Public sector reform in emerging economies: Does privatisation matter?

Abstract

BACKGROUND:

Privatisation policies have aroused enormous interest in both developed and developing countries. Previous research findings reveal that privately owned companies are more efficient and profitable than comparable state owned enterprises (SOEs). Moreover, it has been argued that these reforms would be even more effective if accompanied by privatisation. As a result, privatisation that aims to enhance the performance of SOEs has been regarded as one of the key features of emerging economies.

OBJECTIVE:

The purpose of this study is to examine the extent to which the benefits of privatisation have been achieved in emerging economies. In particular, the study assesses the developmental changes and improvements in the performance of privatised companies in Egypt as an emerging economy.

METHODS:

This study was carried out in three stages. First, it was felt necessary to obtain a broad overview of the effect of the Egyptian privatisation programme on the performance of the privatised companies by analyzing secondary data of privatized companies. Second, in an attempt to obtain a more precise understanding of the impact of privatisation, an online questionnaire survey was distributed to the finance managers of 56 privatised companies during the period September 2020 to January 2021. Third, a series of semi-structured interviews were undertaken with senior managers in 8 different privatised companies. The purpose of these interviews was to supplement and amplify the themes and issues that had arisen from stages I and II of the research.

RESULTS:

The findings reveal that privatisation improved the process of accountability within the company and efficiency gains is the most important advantage of privatisation.

CONCLUSIONS:

The study concludes that privatisation leads to more difficulty in safeguarding the interests of the weaker groups in society.

Keywords

Privatisation emerging economies state owned enterprises (soes)operational effectiveness accountability quality of accounting information

Prof. Dr. Marwan Abdeldayem is a Professor of Business& Finance and a Senior Fellow of the Higher Education Academy (SFHEA), UK. He got his PhD in Finance from University of Wales, UK. His research focuses on issues in finance, empirical asset pricing, Islamic finance, Fintech and behavioral finance. He has published one book and more than 60 articles in peer reviewed journals & prestigious research platform such as Emerald, Elsevier, Inderscience. His Scopus Author ID is 35070962200; Web of Science ID is AAE-7466-2020, and ORCID is 0000-0002-9103-9802.

Dr. Saeed Aldulaimi is an Associate Professor of Human Resources/Business Administration and a Senior Fellow of the Higher Education Academy (SFHEA), UK. His research focuses on issues in HR, change management, Islamic ethics, and Leadership. He has published two books and more than 30 articles in peer reviewed journals in distinguished research platform such as Emerald, Elsevier and Inderscience. His ORCID is 0000-0003-1131-5633.

1 Introduction

In an Egyptian context, prior to the 1990s, the public sector generally consisted of five categories namely: (1) Government Owned Enterprises (GOEs) (i.e. those enterprises that are owned and operated by governments and their local councils), (2) State Owned Enterprises (SOEs) (i.e. those enterprises that are wholly owned by the government), (3) Joint Venture Enterprises (JVEs), (4) State Authorities and (5) State Owned Estates and Natural Resources. SOEs in Egypt during the 1990s suffered from significant problems such as weak financial performance, large trade deficits, high debt ratio and inadequate debt servicing capacity, heavy reliance on state support, and deteriorating rate of return on re-valued assets and low economic efficiency of investment [1].

In the last decades, Egypt witnessed an increase in international competition and regional economic blocs based on free trade such as the European Union (EU). This transformation came when the Egyptian economy was unable to meet its debt obligation and was struggling to cope with global competition. As a result, public sector reform became a top priority to improve the performance of SOEs. The government of Egypt consequently undertook an ambitious economic reform programme that was advocated in 1990 by both the International Monetary Fund (IMF) and the World Bank in the hope of abolishing the existing distortions in Egypt’s macroeconomic policies. As part of its economic reform, Egypt embarked on a programme of transferring public enterprises. This was the beginning of the Egyptian privatisation programme. This programme centred on a transformation from central planning and semi-central planning to a market economy system and began in 1991 after a long series of partial transformations that started after the war in 1973 with Israel [2, 3].

The first stage of the privatisation programme aimed at restructuring the Egyptian economy relied on six major factors: (1) macroeconomic policies, (2) removal of subsidies and price controls, (3) foreign trade liberalisation, (4) labour law changes, (5) the establishment of the social fund for development, and (6) the restructuring and privatisation of the public sector. The Egyptian government aimed to launch the privatisation programme as part of a wider economic reform programme. This commenced with the issue of the Public Enterprise Law 203 of 1991 and executive regulations establishing the rules for selling 314 public enterprises (later increased to 319 public enterprises). These public enterprises were organised into 17 Holding Companies (HCs) (which subsequently became 10 HCs) that were allowed to sell, lease or liquidate assets of the company as well as selling shares owned by government. According to the Egyptian government’s estimations, the book value of the state owned enterprises (SOEs) amounted to approximately US$ 27 billion.

The Egyptian government adopted several methods of privatisation to privatise SOEs. These were: (1) companies for which a majority of shares were sold through the stock market, (2) companies for which a minority of shares were sold through the stock market, (3) companies sold to employee shareholder associations (ESA’s), (4) companies under liquidation, (5) companies sold as production assets (i.e. sale of company’s assets), (6) leased companies and production units and (7) companies sold to Anchor Investors (i.e. sales of a majority of shares to a strategic/controlling investor) [1, 4]. By December 2018 the Ministry of Public Enterprise (MPE, 2018) reported that 185 companies had been privatised. This represented a significant change in the structure of the public sector and perhaps in privatized companies’ performance. An important question that then arose concerned whether privatisation in Egypt has fulfilled its aims in terms of improved performance of the privatised companies.

