Countries Can Relieve Fiscal Stress by Selling Assets

January 16, 2014

Countries are beginning to privatize their state-owned assets, says The Economist.

William Megginson of the Michael Price College of Business at the University of Oklahoma found that 2012 was the third-best year ever for government privatization:

  • China has started to sell minority stakes in banking, energy, engineering and broadcasting.
  • Brazil is selling its airports to finance a $20 billion investment program.
  • In fact, between 2005 and 2013, 11 of the 20 largest initial public offerings were sales of minority stakes by state-owned enterprises, most of them in developing countries.

Megginson estimates that 2013 may have been an even better year for privatization than 2012. Advanced economies have in large part not been making these types of sales, but they should.

  • The Organization for Economic Cooperation and Development's 34 member countries had 2,111 fully or majority-owned state-owned enterprises at the end of 2012 with a combined value of $2.2 trillion.
  • Most of these state-owned enterprises are in industries such as telecommunications, electricity and transportation.
  • A number of countries also have large minority stakes in firms. Firms in which countries have a 10 percent to 50 percent ownership stake have a combined market value of $890 billion, with 2.9 million employees.

Selling assets can relieve fiscal stress for many countries. France, for example, has the highest concentration of state-owned property in Europe, worth 190 billion euros (a figure that does not included properties owned by state-controlled operators, such as museums or local authorities).

Source: "Setting out the Store," The Economist, January 11, 2014.

 

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