20210919-IMF-State-Owned_Enterprises_in_Middle_East,_North_Africa,_and_Central_Asia_Size,_Costs,_and_Challenges_153页_2mb

Summary of State-Owned Enterprises in Middle East, North Africa, and Central Asia

Core Content

This document, prepared by an IMF team in collaboration with EBRD staff, provides an in-depth analysis of the role, performance, and challenges of state-owned enterprises (SOEs) in the Middle East, North Africa, and Central Asia (ME&CA) region. It highlights the significant presence of SOEs across various sectors and the need for reform to improve their efficiency, governance, and fiscal sustainability.

Main Points

1. SOE Footprint and Performance

• SOE Presence: SOEs are a major component of the economy in the ME&CA region, with a wide range of activities spanning from natural resources to services and industries.
• Size and Distribution: The number of SOEs varies significantly across countries, ranging from one in West Bank and Gaza to over 4,000 in Azerbaijan. Most SOEs are concentrated in the largest firms.
• Employment and Economic Contribution: SOEs contribute to employment, but their share is generally less than 4% (except in Yemen). They also account for a significant portion of value added and economic activity.
• Performance: SOEs in the region tend to underperform compared to private firms, with lower revenues, higher costs per employee, and reduced productivity due to resource misallocation and weak governance.

2. Fiscal Impact and Risks

• Fiscal Costs: SOEs impose substantial fiscal costs, averaging over 2% of GDP annually to offset operational losses.
• Quasi-Fiscal Activities: These activities are often not fully compensated or disclosed, leading to hidden fiscal risks.
• Transparency Issues: Less than half of the surveyed countries inform Parliament about government support to SOEs, and fewer publish this information publicly.
• Debt and Guarantees: SOEs often rely on government debt guarantees, increasing fiscal exposure.

3. Corporate Governance

• Governance Deficiencies: SOEs in the ME&CA region lag behind OECD standards in corporate governance, particularly in ownership policy and fiscal interactions.
• De Jure vs. De Facto Governance: There is a gap between legal frameworks and actual practices, indicating poor implementation of governance standards.
• Competitive Neutrality: Many SOEs operate in a non-competitive environment, receiving preferential treatment in taxation, public procurement, and regulatory frameworks, which distorts market dynamics.

4. Impact of the COVID-19 Pandemic

• Pandemic Effects: The pandemic has significantly affected both private and SOE operations, with SOEs often receiving unconditional and long-term financial support.
• Support Measures: Many governments have provided extensive support to SOEs, but few have developed clear exit strategies.
• Sectoral Impact: SOEs in the energy sector, such as Saudi Aramco, have been heavily impacted by global oil demand and price fluctuations.

5. Lessons and Policy Recommendations

• Revisit SOE Role: Policymakers should reassess the strategic role of SOEs to reduce their involvement in activities better suited for the private sector.
• Enhance Governance: Strengthen corporate governance frameworks, including ownership policies and fiscal oversight.
• Promote Transparency: Improve fiscal transparency by publishing information on SOE support and performance.
• Ensure Competitive Neutrality: Level the playing field between SOEs and private firms by removing preferential treatment and promoting fair competition.
• Conditional Support: Develop clear and conditional policies for providing support to SOEs, including explicit exit strategies.
• Reexamine State Involvement: Governments should objectively evaluate the need for state ownership in various economic activities.

Key Information

• The ME&CA region has 180 multinational SOEs, ranking third globally in terms of presence.
• SOEs are involved in all economic sectors, including network industries and those traditionally managed by the private sector.
• The size and performance of SOEs vary significantly across countries, with some having large SOE sectors and others having fewer but more influential firms.
• Fiscal interactions with SOEs are complex, often involving hidden costs and risks.
• Corporate governance standards are generally weaker in the ME&CA region compared to OECD countries.
• The pandemic has intensified the need for financial support to SOEs, but without clear exit strategies, this support may become a long-term burden.
• The paper recommends a tailored approach to SOE reform, considering country-specific institutional capacities and development goals.

Conclusion

The document underscores the importance of reforming SOEs in the ME&CA region to improve their performance, reduce fiscal costs, and ensure fair competition. It calls for enhanced transparency, stronger governance, and more strategic state involvement in the economy. The findings are based on two original surveys and case studies, providing a comprehensive overview of the SOE landscape in the region.