Implications of the World Bank's privatization policy for South Africa

Abstract

Providing potable water is a central issue for all nations and is of particular concern in developing countries where universal coverage does not exist. This paper evaluates the implications of the World Bank's privatization policy for the water sector in developing countries using South Africa as an example. The authors conclude that regardless of private investment, cost-accounting reform is needed both to provide universal services and to practice environmental stewardship. Based on theory and empirical evidence, concessions appear to be the optimal form of water sector privatization. The structure of the water sector in South Africa favors the use of concessions if a privatization strategy is pursued. The South African case shows that the success of attempts to privatize a monopolistic water sector depends on developing adequate regulatory and administrative capacity. This conclusion aligns closely with the current World Bank privatization policy. However, the authors argue that the Bank policy does not explicitly address several issues that are necessary to maximize the benefits of privatization. In addition, the authors agree with other analysts who suggest that the World Bank would benefit from a new paradigm for infrastructure privatization that is more transparent and includes a coalition of stakeholders with community involvement.