Privatization as a Panacea for Declining Oil Wealth

Chatham House published this article written by Professor Paul Stevens, Distinguished Fellow, Energy, Environment and Resources, on 13 December 2016 and in view of its obvious interest for all our readers, it is reproduced here with all its proposed links for further reading.  The GCC’s countries economic reform as spearheaded by Saudi Arabia is believed to be only a matter of Privatization as a Panacea for Declining Oil Wealth.

The Royal Institute of International Affairs, commonly known as Chatham House, is a non-profitnon-governmental organisation based in London whose mission is to analyse and promote the understanding of major international issues and current affairs. It is the originator of the Chatham House Rule and takes its name from the building where it is based, a Grade I listed 18th-century house in St. James’s Square, designed in part by Henry Flitcroft and occupied by three British prime ministers, including William Pitt, 1st Earl of Chatham.

 

Economic Reform in the GCC: Privatization as a Panacea for Declining Oil Wealth?

Project: Energy, Environment and Resources Department

Economic liberalization through privatization is unlikely to succeed in the GCC states without simultaneous political liberalization and reform.

A Saudi investor at the Tadawul (the Saudi Stock Exchange) in Riyadh, on 15 June 2015. Photo: Getty Images.

Summary

  • The collapse in oil prices since 2014 has presented serious economic challenges for the countries of the Gulf Cooperation Council (GCC), underscoring the need to diversify their economies away from oil and develop their private sectors. In response, the GCC states have devised wide-ranging economic reform plans, central to which are, in many cases, options to privatize state-owned enterprises (SOEs).
  • Media attention has focused particularly on the proposed sale of parts of Saudi Aramco, but across the GCC states the interest in privatization extends beyond energy to other areas of industry and services.
  • Privatization, for the GCC states, is expected to create more effective incentives; force greater accountability on senior management; reduce government interference in business operations; and give management clear commercial targets unfettered by requirements of social policy. It is also intended to reduce the financial constraints on enterprises that have hitherto been dependent on government revenue.
  • However, much of the current discussion disregards the lessons learned from privatization experiences elsewhere in the 1980s and 1990s. The very large literature developed at this time raises serious questions about the ability of divestment programmes to deliver the objectives now expected of the same process in the GCC.
  • Analysis of the ideological arguments for privatization – derived from the economic theory of politics, theories of public choice and principal-agent analysis – can be used to explain why there is a strong possibility that governments in the GCC states will fail to privatize effectively.
  • Previous experience shows that simply changing the property rights of an enterprise – i.e. switching it from public to private ownership – is not in itself sufficient to improve performance. This requires other conditions, including increased competition; improved signals that force management to be responsive, flexible and inventive; reduced government interference to allow management to maximize shareholder value; and effective and efficient capital markets to impose the necessary discipline on managers.
  • The socio-political conditions that characterize the GCC countries – based on family and other elite patronage networks, and where property rights are dubious, the rule of law may be debatable, and the prospects for independent regulation of privatized enterprises are uncertain – are not conducive to enabling the necessary conditions for privatization to succeed.
  • Economic liberalization through privatization is unlikely to succeed in the GCC states without simultaneous political liberalization and reform. If privatization simply delivers a set of windfalls for the state while reinforcing traditional patronage networks, this is likely to aggravate the same perceptions of corruption and helplessness that triggered the Arab uprisings from the start of 2011.
  • Theory and contextual analysis alike therefore suggest that privatization will not be the panacea that many believe it to be for the GCC states. A process that allows the entry of the private sector and thus forces a (hitherto monopoly) SOE to compete and perform appears to be a more realistic way forward than does wholesale privatization.

– See more at: https://www.chathamhouse.org/publication/economic-reform-gcc-privatization-panacea-declining-oil-wealth?utm_source=Chatham%20House&utm_medium=email&utm_campaign=7845295_CH%20Newsletter%20-%2016.12.2016&utm_content=GCC-Title&dm_i=1S3M,4O5GV,NUSYEK,HFPWZ,1#sthash.hbTldyjO.dpuf

Recession or Recovery in 2017?

As 2016 draws to a close, everyone’s mind is focusing on whether it will be Recession or recovery in 2017?  Will 2017 be a year when everything stabilises? Or are we set for more turbulence?

