317 privatesector P U B L I C P O L I C Y F O R T H E NUMBER NOTE 2008 Privatization Trends JANUARY Sunita Kikeri and A Record Year in 2006 Verena Phipps An update of the World Bank Group's Privatization Database shows PRESIDENCY Sunita Kikeri that privatizations in developing countries amounted to US$70 billion (skikeri@worldbank.org) VICE is an adviser, and in 2006--or US$105 billion including two mega Chinese offerings. Both Verena Phipps results beat all previous years in nominal terms. Contrary to popular (vphipps@worldbank.org) a consultant, in the perceptions of a slowdown, the data show that privatization in its Corporate Governance various forms continued in a broad range of countries and sectors, DEVELOPMENT and Capital Markets particularly infrastructure and banking. Initial public offerings were Department of the World Bank Group. prominent, especially in China. SECTOR This Note is based on a In 2006, 48 developing countries carried out largely from oil refinery and steel sales. More World Bank Group PRIVATE 249 privatization transactions valued at a record than half of the Arab Republic of Egypt's database that uses US$104.9 billion. This result was driven by two US$7.6 billion came from three transactions in AND transaction values as a mega minority initial public offerings (IPOs) in telecommunications and banking. Romania's proxy for measuring China--of the Industrial and Commercial Bank fifth place resulted mostly from the US$4.7 bil- privatization trends. It includes only the values of China for US$22 billion and the Bank of lion sale of Banca Comerciala Romana (BCR). FINANCIAL resulting from the full or China for US$13.7 billion. These two deals, the Rounding out the top 10 were the Republic of partial sale, concession, largest and the fifth largest offering ever, Serbia, Kazakhstan, Tunisia, Hungary, and lease, or initial public accounted for a third of the total.1 Nigeria, with large transactions in banking, offering of existing state- Excluding these two deals, transaction values telecommunications, and oil and gas. owned enterprises or other amounted to nearly US$70 billion, a record in GROUP government assets. For nominal terms but in line with results in the late Regional patterns more on methodology, see 1990s (figure 1)--and in real terms 17 percent Europe and Central Asia again led, followed by BANK http://rru.worldbank.org/ less than the peak of 1997. Ten countries East Asia. Value increased in both the Middle Privatization. accounted for nearly 80 percent of the total. East and North Africa and Latin America, and China again led, with US$14.6 billion, most of it declined in Sub-Saharan Africa and South Asia. from 17 other large IPOs in various sectors.2 WORLD The Russian Federation followed with US$10.8 Europe and Central Asia: still the leader billion, mostly from the IPO of Rosneft (an oil A leading region since 2000, Europe and Central THE and gas concern). Turkey's US$8 billion came Asia saw value grow from US$27.1 billion in 2005 P R I V A T I Z A T I O N T R E N D S A R E C O R D Y E A R I N 2 0 0 6 has increased steadily--from 50 percent in the Figure Value of privatization transactions in developing countries, 1990­2006 1990s to 94 percent in 2006. Besides the 2 mega 1 Europe and Central Asia East Asia and Pacific Other developing countries banking deals, China had 17 other large IPOs in 2006, motivated by the demand for shares and US$ billions need for capital. These alone accounted for 85 0 10 20 30 40 50 60 70 80 percent of regional value, and nearly 20 percent 1990 of the total value in developing regions. Another 1991 10 percent came from China's 17 other transac- 1992 tions, mostly infrastructure concessions. The rest 1993 1994 came from 3 infrastructure transactions in the 1995 Philippines and 3 in Indonesia as well as 22 trans- 1996 actions in a range of sectors in Vietnam, all but 3 1997 under US$10 million. 1998 1999 Middle East and North Africa: growth in Egypt 2000 In the Middle East and North Africa value nearly 2001 tripled to reach US$11 billion (16 percent of the 2002 total) in 2006, and the number of transactions 2003 grew from 21 to 33. Egypt, with half the transac- 2004 tions, led with US$7.6 billion. Its regional share 2005 2006 grew from 52 percent in 2005 to nearly 70 percent in 2006, driven largely by sales of a third mobile license (US$2.9 billion) and government stakes in Note: Data for 2006 exclude the minority IPOs of the Industrial and Commercial Bank of China and the Bank of China. Source: World Bank Group, Privatization Database. a joint venture bank (US$2.2 billion) and the 80 percent strategic sale of the Bank of Alexandria to US$35.5 billion (51 percent of the total) in (US$1.6 billion). Tunisia's 20 percent share came 2006, though the number of transactions fell mostly from the 35 percent block sale of Tunisie from 112 to 83. Nearly 70 percent of the value Telecom to a foreign investor for US$2.25 billion. came from five transactions in the US$2­10 bil- With sales also in Jordan, Morocco, and the lion range: Rosneft in Russia, an oil refinery and Republic of Yemen, telecommunications again steel company in Turkey, BCR in Romania, and led, accounting for 53 percent of regional value. an oil and gas concern in Kazakhstan. Another Banking followed with 37 percent. 