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The role of the private sector The role of the private sector in the Maghreb in the Maghreb

Karim Ben KahlaKarim Ben KahlaEcole supérieure de commerce de TunisEcole supérieure de commerce de Tunis

Konrad Adenauer StiftungKonrad Adenauer StiftungDecember 2007December 2007

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• The private sector in the Maghreb is facing challenges and threats but is still underdeveloped.

• Why are things changing (?) too slow??

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The role of the private sector (1): low The role of the private sector (1): low entrepreneurial densityentrepreneurial density

Number of « SME »

Per 1000 inhabitants

Algeria 312 959 10,3

Morocco 450 000 15,2

Tunisia 455 498 41,40

Turkey 3 960 000 56,6

Czech Republic 1 985 004 194,2

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The role of the private sector (2): relative The role of the private sector (2): relative stagnation of the pstagnation of the private investment to GDPinvestment to GDP

1980’s 1990’s

Morocco private investment to GDP

12,1 10,1

Tunisia private investment to GDP

13,6 14,9

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The role of the private sector (3)The role of the private sector (3): indicator for : indicator for Lobby power of the manufacturing sector

(Nabli, 2007) (the more concentrated the manufacturing sector, in terms of a few export categories, the more manufacturers could be expected to band together with a common interest to influence the government’s policies)

Algeria 0,01

Morocco 0,36

Tunisia 0,48

Libya 0,00

MENA 0,13

High-Income OECD 0,51

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The role of the private sector (4)The role of the private sector (4): financing companies : financing companies (some problems and limits of “poor” companies)(some problems and limits of “poor” companies)

Algeria Tunisia Morocco Egypt Jordan

Stock market

capitalization/GDP

0,22% (en 2003)

10,3% 54,8% 81,8% 292,5%

Share of domestic credit directed to the private sector, 2003 (Nabli, 2007)

11,5% 69,0% 55,1% 61,5% 71,7% (123,0 for

High income OECD)

NPL 30% (2006)

21% (2006)

15,7% (2005)

25%

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The role of the private sector (5)The role of the private sector (5): other : other inhibiting factorsinhibiting factors

1.1. Weight of the informal sector and anti-competing Weight of the informal sector and anti-competing practices practices

2.2. Lack of skills and brain drain (enhance quality Lack of skills and brain drain (enhance quality and not only quantity of high education, and not only quantity of high education, graduated unemployment problem) graduated unemployment problem)

3.3. Low manufacturing productivity and productions Low manufacturing productivity and productions with low added value with low added value

4.4. Low diversification of products and markets (exp: Low diversification of products and markets (exp: dependence on Europe for exports, on oil, dependence on Europe for exports, on oil, textile)textile)

5.5. ICT fractureICT fracture

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Algeria Tunisia Morocco Lebanon Turkey

Numbers microcomputers (1000 px)

8 31 24 81 45

Numbers Net surfers (1000px)

16 52 24 117 73

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Why? First response: poor legal frame for doing business

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Why? second response: Bad governance indicators (the experts

opinion)Quality of

public administration

Public sector accountability

Overall governance

Algeria 44,1 42,3 42,5

Morocco 57,8 47,9 51,1

Tunisia 58,4 37,1 44,3

MENA 47,3 35,1 39,4

OECD 79,6 97,5 90,2

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Why? Third response: the choices of industrial policy (at the beginning)

• The “Makhzen” in Morocco, the “Moudjahidine” and the army in Algeria, the “ottoman bureaucrats” in Tunisia

• Vertical industrial policy ((sector or firm specific) produces rent seeking (distortions) and corruption opportunities)

• Import substitution• Protecting infant industry and public enterprise• The social (and political) function of the public enterprise

is privileged• State capture of the banking and insurance sectors• Price controls• Tight (but often bad) planning

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Why? Third response: the industrial policy: :

Hesitations about privatizationsHesitations about privatizations Period Period Number/total Number/total

envisaged envisaged Receipts Receipts Remarks Remarks

AlgeriaAlgeria 1995-2005

275/ 731 EPE

800 millions USD

-25% of the entities bought by foreigners-the employees profit from 10% of the capital, on a purely gracious basis

TunisiaTunisia 1987-2006

201/310(?) 1893 millions USD (2,483 MilliardsDT

(TT: 3,052 milliards DT))

- 74,34% (1846 MDT) of foreign investments

MorocMoroccoco

1989-2005

70/114 8416 millions USD (76,7 milliards de dirhams)

-foreigners = 77.7% cash- workers: 0,7% of the cash (reduction of 15% on the price)- stock exchange capitalization

multiplied by 23

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Why? Third response: the industrial policy: the delay of the “mise à niveau”

Mise à niveauMise à niveau

industrieindustrie

AlgeriaAlgeria 418 / 23639

MoroccoMorocco 363 / 7737

TunisiaTunisia 3470 / 5458

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Beyond the industrial policy: Core attributes of social contract in MENA

( Nabli, 2007, p 144)

1. The preference of states over markets in managing national economies

2. A reliance on state planning in determining economic priorities

3. A penchant for redistribution and equity in economic and social policy

4. An encompassing vision of the role of the state in the provision of welfare and social services

5. A vision of the political arena as an expression of the organic unity of the nation rather than as a site of political contestation or the aggregation of conflicting preferences

6. The emergence of centralized, hierarchical, and tightly regulated corporatist structures of interest groups

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Why? fourth response: from economic to political, social Why? fourth response: from economic to political, social and business contracts: some aspects and dilemmas (1)and business contracts: some aspects and dilemmas (1)

