Two days ago I was ranting on about the ‘Culture of Shame’ in Jordan and its negative effects on unemployment in the country, especially in the face of national companies employing foreign labor instead of the domestic alternative. Natasha has an interesting post on the recent plan to ‘Jordanize’ the labor force that’s worth reading. It basically involves applying “a significant increase on the fees levied on foreign workers applying for annual work permits” as well as training Jordanian workers to better compete in the market. This is the kind of plan I was talking about earlier that has a multiple solution approach. It’s not exactly the best of plans but it’s a start, it does send the message that the government is getting serious about the issue and I just hope they continue on this path.
But while our labor force is being Jordanized our publicly owned companies are being privatised, and quite possibly all at the same time. It’s kind of an economic rarity to see a country with traditionally publicly owned companies all being privatised in a small time frame. All of a sudden you get competition, generally lower prices, the introduction of more efficient technologies, relieving national debt and of course profits.
The list of companies on the list is rather interesting (and impressive)Ã¢?Â¦
Jordan is expected to raise at least $1bn this year by selling sizeable holdings in state assets, with heightened interest coming from Gulf Arab investors, the Privatisation CommissionÃ¢??s head has said. Mohamed Abu Hammour, the head of JordanÃ¢??s Executive Privatisation Commission, said privatisation would bring much needed investment and expertise to upgrade public utilities.
Ã¢??The proceeds from these projects should not be less than a billion dollars this year. This will lessen the burden on the treasury and cut debt instead of financing projects by resorting to the treasury,Ã¢?Â Abu Hammour said.
The commissionÃ¢??s evaluation process has also been streamlined to accelerate major sales in the pipeline. The largest sale that could be concluded soon is that of the governmentÃ¢??s remaining 41.5% in the countryÃ¢??s sole fixed-line operator Jordan Telecom, in which France Telecom bought a 40% stake in JordanÃ¢??s biggest privatisation to date in 2000.
An industry source said the sale could be within weeks. The sale of up to 49% of the state carrier Royal Jordanian (RJ) to an interested financial investor could be concluded by the end of the year or early in 2007, Abu Hammour said.
Other privatisations lined up for full or partial privatisation include up to 51% in the fully state-owned Central Electricity Generation Company (CEGC) and 100% of the state owned Jordan Electricity Distribution Company (EDC), along with over 20 smaller companies. [source]
Queen Alia Airport might also become a Build Operate Transfer, a “concession worth between $400mn to $500mn”. This basically means a private company will run the airport for (according to Abu Hammour) 20 or more years. So we’ll finally see some much needed improvements on the airport as well as the RJ airline (you might actually get a bread roll with that meal).
It’s also good to see that there is a move to attract Arab investors instead of relying on foreign control of these national companies. I think the privatisation of Jordan Telecom was one of the best moves in recent years and the difference has been noticeable. I hope the same will happen with the rest of these companies but I also hope the revenue will be put to good use by the government.
The governement is definitely on the right track in privitising most of the utilities. HOWEVER, the governement needs to keep a VERY close eye at the new entities as they would have an incentive to raise their prices (since their corporate objective, theoratically, has moved from maximising social welfare to a profit maximising private enterprise).
Post-privitisation regulation is vital to ensure that the benfit of these “new upgrades” translate to the consumers in terms of lower prices and higher quality. In the US, they use what is called the Rate of Return, which is basically an allowable rate of return on capital the privitised firm is allowed to achieve. However, this is a very tricky mechanism that has been criticised from all angles. In the UK, they currently use “price caps or RPI-X” to regulate British Telecom (BT). Price caps are better than the rate of return on various measure, mainly in that it provides an incentive for the supplier to be as cost efficient as possible while transfering cost savings to the consumer.
simply put, the government needs to spend some of this money on extensive monitoring techniques that ensure that the established entities are not exploiting their position…
just had an economics exam… excuse the pointless details.
X, yes you’re right, there does need to be post-privitisation regulation (in theory) especially with regards to public accountability. But as you know (having just taken an economics exam) there is a difference in the approach when it comes to developing countries as opposed to developed countries such as the UK and US. And I’m not so sure the purpose before was actually maximising social welfare, in fact I think they were more burdensome on the citizens if anything. To top it off, while regulation (to some extent) can be a positive thing, in Jordan’s case the primary focus should be on opening the market up as wide as possible to make it as free as possible and thus invite as much competition as possible. If they can do that then they won’t have to rely too much on government regulation or the fear of rising prices.
Theory is different from the reality. Let the free market do its thing.
thanks for the insightful comment 🙂
i definitely agree that theory is different from reality.. but some times theory is based on simple logic.
