprises, the involvement of reputable multinational corporations was deemed essential, providing the urgently needed managements expertise, technical skills, and investment finance, which were not available domestically. With support from the International Economics Department of the VIorld Bank, the Foreign Investment Advisory Service (FIAS) compiled a database on privatization transactions worldwide since 1988. This database does not include any voucher privatizations and is limited to sales transactions, referring to the sale of assets themselves or simply the right of use over an asset such as concessions or lease agreements. This database is now being maintained by the International Economics Department of the World Bank. vi Acknowledgment Numerous individuals in the World Bank Group, as well as in privatization agencies around the world, have provided outstanding support in collecting the privatization information. Without their help this study would have been impossible. Special thanks also go to Joel Bergsman and Dale Weigel for their valuable comments and suggestions, as well as to Juan Carlos Estevez for his work as research assistant. Iii vii~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. Executive Summary Since the late 1980s, more and more developing countries deregulated their economies and opened them to private enterprise and market forces. Privatization of state-owned enterprises (SOEs) has been a centerpiece of these reforms, reducing the state's role in the economy and alleviating already strained public budgets. In the last six years, the sale of such enterprises has expanded rapidly. During 1988-93, sixty-nine developing country governments sold almost 2,300 enterprises (this number excludes mass privatizations through vouchers, which are not included in the statistical material upon which this study is based). The sales generated about US$96 billion, with particularly strong performances in several countries in Latin America and Eastern Europe. While these substantial revenues were a welcome addition to current budgets, the sale of these enterprises also reduced pressure on future budgets by limiting the need to finance loss-making SOEs. Equally important, privatizations supported the renewed access of many developing countries to international capital markets. Foreign participation in privatizations was generally extremely strong, providing about US$33 billion in foreign exchange during the period in the form of portfolio equity and foreign direct investment. Foreign investors' interest in developing country privatization programs has risen steadily, especially that of companies in the United States and Western Europe. Despite a small decline in total privatization revenues during 1993, the amount of foreign participation continued to climb, reaching a record level of US$11 billion, and accounting for 44 percent of total privatization revenues. Direct sales to individual investors and public offerings on local or international stock exchanges are the most common privatization techniques, and are being applied in more than 90 percent of all privatization sales. They have also proved to be the most commonly used mechanism through which foreign investors participate in privatization programs, because they allow the investors to acquire the desired control over the enterprises sold. However, other techniques - such as joint ventures, concessions, and even lease agreements - have managed to attract foreign interest in some cases. Governments have successfully used these techniques when they preferred not to give up ownership, but wanted to attract private sector partners to improve efficiency and management. In light of the increasing trend to privatize infrastructure services such as transportation, telecommunications, and energy supply, concession and lease agreements might prove to be important privatization techniques that could also interest foreign investors. Besides being a direct source of foreign exchange, privatizations also attract foreign investments that are additional to those directly involved in the sale of state-owned assets to foreigners. An econometric analysis shows that the size of privatization programs is highly viii correlated with total inflows of foreign direct investment. Privatizations in infrastructure appear to have a particularly strong correlation with greater FDI inflows. Privatizations in these sectors offer the possibility of reducing operational costs by providing reliable and high quality services in communications, transportation, and energy supply, and thus raise the expected profitability of investment projects. Sales of industrial enterprises also result in additional foreign investment inflows above and beyond the amount obtained directly from the privatization. In this case, however, increased inflows appear to result less from the entry of additional investors than from further capital inflows needed to improve and refurbish the companies bought in the years following their purchase. Both of these conclusions, which are based on the analysis reported in this paper, are consistent with anecdotal evidence of the behavior of individual enterprises. Privatizations concluded in several countries have served as an important mechanism to attract foreign investment, directly by the sale of assets to foreigners, and indirectly by attracting further investments from these buyers as well as by attracting completely new investors. Thus, privatizations are not simply a one-shot exercise, with foreign investment inflows falling back to their original level on completion of the program. Rather, privatizations can give a strong and lasting impetus to investor interest abroad, and can help achieve a sustainable, higher level of capital inflows by providing international investors with an open and profitable investment environment. ix 1. Introduction The 1980s were the decade of debt crisis and capital shortage for many developing countries. The 1990s, by contrast, have so far been a period of renewed private capital inflows. Middle- income countries, in particular, have witnessed a rapid inflow of investment financing from abroad. Foreign direct investment and portfolio equity investment grew at an estimated average of 44 percent per year (World Bank 1994, p.192). Private investment has become the most important source of finance for developing countries as a whole. The share of private investment in aggregate net resource flows to these countries increased from just 6 percent in 1980 to about 40 percent in 1993 (World Bank 1994, p.170). This boom in private investment has been the result of widespread macroeconomic stabilization and liberalization. Many developing countries want to improve their international competitiveness and are keen to provide a more attractive business climate for private economic activity. One particularly important component of this liberalization effort is a strong move toward reducing the size of the public sector. The current liberalization is a reversal of a trend beginning in the 1950s, when governments in the developing world increasingly intervened in their economies, hoping to accelerate the development process by investing in key industries such as raw materials, telecommunications, finance, transportation, and heavy industry. In most cases, however, the performance of these state-owned enterprises (SOEs) was disappointing. Soft budget constraints combined with an emphasis on political goals, such as providing employment and subsidized goods and services, all too often resulted in many SOEs being grossly inefficient. As a result, most of these enterprises were typically loss-making, which made them a significant burden on already strained public budgets and hindered rather than enhanced the process of economic development. In light of the macroeconomic pressures of the debt crisis during the 1980s, developing countries increasingly were forced to cut spending. On average, the share of public investment in total investment fell from about 45 percent in the early 1980s to around 38 percent in 1992 (Miller and Sumlinski 1994, p.23). This partly reflects the strategy by developing country governments to rid themselves of their oversized and inefficient public sectors by privatizing SOEs. In addition to the expected efficiency gains for the economy as a whole, governments can support their budgets using the revenues from these sales and reduce future budgetary pressures by eliminating the need for investment expenditures and subsidies to SOEs. Prior to the late 1980s, only a few countries had embarked upon a systematic privatization program. Chile was a front runner in the privatization movement. The military regime under General Augusto Pinochet started a massive privatization program in 1974 in reaction to the socialist government under Salvador Allende, which had nationalized about 350 enterprises during 1970-73, thereby giving the government control over almost 50 percent of GDP (Nankani 1988, p.18). Since then, Chile has sold off the vast majority of its SOEs in several waves, generating total revenues of about US$1.4 billion (Sader 1993, p.7). Other developing countries also engaged in privatization activities during the early 1980s. A World Bank study lists a total of 456 privatization transactions in sixty-four developing countries during 1980-87 (Candoy-Sekse 1988). Most developing countries did not implement privatization as a tool of macroeconomic liberalization before the late 1980s. Since then, however, privatizations have grown strongly in a rapidly expanding number of countries. This development has helped to create an attractive business environment in many developing countries and has intensified the interest of foreign investors. The World Bank Group maintains a global privatization database that records privatization transactions that have taken place in developing countries since 1988. The Bank obtains the data primarily from privatization agencies within the individual countries. This material is been complemented by information from publicly available sources as well as by others within the World Bank. For the purpose of this study, privatizations are defined as the complete or partial transfer of control over publicly-owned assets to the private sector in exchange for a payment. This includes all direct sales of public assets to private investors in the form of public offerings or private placements. It also includes the contracting out of government services through concessions or licensing agreements. To keep the database manageable, the Bank does not usually include small-scale privatizations with a sales value of less than US$50,000. The database also does not record any divestitures of SOEs in the form of simply shutting down operations and mothballing assets. Even though mass privatizations through vouchers are currently extremely important to the transformation of the Eastern European economies, this analysis excludes such privatizations. One reason is that reliable statistics on mass privatization do not exist, even in most of the source countries. In addition, voucher privatizations target the domestic population, and are therefore initially not directly accessible to foreign investors. The appendix provides a detailed overview of the data with breakdowns by region, sector, investor type, and investor origin. Privatization has grown rapidly since 1988. At the same time, however, there exist substantial differences among individual countries and regions regarding the intensity with which this policy has been pursued. This study shows that privatization can serve as an important tool for raising inflows of foreign investment into developing country economies. For one, foreign investors participated directly in sizable and easily accessible privatization programs. In addition, well-run privatization programs also appear to have attracted additional investment flows from abroad, independent of the privatization program itself by advertising the country as an attractive investment location. 2 2. The Extent of Privatizations in Developing Countries The number of privatization transactions worldwide grew rapidly from only 62 in 1988 to 868 during 1993.1 Overall, for a total of 93 countries, 2,655 transactions were recorded during this period, generating a total sales revenue for the governments of US$271 billion.2 Most of these privatizations were in developing countries. Over the period as a whole, they account for more than 2,200 sales, or about 85 percent of all transactions concluded globally (see figure 1 and tables A-I and A-3 in the appendix). Sales in industrialized countries accounted for a substantial part of the total revenues realized from privatizations sales. Industrialized country sales amounted to US$175 billion, compared to US$96 billion in developing countries. Figure 1. Privatizations Worldwide, 1988-93 By Number of Transactions 1,000 900 0 O Industrialized Countries- - 800 - -UL Developing Coune ---l 700 _ - 600 _ - 500 400 - 300 -; -__U 200 - 100 I 1988 1989 1990 1991 1992 1993 By Amount of Revenue USS Billion 80- 70 0 Industrialized Countries 60 - r 50- 40 30- 20- 10 1988 1989 1990 1991 1992 1993 Source: World Bank Privatization Database. Industrialized country privatization data were provided by Fin Mark Research, Inc. 2 Privatizations in the former German Democratic Republic are excluded because of the unavailability of detailed information. Estimates indicate that the Treuhandanstalt has sold about 12,000 entities for approximately US$28 billion since the start of the program in 1990. 