10 percent came from three deals over US$1 bil- lion in the Republic of Serbia (telecommunica- Latin America: sharp growth tions), Hungary (natural gas distribution), and In Latin America, which led throughout the the Slovak Republic (electricity). Accounting for 1990s but saw a consistent decline in 2000­05, most of the rest were other sales in Turkey and activity picked up in 2006: value nearly tripled to the Republic of Serbia along with significant US$3.5 billion (5 percent of the total), and the transactions in Bulgaria and the former Yugoslav number of transactions nearly doubled to 17. Yet Republic of Macedonia (electricity), Bosnia and 94 percent of regional value still came from 10 Herzegovina (telecommunications), and Lithu- transactions in three countries. Mexico's 40 per- ania (oil and gas). Poland's share declined from cent came from two airport concessions, includ- 7 percent in 2005 to just 1 percent following a ing the Pacific Airports Group concession for shift in political leadership. Georgia had 34 trans- US$1 billion. Colombia's 37 percent share, actions, most under US$10 million. though down from 50 percent in 2005, reflected a more diversified program, with six transactions East Asia: Chinese IPOs dominant in petroleum, telecommunications, electricity, East Asia remained in the US$15 billion range (22 water, and ports. Brazil's 17 percent came from percent of the total) with 62 transactions, down two electricity transactions. Smaller-scale activity from 84 in 2005. China's share of regional value occurred in Jamaica (telecommunications), Peru (electricity, telecommunications), and Infrastructure: continued recovery Costa Rica and Chile (transport). Infrastructure again led, with value in the US$23 billion range (34 percent of the total) and 110 Sub-Saharan Africa: more countries, fewer deals transactions, up from 87 in 2005 (table 1). In Sub-Saharan Africa value fell from US$2.3 bil- Telecommunications accounted for nearly half lion in 2005 to US$1.9 billion (3 percent of the the infrastructure value, with more transactions total) in 2006, and the number of transactions (30 compared with 22) and more countries (21 from 46 to 30. Concentration grew, with the top compared with 16) than in 2005. Egypt, Tunisia, 10 transactions accounting for 94 percent of and the Republic of Serbia had the three largest 3 regional value, up from 82 percent in 2005. But transactions in telecommunications, amounting more countries had activity. With 18 transactions, to two-thirds of its value. Nigeria again dominated, though its share of Transport's share rose from 8 percent of the regional value declined from 93 percent in infrastructure value in the early 2000s to 32 per- 2005 to 73 percent. It also had only 5 of cent in 2005, then declined slightly to 30 percent the top 10 transactions (down from all 10 in 2006. Transport also recorded more transac- in 2005). These included Nigerian Tele- tions in more countries. Three-quarters of the communications (US$750 million) and the Sunti value came from five railway and airport deals in sugar company (US$427 million)--the region's China and Mexico. Other contributors included two largest transactions. Others were in manu- Russia (airport), India (toll roads, airports), and facturing, tourism, ports, and mining. Latvia, Nigeria, and Georgia (all ports). Telecommunications sales--in Burkina Faso, Electricity and natural gas activity expanded, Guinea, and Malawi as well as Nigeria-- with 32 transactions in 2006, up from 22 in 2005. accounted for 60 percent of regional value. Large Value grew fourfold to US$5.3 billion. Activity was transactions also took place in Kenya (electricity) spread among 16 countries, up from 9 in 2005. and Uganda (sugar), and a few smaller sales in Three transactions--in Hungary, the Slovak Angola, Equatorial Guinea, and Rwanda. Republic, and Brazil--accounted for 60 percent ofthevalue.ThePhilippines,Indonesia,Bulgaria, South Asia: Indian states active FYR Macedonia, Kenya (a newcomer), and South Asian value declined from US$3.8 billion Colombia were other important contributors. in 2005 to US$1.65 billion (2 percent of the Water and sewerage again accounted for total), though the number of transactions grew barely 1 percent of the infrastructure value, with from 16 to 22. Pakistan's regional share fell from just nine transactions--in the Philippines, 96 percent in 2005 to 70 percent in 2006; more Colombia, and China--totaling US$173 million. than 90 percent came from the sale of the Oil and Gas Development Company and Pak-American Table Privatization transactions in developing countries by sector, 2005­06 Fertilizers. India's share grew from 2 percent to 2005 2006 28 percent as a result of 14 road and airport con- 1 Value Value cessions at the state and local levels (political Sector (US$ billions) Transactions (US$ billions) Transactions opposition stalled privatization at the national Infrastructure 24.7 87 23.4 110 level).3 Mobile license sales in Afghanistan, Electricity and natural gas 1.2 22 5.3 32 Bhutan, and Sri Lanka