Generally all of us, market experts and analysts first are sitting on these questions trying and make sense of 2016 and lay out their forecasts for 2017.

In our article Noisy Business related Declarations of May 28, 2016, we introduced Saxo Bank which reiterated last October, through its Steen Jakobsen, chief economist and chief investment officer at the bank’s online trading investment division, warning this time that global economies will face a recession in 2017.  In a recent media briefing in Dubai, he held that major central banks, led by the Bank of Japan, are changing their monetary policy, operating less quantitative easing (QE) and pumping global economies through what he called “back-door helicopter money” after announcing that “The higher cost of capital, more political uncertainty, low growth and productivity – this is all the making of a potential recession for the world in 2017.”

In the meantime, the world of energy last month, OPEC members together with NOPEC countries reached an agreement to cut production so as to make the oil market healthy again.

Meanwhile, the same Saxo Bank’s chief economist predicts that a stronger Dollar couyld well lead all towards the dreaded recession.  Excerpts of an article published on December 11, 2016 recalling the same, is reproduced below.

Saxo Bank: A stronger US Dollar and Fed policy may lead the world into recession in 2017

Saxo Bank chief economist says GCC nations’ focus in 2017 should be on balancing and diversifying their economies

The shifting focus of major central banks from quantitative easing (QE) programmes to fiscal policy through potential back-door helicopter money will have knock-on effects that could lead the world into recession next year, according to Steen Jakobsen, Chief Economist and CIO of Saxo Bank, the online trading and investment specialist.

The by-product risk of central banks increasingly looking to use indirect helicopter money to spark economic growth is the creationof strong economic currents which bring much higher volatility, risk and a stronger US dollar, believes Jakobsen.

Speaking from Saxo Bank’s office in Dubai International Financial Centre (DIFC), Jakobsen said: “A stronger US dollar combined with the US Federal Reserve’s intention to hike interest rates by December this year almost guarantees a dramatic increase in the probability of a recession in the US. This recession will be the real challenge to the policy makers and what’s unfortunate is that it comes during a period when there are several major political elections in Europe and the US.”

“Our #SaxoStrats forecast is that 2017 is going to see weakness in emerging markets, oil, gold and silver against the rising US dollar. Furthermore, the change in the US central bank’s policy from infinite monetary easing to indirect helicopter money will ultimately raise both inflation and growth, but only through a recession.”

A recession in the world’s largest economy would have a wide-reaching impact, particularly the risk of a poorly performing US economy dragging down global growth and potentially spawning a global recession.

Speaking about Middle East economies Jakobsen said: “There has been significant inflow into the Middle East bond market. Much of the investment is based on ‘yield pick-up’ – the additional interest rate an investor receives when selling a lower-yielding bond in exchange for a higher yielding bond – which could reverse if we start seeing higher and more attractive rates in the US.”

“Furthermore, the WTI Crude oil price should hit highs between US$50 and US$53 next year, which will continue to heap further pressure on oil-producing economies with budget deficits, such as Saudi Arabia. And, if my prediction of a US recession is shown to be correct, total demand for oil should also come under pressure.”

“Looking at all the external factors that will influence Middle East economies, my outlook is that 2017 will be a challenging year for the region. The focus locally should be to diversify and balance the economies better.”

Steen Jakobsen’s visit to Dubai comes after two new senior appointments have been made to support the Middle East business of Saxo Bank. Mario Camara has joined the company as Head of Saxo Dubai and Anwaar Ahmed has been appointed Head of Institutional Business Development MENA. Both appointments support Saxo Bank’s continuing growth in its retail and institutional functions across the Middle East, and underline the region’s importance as a growth hub for both Saxo’s retail and institutional business.

Read more in the original document.

Knowledge as basis for Algeria’s Development

by | Dec 15, 2016 |

Knowledge and good governance were found, since time immemorial and at all times, to be the basis for prosperity of civilizations; a country without its elite is like a body without soul.  Algeria is no different in that it is knowledge as basis for Algeria’s Development that would enable it transcend this critical phase of its history and hopefully flow to better climes.