3 Despite the dominance of industrial countries in large-scale sell-offs, the privatization efforts in the developing world were impressive. During the period as a whole, developing country privatizations grew more rapidly in terms of the number of transactions and of the proceeds generated. The sales volume increased from only US$2.6 billion in 1988 to a peak of US$29.0 billion in 1992. During 1993 revenues fell slightly to US$24.5 billion. The decline resulted from a reduced sales volume in Latin America, Europe, and Central Asia. In other regions, the amount of privatization revenues increased, but not enough to compensate for the loss elsewhere. Over the period as a whole, Latin America, Eastern Europe, and to some extent East Asia dominated developing country privatizations. This was true for both sales revenues and number of transactions. Figure 2 shows the extent to which Sub-Saharan Africa, South Asia, and the Middle East and North Africa lagged behind the leaders. (also see tables A- I and A-3 in the appendix). Figure 2. Privatizations in the Developing World by Region, 1988-93 Total Revenue: USS96 billion Total Number of Transactions: 2,279 Sub-Sha- Sub-Sahar East Asia and thc Afica East Asiaand the AfTic a,fie USS2.4 bn Pacifi 199_19 *atin Asiticand As 561~~~~~~~~~~~~~~~~7 Latin America sadS$36 . af. =Tc.ar thS3.6 bnnthc CaTibb= _ie _ / ~~~~~~~~~Eumap. ad Ccntml_ / Lati Amnca, Asand/A1 thc Catibbean _ L / USS 18 1I bn ~~~~~~~~~Middle East ted / USS5 5 2bn b Afric a Noah AftiCa Aia USS0.7 bn 1,097 Source: World Bank Privatization Database. Latin America and the Caribbean The Latin America and Caribbean region was the strongest privatizer among all regions in terms of sales volume. During 1988-93, 561 publicly owned entities worth US$55.2 billion were sold, representing about 58 percent of all privatization revenues in the developing world during the period. Sales reached their peak in 1991 (US$18 billion) and then declined, falling to US$10 billion in 1993. This decline reflected the fact that several large Latin countries had already sold most of their state-owned assets. This rise and decline occurred most obviously in Mexico, whose privatization program accelerated rapidly when President Carlos Salinas took office in December 1988. Between then and 1993, the government sold 194 enterprises, generating US$26.5 billion in revenue. 4 The most important year was 1991, when the telephone company TELMEX and the two largest banks, Banamex and Bancomer, were sold. Banamex alone sold for US$3.2 billion, and was the largest single privatization sale in the developing world. By 1993, however, most of Mexico's SOEs had been sold, and the number of transactions, as well as revenue from privatization, was declining rapidly. But the process may regain momentum because of intensified privatization of infrastructure facilities (especially roads, railroads, and port facilities) on a concession basis. Argentina has been another strong privatizer in the region. After his election in 1989, President Carlos Menem committed himself to a severe reduction in the size of the public sector. Public sector enterprises had become bloated and unprofitable, and in 1989 had shown losses of about US$4 billion (Clutterbuck 1991, p.59). By 1993, the governrment had sold 106 enterprises, generating almost US$17 billion in revenue, while simultaneously reducing the country's external debt by about US$17 billion through debt-equity swaps. Having already privatized a large number of companies, including airlines, power utilities, the telephone company, and railroads, Argentina undertook its largest privatization in 1993 with the sale of 45 percent of its petroleum company, YPF, through a public offering for a total US$3 billion. As in the case of Mexico, Argentina had sold most of its SOEs by the end of 1993. Privatization was at varying stages in other countries of the region by the end of 1993. Peru's privatization program began in 1991, and between then and 1993, the government sold twenty-eight enterprises for about US$350 million. Smaller countries, such as Honduras, Jamaica, and Nicaragua, also engaged in substantial privatization activities but in several countries of the region the process has not yet begun or has stalled. In Venezuela privatization had a promising start with the sale of the telephone company, CANTV, in 1991. Between then and 1993, however, only minor assets were sold because of political difficulties. Brazil privatized twenty-seven companies between 1988 and 1933, gaining revenues of US$6.9 billion. While that was substantial relative to neighboring countries, it was nevertheless well below the potential of Brazil, a large economy with many state-owned enterprises. Europe and Central Asia As an integral part of the transformation from a socialist economic system, the former centrally planned economies of Eastern Europe and the former Central Asian republics of the Soviet Union have engaged in a massive process of divesting state-owned assets. Between 1989 (when Hungary first began the privatization process) and 1993, these countries sold more than 1,000 enterprises, representing almost half of all privatization transactions in the developing world (excluding voucher privatizations). After strong growth, privatization revenues in the region of Europe and Central Asia fell from a peak of US$6.2 billion in 1992 to US$4.6 billion in 1993. This decline, however, was caused by reduced sales in Greece, Portugal, and Turkey, which are also included in this region. The former centrally planned 5 economies continued their strong privatization efforts during 1993 with the sale of 297 enterprises for US$3.7 billion, up from 126 enterprises for US$2.9 billion in 1992. The revenues generated in Eastern Europe and the former Soviet republics were not particularly large, given the enormous number of sales. The number of transactions reflected less the degree of intensity with which privatization was pursued as a policy rather than how deeply the public sector was involved in the economy. Governments in Latin America and East Asia were primarily engaged in infrastructure or very large industrial enterprises. Thus, the average value of sales in these regions is quite high. Countries with SOEs in a wide variety of sectors also owned a large number of minor companies, resulting in a significantly smaller average sales value. Thus, the average value of privatization sales in Eastern Europe and the former Soviet republics was extremely low, practically identical to the average price generated in privatizations in Sub-Saharan Africa (see figure 3). Figure 3. Average Privatization Value by Region, 1988-93 Sub-Saharan Africa - T1 Europe and Central Asia Middle East and North Africa South Asia East Asia and the Pacific Latin Amerca and 1 I the Caribbean - 0 20 40 60 80 100 120 USS NMillions Source: World Bank Privatization Database. The most active privatizer in Eastern Europe and Central Asia was Hungary, which sold 164 enterprises for US$4.3 billion between 1989 and 1993. The Hungarian program was also the most market-oriented privatization scheme in the region, focusing on revenue generation rather than on mass privatization through vouchers. During 1993 the program continued at a high level despite political difficulties, generating US$1.8 billion from sixty-two sales. Hungary also concluded the largest privatization transaction ever in the region in 1993 by selling 30 percent of its telecommunications company, Matav, for US$961 million. The buying consortium led by the German Telekom also agreed to invest US$4.3 billion in Matav through the year 2002. The former Czechoslovakia opted for a mix of direct sales to strategic investors and a voucher program. Since the beginning of the program in late 1990, about eighty enterprises 6 were sold directly, generating US$2.6 billion in revenue. However, the program has been much more intense in the Czech Republic, while privatizations in Slovakia have been barely progressing since the country's breakup. In 1993 Slovakia sold only eight companies for about US$60 million, while the Czech Republic sold thirty-two firms for US$650 million. Poland was the third largest privatizer in the region, selling 154 enterprises for a total of US$1.4 billion between 1990 and 1993. Despite difficulties, the program remained strong in 1993 with the privatization of eighty-one companies for more than US$700 million in revenue. Among these companies was Bank Slaski, sold for US$141 million which was the first sale of a banking establishment within the privatization program. Bulgaria, Croatia, Estonia, Lithuania, Romania, and Slovenia have also established privatization programs. As of 1993, however, the assets sold were of minor value. The country with the greatest potential, Russia, opted almost exclusively for voucher programs and conducted only a small number of direct sales. East Asia and the Pacific East Asia and the Pacific was the only region that showed an increase in privatization revenues in 1993 when the total reached US$7.5 billion, up from US$5.2 billion in 1992. After a relatively slow start compared to other regions, privatization picked up during the early 1990s. Total revenues between 1988 and 1993 amounted to US$16.2 billion. The most intensive privatizers in terms of revenues from sales were Malaysia, the Philippines, and China. Between 1988 and 1993 Malaysia's privatization sales generated US$5.8 billion in revenue, or more than one-third of the region's total. The Philippines substantially reduced state ownership, selling sixty-three enterprises for US$2.8 billion between 1988 and 1993. The Government of China does not officially use the word " &privatization", but in practice has reduced state ownership by offering shares to domestic and foreign investors on the Shenzhen, Shanghai, and Hong Kong stock exchanges. From 1991 to 1993 the government sold shares in sixty-one state-owned companies and collected a total of US$4.1 billion. South Asia Privatizations in South Asia declined in 1993 to a value of US$974 million for fifty-four enterprises, compared to US$1.6 billion from eighty-three sales during 1992. India dominated the region, selling forty-seven companies for US$2.9 billion between 1991 and 1993. But not even the privatization of 29.4 percent of the State Bank of India in 1993 could compensate for a decline in the region's other privatization programs, primarily in Pakistan and Sri Lanka. North Africa and the Middle East Privatizations in North Africa and the Middle East were minor in terms of value and number of transactions but grew rapidly in 1993. Tunisia, the first systematic privatizer in the region, 7 was joined by Egypt and Morocco in showing relatively strong sales of SOEs in 1993. Overall, however, only fifty-four transactions worth US$740 million were recorded for the region during 1988-93. Sub-Saharan Africa Sub-Saharan Africa showed some increase in privatization activity in 1993. Excluding the only two sales in South Africa in 1989, the region collected almost US$1 billion from the sale of 200 enterprises between 1988 and 1993. In terms of sales value, Nigeria dominated the region with total revenues of US$740 million, US$500 million of which, however, stemmed from the sale of the NNPC oil field to Elf Aquitaine. Benin, C6te d'Ivoire, Ghana, Kenya, Togo, Uganda, and Zambia also created privatization programs that showed varying degrees of success. The largest number of companies was sold in Mozambique in a program that has picked up speed in recent years: the country privatized 276 companies, but all were of minor value.3 3Only 82 of these 276 companies were sold for at least US$50,000 and therefore were included in the database. 8 3. Sectoral Distribution of Privatization The regions also differ substantially with respect to the sectoral distribution of privatizations (figure 4), reflecting the varying degrees of public sector involvement. Infrastructure sales, including sales in telecommunications, energy, water supply, and transportation companies, were significant in Latin America and the Caribbean as well as in East Asia and the Pacific. The other regions primarily privatized manufacturing and primary sector enterprises. In Eastern Europe and Central Asia, sales of industrial enterprises accounted for half of all sales during the period (see appendix, tables A-5 to A-10). Figure 4. Sectoral Distribution of Privatizations (by Region as a Share of Total Revenue, 1988-93) 100% I- . . 