PRIVATISATION PROCESSES AND FIRM PERFORMANCE THE LIBYAN INDUSTRIAL SECTOR Abouazoum Alafi Abdourhim Aboujdiryha i Promotion committee: Chairman: Prof. Dr. P.J.J.M. van Loon University of Twente Secretary: Prof. Dr. P.J.J.M. van Loon University of Twente Promoter: Prof. Dr. Ir. E.J. de Bruijn University of Twente Members: Prof. Dr. M. van Beugen University of Nijmegen Prof. Dr. P.B. Boorsma University of Twente Prof. Dr. J.C. van Dalen University of Wageningen Prof. Dr. Ir. O.A.M. Fisscher University of Twente Prof. Dr. A.E. Megri Alfateh University, Tripoli Prof. Dr. Ir. H.J. Steenhuis Eastern Washington University ISBN: 978–90–365–3048–4 DOI: 10.3990/1.9789036530484 Copyright © 2011 A. Alafi Email: [email protected] ii PRIVATISATION PROCESSES AND FIRM PERFORMANCE THE LIBYAN INDUSTRIAL SECTOR DISSERTATION to obtain the degree of doctor at the University of Twente, on the authority of the rector magnificus, prof. dr. H. Brinksma, on account of the decision of the graduation committee, to be publicly defended on Wednesday the 16th of February 2011 at 16.45 hrs. by Abouazoum Alafi Abdourhim Aboujdiryha born on the 1st of January 1975 in Nokou, Chad iii This dissertation is approved by: Promoter: Prof. Dr. Ir. E.J. de Bruijn iv Dedicated to my wife, our daughters and family. v vi PREFACE AND ACKNOWLEDGEMENTS This research addresses the aspects of privatising Libyan public firms that took place between August and December 2004. It assesses the outcome of privatisation by comparing the performance of these companies over three years before and three years after their privatisation. The research raises issues that can be applied to a large number of privatised companies in Libya, particularly those which were privatised to their employees. The interest in this subject grew out of my bachelor thesis at the University of Sebha, Libya, between 1999 and 2000. During the course work, the discussion of the subject was limited to theoretical aspects. In my master project, conducted between 2001 and 2003, I extended my interest to other economic reform policies, including liberalisation. When in December 2004 I was given the opportunity to pursue PhD research, I assumed that the four-year period would provide enough time to address my subject in more detail. Studying at a foreign university such as the University of Twente would provide me with improved working facilities, including easy access to data sources and a good working environment. The large scale of the privatisation program that was implemented in Libya in 2004 encouraged me further to conduct research on the Libyan experience. After the theoretical part was done at the University of Twente, I conducted the field work in Libya. Upon returning to the Netherlands, I completed my draft at the University of Twente. Thank God, the Almighty, for His Blessing on us, that I was able to finish my long journey of PhD research safely. This study could not have been completed without the contributions and help of a large number of people. I express my sincere gratitude and deep appreciation to my promoter, Prof. Dr. Ir. E. J. de Bruijn. He gave me the opportunity to start my PhD research at the University of Twente. His supervision not only made it possible for this research to be completed, it also helped me to gain more confidence in its ultimate success. I am much indebted to him for such a contribution to my life. I would like to express my gratitude to the committee members who have had to perform the demanding task of going through the material in this dissertation and evaluating it: Prof. Dr. M. van Beugen, Prof. Dr. P.B. Boorsma, Prof. Dr. J.C. van Dalen, Prof. Dr. Ir. O.A.M. Fisscher, Prof. Dr. A.E. Megri and Prof. Dr. Ir. H.J. Steenhuis. This work has profited from many other contributions. I am grateful to Prof. Dr. Ir. Harm-Jan Steenhuis for the helpful discussions we had, and for his valuable comments and advice on the work. Dr. Sirp J. de Boer also deserves my sincere thanks for the useful sessions concerning the methodological issues. I am deeply thankful to Ms. Julia Ardesch, Ms. Annemiek van Breugel, Ms. Hèla Klaczynski, Ms. Gloria Rossini, and Ms. Edith van Eijk for secretarial support and all other assistance they offered. I really appreciate the help and valuable inputs and feedback from Sarah Hamza, Mustafa Treki, Margaret Njirambo, Muhammad Asif, Sandor Löwik and other colleagues at Nikos. Special thanks go to Kodo Yokozawa for the useful discussions that we had in the initial stages of this research, and of course he was always available for assistance. vii This work would not have been possible without the support and help of many organisations. I start with mentioning the Libyan government as represented by the Ministry of Education. Its financial support made all the activities undertaken during the period of the research project possible. My thanks extend to the Gaddafi International Foundation for Charity and Development that gave generous support in making