Recently, hundreds of high school students and thousands of families because our children recount with precision what they have heard or seen, welcomed me on this day I will never forget of December 13th, 2016, at the invitation of that famous high school (Lyceum ex Ardaillan of Oran) of mine, that by the way saw many politicians, scientific and military personalities of renown of all regions of the country pass through its doors, halls and corridors.  It is the greatest gift that was given to me after a long career, and it was also a very long time I did not cry, with joy this time, noting a big difference between these spontaneous questions marking the innocence of these kids with their discourse of truth, especially with the different national and international conferences that I am regularly invited to.

I was greeted with the national hymn (Nasheed Al Watani), a poem and a song in my honour, flowers and a picture with my name on; gifts from a collection by the hundreds of high school students and teachers and not on the school budget.  Many souvenir photos with these children of boundless sincerity were taken.  How beautiful were these girls and boys in their senior year with their questions testifying all their attachment to the future of Algeria; issues shared between hope and legitimate concern about the fall in the price of hydrocarbons and many other questions on certain enrichment without efforts that undermine the society as well as depreciating the value of true and honest work.

I have tied the whole of my career since obtaining the Baccalaureate (A Level) in 1965 and my doctorate (PhD) in 1974 to acquiring the knowledge and expertise in the vast domain of Economics studies.  I insisted on the fact that without knowledge, there may not be development for any country and that a good training should be a must whilst taking into account the new world that is encompassed by the digital revolution in order to find a job.

“You are young as those who liberated this country between 1954 and 1962”, I told them before adding, “they were your age and you are the hope of Algeria of tomorrow.” I insisted strongly, and “we must not have a vision of gloom of the future of our country that has significant potential.”  Yes, this youth is conscious of the future challenges facing both the world and Algeria.  I for one and in the face of all evidence, I keep a flawless hope in the future of Algeria if only we could mobilize the youth.

The idea that for years I defended not always without difficulties, i.e. a broad national front, taking into account the different sensitivities, is to give priority to the best interests of Algeria.  It was defended here before me by the present teachers and hundreds of students, who promised to convey this message that is strategic to their peers and kin because of its paramount national security and meaning for the future of our country.

For instance, the ministerial positions that are inevitably ephemeral with some present Algerian ministers, living of illusions and intoxicated by their functions, e.g. being received with great fanfare because representing a great country and not for their writings or skills are just uselessly passing time.  Once an end is put to their functions, they are completely ignored and ineluctably become “has been”.

By the way how many Algerian ministers do you remember the names that the country has had since independence to date?

 

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Precariat and the Rentier Economy in the MENA

We, in the MENA region, are quite familiar with the rentier type of economy of certain countries, notably of those of the oil exporting ones.  And never has there been, in our humble opinion, another concept since that of the rentier economy of a state theory.  This was first postulated by Hossein Mahdavy in 1970.  Professor Guy Standing’s use of the concept of Precariat seems to be a novelty these days and possibly producing the same awe effect in all of us.  The reproduced article describes a situation arrived at through the on-going globalisation of all economies, great and small alike.  Could the Precariat and the rentier economy in the MENA oil exporting countries relate to that social class made of extraordinarily massive manpower imports.  

Written by Guy Standing, Professorial research associate, School of Oriental and African Studies, University of London is this article in the second of a three-part series on the Precariat class, a growing social demographic defined by their low wages and lack of job security, Guy Standing debunks the cornerstones of free-market capitalism. Read the first article here.

The 5 biggest lies of global capitalism

Languishing at the lower end of the global labour system is the Precariat, a social class whose lack of job security and economic stability has been ascribed to the rise of populism around the world.

The Precariat can be divided into three further groups – Atavists, who look back to a lost past; Nostalgics, who look forlornly for a present, a home; and Progressives, who look for a lost future. The last consist largely of those who go through university only to emerge with large debts and little hope of a career or personal development.

It is the first group, the Atavists, who have been on the political rampage, supporting Brexit, the triumph of Donald Trump, the Northern League in Italy, Marine Le Pen’s National Front in France – and other nationalist populists elsewhere in Europe. Everywhere the populist right seems to be winning politically, basically.

But the Progressives have also revolted, standing shoulder to shoulder with the likes of Podemos in Spain, Bernie Sanders in the US, Jeremy Corbyn in Britain, the Alternativet in Denmark and new left-wing movements in Germany, Portugal and Scandinavia.