• The dilemmas of the paternalist state/leader: – The powerful (but illegitimate) State (the more intervention, the

more centralization and the less legitimacy)– Protection permits growth but over protection hinders growth

(great states versus infant society, industry, etc.– The trap of economic and political leadership

• The endless reforms: – The urgency of reforms versus the slowness of trust

construction– The “game” of reform: main actors adapt to reform rather than

challenge it (sometimes they reorganize opportunities for continuing rent seeking)

– The (practical, cultural and ideological) unwillingness and inability to form coalitions for real change (due mostly to the pervasiveness of information and interpretation)

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Why? fourth response: from economic to political, social and business contracts: some aspects and

dilemmas (2)

• The neutralizing exchange: exchange of economic (and sometimes social) protection against political complicity (and sometimes neutrality)

• “Soft” (capture of rent) and “hard” (capture of state) corruption:– The instrumentation of institutions: Trade unions (and other

unions) are an instrument for organizing support for comprehensive reform

– Large scale private sector (when it exists) is dominated by industries that benefit from status quo and that are capable of “state capture” of government regulation

– State capture by other private interests

• The silences of the international “agreements” and contracts

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• Beyond the “simple” contracts: where and how?– Where must we (try to) exercise power:

strategy (example: where ton invest?)– How must we (try to) exercise/control power:

governance (example: how to prevent or resolve potential conflicts)

• Modernization and modernity challenges

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Strategy (multilevel analysis) Strategy (multilevel analysis)

• Modernization challenges (the technocratic Modernization challenges (the technocratic and economic side of “choosing” contracts)and economic side of “choosing” contracts)

• Where to contract?Where to contract?• How to evolve from How to evolve from a reactive strategy ( attendant )a reactive strategy ( attendant ) based on the based on the

costs and the revenues (lobby which resist the opening and the costs and the revenues (lobby which resist the opening and the Maghreb) to Maghreb) to a proactive strategya proactive strategy based on innovation and quality based on innovation and quality

• How to Integrate the collective (example maghrebean) How to Integrate the collective (example maghrebean) dimensiondimension into the strategic individual reasoning and choices (to into the strategic individual reasoning and choices (to avoid the blindness or strategic myopia)avoid the blindness or strategic myopia)

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Strategy (multilevel analysis)Strategy (multilevel analysis)

• Modernity challenges (values for private Modernity challenges (values for private and collective contract choice)and collective contract choice)

• Opportunism: Confusion between opportunity and strategy Opportunism: Confusion between opportunity and strategy (confused and anarchistic diversifications without any connection (confused and anarchistic diversifications without any connection with the original competences and the basic trade of the company)with the original competences and the basic trade of the company)

• Fatalism: Confusion between calculated risks, rizk (that one already Fatalism: Confusion between calculated risks, rizk (that one already has or that is given by God)) and fatalityhas or that is given by God)) and fatality

• Mimetism and mimetic behaviors (implies very little diversified Mimetism and mimetic behaviors (implies very little diversified economies where imagination is broken down)economies where imagination is broken down)

• formalism and conformism attraction ("to protect oneself" by the formalism and conformism attraction ("to protect oneself" by the imposed rules or the group rather than to express itself).imposed rules or the group rather than to express itself).

• ““one best way” attraction (imported)one best way” attraction (imported)

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Governance (multilevel analysis) Governance (multilevel analysis)

• modernization challenges (modernization challenges (the technocratic the technocratic

and economic side of contractingand economic side of contracting))• What to do with minorities?What to do with minorities?• Evolve from Evolve from an exclusive and centralized an exclusive and centralized

governancegovernance to to an inclusive and shared an inclusive and shared governancegovernance (opened or in network) (opened or in network)• Promote real dialogue (avoid the “dialogue of the Promote real dialogue (avoid the “dialogue of the

deaf”)deaf”)• Promote aPromote a maghrebean governance maghrebean governance (divided or in (divided or in

networks)networks)

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Governance (Governance (multilevel analysismultilevel analysis))• Modernity Challenges (values inherent to Modernity Challenges (values inherent to

contracting)contracting)• Promote meritocracyPromote meritocracy• Escape clientelismEscape clientelism• Build a communication based on empathy, explicit discourse and Build a communication based on empathy, explicit discourse and

clearness (to avoid the blur and the over-interpretations)clearness (to avoid the blur and the over-interpretations)• Build trust, debate and shared power (mistrust between the public Build trust, debate and shared power (mistrust between the public

and the private sector; the owner and his subordinates who and the private sector; the owner and his subordinates who entertain a seigniorial relation where the allegiance replaces entertain a seigniorial relation where the allegiance replaces competence, the injunction the debate, the clan is preferred to the competence, the injunction the debate, the clan is preferred to the network and where the company is under- institutionalized and its network and where the company is under- institutionalized and its life cycle depends upon that of his leader ) life cycle depends upon that of his leader )

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Conclusion

• The role of the private sector in Maghreb could be much more important

• Limitations are due to legislation, governance and industrial policy

• Beyond these factors lies the social contract and there is a strong interaction between social, economic and business contracts

• These contracts refer to modernization and modernity challenges concerning two multilevel problems: were we choose to exercise power (strategy) and how we do that (governance)?

• Managerial and intellectual elites could/should interact to make evolve these contracts

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Thank you for your attentionThank you for your attention

Karim Ben KahlaKarim Ben Kahlahttp://credo.iquebec.comhttp://credo.iquebec.com