For example, barriers of entry are rediculously high in the telecom market simply because of 2 things, the infrastructure of the network itself (underground cables, network loops etc.) requires a HUGE investment and ossas ta7weelat so that they’d dig things up to put in the cables etc… The theory suggests: the average costs in a natural monopoly will INCREASE if more than one company supplies.. which is the case in most utilities..
And the second barrier is customer inertia due to number portability. For example, you have a company using landlines from Jordan Telecom, and now “amman landlines company” offers you an offer for half the price you cannot simply change. This is because your customers know your current phone number, your business cards, brochures, advertisements all have your old number… The cost may be very high that what you save for changing companies might not be worth it….. this is where regulation can come in… they can “assist” the free market and give competition a little push by forcing the privatised jordan telecom to allow customers to change companies AND keep their old number.. without regulation, they have absolutely no incentive to do so, which means that no company will ever take the risk of investing this large amount with the possibility of not attracting enough customers…
also the regulators can enable new companies to use the incumbent’s current network in return of a certain fee for example..
Of course there is a difference between developing and developed countries,,, but business is business everywhere. People want to make money no matter what… With no regulation, jordan telecom for example, would spend as much money as it can to make sure no one else comes in…
I think regulation (assuming it was used correctly with perfectly no corruption – hahaha,, imagine!!) is not against the free market, but rather, a perfect complement that comes in when the market fails.
haha,, my economics teacher would be proud…. sorry for the long essay, weird flow, and ugly punctuation….
Under capitalism principals and in this despicable world we live in today the Ã¢??governmentsÃ¢?Â and the Ã¢??stateÃ¢?Â becomes insignificant and takes a secondary role to the market economics and corporations. Even totalitarian regimes similar to ours lose its edge to the benefit of corporations who are in charge.
The problem is the consumer (formerly known as the citizen) is the biggest loser for a number of reasons,
– the absence of laws that provide any kind of protection to the population. (the transition requires the absence of laws that could impede the exploitation of the corporations, but at least, a set of guidelines (anti-monopoly, anti- fraud, anti- white collar crime laws are necessary to guarantee a minimum protection to us ). In our case the people we are depending on for such laws are the main beneficiaries of their absence (between ministers, representatives and royalties), add to this the traditional lack of law enforcement (for the benefit of the above groups) and we are screwed.
– The main revenue from selling away the Ã¢??countryÃ¢?Â and its main assets must be used to help in major developmental projects of high revenue that provide long term solutions to serious problems, in order for them to be justified. Unfortunately, the revenues are deposited in suspicious over seas bank accounts, while bloggers and so-called educated elite are raving and celebrating the Ã¢??improvementÃ¢?Â of the Ã¢??countryÃ¢?Â. After all the Ã¢??eliteÃ¢?Â is a part of the garage sale anyway.
hashmi hashmi, you make some valid points there and I agree. I think the source of all our problems are the so-called educated elitist bloggers who celebrate “improvements” that are just not there. Those bastards. All that education ain’t done’em no good. Money better spent on tabloid knowledge. Don’t worry buddy, we’ll get’em all one day…burn’em all at the stake if we have to.
X, barriers of entry to the telecom market are high because the government owns half of the industry right now 😀
They’ll be inclined, actually forced, to bring them down when the industry is fully privatised. Otherwise one company consolidates the market. I did hear a while back about a second telephone company opening up and I’m sure that will happen.
You’re right, infrustructure is a huge thing. Rapid growth and lack of planning has had it’s impact on Amman specifically. But it looks like a lot of that is in the process of being fixed.
i don’t know how much emphasis we can put on a customer’s reluctance to change numbers. they do it all the time, especially with cellular phones. businesses perhaps but i’m inclined to believe it’s not that big of a deal.
yes business is business everywhere, but the way a country approaches regulation is dependent on the current status of its economy and its market. I am not suggesting no regulation should be employed, but rather a type that suits the need of the market place first, limited form of it second…and more importantly only after the government opens the market to allow competition in. A few years ago no one saw Mobilcom as a company that could possibly succeed in a market that was completely monopolised by Fastlink and for such a long time that it had the head start when it came to infrustructure and customer base etc. Now we have 4 major networks in direct competition with each other. For the more traditional landlines, its a tough business. Even developing countries have trouble establishing competition in a market where infrustructure is not mobile and is costly. In Canada i don’t think we have anything here other than Bell Canada in operation. The American Sprint almost put it out of business over a decade ago but it pulled through.
The preliminary solution being the act of opening up the market to competition, after that’s done and the waves settle down then you can have regulation.
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