4004 20% 0% East Asia & Euirope & Latin Middle East Southl Asia Suib-Sahiaran Pacific Ceiitial Asia Ainerica & & Nortli US$3.6bn Africa (*) US16.2bni USS I 8.bn Caribbean Africa US$1 .Obn USS55.2bn USS0.7bni M4 IniirastiliCtUre * Financial Services 0 Primiary Sector t1 eo Soiiih Afr,ca a Iiidnistry * Services * Others Note: "InfrastruIcture" includes power, telecommunications, transport, and water. "Primary sector" includes agribuisiniess, hvdrocarbons, anid mining. "Others" refers to sales that could not be classified. Souirce: World Bank Privatization Database. Sales of industrial SOEs dominated privatization in the developing world in terms of number of transactions. With respect to sales revenues, however, infrastructure was the leader, accounting for US$32 billion, or one-third of all revenues from privatization during 1988-93 (figure 5). Sales of industrial enterprises provided 27 percent of total sales revenues, mainly because of the sale of particularly large entities in East Asia and Latin Amierica as well as a large number of medium-sized enterprises in Eastern Europe. 9 Privatization of financial enterprises generated US$20 billion, primarily from sales of commercial banks in Latin America. Figure 5. Sectoral Distribution of Developing Country Privatizations, 1988-93 Other Services Others USS3.3 bn USS2.9 bn Indulstry |_ nrsucie USS32.0 bn Primary Sector USS12.1 bn Financial Services USS20.0 bo Source: World Bank Privatization Database. Infrastructure Many development economists hope that the privatization of infrastructure services will have a positive impact on economic development. Activities such as energy generation and distribution, water sanitation, transportation, and telecommunications help shape the investment climate and determine business opportunities in the rest of the economy. Developing country governments recognized the need for such infrastructure services early on, and typically attempted to provide them by creating SOEs. In most cases, however, these enterprises became highly inefficient. Lack of investment and failure to upgrade facilities often transformed these sectors into bottlenecks instead of producers of multiplier effects with positive externalities. Privatization of telecommunications assets, amounting to US$15.5 billion during 1988-93, was the largest type of infrastructure sales in developing countries. Although the number of telecommunications transactions was relatively small, the typical telephone company in a middle-income country is of high value. The largest transaction was the sale of Mexico's TELMEX, with a total value of US$4.9 billion, in several public offers during 1990 and 1991. Argentina also sold its telecommunications enterprise after splitting it into ENTEL North and ENTEL South in 1990. Sales of the two companies generated a total of US$3.3 billion. Venezuela, in its only true privatization success, sold 40 percent of CANTV to a consortium led by GTE and AT&T for US$1.9 billion in 1991. However, telecommunications privatizations did not occur only in large Latin countries. Barbados, Belize, and Jamaica also divested themselves of their telephone companies during the period. 10 East Asian countries were surprisingly weak in telecommunications sales. Only small minority shareholdings were sold in Korea Telecom, Syarikat Telekom Malaysia, and Eastern Visayas Telephone of the Philippines. Countries in other regions achieved no significant privatization in telecommunication sector until end- 1993. Privatization in energy generation, transmission, and distribution also were significant overall with sales worth US$9.6 billion in the developing world as a whole during 1988-93. The most important privatizer in this area was Argentina, which sold its electric power utilities for US$2.1 billion and its gas distribution network for another US$1.8 billion. Korea, Malaysia, and the Philippines also privatized some of their power utilities. The largest single sale in energy was the public offering of 21 percent of Korea Electric Power Corporation, which sold for US$2.1 billion in 1989. 1 The most significant privatizations in transportation were sales of national airlines, which generated US$5.4 billion, or 80 percent of all revenues from transportation privatizations. Aerolineas Argentinas was sold in 1990 for US$1.9 billion, and Malaysia Airlines in 1992 and 1993 for US$1.4 billion. Various other countries, such as Guatemala, Hungary, Mexico, Panama, the Philippines, and Thailand also privatized their air transportation companies during the period. In addition, concessions for railroads, port facilities and road maintenance became increasingly fashionable during the period, primarily again in Latin America. The Financial Sector During 1988-93, sales of publicly held financial institutions amounted to almost US$20 billion, or 20 percent of total developing country revenues from privatization. The largest share of these revenues came from privatization of commercial banks in Latin America, especially Mexico. That country embarked upon privatization of its banking sector during 1991 and 1992, and obtained US$12.1 billion from the sell-off of eighteen commercial banks. The Philippines privatized seven banking enterprises for US$800 million. In Europe, Portugal was particularly active, with sales since 1989 of nineteen banks and insurance companies worth about US$3.3 billion. The Primary Sector In the early stages of development, many governments became heavily involved in the primary sector. Trading of natural resources, such as minerals or petroleum, was often the only easy way of earning foreign exchange. Privatization of primary sector activities therefore has a strong signaling effect, indicating to private investors the sincerity and intensity with which a government is pursuing privatization. Petroleum companies in particular often symbolize national wealth and independence, and most governments have therefore not dared to touch them. Hence, when Argentina began to sell drilling areas in 1990 and finally privatized YPF in 1993, the international markets took this as a clear signal that the country was now open to private investment. Argentina received US$4.3 billion from petroleum-related sales between 1990 and 1993. 11 In Mexico,- constitutional restrictions do not permit privatization of basic petroleum operations, but the government did begin to sell various downstream operations. The country also sold eleven mining companies, including its largest copper mine, Cananea, for US$475 million between 1989 and 1993. Peru also engaged in substantial mining privatizations, including Hierro Peru, sold to the Chinese Shougang Group for US$120 million. Manufacturing In manufacturing, Latin American countries produced the highest sales volume, even though privatizations in Eastern Europe were concentrated in this sector. Privatizations of large industrial enterprises, such as chemical and petrochemical companies and steel plants, in Argentina, Brazil, and Mexico resulted in revenues of almost US$10 billion during 1988-93. Brazil also earned about US$6.5 billion through sales of SOEs in these two areas, including the sale of the steel giant Usiminas, which was sold for US$1.5 billion in 1991, and CSN, the first integral steel mill constructed in Latin America, which was privatized in 1993 in return for US$1.3 billion. 12 4. Foreign Participation in Developing Coyntry Privatization Programs Foreign investors can participate in privatization transactions either through foreign direct investment or portfolio equity investment. Portfolio equity investment is a purely financial investment, with the investors share not exceeding 10 percent. A foreign direct investor, by contrast, is typically interested in strategic ownership and intends to gain substantial influence over the company's operations. Participation by foreign investors in privatization programs is politically sensitive. In most countries, larger public enterprises are often considered to be national treasures, and plans to privatize them have often aroused domestic political opposition. However, the involvement of foreigners may bring a number of benefits. First, it raises the degree of competition in the sell-off process by increasing the number of bidders. This generally results in a higher price being paid for the SOE, as well as better terms for other aspects of the sales contract, such as future investment commitments or agreements with the labor force. In an econometric analysis of 346 sales in Mexico, L6pez- de-Silanes (1994) showed that foreign participation resulted in significantly higher prices relative to exclusively domestic tenders. Second, foreign investors typically are an important source of investment finance and management skills. A major reason for privatizing an SOE is that the enterprise is uncompetitive. Foreign investors can bring the expertise needed to make capable of competing at world market standards. They may also bring the financial resources needed for technological improvements. Thus, the involvement of foreign investors means both that the government can obtain a higher price for the SOE and that the company's future prospects are enhanced. To obtain these benefits, however, the government must be committed to privatization and willing to face political discontent from parts of the electorate. Some countries such as Argentina and Mexico were highly successful in this respect, while for others, such as Brazil and many African countries, the political process was apparently too difficult to allow foreign investors easy access to the privatization process. Despite these difficulties, the participation of foreign investors was generally strong and increased over time. During 1988-93, 671 of the 2,279 privatizations in developing countries involved foreign investors. In terms of sales volume, foreign investments amounted to US$33 billion, or almost 35 percent to the total revenue generated by privatization (figure 6). While privatization revenues declined slightly in 1993, foreign exchange earnings resulting from privatization continued to rise, reaching almost US$1I billion. Thus the share of foreign exchange in total revenues increased from 9 percent in 1988 to 44 percent in 1993 (see appendix, tables A-I to A-4, A-I1, and A-12). 13 Figure 6. Revenues from Privatizations for All Developing Countries, 1988-93 30 25 20 Dmsi 0 m15 10 ~~~~~~~~~~~~~~Fori D irect 5 _e_ 0 Portfolio Equfty Investments 1988 1989 1990 1991 1992 1993 Source: World Bank Privatization Database. Foreign direct investment was the main mechanism through which foreign investors participated in privatization programs. During the period as a whole, US$22.5 billion entered developing countries through foreign direct investment in SOEs. While these inflows declined slightly in 1993, they fell significantly less than privatization revenues from domestic sources. However, the driving force behind the increase in foreign participation was portfolio equity investment, which grew at an explosive rate from barely US$100 million in 1990 to US$4.6 billion in 1993. Participation by foreign investors differed substantially between regions (figure 7). Eastern Europe and Central Asia showed the highest share of foreign involvement, 57 percent. Taken alone, the economies in transition in Eastern Europe and the former Soviet republics show a far larger share of 77 percent during this period. These countries suffered from a fundamental lack of domestic investment capital and therefore particularly welcomed the participation of foreign buyers. South Asia, by contrast, had an extremely low share of foreign investment because of limitations on foreign participation in some countries and because the region as a whole appears not to be very attractive to investors from abroad. Portfolio Equity Investments Portfolio equity investments in developing countries increased rapidly in recent years. The main actors, institutional investors such as insurance companies and mutual funds, are searching for opportunities to diversify their portfolios through investments in developing countries. These investors also proved to be important players in the developing country privatization process. Privatization-related portfolio equity flows during the period occurred primarily in Latin America and East Asia (see figure 7), thanks to well-functioning and reasonably strong stock markets in most of the countries in these regions. Sub-Saharan 14 Africa, the Middle East, South Asia, and Eastern Europe barely attracted any such flows, primarily because of the absence of sizable stock markets and the relative smallness of the offerings in these countries. Figure 7. Foreign Participation by Region, 1988-93 100%- 90% 80% 70% 50% 1 1 40% u I * 11 20% UI 10% I 0% IU East Asia Europe & Latin Middle South Asia Sub- & Pacific Central America & East & Saharan Asia Caribbean North Africa Africa p Domestic Investments 0 Foreign Direct Investments U Portfolio Equity Investments L , _ _ ID _ _ -_ _ - __ -- _ __ __ - _ ] Note: Foreign participation has been calculated based on sales value. Source: World Bank Privatization Database. Privatizing countries typically try to attract institutional investors to large privatization sales that would have difficulty in attracting the necessary funds from individual strategic investors. The first equity offering of this type occurred in 1990 when the government of Chile sold the remaining part of Telefonos de Chile on the New York Stock Exchange for US$98 million, thereby concluding the company's privatization. This was also the first international equity offering by any Latin American country in twenty-five years. In 1991 Argentina was the first country to make use of Global Depository Receipts (GDRs) by issuing securities with a nominal value of US$364 million in the privatization of Telefonica de Argentina.4 This was followed by the sale of 30 percent of Telecom Argentina with another issue of GDRs and an issue of American Depository Receipts (ADRs) for US$270.3 million. In May 1991 Mexico carried out the largest single issue of ADRs when the government privatized the remaining 15 percent of TELMEX for a total of US$2.4 billion. In addition, Mexico issued GDRs worth US$638 million in 1991 in the privatization of Bancomer, which sold for a total of US$2.5 billion. In mid-1993 Argentina launched its largest privatization with the sale of 30 percent of its national petroleum company, YPF, for a total of US$3.04 billion, of which 75 percent came from international offerings. Securities issues in privatization transactions have, however, not been limited to large enterprises in Latin America. The govermnent of China effectively allows the transfer of 4GDRs are negotiable equity-based instruments publicly traded in several securities markets worldwide. ADRs are the same type of instrument, but they are only traded in U.S. securities markets. 