The Social Balance Sheet of Privatization in The Arab Countries: Employment and Wage Reduction

Employment and Wage Reduction

Direct and immediate impacts of privatization are vividly registered in most privatised enterprises and privatization schemes. While the advocates of privatization admits that unemployment, closure of plants, cutback in workers fringe benefits, and wages reduction are among the most visible short term social cost of privatization, these negative short term consequences, they suggest, can be minimised by preparation of various measures to relocate the redundant employees and providing training programmes, social safety nets, etc. These transitional measures, they further claim, will not be needed for long since privatization will lead in the medium term to increase in investment and employment opportunities. Though this might be the case, the future improvement in both investment and employment are hopes remain to materialise. Nevertheless, it is legitimate to ask and investigate the above claims. On one level, has there enough efforts been taken to minimise these negative consequences on laid-off workers, and how realistic is the assumption that privatization will lead, in the medium term, to augment both investment and employment.

One of the suggested mechanisms to deal with these short term advers effects is to create social safety nets. Data provided by UNCTAD indicates that only two Arab countries have established such facility; Somalia and Egypt. In 1989 Somalia created the Social Assistance Fund-SAF and the beneficiaries includes the unemployed due to reform. Though the programme had showed early success and rapid implementation, it had, regretfully, interrupted by the civil war at end of 1990. The Egyptian Social Fund started in 1991 and, like the Somali Fund, includes the unemployed public employees among its 290,000 targeted population. The Egyptian Social Fund suffered from several flaws and strong government control.⁵¹ The Fund has a budget of US$ 500 million supported by the government and 18 foreign donors, and more than half of the external funding comes from two donors.

In Tunisia, it seems that privatization had some impacts on employment though it was reported by Eva Bellin that "the labour code has not been "rationalized" to make labour dismissal more "flexible," despite insistent recommendations to that effect by foreign experts"⁵² Unlike the Tunisian example, Morocco had done something to protect the interest of the employees, though Boratav had reported on the Moroccan export office which was closed soon after lifting the state monopoly on export and "employees sacked without prior notice"⁵³

The pattern in Iraq was rather dramatic: the regime's dissolved the labour Union, abolished the minimum wage, nullified Labour law, and gave the new owners of the privatized enterprises freehand to trim labour costs dramatically. In Egypt voluntary termination of employment or early retirement of employees is to be financed by the proceeds from sale of privatized firms. ⁵⁴
The union rights were abolished and exemption from labour laws was granted to the partially privatised (mixed) companies in Syria who enjoy other far-reaching privileges and exemptions such as custom, import, export, and currency regulations.⁵⁵