Global Competition and the Changing Relationship
between the Public-Private Sectors in
the Middle East and North Africa Region

Competitive forces have forced everyone to be more ruthless than in the past. The story I heard recently while traveling in the region was of two men sitting in the forest relaxing with their shoes tossed aside when a lion approaches them through the trees. One man scurries to put his shoes back on, and the second asks him, "What is the point? You can't possibly outrun this lion." The second man answers, "I don't need to outrun the lion, I only need to outrun you." That sort of competitive attitude has had a tremendous impact on the nature of private-public sector relationships in the MENA region where previously the public and private sector saw themselves as adversaries. But increasingly that is changing as competitive pressures are forcing them to work together against other public-private partnerships in other parts of the world.

Competitive pressures are causing countries in the region to increasingly integrate in the world economy. This is evident from increasing trade and financial flows. For some countries — Jordan, Oman, Tunisia — trade has increased as a share of GDP from the 1980s to the 1990s. But for many countries — Algeria, Bahrain, Egypt and Morocco — there has been a deterioration or flat level of performance in their level of trade with the rest of the world. Still, for most countries in the region, the kind of double-digit export growth rate witnessed in East Asia has not arrived. There has also been some improvement in terms of financial sector flows. In the past, this region attracted about 1 percent of foreign direct investment in the world; last year there was a 19 percent gain in FDI. But again there is a split in performance between countries: 80 percent of FDI in MENA is in three countries — Egypt, Morocco, Tunisia — and most others are not yet on foreign investors’ maps.

Globalization is resulting in a bifurcation across private sectors and across countries between those who can compete and those who cannot. We have also seen different patterns in the way the private sector is interacting with the public sector. In countries such as Egypt, Jordan, Morocco and Tunisia, the private sector has taken an activist role in public policy, trying to lobby government as a group, and making alternative suggestions to legislation. In other countries like Algeria, Libya and Syria as well as much of the Gulf, the private sector has continued to play a much more traditional role, lobbying as individuals, trying to get individual benefits or favors, but not trying to influence public policy systematically.

What does this changing environment means for the role of the state? There is no doubt that the globalization phenomenon has changed the way states are viewed, and that other multinational actors have become as important as states in many domains. Multinational corporations issue 100-year bonds, non-governmental organizations actively shape and implement public policy, and global telecommunications are rapidly breaking down sovereign borders. In such an environment, there are essentially three roles where government involvement remains needed: a) big strategic thinking for economic policy; b) regulation; and c) mediating social transfers which is a particularly important issue in the region.

In the later role, governments in this region have traditionally been in the business of distributing rents; the government gets income from different sources such as oil, and then distributes it in a variety of ways such as consumer subsidies and social welfare payments. In the future, however, governments must get into the business not of distribution, but of redistribution among different groups in society — that is, taxing somebody in order to provide social transfers to others, which is a different role.

There is a also changing economic role of government, particularly as it moves away from production and toward regulation. In most parts of the world, there have been three waves of privatization, and the countries of this region are at different stages of this process. The first wave is in tradables — manufacturing, services, factories, cement companies, banks — industries that are essentially competitive. The countries that are still at the tradables stage are Algeria, Yemen and, to a lesser extent, Egypt. Most countries of the region are shifting into the next level of privatizing infrastructure. Here there has been an enormous change in the past year as a number of countries in the region experiment in an area that was once a very traditional state role. There have been proposals for the privatization of power, transportation and telecommunications. The third wave of privatization, which has really not arrived in the region, is the issue of privatizing social services such as health care and education. Given these trends in privatization, the question of the role of government, and the issue of regulation is of importance.

In many sectors there is no need for regulation anymore. For example, technological advances in telecommunications mean that even local services can become competitive, and there is no longer a need for regulation. Yet, there will always remain some sectors such as municipal services, water supply and sanitation, where there is a monopolistic component. Using competitive bidding processes and fixed periods for contracts is a way to let competition ease the job for regulators. Becoming a good referee, versus a player, is pretty tough; governments have to define those sectors where competition is insufficient, and there needs to be some other mechanism to protect consumers, to create regulatory bodies, to develop procedures for awarding concessions on a competitive and transparent basis, and to form consistent policies on what government support is needed to make these private-public partnerships go forward.

Private sectors also have a new role to play. As the private sector takes on these additional responsibilities, it must learn to behave as a better corporate citizen. It is fair to say that the Mediterranean countries share an aversion to paying taxes. This (along with issues like corruption) needs to change as the private sector is given more responsibility. People on the left have serious doubts about the ability of the private sector to run public services like infrastructure or education for the public interest. One must be realistic and realize that the only way to get the private sector to be good is to make it very profitable for it to be good, and there are all kinds of incentives that can be provided to make it more interesting for the private sector to play a constructive social role.

There is no doubt that the shift in thinking on these ideas over the past ten years has been extraordinary. In the beginning, privatization was a dirty word in the region. Today people are debating how, not whether, to privatize. Secondly, the growing policy activism of the private sector is an important phenomenon. In many countries, especially Egypt, Jordan, Morocco and Tunisia, there are very active private sector associations, lobby groups and consultative committees that work with government on policy issues, and that are playing a constructive role. This is a big improvement over the previous type of lobbying for individual protection and favors that was prevalent in the region (which of course does still continue, but to a lesser extent.)

There is a danger to this private-public sector partnership that needs to be monitored and counterbalanced. There is already a great fear in the region that when the public and private sectors cooperate, crony capitalism will emerge, and the public will lose in the end. This fear is legitimate, but society should be thought of as based on a triangle of supporting institutions made up of the government, the private sector and civil society. What is interesting in this region is that governments have gotten used to the idea of sharing power with the private sector because they need the private sector for growth, but they have been less willing to share power with civil society in any real way. It is very much in the private sector's interest to ensure that groups such as non-governmental organizations, trade unions, universities, consumer associations and the media are brought into the discussion about public policy. Otherwise, if they are left out, the triangle will be unstable with one part strong and the other weak, and in the end society will suffer as a consequence.

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