Human Systems Management (HSM) is an important work that integrates knowledge, management and systems into a unified world of thinking and action in business, decision-making and economics. Hence, the topic of public sector reform is important for human system management as it presents a modern synthesis of the fields of knowledge management, systems science and human organization Furthermore, HR issues need to be considered at an early stage in public sector reform and not to be an “add on”. The commitment of senior policy makers to the HR agenda is crucial otherwise such reform won’t be taken seriously.

2 Literature review

It is well documented that there is a range of meanings given to the term “public sector”. At one extreme, the government provides measures of the accumulated public sector debt and the public sector-borrowing requirement for the year; at the other extreme, the term is considered a slogan, often used to summon up threats of taxation, big government or bureaucracy [3 , 5–7].

According to Jayasundara [8]; Kim and Chung [9]. and Rees [10], the term public enterprise is applied to an organisation that produces and sells products (goods or services) and whose assets are owned not by private shareholders, but by a public agency. Therefore, a public enterprise can be referred to as “a state-owned firm”.

Jones [11] defines public enterprise as a “hybrid organisation” whose understanding requires a multidisciplinary perspective. As a “public” organisation, a public enterprise is owned and controlled by government and is subject to direct and indirect pressures from bureaucrats, politicians and the public at large. In addition, however, an “enterprise” sells its output and performs commercial functions like production, marketing and finance. Ramanadham [12] defines a public enterprise as an organisation where the majority ownership and control is non-private and intended to be viable through sales activity based on cost-price relationships. This applies to all forms of enterprises, public corporations and government companies.

2.1 Evaluation of public sector organisations

Despite the fact that the private sector’s production has often been evaluated in terms of normal commercial criteria such as profitability, efficiency, capital investment spending and output, public sector activities have been regarded as public services that are different in nature and therefore require a different standard of assessment. According to Pirie, [13] there are different problem areas that exist from an examination of the public sector (see also [14, 15]. and [16].

2.2 Background to public sector reform

Public sector reform is, if generally defined, “changes within public sector organisations (PEOs) that seek to improve their performance. As such, public sector reform has been an ongoing process since the inception of institutions that we might now label public sector” [17]. In order to reform the public sector, planners took their inspiration from (1) public choice theory, (2) principal agent theory, (3) transaction cost theory and (4) the new public management (NPM) literature (this discussion draws on [18 –20] and [21, 22].

Furthermore, Heeks [17], explained that public sector reform is seen as a process that grew, especially from the 1970s, due to three main and inter-linked reasons i.e. (1) crises in the public sector, (2) a new ideology, and (3) political will and power. Following is a summary of Heeks’ main points (see also [23 –26] and [27].

The review of the literature reveals several interesting findings regarding the public sector reform in Egypt. First, evaluating the public sector’s performance before the 1990s (i.e. before the commencement of the reform programme) reveals that SOEs suffered from serious problems such as weak financial performance, large deficits, high debt ratio and weak debt servicing capacity, etc. Consequently, after the GOE signed agreements with both the IMF and the World Bank in 1991, Egypt embarked in a serious reform programme.

Second, even though there is no consistent menu of elements that make up a programme of public sector reform, it can be argued that the main component of public sector reform should include: increased efficiency, decentralisation, increased accountability, improved resource management and marketisation. In addition, no single element of reform works by itself. Instead the more prosperous countries used five main components of reform simultaneously: divestiture, competition, hard budgets, financial sector reform and changing the relationship between governments and SOE managers. The above findings have drawn attentions toward reviewing the privatisation literature as a global phenomenon and the Egyptian privatisation experience in particular.

3 Research methodology

This study’s primary purpose is to examine the extent to which the benefits of privatisation have been achieved. In particular, the study assesses the developmental changes and improvements in the performance of privatised companies in Egypt (as an example of privatisation prorammes in an emerging economy) Therefore, the aims of this study are fourfold:

To evaluate previous and current privatisation practices in Egypt.

To assess the performance of privatised companies in Egypt.

To discover the Egyptian privatisation programme’s impact on key managerial issues (such as strategic and operational planning, company goals and objectives, management decision-making, levels of autonomy, operational effectiveness, and accountability).

To investigate the future direction of the Egyptian privatisation programme.

This study was carried out in three stages. First, it was felt necessary to obtain a broad overview of the effect of the Egyptian privatisation programme (as an example of privatisation programmes in an emerging economy) on the privatized companies’ performance. Second, in an attempt to obtain a more precise understanding of the impact of privatisation, an online questionnaire survey was distributed to the finance managers of 56 privatised companies during the period September 2020 to January 2021. Third, a series of semi-structured interviews were undertaken with senior managers in 8 different privatised companies. The purpose of these interviews was to supplement and amplify the themes and issues that had arisen from stages I and II of the research.

