The Organisation for Economic Cooperation and Development, or OECD, on Tuesday urged state-owned companies in the Middle East and North Africa region to ensure improved corporate governance to reduce corruption and restore confidence in the aftermath of the Arab Spring.
The organisation, an influential research and advisory body for rich countries, said reforms would bring about “greater public accountability and improve their efficiency.
In a report entitled “Towards New Arrangements for State Ownership in the Middle East and North Africa,” the OECD said state-owned enterprises, or SOEs, wield huge influence in Mena economies but many are subject to “undue political influence and conflicts of interest.”
It urged a shake-up of the way such companies are run while also observing that privatisation is not the only answer to reforming state-owned firms.
The report said SOEs are expected to account for nearly half of all economic activity in the Mena area this year, and cautioned that they must implement corporate governance and be transparent to accompany new economic and political developments in the region.
The report said SOEs in the region provided nearly 30 per cent of all employment, compared with two to three per cent in the advanced countries belonging to the OECD.
On average SOEs “play a crucial role in employment generation or preservation, contribution to fiscal budgets, infrastructure creation and industrial development,” the organisation said.
The number of listed SOEs in the region in the past decade has grown to “32 of the top 100 largest listed companies in the region, corresponding to approximately 45 per cent of total market capitalisation,” it added. Even still, there are currently over 2000 non-listed SOEs in the region.
The report observed that many governments in the wake of the Arab Spring have come under pressure to implement huge socio-economic spending plans to create employment opportunities for a large youth population.
“This was reflected in the announcement made by the Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz of Saudi Arabia, in March 2011 of a $36 billion programme whose key outcome will be to provide lifetime employment to Saudi citizens,” the OECD said. SOEs continue to be viewed as a “preferred employer” for their perception of stability, it added.
The OECD said some state-owned companies were not subject to laws covering companies but came under special legal arrangements “which effectively politicize their governance and exempt them from competition and bankruptcy frameworks.”