the government scholarship possible. I highly appreciate the administration support of the Libyan embassies at The Hague and Brussels. My appreciation also goes to the Libyan privatisation agency (GBOT) that facilitated my access to the research site and for its time and valuable body of knowledge which contributed to the research. I would like to convey my special thanks to the managers and workers who participated in this research. Without their cooperation, nothing could have been achieved. I would like also to thank the managing director at the Industrial Information Centre for his time and helpful documents describing the situation in Libya. Similarly, many thanks are due to the Almenhal and Alshamice Institutes for the translation that has added greatly to this research. Last but not least, my appreciation goes to my friends for their encouragement and support over these years. I would like to thank my family; they always showed great interest in my education and encouraged me at all times to get the best education possible. I express my deepest and sincerest gratitude to my wife and daughter for their patience and tolerance during my absence from home. They missed much of my care, and I am grateful for their understanding. Abouazoum Alafi January 2011 viii SUMMARY Since the mid-1980s, there has been a global movement away from state ownership towards private ownership of companies. An important aspect of this trend has been the privatisation of State-owned enterprises with the goal of improving their in general unsatisfactory performance. Initially, the prevailing view was in favour of a fast privatisation process as the only realistic way to combat the problems related to a lack of adequate corporate governance. It was also widely believed that market institutions could be built after the private ownership was created. Recently, reflecting on the disappointing privatisation results in some of the transition economies, policymakers have realised the need to strengthen market institutions prior to privatisation. This insight was further supported by growing evidence from the developed countries that privatisation alone has been insufficient to stimulate performance improvement. This research contributes to the recent debate on privatisation and its prerequisite restructuring. The focus is on developing countries, in particular Libya. From the mid-1980s until early 2000, Libya‟s industries were faced with US import and export restrictions as well as UN-imposed sanctions. Libya was therefore in an isolated position without much foreign competition for its enterprises. Currently, it is turning from a socialist- to a market-oriented economy which is open to foreign competition. This means that privatisation in Libya includes the need for creating an environment conducive to the development of the private sector. This process provides an opportunity to study how privatisation, competition, and regulation are related. The main objective of the research is: to gain insight into the privatisation processes in the context of developing countries by studying privatisation in Libya. To be able to understand privatisation and its related restructuring, it is necessary to understand the privatisation process itself better. In the past privatisation in Libya has taken place in two waves, and currently a third wave of privatisation is taking place. This last wave was planned in three stages. In order to look at relatively recent privatisation experiences which are completed (so that pre- and post-privatisation comparisons can be made); I focus on the first stage of the last wave of privatisation. Hence, the central research problem is defined as: How did the privatisation process in Libyan industrial firms take place with respect to the first stage of the third wave? For answering this central research problem-research questions that have been formulated: 1. What are the steps taken to privatise Libyan public companies and which factors influence these steps? 2. What have been the outcomes of the privatisation of Libyan public companies in terms of the firm‟s performance? 3. To what extent have the objectives of privatisation of Libyan companies been realised? The first research question deals with the process itself with regard to the steps and activities that were undertaken towards privatisation and the factors that influence this process. The second ix research question deals with the effect of privatisation on the performance and structure of the firms. The last question concerns the success of the privatisation process with regard to realising the objectives. To address these research questions, a literature review and a case study design were selected as the appropriate research strategy. A conceptual model for the process of privatisation was developed based on the literature review. This model structures the steps and activities identified from the literature as important for completing the process of privatisation.