The secondary data in this study represents both pre and post privatisation financial statements and annual reports of the Egyptian privatised companies to cover a period of 6 years: three years before and three years after privatisation. In addition, in order to examine secondary data for accuracy, bias and soundness, the method of cross-checking different sources of secondary data was followed.The privatised companies selected for this study are somewhat limited because until 2011 only 66 companies had been privatised. Therefore, those 66 companies selected are considered representative and would serve the objective of this study. Essentially, these companies have fulfilled three main criteria utilised in the selection of the privatised companies as follows:

Companies privatised in 2011 or before, and having financial records, pre and post privatisation to cover at least 2 years pre and 2 years post privatisation.

Representative, to represent both fully and partially privatised companies.

Accessible, have agreed to participate in this research effort.

In order to achieve the research objectives, stage two of this study involves the use of an online questionnaire. The questionnaire consists of a total of 35 questions, of which 8 questions are open-ended and most of the questions use the 5 point Likert type scale, where 1 means strongly disagree and 5 is strongly agree. The questionnaire consists of four sections namely section (A), (B), (C), and (D) these sections include 7, 5, 15, and 8 questions respectively.

3.1 Sample design

In this study, due to the difficulty in obtaining access as well as the time limitation for the field study, it was not possible to undertake discussion in all of the privatised companies that comprise the population. As a result, a decision was made to use a stratified sample in this study. Therefore, a stratified sample was employed to ensure that all subgroups or strata are fully represented in the sample. In other words, the reason for using a stratified sample is to have a more efficient sample than could be taken on the basis of simple random sampling. Random sample error is reduced because the groups in the Egyptian privatisation programme are internally homogeneous but comparatively different between groups. More technically, a smaller standard error may be the result of this stratified sample because the groups are adequately represented when strata are combined.

3.2 Semi-structured interviews

Stage three of this study involves the use of a series of semi-structured interviews with senior managers of the privatised companies. The purpose of these interviews is to supplement and amplify the themes and issues that will be raised from both stage I and stage II of this research (i.e. secondary data analysis and controlled questionnaire) and take the opportunity to gain additional information from senior managers in the privatised companies in Egypt that other methods cannot obtain. In addition, more detailed examples of changes and developments in the privatisation programme can be established.

3.3 Statistical analysis

After coding the responses of the questionnaire data according to four different background characteristics i.e. size of company, type of industry, date of privatisation and privatisation methods, the data was then transferred to the SPSS computer package for analysis. The following three non-parametric tests were employed (1) the Mann Whitney U test, (2) the Kruskal Wallis test and (3) the Wilcoxon signed rank test. Only these three types of non-parametric tests were used since all non-parametric tests are inclined to produce similar results.

4 Contribution and significance of the study

Previous research in this area revealed that privatisation may vary with the level of economic development (see [28 –31]. Therefore, developed countries’ privatisation paradigm does not appropriately reflect the problems of developing countries and thus cannot be applied to developing countries. Thus, these facts make research into the privatisation experience in Egypt the more interesting to evaluate.

During the past four decades, privatisation of state-owned enterprises (SOEs) has become an essential phenomenon in both developed and developing countries. Although several studies have offered some evidence for developing countries, the Middle East experience has remained unexplored. Hence, an attempt is made to assess whether privatisation in Egypt has achieved its objectives in improved performance following the privatisation programme. Egypt is the focus of the study due to its vast privatisation experience as compared with other countries.

It is hoped that this study will make a valuable and essential contribution to the literature at both the theoretical and practical levels. At the theoretical level, this research will provide empirically based information on the impact of privatisation on the performance of the privatised companies. This study also contributes to the larger area of accounting and finance theories by highlighting the effect of privatisation on the performance. At a practical level, this research may also contribute to Egyptian policy makers’ evaluation of the effectiveness of the privatisation programme, as well as contributing to the improvement of management and corporate governance practices. After all, the results revealed from this study may have implications for improvements in accounting and finance practices and may be used as a guide towards advancing the management and performance of the privatised companies.

5 Research findings and results

In the analysis that follows, the privatised companies in Egypt that have participated in the questionnaire (i.e.56 companies) are analysed in terms of certain background characteristics such as: (1) size, (2) type of industry, (3) date of privatisation and (4) the methods of privatisation. The questions in Table 1 specifically relate to operational effectiveness, the awareness of value for money, the quality of management accounting information, the quality of financial accounting information, responsibility issues, accountability issues, service delivery and finally attitudes of staff. It can be seen from Table 1 that 75 per cent of the respondents either agree or strongly agree with the statement that privatisation improved the process of accountability within the company (a mean of 4.05). An increase in the overall operational effectiveness, increased awareness of value for money, the establishment of clear lines of responsibility, changes in the attitudes of staff, increased quality of financial information and better service provision, would all appear to have resulted from the privatisation programme. Confirmation of the increase in overall operational effectiveness can be found in the following response to this specific question by a deputy to the chief executive of a large sized company:

Table 1
Analysis showing changes in Operational Effectiveness for the whole sample

Privatisation has: SD % D% U% A% SA% Mean Median Std.D. Rank

1. “Increased the overall operational effectiveness of your company” 3.6 8.9 8.9 48.2 30.4 3.93 4 1.04 3

2. “Increased the awareness of VFM amongst managers” 1.8 3.6 16.1 53.6 25 3.96 4 0.85 2

3. “Increased the quality of Management accounting information” 1.8 7.1 25 50 16.1 3.71 4 0.89 8