15 partial ownership in selected companies to foreign investors by issuing B-shares at the stock exchanges in Shenzhen and Shanghai and H-shares in Hong Kong. Fifty-four such offerings, with a total value of US$3.4 billion, took place between 1991 and 1993. In 1993 alone the Chinese government issued shares worth about US$2.4 billion, dominated by offerings of shares in the Maanshan Iron and Steel Company worth US$585 million and in Shanghai Petrochemical and Yizhen Fibre, with offerings of more than US$300 million each. Overall, sixty-nine transactions that qualified as portfolio equity investments were recorded for 1988-93 for a total of US$10.6 billion. That was 11 percent of total privatization revenues for the developing world and almost one-third of total foreign exchange inflows resulting from privatization transactions. In some cases (TELMEX, Aerovias de Mexico), newly privatized companies made use of the rapidly growing market by issuing additional securities. Inflows in the form of equity investments can be expected to grow further in the future through additional large-scale privatizations, especially in infrastructure enterprises, and through offerings of equity in already privatized companies. Foreign Direct Investment The remaining 619 recorded transactions with foreign participation involved foreign direct investment (FDI) that amounted to US$22.5 billion for 1988-93. These inflows rose from only US$230 million in 1988 to US$6.8 billion in 1992 before dipping slightly to US$6.1 billion in 1993. The amount of FDI in privatizations transactions, however, differed substantially among regions. Latin America and the Caribbean showed a pronounced decline in foreign direct investment in privatization projects from US$3.3 billion in 1991 to US$1.1 billion in 1993. But this did not reflect reduced interest among foreign investors. It simply demonstrated that the largest privatizing countries in the region, such as Argentina and Mexico, had already sold most of the medium-size and large-scale enterprises capable of attracting foreign investors. During the period as a whole, privatizations became an important component of foreign direct investmnent inflows to Latin America, averaging about 15 percent of the total, with a peak of 32 percent in 1990. Eastern Europe and Central Asia also showed a slight decline in FDI during 1993, but as was the case for privatization revenues as a whole, this was because of reduced sell-off activity in Greece, Portugal, and Turkey. The former socialist countries of the region continued to receive almost half of their foreign direct investment inflows from privatizations. FDI from privatizations reached almost US$3.0 billion in 1993. Between 1988 and 1993, these countries received US$8.5 billion in privatization revenue from foreign direct investors. In the other regions, privatization played only a minor role in relation to total FDI inflows. East Asian countries are generally already extremely attractive to foreign investors, rendering the contribution of privatization transactions marginal. In addition, domestic capital markets are typically well developed, so that participation by foreigners is not essential to obtain an adequate price for the SOEs sold. 16 Table 1. Foreign Direct Investment from Privatizations, 1988-93 (in US$ millions and percent) Region 1988 1989 1990 1991 1992 1993 1988-93 Europe and Central Asia -FDI from pri,atizations 18.9 641.2 615.0 2,076.9 3,705.7 3,074.8 10,132.5 -as share of total FDI (%) 0.8 18.4 13.3 29.7 44.7 35.9 29.4 of which Economies in Transition -FDI from prisatizations 14.3 461.5 475.5 1,868.2 2,697.9 2,979.8 8,497.2 -as share of total FDI (%) 1.4 31.2 33.5 49.8 46.4 49.0 43.4 Latin America and the Caribbean -FDl from priwatizations 213.7 183.3 2,461.0 3,264.3 2,414.5 1,107.4 9,644.2 -as slare of total FDI (%) 2.7 2.6 32.1 27.1 16.6 7.0 14.9 East Asin anid Pacific -FDI from privat,zations 1.3 0.0 0.7 77.1 522.7 1,076.4 1,678.2 -as share of total FDI (%) 0.0 0.0 0.0 0.6 2.6 3.0 1.7 South Asia -FDI from privatizations 0.0 0.1 10.6 4.2 41.8 16.2 72.9 -as share of total FDI (%) 0.0 0.0 2.3 0.9 7.4 2.2 2.4 Sub-Saharan Africa (a) -FDI from privatizations 0.0 13.8 38.2 11.1 49.8 544.7 657.6 -as share of total FDI (%) 0.0 0.5 4.5 0.6 3.1 24.1 6.4 Middle East and North Africa -FDI from prisatizations 0.0 1.0 0.0 3.2 19.2 302.0 325.4 -as share of total FDI (%) 0.0 0.1 0.0 0.3 1.2 16.6 4.1 TOTAL -FDI from privatizationrs 233.9 839.4 3,125.5 5,436.8 6,753.7 6,121.5 22,510.8 -as share oftotal FDI (%) 1.1 3.4 11.9 14.8 14.3 9 .5 10.2 (a) excludes South Africa Source: World Bank Privalization Database. Foreign direct investment was of only marginal amounts in Sub-Saharan Africa until 1992. But there was a dramatic increase in 1993, when privatization-related FDI reached US$545 million. This, however, was solely because of the sale of Nigeria's NNPC oil field to Elf Aquitaine for US$500 million. Without this transaction, foreign direct investments resulting from privatization would not have amounted to more than 2 percent of total FDI inflows, even less than during 1992. In the Middle East and North Africa, rapid expansion in foreign investment through privatizations during the period was caused mainly by sizable sales in Egypt and Morocco. Egypt sold 54 percent of the Commercial International Bank in a public offering for US$144 million with participation by Saudi Arabian investors and the International Finance Corporation (IFC). Morocco privatized its cement company (CIOR), which is now primarily owned by Swiss Holderbank. The country also divested itself of its 50 percent shares in Shell Maroc and Total Maroc by selling it to European partners for a total of US$148 million. 17 The U.S. investors dominated privatization-related FDI flows with a total of US$7.6 billion during 1988-93, accounting for more than one-fifth of these inflows. Half of the flows came from the European countries, led by France, Germany, and Italy. As is true for FDI flows in general, individual countries tended to concentrate on specific regions. Almost two-thirds of the U.S. investments in privatization projects abroad went to Latin America, representing almost half of the region's total privatization revenues from foreign direct investors. European countries, by contrast, showed a much stronger interest in Eastern European privatization. Some investor countries, such as Germany, concentrated almost exclusively on this region. Overall, the region received about two-thirds of its foreign privatization revenues from Western European sources. Unlike Germany, France and Spain, also showed a strong interest in Latin American privatizations. 18 5. Privatization Techniques and Foreign Participation Countries often privatize state-owned assets using a case-by-case approach in which they plan each divestiture and carry it out individually. However, most of the countries in Eastern Europe and Central Asia opted for a voucher scheme in which they sell SOEs through a mass privatization program. Apart from equity considerations regarding private ownership of industrial assets, this approach may be more practical in countries that face the challenge of privatizing their entire economy. Even then, however, mass privatization schemes are generally limited to small and medium-size enterprises. Strategically important or particularly large entities are sold individually in separate large-scale privatization programs. The case-by-case approach includes several different privatization techniques. The technique that should be used depends primarily on the country's objectives, especially regarding the degree and dispersion of private ownership of former public assets. The choice also depends on an enterprise's individual characteristics, such as its size and financial condition, the sector in which it operates, and the market structure. The most commonly used techniques are direct sales, public offerings, joint ventures, concessions and lease agreements, management and employee buyouts, and asset sales combined with liquidation. Available Techniques A direct sale means the sale of an enterprise (in its entirety or in part) to an investor or an investor group. The sale itself is typically conducted in a competitive manner in a tender or auction process to allow the government to receive a fair price for its assets while keeping the process equitable from the perspective of potential buyers. Investors take part because they want to become the enterprise's dominant shareholder and thus to have control over its economic future. For particularly large and financially sound enterprises, however, a public offering of shares may be more attractive to the government. In such cases, finding individual investors capable of acquiring the company by themselves may be difficult. In addition, the government may prefer a wider dispersion of ownership. The listing of the company can be limited to the domestic market or extended internationally. The sale of a company to a broad audience of investors depends on whether the company is profitable or at least has a strong potential for future profitability. Typically, to generate investor confidence and to establish a basis for genuine restructuring of the company, a public offering is preceded by a partial direct sale, in which a strategic investor acquires a significant share of the company and receives a management contract for the company. Taking part in a joint venture is often an attractive way for foreign investors to become involved with an SOE that is particularly large, highly diversified, and in financial or organizational difficulties. The outside investor can then obtain control over a particular component of the enterprise without being forced to take on the company in its entirety. In addition, the investor is not liable for old company debt because the joint venture agreement results in the creation of a new company. While governments more readily find interested 19 investors for joint ventures than for complete take-overs, the drawback is that the public sector may be left with ownership of only the most unprofitable parts of the enterprise. Concessions and lease agreements are typical techniques when the government decides against a complete transfer of ownership. In many instances, particularly those involving natural resources and infrastructure enterprises, a complete sale may be politically difficult, especially when foreign investors are involved. As an alternative, the government can rent out the assets for a specific period. While ownership remains with the state, a private operator is responsible for the management and carries out desired improvements. While investors are generally more keen on ownership in whole or in parts, a concession or lease arrangement can be made palatable by giving the investor an option to purchase the company after the agreement ends. Management/employee buyouts are often politically the easiest way for a country to divest itself of an enterprise. The government does not have to engage in negotiations about future employment in the company, leaving those decisions to employees and managers. The main drawback of this technique is that the bidding process is generally not competitive, since outside investors are excluded from the process. This lack of competition can result in an underpricing of the asset. There is also a potential lack of efficiency gains because there is no infusion of capital, technology, and management skills that usually accompanies a foreign direct investment. In cases where restructuring does not seem viable, a liquidation of the enterprise followed by an asset sale may be the best option. However, as with joint ventures, the government runs the risk of being able to sell only the most attractive