State-owned firms in Middle East ‘must be run better’, says OECD

10 Apr 12

Improving the governance of state-run enterprises would help to restore confidence in public institutions in the Middle East and North Africa in the wake of the Arab Spring, the Organisation for Economic Co-operation and Development said today.

By Nick Mann | 10 April 2012

State-owned firms account for up to half of the economic output in some countries in the region compared with 2%–3% in OECD countries. Changing the way they are run is ‘part and parcel’ of the Arab Spring, the OECD said, and would bring about greater public accountability and improve the enterprises’ efficiency.

In particular, there was a ‘lack of transparency’ among SOEs as they generally revealed little information beyond their general mandate performance, according to the report, Towards new arrangements for state ownership in the Middle East and North Africa. Detailed financial and non-financial reporting by SOEs is ‘rare’, it said, and state audit institutions had an important role to play in promoting good governance practices.

‘The role of SAIs can go beyond the traditional boundaries of financial audit and should be extended to examining the corporate governance arrangements of SOEs,’ the OECD said.

Governments should also address the influence politicians have over SOEs in many countries. The OECD said ‘significant conflicts of interests’ were caused by ministers directly performing commercially oriented activities.

Countries in the region should introduce structured nomination processes and ensure clear separation of ownership from regulatory functions, it said. ‘This ensures a level playing field with the private sector and provides a healthy environment for competition.’

It did, however, warn against privatisation being seen as the only way to reform state-owned firms. MENA countries have privatised firms without putting in place a regulatory framework for the companies to operate under, it said.

Highlighting Egypt and Tunisia in particular, it added: ‘The absence of competition/anti-trust frameworks and enforcement has resulted in growing crony capitalism and has led to a widely shared perception in the MENA region that privatisation has been a failure.’