4. “Increased the quality of Financial accounting information” 3.6 5.4 23.2 46.4 21.4 3.77 4 0.97 6

5. “Enabled clear lines of responsibility to be identified within the company” 3.6 3.6 17.9 50 25 3.89 4 0.95 4

6. “Improved the process of accountability within the company” - 5.4 19.6 39.3 35.7 4.05 4 0.88 1

7. “Enabled better delivery of services to the public” 5.4 5.4 25 35.7 28.6 3.77 4 1.10 J6

8. “Substantially created a commercial Ethos within the company” 5.4 5.4 28.6 42.9 17.9 3.62 4 1.02 9

9. “Substantially changed the attitudes of Staff” 3.6 10.7 19.6 28.6 37.5 3.86 4 1.15 5

Privatisation has:	SD %	D%	U%	A%	SA%	Mean	Median	Std.D.	Rank
1. “Increased the overall operational effectiveness of your company”	3.6	8.9	8.9	48.2	30.4	3.93	4	1.04	3
2. “Increased the awareness of VFM amongst managers”	1.8	3.6	16.1	53.6	25	3.96	4	0.85	2
3. “Increased the quality of Management accounting information”	1.8	7.1	25	50	16.1	3.71	4	0.89	8
4. “Increased the quality of Financial accounting information”	3.6	5.4	23.2	46.4	21.4	3.77	4	0.97	6
5. “Enabled clear lines of responsibility to be identified within the company”	3.6	3.6	17.9	50	25	3.89	4	0.95	4
6. “Improved the process of accountability within the company”	-	5.4	19.6	39.3	35.7	4.05	4	0.88	1
7. “Enabled better delivery of services to the public”	5.4	5.4	25	35.7	28.6	3.77	4	1.10	J6
8. “Substantially created a commercial Ethos within the company”	5.4	5.4	28.6	42.9	17.9	3.62	4	1.02	9
9. “Substantially changed the attitudes of Staff”	3.6	10.7	19.6	28.6	37.5	3.86	4	1.15	5

“I think we have increased our operational effectiveness.. we now have a much tighter control over the way we work and more importantly, it is now more directed towards the exact needs of our consumers. Furthermore, we understand our costs better and are now more accountable for the way in which we spend money than we ever were before privatisation”.

The above comment may do no more than reflect the fact that implementing the privatisation programme was not centralised. It was left to the holding companies (HC’s) with their legal branches. It was also fulfilled according to the controls and rules as prescribed in the Public Enterprise Law, whereby, privatised companies were given more flexibility in both management and operational matters.

Also, as with changes in autonomy, an attempt was made to test whether differences in size, type of industry, date of privatisation or privatisation methods had an impact on the responses from the 56 companies’ respondents. All the control variables but the privatisation methods produced no significant differences and so only an analysis by privatisation methods is provided in Table 2. Three significant differences in the distribution of responses resulted from the analysis by privatisation methods as measured by the Kruskal Wallis test and are reported in Table 2. Table 2 reveals that in three cases (improved process of accountability, enabled better delivery of services and created a commercial ethos within the company) with companies sold less than 50% through the stock market indicated the strongest level of agreement. Again, this result is well expected due to the decrees made by the government of Egypt to encourage the stock market.

Table 2

Analysis showing changes in Operational Effectiveness analysed by privatisation methods

Privatisation has:	Privatisation Methods
	Majority SM	Anchor Investor	ESA’s	40% SM	50% SM	Liquidation	Prod. Assets	Leased Co.’s	Sig.
	(N = 10)	(N = 7)	(N = 9)	(N = 7)	(N = 5)	(N = 7)	(N = 5)	(N = 6)
	Mean	Mean	Mean	Mean	Mean	Mean	Mean	Mean
1. “Increased the overall operational effectiveness of your company”	3.70	3.71	4.22	3.86	4.40	3.86	3.80	4.00	-
2. “Increased the awareness of VFM amongst managers”	4.20	3.86	3.89	4.29	4.40	4.14	3.00	3.67	-
3. “Increased the quality of Management accounting information”	4.00	3.57	3.67	3.71	4.00	3.71	3.40	3.50	-
4. “Increased the quality of Financial accounting information”	3.70	3.43	3.78	3.71	4.60	3.71	3.80	3.67	-
5. “Enabled clear lines of responsibility to be identified within the company”	4.20	3.43	4.00	3.57	4.40	3.71	3.80	4.00	-
6. “Improved the process of accountability within the company”	4.40	3,57	4.33	3.57	4.60	3.43	4.40	4.17	^*
7. “Enabled better delivery of services to the public”	3.00	3.14	4.11	3.57	4.80	4.00	4.20	4.00	^*
8. “Substantially created a commercial ethos within the company”	3.50	2.57	3.33	3.86	4.40	3.86	3.80	4.17	^*
9. “Substantially changed the attitudes of staff”	4.10	3.43	3.78	3.71	4.40	3.43	4.00	4.17	-

^*, Indicates the distribution of responses between the eight categories is significantly different at the 10% level (using the Kruskal-Wallis test).

