Daily Independent Online.
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Thursday, June 17, 2004.
Credible regulation, key to true reforms
A
new World Bank study has found that credible regulation is essential to
ensuring that economic reforms, especially those involving restructuring or
privatisation of infrastructural utilities, improve their performance,
Development Reporter, Ntai Bagshaw, writes.
Have
you ever set up a business of any kind? If yes, you must have experienced the
wrath of Nigeria’s regulatory authorities? They inundate you with tax
requests of all sorts: sanitation tax, television tax, generator tax, borehole
tax, radio tax and so on. And all tiers of government are culpable here.
Nigeria undoubtedly presents one of the
worst examples of a bad regulatory climate. Small wonder recent efforts by the
government at instituting economic reforms have failed to yield the expected
results. And the World Bank expatiates on this position in a new report tagged,
Reforming infrastructure: Privatisation, regulation and competition. The study finds that sound business regulation is
essential to ensuring that economic reforms, especially those involving
restructuring or privatisation of infrastructural utilities, improve on their
performance.
Recognising
infrastructure’s importance, many countries have implemented far-reaching
reforms over the past two decades - restructuring, encouraging private
participation and establishing new approaches to regulation. The report
therefore identifies the challenges involved in this massive policy redirection
within the historical, economic, and institutional context of developing and
transition economies. It also assesses the outcomes of policy changes and
suggested directions for policy reform and research to improve infrastructure
performance.
Francois
Bourguignon, World Bank’s Chief Economist and Senior Vice-President, who
directs the bank’s Development Economics Department, which produced the
study, said infrastructure, industries and services are crucial for generating
economic growth, alleviating poverty and increasing international
competitiveness.
The
new study finds that in most developing and transition economies, private
participation in infrastructure and restructuring has been driven by the high
costs and poor performance of state-owned network utilities. Under state
ownership, services were usually underpriced and countries often could not
afford the substantial investments required to expand services to large parts
of their populations, it said. Deficiencies in infrastructure quantity and
quality imposed a heavy penalty in terms of growth and welfare. The findings of the report reads
further: “Although privatisation, competitive restructuring and
regulatory reforms improve infrastructure performance, several issues must be
considered and conditions met for these measures to achieve their public
interest goals. There is no universal reform model; every restructuring and
private participation programme must take into account the sector’s
features and the country’s economic, institutional, social and political
characteristics. Telecommunications offers perhaps the most compelling case for
privatisation, and in many transportation segments - railways, ports, trucking,
airlines, interurban busing - competition within and between modes is often
sufficient to justify aggressive liberalisation.
“However,
the case for privatising transport network facilities is much less compelling.
Electricity is more dependent on administrative ability and therefore quite
challenging, but not more so than telecommunications. And the scope for
introducing competition in water supply is more limited than in other network
utilities (although there are opportunities to introduce competition in sewage
treatment). While the links between infrastructure reforms and subsequent
performance are complex, several conclusions can be drawn. First, reforms have
significantly improved performance, leading to higher investment, productivity
and service coverage and quality. Prices have become better aligned with
underlying costs. And services have become more responsive to consumer and
business needs and to opportunities for innovation.
“Second,
effective regulation - including the setting of adequate tariff levels - is the
most critical enabling condition for infrastructure reform. Protecting the
interests of both investors and consumers is crucial to attracting the
long-term private capital needed to secure adequate, reliable infrastructure
services and to getting social support for reforms. Regulation should clarify
property rights, allocate them sensibly and assure private investors that their
investments will not be subject to regulatory opportunism.
“Crafting
proper regulation is the greatest challenge facing policymakers in developing
and transition economies.”
“Third,
for privatisation to generate widely shared social benefits, infrastructure
industries must be thoroughly restructured and able to sustain competition. The
benefits from privatising infrastructure monopolies are much smaller than those
from introducing competition. It is often hard or costly to change structural
choices - such as the degree of vertical and horizontal integration - after
privatisation. Thus, restructuring to introduce competition should be done
before privatisation and regulation should be in place to assure potential
buyers of both competitive and monopoly elements. There is a clear discrepancy
between scholarly assessments and public perceptions of privatisation. In
recent years, the alleged failures of privatisation have led to street riots,
skeptical press coverage and mounting criticism of international financial
institutions.
“Concerns
are increasingly being expressed about the distributional consequences of
privatisation and market liberalisation - especially their effects on basic
services for poor households and other disadvantaged groups. The critics are
right in pointing out the cases where privatisation was undertaken without
institutional safeguards and conducted in ways widely considered illegitimate.
Thus, there is an urgent need for more comprehensive welfare assessments of
infrastructure reforms and for both retrospective and forward-looking analyses
to clarify the successes and failures associated with reforms and to identify
better instruments and policies to guide ongoing and future efforts.
“Because
comprehensive data on distributional dimensions of costs and benefits are
currently unavailable, it is imperative that a systematic cross-country data
collection effort be undertaken. In sum, infrastructure restructuring,
privatisation and regulatory reform offer substantial potential benefits for
governments, operators and consumers. And there is sufficient experience to
guide these institutional reforms. Still, they should not be pursued blindly in
a specific country or industry without carefully assessing the institutional
and structural prerequisites and without explicit attention to the concerns
they raise.”
All
said, not a few are at a loss as to how Nigeria can ensure a sound regulatory
climate. Is the nation to root out all forms of regulation? No, says the World
Bank. It argues that efficient regulation does not mean zero regulation. Best
practices in business regulation - as is found in Ghana - means
regulation that fulfills the task of essential controls of business without
imposing an unnecessary burden. It entails high levels of human capital in
public administration, use of modern technology and minimising the regulatory
burden on businesses. For instance, countries with the least time to register a
business, such as Canada, have single registration forms accessible over the
Internet. Countries that take the least time to enforce a collateral agreement
- Germany, Thailand and the United States, for example - allow out-of-court
enforcement. The World Bank
stresses that good regulatory practices are not limited to rich countries or
countries where comprehensive regulatory reforms have taken place. In many
developing nations, reform in some areas of business regulation has been
successful, it says. “Tunisia has one of the best contract enforcement
systems in the world. Latvia is among the most efficient countries in entry
regulation. In 2002, Pakistan electronically connected all tax offices in the
country and streamlined business registration. As a result, the time to start a
business was reduced from 53 to 22 days. The Slovak Republic recently
implemented best-practice laws on collateral. Vietnam revised its Enterprise
Law in 1999 to enhance growth in private business activity,” the bank
argued.
These
instances do show that Nigeria can significantly improve its business climate
if it so desires. By combining simple regulation with good definition and
protection of property rights, the nation can, indeed, achieve what others
strive to do: having government regulators serve as public servants and not
public masters.