parts of the company. Typically, asset sales are more interesting to local investors who can use one or more of the assets for their own operations. Foreign investors will only be attracted to such a sale if they intend to buy most of the assets so as to rebuild the company. Although voucher privatizations were omitted from this study because of the very different way in which ownership is transferred, they are quite an important privatization technique. Voucher programs are in place in most of the countries in Eastern Europe and in the republics of the former Soviet Union, where privatizations through vouchers are affecting tens of thousands of enterprises. Apart from those countries, only Bolivia is seriously attempting to implement such a program. The technique is particularly attractive in a situation where a vast number of SOEs are being transferred into private ownership, but the population does not have access to investment financing. To alleviate this problem, the government distributes so-called vouchers to the population (typically in exchange for only an administrative fee) that can be exchanged for shares of the enterprise at public auctions. Some governments have created investment funds as intermediaries in order to streamline the process. As long as the vouchers are tradable instruments, foreign investors could, in theory, buy enough vouchers to acquire a strategic share in certain enterprises. However, there is no evidence that this has occurred to any significant extent. More practically, foreign investors enter after the actual privatization by acquiring blocks of shares through an investment fund. While reliable information on such transactions is hard to come by, it appears that the investment 20 funds in the Czech Republic were relatively successful in attracting foreign investors. In addition, many other countries, including Russia, are keen to attract strategic investors from abroad through this mechanism after conclusion of their voucher privatization program. The Actual Use of Different Techniques Direct sales dominated the spectrum of privatization techniques discussed above during the 1988-93 period. The recorded 1,846 direct sales, which represented more than 80 percent of all transactions, accounted for about 58 percent of total revenue generated (figure 8). The second most important technique proved to be public offerings. While only applied in 12 percent of all transactions, public offerings accounted for almost 39 percent of total privatization revenue. The other techniques lagged far behind in both the frequency with which they were applied as well as the amount of revenue they generated (see appendix, tables A-13 to A-17). Figure 8. Distribution of Privatization Techniques, 1988-93 (% of resource generated) Concession Lease 2.1 89%. / 0.05 Public Offer \ Direct Sale 38 49% 57.74% Mi BO () 21% Joint Venture Liqudi 1 25% 0.07% MBO: Management/employee buyout. Source: World Bank Privatization Database. The average transaction value reflected the technique that was used. Public offerings, with average revenue per transaction of US$132 million (figure 9), dominated the period. The preparation of an initial public offering is resource-intensive; it involves preparing a prospectus, arranging the underwriting, and doing the actual marketing. Such efforts, which often require outside help from investment banks, are warranted only in the case of particularly large enterprises. This approach is often used for sizable infrastructure privatizations such as telephone companies. The forty-one recorded public offerings in infrastructure had an average value of more than US$300 million. Direct sales averaged only US$30 million per transaction. Given the possibility of standardizing the application and bidding to a large extent, this technique is more suitable for privatization of medium-size firms whose sales does not require extensive preparations. This 21 method is therefore particularly suitable for privatizations in industry, where 80 percent of all transactions are conducted as direct sales. Concessions have also proven to be a viable privatization method for larger assets. In some cases such as mineral and petroleum deposits or particularly large enterprises such as telephone companies, governments often find it politically easier to maintain public ownership, while giving private entrepreneurs a concession to use these assets for a specified period of time. In other cases, particularly in infrastructure, investors actually prefer to rent rather than own. Entities such as rail roads, port facilities, or port utilities are characterized by large such costs, creating a highly immobile investment which cannot be easily relocated. This leaves the investor highly susceptible to the risk of administrative expropriation by the government through changes in the regulatory framework after the investor has committed himself through large scale investments. About 80 percent of all concessions were in infrastructure projects, and generated US$1.4 billion in government revenue during 1988-93. During 1992-93, Argentina used concessions extensively in privatizing its major railroads, access roads, and port facilities. The contracts typically run fifteen to thirty years and specify annual royalties as well as future investment commitments. Mexico concluded the largest concession agreement during tlhe period when a domestic investor group obtained a concession worth US$641 million for a television network including 1 television station, 2 television channels, and 126 movie theaters. Figure 9. Average Sales Value under Different Privatization Techniques (for All Developing Countries, 1988-93) Lease M BO Liquidation N i Direct Sale Joint Venture Concession Public Offer 0 50 100 1 50 1 USS millions I _ _ _ _ ____ _ _ _ _ .__ _ ____ Source: World Bank Privatization Database. Joint venture agreements are a somewhat specialized technique that require significant resources, particularly in connection with what are often time-consuming negotiations. Thus, 22 this method is generally also applied to larger projects, as reflected in the average value of joint venture transactions of US$48.5 million. More than half of all joint ventures occurred in industry, but the largest ones in terms of revenue generation were ir. the primary sector. In China, joint ventures are an important tool for obtaining access to foreign investment.5 There are clear differences among regions in the use of the various privatization techniques. Most East Asian economies have relatively well-developed domestic stock markets, resulting in a strong use of public offerings as a privatization method. During 1988-93, almost 60 percent of total privatization revenue in the region was generated through public offerings. The use of public offerings was even more pronounced in South Asia, where almost 90 percent of total revenue was from SOE sales on domestic stock markets. India and Sri Lanka, two strong privatizers in the region, opted for public offerings as the main privatization mechanism. In Eastern European countries, however, direct sales accounted for almost 70 percent of total privatization revenue. The most extreme case was Sub-Saharan Africa, where public offerings generated no more than 2 percent of total revenue. Because of underdeveloped local capital markets and the virtual absence of significant stock markets, almost all privatization transactions were direct sales. Foreign Participation under Different Privatization Techniques Any investor is generally subject to more uncertainty regarding an investment decision when deciding to go abroad. Aside from the standard difficulty of judging the enterprise's future profitability, foreign investors face the additional uncertainties of exchange rate fluctuations and political risks in an environment with which they typically are not very familiar. To compensate for these risks, foreign investors usually are keen on gaining control over any asset they acquire so as to maximize their ability to determine the future of the investment. Foreign participation in direct sales of publicly owned companies during 1988-93, increased from only 6 transactions in 1988 to 212 in 1993. Overall, foreign investors participated in 531 recorded direct sales transactions in the developing world worth US$20.6 billion. Foreign investors were buyers in direct sales in all sectors, and from relatively small to very large projects. It was especially common to find foreigners acquiring manufacturing companies with a sales value of US$100,000 or less in East Europe Countries. Foreign investors also joined in consortia to purchase shares directly in very large telephone companies, power utilities, and airlines. The largest direct sale involved the privatization of Venezuela's CANTV in 1991; a consortium led by GTE, AT&T, and Telefonica de Espania paid almost US$1.4 billion for the company. Similarly, a consortium led by Deutsche Telekom acquired a third of Hungary's Matav for almost US$1 billion in 1993. Debt-equity swaps proved to be a particularly attractive mechanism for foreign investors in Argentina, especially to acquire interests in electric power utilities and gas distribution systems. 5Information about Chinese joint ventures is difficult to obtain, however, and is therefore not included in the statistical information presented here. 23 Public offerings also attracted substantial foreign investment. In recent years it has proved relatively straightforward to list large developing country enterprises on the major international stock exchanges, resulting in sizable issues of Global Depository Receipts and American Depository Receipts. In addition, industrial country investors became increasingly interested in the strongly performing stock markets in numerous developing countries, which made purely domestic stock issues another viable mechanism for attracting investors from abroad. During 1988-93 foreign investors were involved in more than a third of all privatization- related public offerings in the developing world. A total of ninety-nine public offering privatizations with a total sales volume of US$11.9 billion was recorded.6 In general, the newly industrialized countries in Latin America and East Asia made extensive use of public offerings for privatizing their larger enterprises. In addition to large publicized issues with a volume in the US$100 million range, smaller public offerings also attracted foreign interest. China, for example, used public offerings as the main mechanism in its divestment program. While most of the companies offered on the Hong Kong and Shenzhen stock exchanges were in the range of US$10 million to US$100 million, there were a moderate number with sales prices as low as US$500,000. In South Asia, Sri Lanka offered several smaller companies on the local stock exchange and was quite successful in attracting foreigners, primarily from East Asian countries. The largest joint ventures with foreign investors occurred in the primary sector. Prior to the sale of YPF, the Argentinean government decided to find private investors to participate in the exploration of primary drilling areas, and several foreign oil companies participated. At the end of 1993, Chile reached a joint venture agreement for the El Abra copper mine with Cyprus Minerals (United States) and Lac Minerals (Canada). With a total value of US$555 million, this was the largest single joint venture agreement recorded in developing country privatizations.7 The Lao People's Democratic Republic used joint ventures as the primary mechanism for its privatization program. Despite the small value of the transactions, the country managed to attract investors from neighboring countries in nine privatizations worth almost US$14 million. Foreign participation in privatization-related concession arrangements was not very strong; only six were recorded. Argentina was the front runner, using this technique for privatizing a number of oil fields and one railroad. Peru managed to arrange a concession in 1992 with a Chilean subsidiary of Anglo-American for its Quellaveco mine, but the total contract value 6These values should be considered a conservative estimate of actual foreign investment in privatizations through public offerings. In a relatively large number of public offerings on the domestic stock market, obtaining information about the nationality of the buyers was impossible. There is sufficient evidence that the overwhelming majority of these investors were domestic nationals. To avoid an inflated representation of the importance of public offerings for foreign investors, all these cases were categorized as domestic investment only. 7This transaction is not included in the database, because the agreement was only finalized during early 1994. 