5.1 Views on future planning

In order to obtain information from respondents on their general views of the Egyptian privatisation programme’s future plans, respondents were asked to indicate their views on several key issues such as their perception of (1) the Egyptian privatisation programme’s future direction, (2) advantages of privatisation and (3) disadvantages of privatisation. These are discussed below

5.2 The Egyptian privatisation programme’s future direction

An attempt to obtain information on the future plans and direction for the Egyptian privatisation programme was obtained by asking respondents to indicate their perception of the overall privatisation programme and their responses are presented below in Table 3.

Table 3
Analysis showing the Egyptian privatisation programme future Direction for the whole sample

I believe the Egyptian privatisation plan: SD % D % U % A % SA % Mean Median Std.D. Rank

a. is well defined and organised 7.1 21.4 21.4 33.9 16.2 3.30 3.50 1.19 7

b. is insufficiently resourced 8.9 3.6 19.6 58.9 8.9 3.55 4 1.03 6

c. will lead to reduction in the financial burden of the government - 12.5 14.3 46.4 26.8 3.88 4 0.95 4

d. will lead to accelerated economic growth 3.6 10.7 14.3 41.1 30.4 3.84 4 1.09 5

e.. will release more governmental money for spending on infrastructure - 7.1 10.7 51.8 30.4 4.05 4 0.84 3

f. will increase the unemployment level 1.8 5.4 7.1 25 60.7 4.37 5 0.96 1

g. will improve the financial and operating performance of companies 3.6 10.7 3.6 25 57.1 4.21 5 1.16 2

I believe the Egyptian privatisation plan:	SD %	D %	U %	A %	SA %	Mean	Median	Std.D.	Rank
a. is well defined and organised	7.1	21.4	21.4	33.9	16.2	3.30	3.50	1.19	7
b. is insufficiently resourced	8.9	3.6	19.6	58.9	8.9	3.55	4	1.03	6
c. will lead to reduction in the financial burden of the government	-	12.5	14.3	46.4	26.8	3.88	4	0.95	4
d. will lead to accelerated economic growth	3.6	10.7	14.3	41.1	30.4	3.84	4	1.09	5
e.. will release more governmental money for spending on infrastructure	-	7.1	10.7	51.8	30.4	4.05	4	0.84	3
f. will increase the unemployment level	1.8	5.4	7.1	25	60.7	4.37	5	0.96	1
g. will improve the financial and operating performance of companies	3.6	10.7	3.6	25	57.1	4.21	5	1.16	2

Table 3 reveals that an overwhelming majority of the respondents (i.e. 87.5 per cent) either agree or strongly agree with the statement that the Egyptian privatisation plan will increase the unemployment level with a mean of 4.37. Table 3 also reveals that 82.1 per cent of the respondents either agree or strongly agree with the statement that the Egyptian privatisation plan will improve the performance of companies (mean = 4.21). The view that the Egyptian privatisation plan will release more governmental money for spending on infrastructure scored the third highest with a mean of 4.05. Another interesting finding of the questionnaire was that 73.2 per cent of the respondents either agree or strongly agree with the statement that the privatisation plan will lead to reduction in the financial burden of the government (mean = 3.88). The belief that the Egyptian privatisation plan is well defined and organised scored the lowest (mean = 3.30), with as many as half of the respondents (i.e. 50 per cent) either agreeing or strongly agreeing. A new dimension observed by one senior manager from a company that sold as a majority through the stock market expressing his point of view regarding the Egyptian privatisation programme’s future directions, is that:

“I think in the future the government of Egypt (GOE) must bear in mind the importance of public opinion in continuing the privatisation programme. The experience so far, suggests that no step can be taken forward without public support especially from the press, intellectual community and of course the companies’ employees”

Another response from a manager of a small sized company that had been privatised post-2011 pointed out that:

“In future I believe that the government will start with successful companies first in order to create success stories which in turn can encourage the expanding of the privatisation programme throughout the whole society. This will encourage acceptance of the transformation process as well as encouraging different investors to buy the companies”’

The extent to which size, type of industry, date of privatisation and privatisation methods might explain differences in the responses was once again tested and both size and type of industry produced no significant differences as tested by the Kruskal Wallis and the Mann Whitney U test respectively. However, the analyses by date of privatisation and by privatisation methods resulted in significant differences and are therefore provided in Table 4. The analysis by date of privatisation reveals that the only significant difference in the distribution of response relates to the statement that the Egyptian privatisation plan is well defined and organised with the strongest agreement coming from the respondents from companies’ privatised post-2011, a mean of 3.78. Again, this can be attributed to the fact that companies privatised post-2011 benefited much more from the decrees and laws passed by the government of Egypt and the Ministry of Public enterprise (MPE) compared with companies privatised pre-2011 since most of these decrees and laws started to be implemented early in 1998.

