Privatization in Developing Countries

Abstract

State-owned enterprises are the norm in the 'modern' sector of most developing countries, and because state firms tend to be in capital-intensive industries they account for a higher degree of national investment than their contribution to value added or employment would imply. Market environment, firm organization and managerial incentives, not ownership, determine the performance of companies. A major obstacle to privatization plans in developing countries is the weakness of capital markets. Despite the preference for domestic ownership there is a case for selling to overseas buyers. A privatization programme in a developing country is really a programme for reform and the true measure of its success is improved allocation of resources reflected in higher growth rates, higher returns on capital projects, and reduced public sector deficits.-D.G.Price

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