ИПИ Библиотека

Privatization is now mainstream. During the 1980's, the main proponents of privatizations were nations of the developed world, together with a number of Latin American nations. In the 1990's, however, the popularity of privatization widened considerably, spurred by the transition from Communism in Eastern Europe and the former Soviet Union. A majority of nations, including many in South and East Asia and sub-Saharan Africa now have privatization programs of their own.

IFC has been closely involved throughout this period. It has advised client governments and state-owned enterprises on divestiture, and supplied post-privatization project finance for investment programs that are an integral part of making privatization work. This transaction-level experience before and after privatization is the subject of Privatization: Principles and Practice. The report draws conclusion about whether privatization works and how to make it work best. Examples range from the rapid transfer to private hands of the bulk of Russia's large-scale industry, through a concession to operate and expand the water and sanitation system in Buenos Aires, to the sale of a farm and factory in war-torn Mozambique.

The point of selling state enterprises is to improve company efficiency and performance, and thereby make governments, consumers, employees and investors better off — and the report shows that it does so. Nevertheless, those managing the process often have additional political goals and sensitivities that can complicate the decision to sell. In this sense privatization is always political. Investor perceptions of high country risk, and the need for complex regulation, can also pose challenges. Despite these hurdles, through innovative transaction design, privatization can be made to work.

IFC's role in this arena has been to advise on how to structure transactions to achieve economic goals and accommodate political concerns (like retaining a majority public stake in a Caribbean electricity generator), without sacrificing the efficiency-related benefits that privatization brings. IFC's goal has been to do the doable. In many other cases, IFC has also provided investment support after the sale. In all cases, IFC's involvement has leveraged government commitment at early stages in privatization programs and helped build a constituency for further reform through positive examples.

This is the first in the Lessons of Experience series from IFC. Since its formation in 1956, IFC has been investing in the private sector in developing countries, sharing full commercial risks without recourse to government support or guarantee. Strong growth in the 1990s has enabled IFC to play a leading role in areas that are newly opening for the private sector. These include private financing and operation of infrastructure, described in a 1994 publication — Financing Private Infrastructure: Emerging Trends from IFC's Experience, and capital markets operations, which will be the subject of forthcoming issues in this series.