accounted for the rest. Transport 7.8 30 7.1 39 Telecommunications 15.3 22 10.9 30 Sector patterns Water and sewerage 0.4 13 0.2 9 Three sectors again accounted for about 80 per- Energy 2.2 9 19.9 12 cent of total value: infrastructure (telecommu- Finance 15.5 39 12.9 32 nications; electricity generation, transmission, Competitive 10.1 148 10.1 82 and distribution; natural gas transmission and Primary 0.4 5 2.8 11 Total 53 288 69.1 247 distribution; transport; and water), energy (pro- duction of oil and gas, other hydrocarbons), Note: Data for 2006 exclude the minority IPOs of the Industrial and Commercial Bank of China and the Bank of China. and finance (banking, insurance). Source: World Bank Group, Privatization Database. P R I V A T I Z A T I O N T R E N D S A R E C O R D Y E A R I N 2 0 0 6 Energy: three big transactions from transactions in Jordan, Georgia, and With 12 transactions and US$20 billion, the Nigeria along with small ones in Egypt and energy sector accounted for nearly 30 percent of Vietnam. total value in 2006. The number of countries with activity grew from five in 2005 to nine in 2006. But Conclusion viewpoint nearly 90 percent of the value came from just Privatization continued in 2006: three transactions--in Russia (54 percent), IPOs were important, accounting for more Turkey (21 percent), and Kazakhstan (12 per- than a third of total value. Half of all IPO value is an open forum to cent). Four transactions in Lithuania, Pakistan, came from two oil and gas transactions in encourage dissemination of Colombia, and Hungary contributed most of the Russia and Kazakhstan. The other half came public policy innovations for rest. Georgia and Vietnam together had five small from China, which used IPOs in a range of sec- private sector­led and transactions. tors to raise funds for its enterprises and satisfy market-based solutions for the appetite for stock market listings. While development. The views Finance: large transactions, more countries IPOs resulted in the dilution of ownership, published are those of the The financial sector raised US$12.9 billion enterprises remain majority owned and man- authors and should not be (excluding the two mega transactions in China), aged by the state, raising a new set of corpo- attributed to the World almost 20 percent of the total. Value became rate governance issues for the future. Bank or any other affiliated more concentrated, with the top 10 transactions Political leadership continued to be decisive, organizations. Nor do any of accounting for 97 percent. But transactions were with its presence facilitating privatization in the conclusions represent spread across more countries than in 2005, when Colombia, Egypt, Nigeria, and Turkey and its official policy of the World Chinese banks dominated, and in previous years, absence stalling privatization in India (at the Bank or of its Executive when countries acceding to the European Union national level) and Poland. Directors or the countries dominated. The four largest were Romania's Popular perceptions notwithstanding, pri- they represent. BCR sale (37 percent), Egypt's Commercial vate participation in infrastructure expanded International Bank and Bank of Alexandria sales (except in water) and was more evenly dis- To order additional copies (30 percent), and the US$2.6 billion IPO of tributed among more transactions and more contact Suzanne Smith, China Merchant Bank (21 percent). Trans- countries. managing editor, actions in the Republic of Serbia, Turkey, and Room F 4K-206, Uruguay accounted for much of the rest. The World Bank, 1818 H Street, NW, Washington, DC 20433. Competitive sectors: modest decline Notes Value in competitive sectors remained in the 1. PricewaterhouseCoopers, Greater China IPO Watch Telephone: US$10 billion range (15 percent of the total), 2006 (March 2007). These two deals are excluded from 001 202 458 7281 but both transactions and countries declined in the rest of the analysis because of their disproportionate Fax: number. Half the value came from the steel com- size. 001 202 522 3480 pany sale in Turkey and the IPO of China 2. While minority IPOs do not involve outright trans- Email: Communications Construction. With other fer of ownership or management control, they dilute gov- ssmith7@worldbank.org transactions, these two countries accounted for ernment ownership and so are included in the database. 77 percent of the value. Morocco (tobacco), 3. Road concessions in India were awarded on the Produced by Grammarians, Nigeria (sugar, tourism), Egypt (retail, tourism), basis of the lowest subsidy requested, treated here as a Inc. and Pakistan (fertilizers, cement) had the rest. proxy for direct payments to the government. Printed on recycled paper Primary sector: China dominant The primary sector had 11 transactions for more than US$2.8 billion (4 percent of the total), a sixfold increase from 2005. China drove the growth with 93 percent of the value, nearly 70 percent of it from the US$1.9 billion IPO of China Coal Energy Company. The rest came T h i s N o t e i s a v a i l a b l e o n l i n e : h t t p : / / r r u . w o r l d b a n k . o r g / P u b l i c P o l i c y J o u r n a l