Pronouncements by President Muhammadu Buhari and his ministers clearly suggest the lack of a definite policy direction on the critical issue of privatisation. While some have been speaking of concessions, public-private sector deals and “commercialisation,” others vow to “revitalise” moribund public enterprises. The reality, however, is that unless the government commits itself very quickly to a programme of privatisation and liberalisation, the economy may cave in.
Though the President and his team members complain frequently of the financial mess they inherited, they do not convey the sense of emergency the situation demands. Yet, government needs money and fast too. On Thursday, oil prices dropped below $32 per barrel, the lowest since July 2004, despite heightened tensions in the Middle East where Saudi Arabia and Iran are sparring. Meanwhile, the 2016 national budget is anchored on $38pb while analysts are predicting even lower price levels. A report on Monday quoting data from the Federal Inland Revenue Service said the Federal Government suffered a N520 billion shortfall in the nine months to September 2015. For the federal, states and local governments, revenues have fallen by between 50 per cent and 70 per cent in the last six months. With debt service of N1.36 trillion and borrowing of N1.8 trillion planned this fiscal year, the government ought to be more creative in its economic management.
Privatisation, accompanied by a liberalisation policy, offers a relatively cheap way to restructure the economy for production, conserve resources, attract the much needed foreign and domestic investment and create jobs. Why this government that promised change continues in the self-defeating path of retaining state-owned enterprises is baffling. There is a clear absence of a policy of immediate privatisation and the political will to have one.
That urgency was not in evidence when Rotimi Amaechi, the Minister of Transportation, unfolded his agenda for the aviation sector. His vision of concessions of airport terminals and access roads under Public-Private Sector Partnership to relieve government of the financial burden of providing airport infrastructure sounds positive. But the limitation of this track is revealed in plans to also continue the potentially disastrous national carrier project and with the controversial, fraud-soaked remodelling of four airports – Lagos, Kano, Port Harcourt and Abuja – with no mention of full privatisation.
A similar intention announced by Solid Minerals Minister, Kayode Fayemi, whose pledge to “revitalise” the Ajaokuta Steel Company can only mean throwing more money after bad. Already, Ibe Kachikwu, the Minister of State for Petroleum Resources who doubles as the Group Managing Director of the Nigerian National Petroleum Corporation, has been forced by the President’s ideological commitment to state control to prevaricate on the long overdue sale of the four state-owned refineries.
The advantages of privatisation – the transfer of SOEs to private sector – by far outweigh any drawbacks, studies by the International Finance Corporation have shown. Apart from efficiency driven by the profit motive, it encourages competition and enhances productivity. For Nigeria, where corruption, waste, self-aggrandisement, nepotism and political interference have laid waste to the economy, the benefits of saving scarce resources that are currently wasted on loss-making SOEs and creating more jobs in the long run that will come with privatisation are enormous. While it expects just over N350 billion from monies stolen from the treasury, it requires N3.3 trillion to fund recurrent expenditure and will probably finance the bulk of its N1.8 infrastructure vote with debt. Why not raise additional money through the transparent sale of steel, railways, airport, downstream oil and gas assets? At the same time, you not only save the billions you waste on them each year, you also open the floodgates to Foreign Direct Investment, jobs, production and revenue for government. Even the NNPC, an oil and gas behemoth, announced an operating loss of N240.98 billion in the 10 months to October 2015. Must we continue on this unproductive path?
An OECD study reported that in the decade to 2003, $1 trillion worth of SOEs were privatised spread over 100 countries. According to the World Bank, a wave of privatisations in the 1990s unleashed $360 billion investment in infrastructure in Latin America between 1990 and 2001.
There is no viable alternative to privatisation. All the groundwork for the privatisation and liberalisation of the commanding heights of the economy – from steel to airports, railways and refineries – has been done by the Bureau of Public Enterprises, especially under the leadership of Nasir el-Rufai. The Buhari administration has the unique opportunity to see through the plans by doing a better job of auctioning SOEs than its predecessors who allowed corruption and cronyism to creep in and give privatisation a bad name. Buhari should undertake a massive shake-up at the derailing agency and should not hesitate to revisit past flawed privatisations, especially the power and steel sectors’ auctions.
The OECD emphasised that from experience, “strong political commitment at the highest level is required to overcome bureaucratic inertia, to resolve institutional rivalries and to move the process forward.” This, along with a strong recommendation by the United Nations Economic Commission for Africa that effective privatisation must be accompanied by “reform programmes that create an enabling environment for efficient private enterprises” should be Buhari’s main task.
We urge Buhari and his cabinet to treat privatisation as an emergency and pursue it with vigour. Amaechi’s road map cannot erase the shame of the recent rating of Port Harcourt Airport as the world’s worst, nor can Ajaokuta, which is said to have gulped over $10 billion so far, be “revitalised” by the mere infusion of more scarce cash: instead, do what Britain has done by transparently privatising them to the world’s best. Whatever job losses are recorded in the immediate aftermath, will be more than compensated for by massive job creation, rapid industrialisation, productive expansion and investment in the long run.
