Privatization in Egypt and Tunisia: liberal outcomes and/or liberal policies?

Privatization in Egypt and Tunisia: liberal outcomes and/or liberal policies?

Strong government authority is a vital requirement for the success of market-oriented reforms

This paper examines the different levels of success in liberalisation experienced by two countries with very similar economic histories: Egypt and Tunisia. It asks why one of these countries moved forward and the other lagged behind. Could the factors of success in Tunisia play a similar role in Egypt and vice versa? The paper argues that the answers to these questions should be sought in the context of the interaction between the central government, which is the major agent of reform, and the relevant state and extra-state actors with a stake in privatization.

On the basis of the comparison of the Egyptian and the Tunisian experience the paper argues that a reform-minded government may have to resort to illiberal measures in order to set competitive markets in motion. The comparison of the two cases shows that the country which has been more restrictive in the management of the privatization program (Tunisia) has achieved greater success in pursuing liberal economic goals than the country which has adopted a more liberal approach (Egypt).

On the basis of this analysis the paper makes the following policy recommendations for reformist governments:

  • political leadership should make sure that its interests as a seller are protected well enough and its share of ownership in the state owned enterprises (SOEs) is not offered for grabs to the multiple interested parties
  • as the political status quo is not clearly in favor of the reform, the government should engage in active political management and depoliticization of privatization in order to neutralize its active opponents
  • privatization should be shielded from passive resistance which is likely to be encountered in the various branches of the bureaucracy and the management of the SOEs
  • the government should keep a close eye on every privatization-related decision, the number of intermediaries should be kept as low as possible if they cannot be eliminated at all
  • the government should try to ensure strong post-privatization principal’s control through appropriate methods of divestiture
  • simultaneous economic and political liberalization have had little success around the world. It is much better to have a more restrictive or slowly liberalizing political regime at the beginning and stable progress toward competitive markets than a prolonged period of economic crisis
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