Table 4

Analysis showing the Egyptian privatisation programme’s future direction analysed by date of privatisation and privatisation methods

I believe the Egyptian privatisation plan:	Date of Privatisation			Privatisation Methods (1)
	Pre 2011	Post 2011	Sig.	Majority SM	Anchor Investor	ESA’s	40% SM	50% SM	Liquidation	Prod. Assets	Leased Co.’s	Sig.
	(N = 33)	(N = 23)		(N = 10)	(N = 7)	(N = 9)	(N = 7)	(N = 5)	(N = 7)	(N = 5)	(N = 6)
	Mean	Mean		Mean	Mean	Mean	Mean	Mean	Mean	Mean	Mean
a. is well defined and organised	2.97	3.78	^**	2.40	3.14	3.11	3.43	4.00	3.00	4.00	4.33	^**
b. is insufficiently resourced	3.42	3.74	-	3.20	3.14	3.56	3.86	4.00	3.71	3.40	3.83	-
c. will lead to reduction in the financial burden of the government	3.88	3.87	-	3.60	3.00	4.22	4.86	4.20	3.71	3.40	4.00	^**
d. will lead to accelerated economic growth	3.70	4.04	-	2.90	3.71	4.33	3.86	4.40	3.86	3.80	4.33	-
e. will release more governmental money for spending on infrastructure	3.94	4.22	-	3.50	3.86	4.22	4.29	4.60	4.00	4.20	4.17	-
f. will increase the unemployment level	4.30	4.48	-	4.50	4.86	3.67	4.43	4.20	4.57	4.80	4.17	-
g. will improve the financial and operating performance of companies	4.06	4.43	-	3.40	4.57	4.33	4.14	4.00	4.57	4.20	4.83	-

^**, Indicates the distribution of responses between the categories is significantly different at the 5% level (using the Mann Whitney U test and the Kruskal-Wallis test).

As far as the privatisation methods are concerned, it can be seen from Table 4 that in two cases the differences in the distribution of responses were significant using the Kruskal Wallis test. An inspection of the mean scores suggest that companies that were sold 40% through the stock market had the highest mean score concerning the statement that privatisation leads to a reduction in the financial burden of the government (a mean of 4.86). The respondents from leased companies had the highest score with the statement that the privatisation plan is well defined and organised (mean = 4.33). This is perhaps due to the fact that laws and decrees that govern leased companies and production units in Egypt are both coherent and strict, which allow these companies to realise the well-defined structure of the privatisation programme compared to other companies that adopted different privatisation methods.

5.3 Advantages of privatisation

The questions in Table 5 relate to the advantages of privatisation and include efficiency gains, sensitivity to market forces, flexibility of organisations, responsiveness by the government, separation of power and finally, increased independence of organisations. Table 5 shows that the overwhelming majority of the respondents (91.1 per cent) either agree or strongly agree with the statement that efficiency gains are the most important advantage of privatisation with a mean of 4.39. An increase in the independence of organisations, was the second highest score (mean = 4.25) with as many as 82.1 per cent of the respondents either agreeing or strongly agreeing. Table 5 reveals also that 85.7 per cent of respondents either agree or strongly agree with the statement indicating that enhancing sensitivity to market forces is an important advantage of privatisation. The lowest score was for the statement that privatisation enhances responsiveness by the government (mean = 3.61). Interestingly, a number of managers revealed more advantages of privatisation. One manager from a company that sold as production assets expressed his view in the following way:

Table 5
Analysis showing advantages of privatisation for the whole sample

Advantages of privatisation SD % D % U % A % SA % Mean Median Std. D. Rank

1. Efficiency gains - 5.4 3.6 37.5 53.6 4.39 5 0.80 1

2. Enhances sensitivity to market forces - 3.6 10.7 58.9 26.8 4.09 4 0.72 3

3. Enhances flexibility of organisations - - 23.2 51.8 25 4.02 4 0.70 4

4. Increases efficiency of organisations - 3.6 12.5 62.5 17.9 3.98 4 0.69 5

5. Enhances responsiveness by the government 3.6 12.5 25 37.5 21.4 3.61 4 1.07 7

6. Enables separation of power - 10.7 19.6 51.8 17.9 3.77 4 0.87 6

7. Increase independence of organisations - 1.8 16.1 37.5 44.6 4.25 4 0.79 2

Advantages of privatisation	SD %	D %	U %	A %	SA %	Mean	Median	Std. D.	Rank
1. Efficiency gains	-	5.4	3.6	37.5	53.6	4.39	5	0.80	1
2. Enhances sensitivity to market forces	-	3.6	10.7	58.9	26.8	4.09	4	0.72	3
3. Enhances flexibility of organisations	-	-	23.2	51.8	25	4.02	4	0.70	4
4. Increases efficiency of organisations	-	3.6	12.5	62.5	17.9	3.98	4	0.69	5
5. Enhances responsiveness by the government	3.6	12.5	25	37.5	21.4	3.61	4	1.07	7
6. Enables separation of power	-	10.7	19.6	51.8	17.9	3.77	4	0.87	6
7. Increase independence of organisations	-	1.8	16.1	37.5	44.6	4.25	4	0.79	2

“Since privatisation, we have abandoned both the bureaucratic system and the very long procedures that we had to go through in the public sector in order to make any decision or to deal with our customers. Now we have real flexibility as well as freedom in making decisions and dealing with customers in a more effective and quicker manners”.

The above sentiment supports the findings of some previous studies such as [32 –34]. Lane, [35] who report that privatisation and its advantages can be considered as part of the new public management (NPM) approach, which in turn involves the conversion of civil service departments into free standing enterprises.