Meanwhile, the minorities, migrants and refugees who make up the Nostalgics are smouldering, and surely cannot go on much longer without hope.

The age of anger

There is clearly a lot of anger out there, a seething discontent over perceived establishments and elites that is fuelling considerable political energy. All three groups of the Precariat are reacting in their different ways to the growth of inequality and economic insecurity over the past three decades; all have seen the dismantling of the 20th-century income distribution system that linked incomes and benefits to jobs.

In the interests of competitiveness in a globalizing world economy, governments of all complexions introduced labour-market reforms that promoted flexibility, but accentuated the Precariat’s insecurities. They weakened regulations for banks and financial companies, enabling financiers to gain more income while pushing the Precariat into greater debt. They strengthened property rights of all kinds – physical, financial and intellectual – that gave an increasing share of income and wealth to asset holders at the expense of everyone else. And they granted tax cuts for the rich and generous subsidies for corporations, while demanding reductions in public spending to balance budgets, cutting benefits for the Precariat and lowering relative and absolute incomes.

In each case, the argument was that the measures would boost economic growth, expanding the pie for all to share. Instead, almost all the gains have gone to a small global elite – who have, not surprisingly, pushed for ever more of the same. There has been no quid pro quo.

And the longer this fraudulent prospectus is presented, the angrier all parts of the Precariat will become. The ugly political consequences should by now be clear to everybody.

It is not too late for liberal democracies to introduce transformative reforms that would respond to the woes of the Precariat while promoting sustainable economic growth and development. But so far only lip service has been paid to the need to do so. Liberal elites must make real concessions or find the values they claim to cherish – tolerance, freedom, economic security and cultural diversity – at grave risk, particularly when it comes to the wrath of the Atavists.

The first thing to do is confront today’s system of rentier capitalism. This is where a growing share of wealth goes to already privileged owners of assets (rentiers), while income from most jobs dwindles in value. John Maynard Keynes predicted in 1936 that the development of capitalism during the 20th century would result in “the euthanasia of the rentier”, as rent-seeking became harder. The reality has been the reverse. Corporations and financiers have used their growing influence to induce governments and international organizations to construct a global framework of institutions and regulations that enable elites to maximize their rental income.

Modern capitalism is based on five falsehoods:

  1. The first lie is the claim that global capitalism is based on free markets.Without hyperbole, it can be said that what has been constructed is the most unfree market system ever. Thus, intellectual property has become a prime source of rental income, through market power created by the spread of trademarks (crucial for branding), copyright, design rights, geographical indications, trade secrets and, above all, patents.

Knowledge and technology-intensive industries, which now account for over 30% of global output, are gaining as much or more in rental income from intellectual property rights as from the production of goods or services. This represents a political choice by governments around the world to grant monopolies on knowledge to private interests, allowing them to restrict public access to knowledge and to raise the price of obtaining it, or of the products and services embodying it. Not for nothing did Thomas Jefferson say that ideas should not be the subject of property.

  1. The second lie is that strong intellectual property rights are required to encourage and reward the risks of investment in research and development. Yet it is the public, ordinary taxpayers, who bear the cost of much of that investment. A lot of corporate cash cows derive from publicly funded research, in public universities or institutions, or through subsidies and tax breaks. Moreover, most innovations that yield large returns in rental income to companies or individuals are the result of a series of ideas and experiments attributable to many individuals or groups who go unrewarded. And many patents are filed to block competition or head off lawsuits, and are not intended to be exploited for production.
  2. The third lie is that strengthening property rights is good for growth. On the contrary, by increasing inequality and distorting consumption patterns, it has hindered growth and made the growth that has occurred less sustainable. Slow and unstable growth builds up economic frustration for millions, not to mention the political risks that come with it.
  3. The fourth is that rising profits reflect managerial efficiency and a return to risk-taking.In reality, the increased profit share has gone mainly to those receiving rental income, much of it linked to financial assets.
  4. “Work is the best route out of poverty.”This is the fifth and politically most important lie. For millions of people in the Precariat, it’s a sick joke.

A war on wages

This is the key. The income distribution system has broken down. Across the OECD, real wages have been stagnating for three decades. The share of income going to capital has been rising and is much higher than it used to be. And high-income earners are taking a greater share of the income going to labour, further hurting the Precariat.