24 was only US$12 million. Concession arrangements should, however, become a more important privatization technique in the near future in light of the increasing tendency to privatize infrastructure services. The leasing of public assets is typically being used for relatively small enterprises only. During 1988-93, nine such transactions with foreign involvement were recorded in developing countries, most of them less than US$1 million. Again, the Lao PDR stands out as innovative. Between 1990 and 1993, the country concluded eight leasing agreements, five of them with foreign investors. The contracts typically run for ten to fifteen years and specify a fixed annual payment. Ghana was the only country in Sub-Saharan Africa that concluded a lease agreement with a foreigner by leasing a glass manufaIcturer for three years to a British investor. In 1993 Peru concluded the largest lease agreement during the period when the U.S. company Petrotech leased the petrochemicals company Petromar for twenty years at a cost of US$10 million. The contract included a commitment for future investments worth US$65 million. 25 6. Do Privatizations Attract Foreign Direct Investors? Countries with strong privatization programs typically experienced a rapid increase in foreign investment inflows that exceeded the inflows directly related to the sale of SOEs to foreigners. This shows that privatizations not only contribute directly to overall foreign direct investment inflows, but also have an indirect effect by attracting additional investments. One reason for this indirect effect is that foreign investors in a privatized company usually make audi'ional investments to refurbish and improve the existing assets. Moreover, privatizations attract additional investors fiom abroad through signaling effects. A strong effort to privatize suggests that a country has become more open to private entrepreneurship and that the authorities are more willing to accept and support private economic activity. Thus, foreign investors can expect an improved regulatory environment. Investors can also expect an improvement in the general profitability of investment projects because market distortions have been reduced through the transfer of inefficiently run SOEs to the private sector. This is particularly relevant when it occurs in sectors that have a public goods character, since they provide services that affect the profitability of all other economic sectors. A foreign investor's decision to take part in a project in a developing country depends on a wide variety of factors. However, the availability of certain basic goods and services essential to the success of any standard entrepreneurial venture will always be a crucial determinant. Thus a foreign investor will be deterred if infrastructure is weak, thereby reducing the expected profitability of a venture because of unreliable energy supplies, poor communications, or weak transportation systems. Privatizing such infrastructural services can therefore have a strong effect by attracting additional investment in the expectation of an improved economic environment. In order to determine the impact of privatizations on total FDI inflows, it is first necessary to distinguish this effect from other variables that are typically assumed to determine (at least in part) a decision to engage in FDI. A model originally used by Edwards (1990) was applied to estimate the importance of privatization as a determinant of foreign direct investment in developing countries. On the basis of empirical and theoretical literature on FDI, Edwards selected a set of structural variables he deemed relevant to the decisionmaking process of a foreign investor. He used these variables to estimate the average level of FDI relative to GDP, as well as the percentage share of total FDI, for a cross-section of fifty-eight developing countries during 1971-81. The independent variables Edwards included in his regression were as follows: * Income per capita as a proxy for the return on capital, with a negative coefficient expected. While it seems obvious that foreign direct investors will base their investments on the expected rate of return, such data are generally not available, especially in the case of poorer countries. Edwards therefore used income per capita, on the assumption that countries with lower per capita income will tend to receive a higher share of FDI because of reduced factor costs. 26 * Foreign trade as a measure of the country's openness, with a positive coefficient expected. Assuming that most foreign investment is in the tradables sector, the country's degree of openness with respect to international trade should also be a relevant factor in the investor's decision. * Domestic investment as an indicator of the general investment climate. Given that domestic and foreign investments are complementary, the coefficient should be positive. . Government consumption as a measure of the size of the government, with a negative expected coefficient. The government's size in relation to domestic economic activity was assumed to be a proxy for the country's stance toward private initiative. * The real exchange rate as measured by Summers and Heston (1987) as an indicator of the country's degree of international competitiveness, with a depreciating real exchange rate reflecting improved competitiveness. As in the case of the foreign trade variable, foreign investors' focus on the tradables sector implies that exchange rate movements will have a bearing on the investment decision. Using these same independent variables, this model was re-estimated (with only minor modifications) for a cross-section of thirty-six countries for the period 1988-93. The selection of countries was based on the existence of sizable privatization programs during the period and on data availability. Following Edwards, the FDI determinants were estimated for the level of FDI (FDI per capita), and all variables were calculated as means for the observations 1988-93 and weighted by population.9"10 The equation has the following form: FDI. GDP EXIM_ INV CON, ' -a+f3 ' + y +8 + '+4 +(pEKR,.+E POP, POP, POFt POP, POP, where EXIM represents the sum of exports and imports, INV stands for gross fixed domestic capital formation, CON is government consumption, EXR is the real effective exchange rate, and POP stands for population. The subscript i indicates the ith country. 8The countries were Argentina, Benin, Bolivia, Brazil, Chile, Colombia, Costa Rica, C6te d'lvoire, the former Czechoslovakia, Egypt, Ghana, Greece, Honduras, Hungary, India, Indonesia, Jamaica, Kenya, Malaysia, Mexico, Morocco, Mozambique, Nigeria, Pakistan, Peru, the Philippines, Poland, Portugal, Sri Lanka, Romania, Slovenia, Thailand, Tunisia, Turkey, Venezuela, and Zambia. 9Edwards weights FDI by GDP rather than by population, but the results obtained here are quite similar to those obtained when GDP is used as weight. Using population generally resulted in a better fit, possibly because of measurement difficulties in GDP, especially when calculated in dollar terms. '° Edwards also estimated a share regression in order to determine the effect of these variables on the relative share of total FDI inflows received by an individual country. While a re-estimation generated similar results, the theoretical rationale underlying this formulation does not appear to be well-founded, and the results are therefore not included in this analysis. 27 The results, shown in table 2, are very similar to those of Edwards, with an R2 of 0.65 compared to 0.56 in Edwards. As in the Edwards model, the trade variable is positive and statistically significant in the FDI per capita estimation, indicating that economic openness is an important aspect of the decision to invest abroad. Investment was statistically more relevant than in the original model." While Edwards' estimates show that the investment variable was not significant, here investments proved to be highly significant statistically as determinants of FDI per capita. Similar results were obtained for government consumption. 12 In the re-estimation the variable was, as expected, negative and significant, but in the Edwards model government consumption is not significant. Table 2. Re-estimating the Edwards Model Dependent Variable FDI per capita Constant 0.5239 (0.0412) GDP per capita -0.002 (-0.137) Trade 0.0146 * (2.0045) Investment 0.1268 *** (2.8327) Government -0.08 * Consumption (-1.83) Exchange Rate -0.135 (-0.844) R-squared 0.6478 Note: t-statistics are reported in parentheses. ** Statistical significance at the 98%-level. a* Statistical significance at the 95%/6-level. * Statistical significance at the 900/%-level. Similar to Edwards' results, the per capita income variable was statistically not significant, and even had the wrong sign in the share regression. This indicates that GDP per capita might not be a good proxy for profitability, as Edwards himself suggests. As he points out, investors will also be attracted by larger markets, which allow the company to gain profits from sales within the country rather than producing at low cost for export only. Consequently, the coefficient of GDP per capita turns out to be insignificant because it picks up both effects simultaneously. The results of the international competitiveness variable I IDefined as gross fixed domestic capital formation in the IMF national accounts. 12 Derived from IMF's national accounts. 28 were consistently positive and significant in the Edwards study. Here, however, the variable is insignificant, while of the correct sign.'3 The reason for this is most likely related to the data. Edwards used the Summers and Heston (1987) real exchange rate index, which was not available from 1988 onward. The real effective exchange rate as calculated by the IMF was therefore used as a substitute.'4 These results, however, do not yet take into account the existence of privatization programs. The most direct and obvious way in which privatization in developing country can affect a foreign direct investment decision is reflected in the size of the privatization program. The more a country privatizes, the larger should be the flow of investments into recently privatized projects, and the stronger should be the signal to potential foreign investors that the investment climate is changing for the better. Thus, privatization revenues per capita was added as a variable in order to estimate the impact of the size of privatization programs on foreign investment decisions. Note that the dependent variable changes. Given that the goal was to estimate the secondary, indirect effects on FDI resulting from privatization, FDI per capita was recalculated by subtracting FDI resulting from privatization from total FDI flows for each country. Thus, the estimated equation was modified as follows: (FDI, - PFDI,) GDP,+ EXIM. INV, CON- PRIJK =.cc±a +X '+6- '++ '+EXR,~t.+ - POP, Pot P OP POP, POP, POP, with PFDI representing FDI resulting from privatization sales and PRIV standing for total privatization revenues. Table 3 presents the results of the calculation. The estimation of these equations indicates that privatization was an important element in the foreign direct investment decision. The coefficient is, as expected, positive, and compared to the other regressors, very large and statistically highly significant. The variable also proves to be extremely robust, barely changing size or statistical significance in different specifications of the model. The model's explanatory power increases substantially with an R2 of 0.75. While such results always have to be interpreted rather carefully, the coefficient indicates that each dollar in privatization investment generated an additional 88 cents in new investment independently of the actual privatization transaction. 13 The Summers and Heston measure of the real exchange rate is defined as local currency per U.S. dollar, while the IMF measure is defined as the reverse. Thus, the sign of the coefficient is expected to be negative. 4 The variable is expressed as the percentage value relative to the base year 1980. 