Once again the responses are analysed by the four background characteristics (size, type of industry, date of privatisation and privatisation methods). Since size, type of industry and date of privatisation variables produced no significant differences, they are not reported. However, analysis by privatisation methods revealed significant results and therefore, is reported in Table 6. The analysis by privatisation methods is reported in Table 6. It can be seen in Table 6 that in two cases (i.e. efficiency gains and flexibility of organisations) the differences in the distribution of responses between the eight groups were significant as measured by the Kruskal Wallis test. The mean scores for the groups reveal that companies sold as production assets had the highest score with the statement that privatisation leads to efficiency gains (mean = 5.00). However, companies that were sold as 40% through the stock market had the highest score with the statement indicating that privatisation enhances flexibility of organisations with a mean of 4.43.

Table 6

Analysis showing advantages of privatisation analysed by privatisation methods

Advantages of privatisation	Privatisation Methods
	Majority SM	Anchor Investor	ESA’s	40% SM	50% SM	Liquidation	Prod. Assets	Leased Co.’s	Sig.
	(N = 10)	(N = 7)	(N = 9)	(N = 7)	(N = 5)	(N = 7)	(N = 5)	(N = 6)
	Mean	Mean	Mean	Mean	Mean	Mean	Mean	Mean
1. “Efficiency gains”	3.70	4.00	4.56	4.29	4.80	4.57	5.00	4.83	^**
2. “Enhances sensitivity to market forces”	3.90	4.14	4.56	3.86	4.00	4.14	4.00	4.00	-
3. “Enhances flexibility of organisations”	4.20	4.13	4.33	4.43	3.80	3.71	3.40	3.67	^*
4. “Increases efficiency of organisation”	3.80	4.17	4.25	4.29	4.00	3.43	4.20	3.83	-
5. “Enhances responsiveness by the Government”	3.40	3.71	3.67	3.14	3.80	3.57	4.20	3.67	-
6. “Enables separation of power”	3.80	3.71	3.89	3.29	3.80	3.71	4.20	3.83	-
7. “Increase independence of organisations”	4.30	4.14	4.56	4.29	4.00	4.14	4.40	4.00	-

^**, ^*, Indicates the distribution of responses between the eight categories is significantly different at the 5% and 10% levels respectively (using the Kruskal-Wallis test).

5.4 Disadvantages of privatisation

Further evidence of the disadvantages of privatisation regarding the rise of private monopoly, losing track of the public interest, endangering the continuity efficiency, democratic control issues and the difficulty in safe- guarding the interests of the weaker groups in the society, was obtained by a series of questions which addressed these issues. Table 7 analyses the responses regarding the disadvantages of privatisation and reveals that as many as 71.5 percent of the respondents either agree or strongly agree that privatisation leads to more difficulty in safeguarding the interests of the weaker groups in society, (with a mean of 3.89). That privatisation leads to not having democratic control or possibilities for citizens, losing track of the public interest, endangering the continuity of efficiency and quality of service provision, and the rise of private monopoly, could all be considered as disadvantages of the Egyptian privatisation programme. Again, such results support the findings of some previous studies regarding the disadvantages of privatisation (see for example [9, 36]).

Table 7
Analysis showing disadvantages of privatisation for the whole sample

Disadvantages of privatisation SD % D % U % A % SA % Mean Median Std.D. Rank

1. “Could give rise to private monopoly” 8.9 28.6 14.3 17.9 30.4 3.32 3 1.40 5

2. “Loses track of the public interest” 1.8 8.9 23.2 53.6 12.5 3.66 4 0.88 3

3. “Could endanger the continuity efficiency and quality of service provision” - 14.3 19.6 55.4 10.7 3.62 4 0.86 4

4. “No democratic control and no possibilities for citizens to directly address issues” 3.6 10.7 19.6 35.7 30.4 3.79 4 1.11 2

5. “More difficult to safeguard the interests of weaker groups in the society” 3.6 5.4 19.6 41.1 30.4 3.89 4 1,02 1

Disadvantages of privatisation	SD %	D %	U %	A %	SA %	Mean	Median	Std.D.	Rank
1. “Could give rise to private monopoly”	8.9	28.6	14.3	17.9	30.4	3.32	3	1.40	5
2. “Loses track of the public interest”	1.8	8.9	23.2	53.6	12.5	3.66	4	0.88	3
3. “Could endanger the continuity efficiency and quality of service provision”	-	14.3	19.6	55.4	10.7	3.62	4	0.86	4
4. “No democratic control and no possibilities for citizens to directly address issues”	3.6	10.7	19.6	35.7	30.4	3.79	4	1.11	2
5. “More difficult to safeguard the interests of weaker groups in the society”	3.6	5.4	19.6	41.1	30.4	3.89	4	1,02	1

Once again the extent to which the four background characteristics (size, type of industry, date of privatisation and privatisation methods) might explain differences in the responses was tested and as in the previous analysis size, type of industry and date of privatisation variables resulted in no significant differences, thus, they are not reported. However, the analysis by privatisation methods revealed significant results and therefore, is reported in Table 8. Table 8 reveals that the only significant difference in the distribution of responses relates to the statement that privatisation could give rise to private monopolies, with the strongest agreement coming from the respondents from leased companies (with a mean of 5.00). This result could perhaps be attributed to the fact that leased companies were the ones to suffer the most from monopolisation at the time of the commencement of the Egyptian privatisation programme in 1991 and thus, they played a vital role in encouraging the government to adopt leasing as a privatisation technique in order to tackle monopolisation. A further example was provided by a senior manager from a leased company who commented:

