Table Of ContentSTATE HOLDING COMPANIES AND PUBLIC
ENTERPRISES IN TRANSITION
Also by Anjali Kumar
INDIA'S MANUFACTURED EXPORTS, 1957-1980
State Holding
Companies and
Public Enterprises
in Transition
Anjali Kumar
Senior Economist
World Bank
J50th YEAR
M
St. Martin's Press
The findings, interpretations and conclusions expressed in this study are the
results of research supported by the World Bank, but they are entirely those of
the author and should not be attributed in any manner to the World Bank, to its
affiliated organizations, or to members of its Board of Executive Directors or
the countries they represent.
© The World Bank 1993
Softcover reprint of the hardcover 1st edition 1993
All rights reserved. No reproduction, copy or transmission of
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Any person who does any unauthorised act in relation to this
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claims for damages.
First published in Great Britain 1993 by
THE MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 2XS
and London
Companies and representatives
throughout the world
A catalogue record for this book is available from the British Library.
ISBN 978-1-349-23012-9 ISBN 978-1-349-23010-5 (eBook)
DOI 10.1007/978-1-349-23010-5
First published in the United States of America 1993 by
Scholarly and Reference Division,
ST. MARTIN'S PRESS, INC.,
175 Fifth Avenue,
New York, N.Y. 10010
ISBN 978-0-312-10172-5
Library of Congress Cataloging-in-Publication Data
Kumar, Anjali.
State holding companies and public enterprises in transition I
Anjali Kumar.
p. em.
Includes bibliographical references and index.
ISBN 978-0-312-10172-5
I. Government holding companies-Case studies. 2. Government
business enterprises-Case studies. I. Title.
HD3850,K788 1993
338.8'6--<lc20 93-27752
CIP
TABLE OF CONTENTS
Preface ix
Acknowledgements xi
Abbreviations xiii
Currency Equivalents xiv
Chapter 1
Public Enterprise Management Through State Holding
Companies 1
1.1 The State Holding Company: A Rationale for its Examination 1
1.2 The Holding Company as a Managerial Form 8
1.3 A Framework for Comparative Analyses 17
Chapter 2
Empirical Experience: An Overview 35
2.1 Forms and Models of State Holding Companies 35
2.2 Vertical Structure and Portfolio Distribution 40
2.3 Italy, Egypt and Algeria: A Preview 48
2.4 Scope and Data Sources 49
Chapter 3
Italy: IRI and Others 60
3.1 State Holding Companies in Italy: Origins and Current Role 60
3.2 Vertical Links 70
3.3 Financial Practices and Links with the Financial System 76
3.4 Shareholding Structure, Share Transfer and Privatization 81
3.5 Restructuring and Redeployment of Labor 90
3.6 Government Financial Obligations and Transfers 99
3.7 A Summary 105
Chapter 4
Egypt: Successive Holding Structures 110
4.1 Origins, Changes and Continuity lJO
v
4.2 The Legal Framework and Policy Environment 112
4.3 Public Enterprise Performance 117
4.4 Vertical Structure, Share Distribution 121
4.5 Financial Practices and Links with the Financial System 130
4.6 Restructuring and Privatization 137
4.7 Governmental Obligations and Government Assistance 141
4.8 An Evaluation 147
Chapter 5
Algeria: Participating Funds 151
5.1 Origins of Public Enterprise Reform 151
5.2 Parallel Changes in Policy 157
5.3 Vertical Links 161
5.4 Portfolio Distribution and Share Sales 166
5.5 Current Financial Situation and Links to the
Financial System 172
5.6 Privatization and Restructuring 180
5.7 Government Assistance and Obligations to the Government 185
5.8 An Assessment 188
Chapter6
East Europe: New Holding Institutions 192
6.1 Relevant Parallels 192
6.2 Majority Holding Companies: Restructuring
and Privatization 195
6.3 Minority Holding Companies: Investment Funds 207
6.4 Conclusions 224
Chapter 7
A Synthesis 227
7.1 Theoretical Hypotheses 227
7.2 Principal Findings 231
7.3 The Design of a State Holding Institution 238
vi
Appendix
Notes on Holding Companies in Developed
and Developing Countries 250
Al. Developing Countries: Public Enterprise Management and
Gradualist Reform 250
A2. Developed Countries: Rescue and Restructuring 259
Appendix Tables 262
Bibliography 271
Index 288
vii
For Indira
viii
PREFACE
Large state-owned enterprises pose a particular problem in the adjustment
process of countries attempting to move away from government controls
towards more liberal economic environments. While their performance in
many instances has been demonstrated to be relatively inefficient, the
solutions to address these problems are less obvious. Even if privatization is
accepted as a long term solution, as appears increasingly the case today, not
all countries are in a position to move rapidly towards this goal. Constraints
arise, sometimes for reasons of political acceptability but also because of
practical difficulties due to the lack of concomitant conditions required for
undertaking large-scale privatizations. It is now being recognized that the
transition process for state enterprises in centrally planned economies may
be long drawn and may in some cases go through multiple phases.
Faced with this situation, some countries are groping towards more
nuanced solutions towards the issue of public enterprise reform, leading to
an exploration of intermediate or interim institutional fonns. In some cases,
these may combine elements of both ownership and regulatory change.
One such experiment, which has been adopted by many developed,
developing and transforming socialist economies is the establishment of
state holding companies. This institution is widespread and new forms of it
are continuously appearing. In a state holding company, the government
attempts to separate its ownership and management functions, distancing
the enterprises from the state and permitting them greater operational
freedom. In transitional economies, such holding companies or funds have
sometimes had additional roles; undertaking the restructuring of the
enterprises below them, stimulating the capital market through share trade
and increasing the returns on shareholdings in their enterprises through
active portfolio management.
Despite its widespread existence the state holding company has received
relatively little attention in the literature. The present study first discusses
the state holding company as a managerial form and offers a framework for
an analysis of the effectiveness of such institutions as interim organizations
in a process of transition. The framework can be adapted to a variety of
national environment. The results of an empirical examination of state
holding companies in different countries, undertaken within this
framework, are presented in this study. Three countries are selected for
detailed examination; Italy, Egypt and Algeria. The sample represents
countries with different economic environments, at different stages of
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