29 Table 3. Privatizations as a Determinant of FDI Dependent Variable FDI per capita Constant 5.0875 (0.5327) JDP per capita -0.032 (-0.01 1) Trade 0.007 *** (-3.377) Investment 0.1583 * (4.6876) Government -0.0447 Consumption (-1.101) Exchange Rate -0.051 (-0.427) Privatization 0.8814 Revenue (3.1643) R-squared 0.7461 Note: t-statistics are reported in parentheses. *** Statistical significance at the 980/o-level. ** Statistical significance at the 95%-level. * Statistical significance at the 90%-level. An important question is whether these effects on FDI are independent of the type of privatization carried out. If foreign investors perceive privatization only as a signal indicating a general improvement in the investment climate because of reduced government intervention and restrictive regulations, only the relative size of the privatization program should matter. If, however, investors also expect profitability to improve as a result of the privatization of entities that provide goods and services to the whole economy, such as telecommunications, power generation, or transportation companies, privatization in individual sectors should have a different weight in the decisionmaking process. To test these hypotheses, the general privatization revenues variable was replaced by sector- specific variables on privatization revenues, resulting in the following regression equation: (FDI1 - PFDI,j) +GDP, +XEXIMj + INVj + CON, RpEXR + + E POP; Popi POPj POPj POPj POPj 30 where the subscripts ij indicate the jth sector of country i. The individual sectors tested were the primary sector, industry, financial services, infrastructure, and others that consist predominantly of services. Table 4 reports the results of the estimation. In the estimation, the coefficients of privatizations in the primary sector the financial sector, and other privatizations (primarily services) were not statistically significant. Privatizations in the secondary sector (industrial production) and in infrastructure, on the other hand, showed a positive coefficient and were statistically significant. Table 4. Sector-Specific Privatization as Determinants of FDI Depenident Variable FDI per capita Constant 2.1646 5.3647 2.329 -3.055 -1.91S (0.1672) (0.4958) 0 I83) (-0.285) (-0.21) GDP per capita -0.009 -0.016 00036 -0.043 *' 0.0049 (-0.587) (-1.534) (0.2823) (-2.884) (0.5688) Trade 0 0113 0.0054 0.0174 " -0.004 0.0096 ' (1.341) (0 8277) (2.2537) (-0 535) (1.807) Investment 0.1386 ' 0 1941 "* 0.0927 0.165 " 0.0752 " (3.0064) (4.7408) (1.665) (4.2792) (2.222) Government -0 051 -0,077 ' -0 092 ' -0.1492 * -0.071 t Consumption (-0.841) (-2 081) (-2.042) (-1.9821) (-2.253) Exchange Rate -0.124 -0.182 -0.141 0.0783 -0.104 (-0 761) (-1.341) (-0.H89) (05313) (-0.905) Primary Sector 0 7046 -1- - 1--1 Privatization (0.3945) Secondary Sector -/- 2.0809 " -1- -/- -1- Privatization (2.55 1) Financial Sector -1- -1- 0.6952 -1- -1- Privatization (1 .0236) Infrastructure -1- -1- -1- 2.4217 " -1- Privatization (3.02 13) Other '14- 11- 8.07 Privatization (0.9987) R-squared 0.6221 0.7195 0.652 0.7298 0.6136 Note: t-statistics are reported in parentheses. "*' Statistical significance at the 98%-level. " Statistical significance at the 95%-level. Statistical significance at the 90%-level In most developing countries, the quality of infrastructural services is substandard because of lack of investment by the responsible SOEs. Services such as communications, transportation, and the supply of energy and water are important elements in the profitability of private enterprises. Unreliable and low-quality services simply impose additional costs, making it more difficult for private entrepreneurs to undertake profitable investments. The privatization of such services brings with it the hope for improved quality and reliability and reduces the degree of uncertainty about the potential profitability of investment projects. Thus, it is not surprising that the variable on infrastructure privatizations was highly 31 significant with a large positive coefficient in the regression. This implies that, among other things, investors base their decision about whether to make their investments abroad on the state of the existing infrastructure. Privatization of industrial enterprises also has a strongly positive and statistically significant impact on the absolute amount of investment inflows from abroad. However, the additional FDI reflected in this estimation might not result primarily from new investors entering the country; it could instead represent inflows through additional investments undertaken by the buyers of SOEs to improve the companies' facilities. Indeed, in many cases, especially in Eastern Europe, the sale of enterprises is linked to a commitment for future investments. Thus, the increase in FDI inflows witnessed in conjunction with industrial privatization might be less a result of additional investors attracted to the country than of additional investments by foreign investors who entered the country through the privatization program. In summary, the existence of a sizable privatization program can be an important vehicle for attracting additional FDI inflows. In particular, privatizations that have the potential to improve the economic environment by eliminating bottlenecks in the availability of infrastructural services are important motivators for foreign investors. Hence, in countries where foreign investors have often complained about infrastructural bottlenecks, such as Indonesia or the Philippines (whose difficulties in providing reliable energy and water supplies have made headlines in the international press), intensive privatization in these sectors should generate substantial amounts of additional FDI. 32 7. Conclusion In recent years, many developing countries have made extensive use of privatization as a policy tool in support of economic liberalization. During the period 1988-93, a total of 95 developing countries sold almost 2,300 enterprises for about US$96 billion. Foreign investors participated in over 670 of these sales, contributing about US$33 billion in foreign exchange. The interest by foreign investors in developing country privatization programs rose steadily over time, and despite a small decline in total privatization revenues during 1993, the share of foreign participation continued to climb, reaching a record level of US$1 1 billion. Typically, foreign direct investors participated in privatizations through direct sales and public offerings, which generated over 90 percent of the total privatization revenue from foreign sources. However, other techniques such as joint ventures, concessions, and even simple lease agreements managed to attract foreign interest in some cases. These techniques have been used successfully in specific cases, whenever it was preferable for the government not to give up ownership, while wanting to attract private sector partners for the purpose of improved efficiency and management. Especially in light of the increasing trend to privatize infrastructure projects in transportation, telecommunication, and energy supply, concession and lease agreements should prove to be important privatization techniques, attractive to foreign investors. But privatization does not only raise foreign direct investment inflows into developing countries through the participation of foreigners in the sell-off of their SOEs. It also appears to have the capability of attracting additional inflows, independent of the actual privatization. First of all, foreign investors typically inject additional funds into the enterprises bought in order to upgrade them. In addition, privatizations in the infrastructure sector appear to have a strong impact on the decision-making process to locate abroad. The improvement in quality and availability of transportation and telecommunication services as well as energy supply promises to reduce overhead costs, rendering potential investment projects more profitable. Thus, overall privatization has helped many developing countries to tap private sources of finance from abroad in support of their industrialization process. It is clear, however, that such a privatization policy has to be pursued vigorously by the governments in order to create a lasting positive effect in the international investor community. Any attempts to undertake privatization in a piecemeal, stop-and-go process puts in question the actual commitment by the government to open the economy for private entrepreneurs, and foreign investors will be hesitant to commit any significant amounts of their capital. 33 Appendix Table A-i: REGIONAL DISTRIBUTION OF PRIVATIZATIONS IN THE DEVELOPING WORLD, 1988-1993 TOTAL (In USS mililons) Region EastAsia and the Pacific 20.5 2,295.6 376.0 790.2 5,204.1 7,466.9 18,153.3 Europe and Central Asia 27.1 954.1 2,427.6 3,722.5 8,199.1 4,620.4 17,950.8 Latin America and the Caribbean 2,529.5 1,435.6 7,297.0 17,988.7 15,797.3 10,140.0 55,188.1 Middle East and North Africa 6.7 14.1 1.8 16.8 69.7 632.6 741.7 South Asia 0.0 3.4 29.3 995.7 1,557.4 973.7 3,559.5 Sub-Saharan Africa 9.9 1,451.1 74.2 54.4 181.0 620.3 2,390.9 Total 2,593.7 6,153.9 10,205.9 23,568.3 29,008.6 24,453.9 95,984.3 memo: Industrialized Countries 37,549.6 21,485.6 16,880.0 30,399.1 18,727.7 49,895.8 174,937.8 Worldwide Total 40,143.3 27,639.5 27,085.9 53,967.4 47,736.3 74,349.7 270,922.1 with foreign participation (in USS millions) Region East Asia and the Pacific 1.3 0.0 0.7 88.0 1,555.9 3,439.0 5,084.9 Europe and Central Asia 18.9 641.2 628.4 2,083.4 3,705.7 3,074.9 10,152.5 Labn America and the Caribbean 213.7 183.3 2,559.0 6,718.1 3,730.8 3,392.9 16,797.8 Middle East and North Africa 0.0 1.0 0.0 3.2 19.2 302.5 325.9 South Asia 0.0 0.1 10.6 4.2 41.8 18.3 73.0 Sub-Saharan Africa 0.0 13.8 38.2 11.1 49.8 544.7 657.6 Total = 233.9 839.4 3,236.9 8,908.0 9,103.2 10,770.3 33,091.7 exclusively domestic (in US$ mililons) ___ __ __ __ __ __ __ __ _ 0 8ii,; i i < I, t *:0s i, K, T -18-'1 2 i -l Region East Asia and the Pacific 19.2 2,295.6 375.3 702.2 3,648.2 4,027.9 11,068.4 Europe and Central Asia 8.2 312.9 1,799.2 1,639.1 2,493.4 1,545.5 7,798.3 Latin America and the Caribbean 2,315.8 1,252.3 4,738.0 11,270.6 12,066.5 6,747.1 38,390.3 Middle East and North Afnca 6.7 13.1 1.8 13.6 50.5 330.1 415.8 South Asia 0.0 3.3 18.7 991.5 1,515.6 957.4 3,486.5 Sub-Saharan Africa 9.9 1,437.3 36.0 43.3 131.2 75.6 1,733.3 Total 2,359.8 5,314.5 6,969.0 14,660.3 19,905.4 13,683.6 62,892.6 Table A-2: FOREIGN EXCHANGE AS SHARE OF TOTAL REVENUE (in percent) Region East Asia and the Pacific 6.34 0.00 0.19 11.14 29.90 46.06 31.48 Europe and Central Asia 69.74 67.20 25.89 55.97 59.78 66.55 56.56 Latin America and the Caribbean 8 45 12.77 35.07 37.35 23.62 33.46 30.44 Middle East and North Africa 0.00 7.09 0.00 19.05 27.55 47.82 43.94 South Asia 0.00 2.94 36.18 0.42 2.68 1.67 2.05 Sub-Saharan Africa 0.00 0.95 51.48 20.40 27.51 87.81 27.50 Total 9.02 13.64 31.72 37.80 31.38 44.04 34.48 34 Table A-3: REGIONAL DISTRIBUTION OF PRIVATIZATIONS IN THE DEVELOPING WORLD, 1988-1993 TOTAL (In number of transactions) Y"f 19n8 .1989 _ 1990 1991 1992 1t joX i Region East Asia and the Pacific 3 5 10 18 49 109 194 Europe and Central Asia 2 37 219 296 171 372 1097 Latin America and the Caribbean 17 43 81 107 159 154 561 Middle East and North Africa 3 2 5 11 9 25 55 South Asia 0 3 6 27 83 54 173 Sub-Saharan Africa 3 27 34 39 47 49 199 Total 28 117 355 498 518 763 2279 memo: Industrialized Countries 35 40 35 58 67 141 376 Worldwide Total 63 157 390 556 585 904 2655 with foreign participation (In number of transactions) 1988 1989. 990 1991 loi yii * Region East Asia and the Pacific 1 0 1 6 31 44 83 Europe and Central Asia 2 14 25 68 103 178 390 Latin America and the Caribbean 5 6 12 35 38 19 115 Middle East and North Africa 0 1 0 1 1 12 15 South Asia 0 1 4 1 14 6 26 Sub-Saharan Africa 0 2 7 7 16 10 42 Total 8 24 49 118 203 269 671 exclusively domestic (in number of transactions) .- . i ; . . ~~Year - ,. 1988 ls9 .1990 1991 . 1992 "'i -tte1 Region East Asia and the Pacific 2 5 9 12 18 65 111 Europe and Central Asia 0 23 194 228 68 194 707 Latin America and the Caribbean 12 37 69 72 121 135 446 Middle East and North Africa 3 1 5 10 8 1 3 40 South Asia 0 2 2 26 69 48 147 Sub-Saharan Africa 3 25 27 32 31 39 157 Total 20 93 306 380 315 494 1608 Table A-4: SHARE OF FOREIGN PARTICIPATION IN PRIVATIZATION TRANSACTIONS (in percent, by number of transactions) Yost .__..._____-_. 1998 . 1909. .. 1990. 1s9tbL.-1 .,w~ Reglon East Asia and the Pacific 33.33 0.00 10.00 33.33 63.27 40.37 42.78 Europe and Central Asia 100.00 37.84 11.42 22.97 60.23 47.85 35.55 Latin America and the Caribbean 29.41 13.95 14.81 32.71 23.90 12.34 20.50 Middle East and North Africa 0.00 50.00 0.00 9.09 11.11 48.00 27.27 South Asia 0.00 33.33 66.67 3.70 16.87 11.11 15.03 Sub-Saharan Africa 0.00 7.41 20.59 17.95 34.04 20.41 21.11 Total 28.57 20.51 13.80 23.69 39.19 35.26 29.44 Note: Foreign exchange is composed of porffolio equity arind foreign dired investmeni 35 Table A-5: SECTORAL DISTRIBUTION OF PRIVATIZATIONS IN THE DEVELOPING WORLD, 1988-1993 TOTAL (in US$ millions) _ _ _ _ _ _ _ _ _ I~~~~~~~~~~~~~~~~~~~~~~~~9-11.' m Infrastructure airline 367.0 473.0 1,925.5 268.6 1,471.7 845.1 5,350.9 railroads 0.0 0.0 0.0 158.8 216.9 0.0 375.7 road transport 0.0 0.0 313.4 39.8 19.0 39.7 411.9 ports 0.0 0.0 10.2 181.0 27.4 294.3 512.9 telecommunications 324.9 212.5 3,704.0 5,815.7 3,006.8 2,463.0 15,526.9 energy 106.0 2,107.7 99.8 363.7 4,961.7 1,982.3 9,621.2 water 0.0 0.0 1.8 0.0 175.0 50.0 226.8 Subtotal 797.9 2,793.2 6,054.7 6,827.6 9,878.5 5,674.4 32,026.3 Financial Services banking 8.0 295.6 541.2 8,125.7 6,113.2 2,720.2 17,803.9 insurance 0.0 164.8 130.8 166.7 104.2 558.9 1,125.4 real estate 0.0 0.0 0.0 3.3 98.8 375.9 478.0 others 0.0 1.0 0.2 305.5 237.3 13.5 557.5 Subtotal 8.0 461.4 672.2 8,601.2 6,553.5 3,668.5 19,964.8 Primary Sector agriculture 13.9 166.3 500.1 212.4 572.5 1,339.1 2,804.3 animal husbandry 0.0 0.1 35.2 21.3 6.4 23.1 86.1 mining 1,360.0 49.9 554.4 235.8 543.6 188.4 2,932.1 petroleum 0.0 8.5 295.7 1,195.5 1,088.7 3,666.3 6,254.7 Subtotal 1,373.9 224.8 1,385.4 1,665.0 2,211.2 5,216.9 12,077.2 Industry light manufacturing 44.9 499.1 873.0 1,858.7 2,821.3 2,798.1 8,895.1 steel 0.3 109.4 287.5 2,411.5 2,415.1 3,043.3 8,267.1 chemicals 0.0 5.4 405.8 646.3 2,704.8 1,932.8 5,695.1 construction 6.8 224.3 198.5 506.4 1,379.0 526.6 2,841.6 Subtotal 52.0 838.2 1,764.8 5,422.9 9,320.2 8,300.8 25,698.9 Other Services tourism 110.0 108.3 136.6 126.3 286.9 265.9 1,034.0 trade 0.0 5.8 26.2 143.7 10.1 130.7 316.5 retail 0.0 0.0 0.0 43.0 194.1 94.9 332.0 others 0.0 230.6 97.0 182.4 178.7 950.5 1,639.2 N/A 251.9 1,491.8 68.8 556.3 375.5 151.2 2,895.5 Subtotal 361.9 1,836.5 328.6 1,051.7 1,045.3 1,593.2 6,217.2 Total 2,593.7 6,154.1 10,205.7 23,568.4 29,008.7 24,453.8 95,984.4 36 Table A-6: SECTORAL DISTRIBUTION OF PRIVATIZATIONS IN THE DEVELOPING WORLD, 1988-1993 TOTAL (by number of transactions) = ">i +i .:-'---.