Table 8

Analysis showing disadvantages of privatisation analysed by privatisation methods

Disadvantages of privatisation	Privatisation Methods
	Majority SM	Anchor Investor	ESA’s	40% SM	50% SM	Liquidation	Prod. Assets	Leased Co.’s	Sig.
	(N = 10)	(N = 7)	(N = 9)	(N = 7)	(N = 5)	(N = 7)	(N = 5)	(N = 6)
	Mean	Mean	Mean	Mean	Mean	Mean	Mean	Mean
1. “Could give rise to private monopoly”	2.70	2.57	1.89	3.14	4.00	4.14	4.80	5.00	^***
2. “Loses track of the public interest”	3.80	3.00	3.22	4.14	3.60	3.71	3.80	4.17	-
3. “Could endanger continuity, efficiency and quality of service provision”	3.60	3.00	3.56	3.57	4.60	3.57	3.6-	3.83	-
4. “No democratic control and no possibilities for citizens to directly address issues”	3.80	3.71	3.44	3.43	3.60	3.86	4.40	4.33	-
5. “More difficult to safeguard the interests of weaker groups in the society”	4.20	3.57	3.56	4.14	3.40	3.86	4.20	4.17	-

^***, Indicates the distribution of responses between the eight categories is significantly different at the 1% level (using the Kruskal-Wallis test).

“ I personally think that increasing private monopoly and endangering the efficiency and quality of service provision represents the two most crucial disadvantages of the privatisation programme ... I cannot also ignore the negative impact of privatisation on employment in Egypt. In general, more than 35% of the employees were involved in compulsory early retirement and their chances of getting other jobs are very limited as they signed an agreement not to enter any other government jobs.. Unemployment has increased significantly since the beginning of the privatisation programme in Egypt”.

Again, the Egyptian privatisation programme must include employees’ social care, as they are the ones who suffer most in the transformation process. In addition, the above comment supports the findings of several studies which report an immediate decline in the employment level following privatisation (Examples include [5 , 37–39], and [8]).

6 Conclusion

Overall, the original objectives of this study were (1) to evaluate previous and current privatisation practices in Egypt, (2) to assess the performance of privatised companies, (3) to discover the impact of the Egyptian privatisation programme on some key managerial issues, and (4) to investigate the future direction of the Egyptian privatisation programme. The study in general achieves these objectives and in particular highlights that privatisation in Egypt has proved to be immensely successful in terms of significant improvements in the performance of the privatised companies. In addition, a clear majority of the respondents perceive that as a result of privatisation they now have more freedom and control over their activities. Also, privatisation has improved the process of accountability within their companies, increased the awareness of value for money amongst managers, increased the overall operational effectiveness of their companies, changed the attitudes of staff and increased the quality of financial accounting information. Finally, a significant number of managers perceive that privatisation contributed to the introduction of new accounting methods, the clarity of company’s goals and objectives, improved strategic and operational planning, increased consumer/marketing focus, improved product/service for customers, improved management decision making, and better work conditions.

Nevertheless, only time will tell us to the actual costs of privatisation in Egypt in terms of both financial and human costs. It may be well argued that Egypt’s (GOE) government should now perhaps focus on the severe unemployment crises that directly resulted from privatisation. In addition, further regulation may perhaps be needed to overcome the possible financial disadvantages of privatisation that may contribute to possible liquidation and bankruptcies crisis [40 –43]. The lack of trust in the Egyptian stock market’s level of efficiency will also continue to be of growing concern. All of this may well affect the overall economy of Egypt. Finally, given that the GOE has privatised only 185 companies (out of the intended 314 companies), if the government is to fulfil its ambition of privatising all of its remaining SOEs (i.e. 129 companies), the current economic situation may not allow this to come to fruition, especially if further privatisation is not accompanied by competition and new regulation.

Finally, future studies that cover the effect of privatisation on monetary and working execution in various other emerging economies is required. Specifically, in the Middle East area and North Africa, such as Tunisia, Algeria and Morocco, as this piece of the world is by all accounts a lot of ignored as far as exploration. These nations have additionally left out and about of privatisation and studies, which analyse this, would be amazingly valuable and would reveal significant insight into the effect of privatisation on public sector reform execution

This study will have an impact on human system management at both the theoretical and practical levels. At the theoretical level, it will add to the international body of literature in this field. The results of this research will provide empirically-based information on the role of human system management in public sector reform programmes. At a practical level, this research effort will be relevant to policy makers in emerging economics in evaluating public sector reform programmes as well as in improving the overall quality of human system management and introducing good corporate governance practices of privatised companies. Furthermore, the research results may well have implications for the practice of human resources, and can be used as a guide for improving existing inadequacies.

Footnotes

Acknowledgments

The authors have no acknowledgments.

Author contributions

CONCEPTION: Marwan Abdeldayem and Saeed Aldulaimi

METHODOLOGY: Marwan Abdeldayem

DATA COLLECTION: Marwan Abdeldayem

INTERPRETATION OR ANALYSIS OF DATA: Marwan Abdeldayem

PREPARATION OF THE MANUSCRIPT: Marwan Abdeldayem and Saeed Aldulaimi

REVISION FOR IMPORTANT INTELLECTUAL CONTENT: Marwan Abdeldayem and Saeed Aldulaimi

SUPERVISION: Marwan Abdeldayem

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