Three economic relationships illustrate what is happening to wages. First, it used to be the case that when productivity grew, wages grew in parallel; now, in the US and elsewhere, wages do not budge. Second, it used to be that when profits rose, wages rose; now, wages do not budge. Third, it used to be that when employment rose, average wages did so too; now, average wages can even fall, because the new jobs pay less.

However hard those in the Precariat work, they face slim prospects of escaping from a life of economic insecurity. And the longer that remains the inconvenient truth, the greater the danger that they will listen to post-truth authoritarian populists offering to turn back history. The only way to escape this “politics of inferno” is to build a new income distribution system suited to the 21st century.

This will be the subject of the third article, leading up to what should be a serious debate on the Precariat in Davos, at the World Economic Forum’s Annual Meeting in January. Along with climate change and the impact of the fourth industrial revolution, there is no more urgent matter than that.

 

Friend and Fellow Countryman M. Tamalt Passing Away

In commemoration of our friend and fellow countryman M. Tamalt passing away in circumstances not exactly very honorable, we reproduce herewith excerpts of 2 articles. On World Press Freedom Day, last May 3rd, the UN High Commissioner for Human Rights, Navi Pillay said governments must work to protect the media and “investigate and bring to justice those responsible for violent assaults upon journalists.”

by | Dec 12, 2016 | Algeria, Corruption, Democracy, Free Speech, MENA, Social Media | 0 comments

Friend and Fellow Countryman M. Tamalt Passing Away

In commemoration of our friend and fellow countryman M. Tamalt passing away in circumstances not exactly very honorable, we reproduce herewith excerpts of 2 articles.  On World Press Freedom Day, last May 3rd, the UN High Commissioner for Human Rights, Navi Pillay said governments must work to protect the media and “investigate and bring to justice those responsible for violent assaults upon journalists.”

Research recently conducted by the Office of the High Commissioner for Human Rights in the Middle East has shown that although the constitutions of the majority of  Middle Eastern countries provide for freedom of expression, in reality conventional and international (including radio, satellite TV and the Internet) media remain under a restricted and intimidatory legal, political and security environment. [. . .]

British-Algerian journalist dies after hunger strike in Algiers

A British-Algerian journalist had died six months after staging a hunger strike in Algiers over his detention for publishing articles seen as offensive to President Abdelaziz Bouteflika, prison authorities and his lawyer said.

Rights groups called for an investigation into Mohamed Tamalt’s death – Reporters Without Borders said the news was a “hammer blow to all those who defend freedom of information in Algeria”.

The 42-year-old blogger and freelance reporter succumbed to a lung infection in hospital in Algiers on Sunday, the prison service said in a statement.

“I can confirm the death of the journalist Mohamed Tamalt in Bab el-Oued hospital after a hunger strike of more than three months and a three-month coma,” lawyer Amine Sidhoum said on Facebook.

Tamalt, who was based in London, was arrested in Algeria in June for posts he had shared on Facebook that were seen as critical of Algerian authorities.

Placed in pre-trial detention for “offending the president” and “defaming a public authority”, he was later given a two-year sentence for offence against a public official, according to Human Rights Watch.

“It is urgent that lawyers are allowed access to the journalist’s medical dossier,” Yasmine Kacha, North Africa director of Reporters Without Borders, said.

“A public apology should be presented to the journalist’s family and an investigation immediately opened,” she said in a statement.”

Algeria’s prison service said the hospital had been treating Tamalt for his lung infection, and he had been receiving daily treatment since beginning his hunger strike in late June.

(Reporting by Lamine Chikhi; Editing by Aidan Lewis and Andrew Heavens)

The Guardian elaborating adds that the 42-year-old blogger and freelance journalist, who ran a website from London where he lived, was charged with offending President Abdelaziz Bouteflika and defaming a public authority, in the poem he shared on Facebook. A court in Algiers sentenced him to two years in prison on 11 July and fined him 200,000 dinars (£1,400). An appeals court upheld the ruling a month later.

Amnesty International urged Algerian authorities on Sunday to open an “independent and transparent investigation into the circumstances” of the journalist’s death.