-.^-:- -Year. -J - , - . .. .9 _2 Infrastructure airline 0 3 1 4 3 3 14 railroads 0 0 0 2 0 0 2 road transport 0 0 0 1 0 2 3 ports 0 0 0 0 0 5 5 telecommunications 3 3 6 9 4 4 29 energy 0 0 0 3 17 24 44 water 0 0 0 0 2 0 2 Subtotal 3 6 7 19 26 38 99 Financial Services banking 0 1 2 2 2 7 14 insurance 0 1 0 0 1 1 3 real estate 0 0 0 0 4 3 7 others 0 0 0 1 0 0 1 Subtotal 0 2 2 3 7 11 25 Primary Sector agriculture 0 1 7 3 19 20 50 animal husbandry 0 0 0 5 3 0 8 mining 0 0 0 0 7 7 14 petroleum 0 0 2 2 2 7 13 Subtotal 0 1 9 10 31 34 85 Industry light manufacturing 4 5 14 41 87 105 256 steel 0 2 1 7 10 16 36 chemicals 0 0 3 10 12 17 42 construction 0 6 3 6 10 15 40 Subtotal 4 13 21 64 119 153 374 Other Services tourism 1 2 3 8 8 12 34 trade 0 0 0 2 1 1 4 retail 0 0 0 3 8 6 17 others 0 0 7 7 3 12 29 N/A 0 0 0 2 0 2 4 Subtotal 1 2 10 22 20 33 88 Total 8 24 49 118 203 269 671 39 Table A-9: SECTORAL DISTRIBUTION OF PRIVATIZATIONS IN THE DEVELOPING WORLD, 1988-93 TOTAL (in USS millions) by Region Infrastructure airline 2,001.5 283.3 3,055.0 0.0 11.0 0.0 5,350.8 railroads 0.0 0.0 375.7 0.0 0.0 0°0 375.7 road transport 3.9 81.6 313.5 12.2 0.0 0.6 411.8 ports 413.4 1.1 57.4 0.0 38.6 2.4 512.9 telecommunications 615.8 1,264.1 13,533.4 0.0 113.5 0.0 15,526.8 energy 4,072.7 338.6 5,155.3 47.4 0.0 7.2 9,621.2 water 175.0 1.8 50.0 0.0 0.0 0.0 226.8 Subtotal 7,282.3 1,970.5 22,540.3 59.6 163.1 10.2 32,026.0 Financial Services banking 1,378.2 2.870.8 12,409.3 242.3 832.6 70.7 17,803.9 insurance 0.5 553.7 554.2 7.3 0.3 9.5 1,125.5 real estate 310.6 0.0 167.4 0.0 0.0 0.0 478.0 others 9.5 310.5 201.8 0.0 35.7 0.0 557.5 Subtotal 1,698.8 3,735.0 13,332.7 249.6 868.6 80.2 19,964.9 Primary Sector agriculture 713.6 983.7 1,052.4 4.2 11.3 39.1 2,804.3 animal husbandry 19.2 2.7 45.3 0.0 0.0 19.0 86.2 mining 224.4 63.2 2,544.8 0.0 91.7 8.0 2,932.1 petroleum 52.0 329.9 4,594.4 49.7 695.7 533.0 6,254.7 Subtotal 1,009.2 1,379.5 8,236.9 53.9 798.7 599.1 12,077.3 Industry light manufacturing 2,443.4 4,698.3 1,215.3 117.5 318.3 102.2 8,895.0 steel 906.2 659.7 5,953.0 10.1 736.0 2.2 8,267.2 chemicals 1,286.2 1,379.2 2,669.4 44.9 290.0 25.3 5,695.0 construction 207.6 2,230.5 35.0 117.5 208.5 42.6 2,841.7 Subtotal 4,843.4 8,967.7 9,872.7 290.0 1,552.8 172.3 25,698.9 Othtr Services tourism 169.8 307.3 301.8 84.3 56.0 114.9 1,034.1 trade 86.3 156.6 64.2 0.2 7.0 2.1 316.4 retail 0.0 313.2 18.7 0.0 0.0 0.2 332.1 others 728.6 436.5 455.8 3.6 7.3 7.5 1,639.3 N/A 334.8 684.6 365.2 0.6 105.9 1,404.3 2,895.4 Subtotal 1,319.5 1,898.2 1,205.7 88.7 176.2 1,529.0 6,217.3 Total 16,153.2 17,950.9 55,188.3 741.8 3,559.4 2,390.8 95,984.4 40 Table A-1O: SECTORAL DISTRIBUTION OF PRIVATIZATIONS IN THE DEVELOPING WORLD, 1988-93 with foreign participation (in USS millions) by Region sirline ~~~ ~ ~~0.0 260.0 642.1 0.0 0.0 0.0 902.1 railroads ~~~ ~~0.0 0.0 98.9 0.0 0.0 0.0 98.9 road transport 0.0 0.0 0.0 0.5 0.0 0.3 0.S ports 245.9 1.1 0.0 0.0 0.0 0.0 247.0l telecommunications 0.0 1,121.9 8,041.9 0.0 0.0 0.0 9,163.8 energy 49.0 147.0 2,795.3 32.3 0.0 7.2 3,030.8 water 89.3 0.0 0.0 0.0 0.0 0.0 89.3 Subtotal 384.2 1,530.0 11,578.2 32.8 0.0 7.5 13,532.7 Financial Services banking 0.0 138.7 672.2 143.8 0.0 0.0 954.7 insurance 0.0 100.0 0.0 0.0 0.0 0.0 100.0 real estate 275.8 0.0 0.0 0.0 0.0 0.0 275.8 others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Subtotal 275.8 238.7 672.2 143.8 0.0 0.0 1,330.5 Primary Sector agriculture 35.8 787.8 77.1 0.0 1.7 9.6 912.0 animal husbandry 0.0 0.0 4.2 0.0 0.0 2.5 6.7 mining 163.4 31.5 170.3 0.0 2.6 2.0 369.8 petroleum 17.5 3.4 2,762.1 49.7 0.0 524.4 3,357.1 Subtotal 216.7 822.7 3,013.7 49.7 4.3 538.5 4,645.6 Industry light manufacturing 1,886.8 3,631.4 874.5 3.6 35.9 73.7 6,505.9 steel 906.2 330.1 291.6 1.0 0.0 2.1 1,531.0 chemicals 1,182.1 1,015.5 261.4 0.0 5.4 5.6 2,470.0 construction 0.0 1,436.1 0.0 66.2 0.0 17.5 1,519.8 Subtotal 3,975.1 6,413.1 1,427.5 70.8 41.3 98.9 12,026.7 Other Services tourism 166.2 233.9 102.1 28.9 25.6 9.6 566.3 trade 0.0 92.0 4.1 0.0 0.0 0.0 96.1 retail 0.0 266.4 0.0 0.0 0.0 0.0 266.4 others 66.9 304.9 0.0 0.0 1.8 3.1 376.7 N/A 0.0 250.8 0.0 0.0 0.0 0.0 250.8 Subtotal 233.1 1,148.0 106.2 28.9 27.4 12.7 1,556.3 Total 5,084.9 10,152.5 16,797.8 326.0 73.0 657.6 33,091.8 41 Table A-11: Portfolio and Foreign Direct Investment from Privatizations in the Developing World, 1988-93 (in USS millions) =b$D,fEL.l' .....E,<;'' 1 FDI 233.9 8394 3,125.5 5,436.7 6,753.7 6,122.5 22,511.7 Portfolio 0.0 0.0 111.4 3,471.3 2,349.5 4,647.8 10,580.0 Total 233.9 839.4 3,236.9 8,908.0 9,103.2 10,770.3 33,091. (in number of transactions) 19S9 ~~~199, 1991 T92_____ FDI 8 24 46 H] 176 237 602 Portfolio 0 0 3 6 26 34 69 Total 8 24 49 117 202 271 671 Table A-12: FOREIGN DIRECT INVESTMENT BY REGION, 1988-1993 (in USS millions) . A E = < d $lN& AMes fc Tht. . . US 30.0 2,470.5 4,439.6 0.0 0.0 14.8 6,954.9 France 89.3 1,358.3 1,363.2 57.9 0.0 529.0 3,397.7 Italy 0.0 1,491.5 643.4 3.2 0.0 0.1 2,138.2 Germany 0.0 2,067.1 62.7 0.0 1.8 29.7 2,161.3 Spain 0.0 39.4 1,297.3 0.0 0.0 0.0 1,336.7 UK 416.5 225.7 539.5 1.9 16.4 1.6 1,201.6 Austria 163.4 473.4 0.0 0.0 0.0 0.0 636.8 Switzerland 0.0 285.6 15.0 66.2 0.0 9.9 376.7 Sweden 0.0 307.2 25.0 0.0 0.0 0.0 332.2 Netherlands 0.0 222.6 29.9 49.7 0.0 24.4 326.6 Japan 60.0 30.0 169.7 0.0 14.1 0.0 273.8 Others 919.0 1,161.2 1,059.9 146.5 40.6 48.1 3,375.3 Total 1,678.2 10,132.5 9,644.2 325.4 72.9 657.6 22,511.81 42 Table A-13: PRIVATIZATIONS IN THE DEVELOPING WORLD By Privatization Technique, 1988-1993 TOTAL (in USS millions) ~~ , - ~ear - * fjtjkpr 95 ~~~-1 1901 1992 1093 i!| Concession 0.0 0.0 570.8 250.5 300.0 938.7 2,060.0 Direct Sale 2,564.6 3,666.2 8,187.6 12,325.9 15,668.8 13,048.4 55,461.5 Joint Venture 0.0 0.0 0.0 621.8 492.2 97.3 1,211.3 Lease 0.0 0.0 1.2 2.3 4.5 38.4 46.4 Liquidation and Asset Sale 0.0 0.0 0.1 49.5 0.0 21.2 70.8 Mgmt.-Employee Buy-out 5.9 6.0 16.0 56.2 76.1 15.9 176.1 Public Offer 23.2 2,481.8 1,430.1 10,262.1 12,467.0 10,294.0 36,958.2 Total 2,593.7 6,154.0 10,205.8 23,568.3 29,008.6 24,453.9 95,984.3 with foreign participation (in US$ millions) IY | t ,, .,: . =- Ye .-Y*ar -* E ;. 0t19a- l .i990Q 1991 1992 1993 Totit:f Concession 0.0 0.0 77.1 97.2 32.1 22.0 228.4 Direct Sale 225.3 828.4 3,052.7 4,541.9 6,285.8 5,623.5 20,557.6 Joint Venture 0.0 0.0 0.0 312.9 50.7 81.5 445.1 Lease 0.0 0.0 1.2 2.2 0.3 10.0 13.7 Liquidation and Asset Sale 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Mgmt.-Employee Buy-out 0.0 0.0 0.0 0.0 0.0 0.0 0.0 PublicOffer 8.6 11.1 106.0 3,953.9 2,734.3 5,033.0 11,846.9 Total 233.9 839.5 3,237.0 8,908.1 9,103.2 10,770.0 33,091.7 Table A-14: PRIVATIZATIONS IN THE DEVELOPING WORLD By Privatization Technique, 1988-1993 TOTAL (in number of transactions) so9' 1991 1'992 1993' T''| Concession 0 0 4 3 10 4 21 Direct Sale 22 105 324 413 392 597 1,853 Joint Venture 0 0 0 4 9 12 25 Lease 0 0 3 6 3 12 24 Liquidation and Asset Sale 0 0 1 4 0 9 14 Mgmt.-Employee Buy-out 1 2 5 9 10 35 62 Public Offer 5 10 18 59 94 94 280 Total 28 117 355 498 518 763 2,279 with foreign participation (in number of transactions) ~.';-;<,.-. ~ 1Year 2,.1~~~ ;~v iis1I>1~~~8 ~~O~~F i06 1991 19092 19 o~ Concession 0 0 1 2 2 1 6 Direct Sale 6 21 42 100 153 210 532 Joint Venture 0 0 0 4 9 11 24 Lease 0 0 2 4 1 2 9 Liquidation and Asset Sale 0 0 0 1 0 0 1 Mgmt.-Employee Buy-out 0 0 0 0 0 0 0 Public Offer 2 3 4 7 38 45 99 Total 8 24 49 118 203 269 671 43 Table A-1: SECTORIAL BREAKDOWN OF PRIVATIZATIONS IN THE DEVELOPING WORLD By Privatization Technique, 1988-1993 TOTAL (in US$ millions) 1~~p~ique l~nfra11trctulre NII~aClaI . Prittlarthey, . . .. t lq u S4TW ;:; liFfrOudu e BeviSes In uWstiy,t; 'Sector Services Others ________ Concession 1,368.5 0.0 0.0 476.5 0.0 215.0 2,060.0 Direct Sale 18,267.0 12,649.5 13,427.4 6,171.9 1,424.3 3,521.4 55,461.5 Joint Venture 0.0 0.0 81.7 1,085.1 21.4 23.1 1,211.3 Lease 0.0 0.3 3.3 42.7 0.1 0.0 46.4 Liquidation and Asset Sale 0.5 0.0 44.0 9.5 14.7 2.1 70.8 Mgmt.-Employee Buy-out 21.9 3.3 103.6 33.9 0.1 13.3 176.1 Public Offering 12,368.2 7,311.6 12,039.0 4,257.7 222.0 759.8 36,958.3 Total 32,026.1 19,964.7 25,699.0 12,077.3 1,682.6 4,534.7 95,984.4 Infrastructure includes power, telecommunications, transport, and water; Primary Sector includes agrobusiness, hydrocarbons and mining: Industry includes chemicals, heavy industry, and manufactunng; Others includes transactions which could not be classified. Table A-16: SECTORIAL BREAKDOWN OF PRIVATIZATIONS IN THE DEVELOPING WORLD By Privatization Technique, 1988-1993 TOTAL (number of transactions) }t+: :t 010;t :PrFinanCal Prmary : 7.' . ~Thcl.t tf^4*U'e' Jnis't'raupture, Servees industry. i Sector Servics Others _________ Concession 15 0 1 4 0 1 21 Direct Sale 202 104 829 342 221 155 1,853 Joint Venture 0 0 14 4 5 2 25 Lease 3 1 11 6 2 1 24 Liquidation and Asset Sale 2 0 5 3 1 3 14 Mgmt.-Employee Buy-out 4 1 33 12 2 10 62 Public Offering 41 40 143 21 14 21 280 Total 267 146 1,036 392 245 193 2,279 Infrastructure includes power, telecommunications, transport, and water, Primary Sector includes agrobusiness, hydrocarbons and mining; Industry includes chemicals, heavy industry, and manufacturing; Others includes transactions which could not be classified. Table A-17: REGIONAL BREAKDOWN OF PRIVATIZATIONS IN THE DEVELOPING WORLD By Privatization Technique, 1988-1993 (in USS millions) RSetA.h ., .:Europ,e. :Ltfin*Amica & Middle East & Sub.Sahann: 4 ,jp ,, . , , ,o,iiql. Pci C,, Asia Carltb , Notits Aktir Aou ti Awls ica TotI', Concession 215.0 22.0 1,823.0 0.0 0.0 0.0 2,060.0 Direct Sale 6,483.3 12,337.3 33,512.5 362.1 416.4 2,349.9 55,461.5 Joint Venture 50.2 63.4 1,079.8 0.0 4.2 13.7 1,211.3 Lease 7.5 0.6 37.8 0.0 0.0 0.5 46.4 Liquidation and Asset Sale 0.0 0.2 70.1 0.0 0.0 0.5 70.8 Mgmt.-Employee Buy-out 23.8 21.7 89.8 1.5 39.3 0.0 176.1 Public Offering 9,373.4 5,505.7 18,575.2 378.0 3,099.6 26.4 36,958.3 Total 16,153.2 17,950.9 55,188.2 741.6 3,559.5 2,391.0 95,984.4 44 References Boeke, Paul H., "Latin America's Turnaround: Privatization, Foreign Investment, and Growth", International Center for Economic Growth, 1993. Candoy-Sekse, Rebecca, Techniques of Privatization of State-Owned Enterprises, Vol. III, "Inventory of Country Experience and Reference Materials", Technical Paper No. 90. Washington, D.C.: World Bank, 1988. Clutterbuck, David, "Going Private: Privatizations around the World." London: Mercury Books, 1991. 1 Edwards, Sebastian, "Capital Flows, Foreign Direct Investment, and Debt-Equity Swaps in Developing Countries", NBER Working Paper No. 3497. Cambridge, Massachusetts, October 1990. Gayle, Dennis J. and Jonathan N. Goodrich, "Privatization and Deregulation in Global Perspective", New York: Quorum Books, 1990. Hachette, Dominique and Rolf Luders, "Privatization in Chile: An Economic Appraisal" San Francisco: International Center for Economic Growth, 1993. International Monetary Fund, "International Financial Statistics", Washington, D.C., various issues. "Fund Supported Programs, Fiscal Policy and Income Distribution", Occasional Paper No. 46, Washington, D.C., 1985. Kikeri, Sunita, John Nellis and Mary Shirley, "Privatization: The Lessons of Experience," Washington, D.C.: World Bank, 1992. L6pez-de-Silanes, Florencio, "Determinants of Privatization Prices", mimeo, Harvard University, Cambridge, Massachusetts, 1994. Nankani, Helen, "Techniques of Privatization of State-Owned Enterprises", Vol. II, "Selected Country Case Studies," World Bank Technical Discussion Paper No. 90. Washington, D.C.: World Bank, 1988. Pfeffermann, Guy P. and Andrea Madarassy, "Trends in Private Investment in Developing Countries 1993", Discussion Paper No. 16. Washington, D.C.: International Finance Corporation, 1992. Privatization International, "Yearbook," London, various issues. 45 Rojec, Matija, "Privatization through Foreign Investment in Slovenia: Concept, Experiences and Policy Options", Centre for International Cooperation and Development, Ljubljana, Slovenia, May 1994. Sader, Frank, "Privatization and Foreign Investment in the Developing World, 1988-93", Working Paper No. 1202, Washington, D.C.: World Bank, International Economics Department, October 1993. Summers, R. and A. Heston, "A New Set of International Comparisons of Real Product and Price Level Estimates for 130 Countries", Review of Income and Wealth, 1987. World Bank, World Debt Tables, 1994-1995, Washington, D.C., 1994. 46 Distributors of World Bank Publications ARGENTINA The Middle East Observer KENYA SINGAPORE, TAIWAN, Carlo. Hirsch, SRL 41, Sherif Street Africa Book Service (E.A.) Ltd. MYANMAR,BRUNEI Galeria Guemnes CAiro Quaran House, Mfangano Street Gower Asia Pacific Pte Ltd. Florida 165,4th Floor-Ofc. 453/465 P.O. Box 45245 Golden Wheel Building 1333 Buenos Aires FIN1AND Nairobi 41, Kallang Pudding, t04-03 Akateeminen Kirijakauppa Singapore 1334 Ohcina del Libro Internacional P.O. 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