The promise last week by Vice-President Yemi Osinbajo that the Federal Government would ensure “diligent” privatisation of public enterprises failed to indicate any timeline, indicating a worrying lack of urgency. This government should, however, not repeat the mistakes of its predecessors, but push through the sale of state-owned commercial ventures with dispatch.
Osinbajo’s tepid promise was made to members of the House of Representatives Committee on Privatisation and Commercialisation who visited him in his office. The administration’s unenthusiastic attitude was evident in the lawmakers’ request that government should quickly inaugurate the National Council on Privatisation, a reminder that one year after it took office, the executive body that oversees the privatisation of national assets and is statutorily chaired by the VP, is still in abeyance. For an economy that desperately needs to take bold steps to escape recession, failing to take the opportunities offered by privatisation is unwise.
The transfer of assets from the government to the private sector has gained considerable traction worldwide since the 1980s, spearheaded by Britain. Its benefits have been immense, though like every human endeavour, the process has not always been flawless. Nevertheless, studies over three decades by the World Bank/IMF, the United Nations Development Programme and global experts say its benefits far outweigh any drawbacks and recommend transparent, efficient privatisation accompanied by liberalisation policies. Such studies also found that state-owned enterprises are generally inefficient, loss-making, with low productivity and they often distort the economy.
Privatisation, however, primarily aims to free public funds from such loss-making, inefficient firms so that government can invest in health, education, roads, irrigation, security, sanitation and institutional capacity. Private sector-led economies are more diversified, export-oriented and efficient. The IMF reported an influx of foreign direct investment, enhanced efficiency and productivity and better services/products accompanied by lower prices after the privatisations in Britain and Latin America in the 1980s and 1990s. The sale of 1,300 out of 1,860 SOEs slated between 1990 and 2008 enabled Hungary to transit from socialism to a competitive market and EU membership.
But Nigerian officials have consistently given privatisation a bad name since the government committed itself to exiting commercial ventures in 1988. A report by the House in 2012 alleged that over 73 per cent of privatised enterprises had failed because of the flawed process, countering a claim by the Bureau of Public Enterprises that 65 per cent were actually doing well. Nigerians however recall the debacles of the NITEL/M-Tell sale; Air Nigeria, Daily Times, Ajaokuta Steel, the mining assets and various hotels. A sizeable number are struggling and some like Air Nigeria, have collapsed and Ajaokuta taken back after three successive sales/concessions.
The horrific bungling of the power sector auctions has left Nigeria in darkness and the beneficiaries have taken the unprecedented step of confessing that they did not understand what they were buying! Osinbajo was probably mindful of the past mess when he spoke of efforts to fast-track the Competition Bill to clarify the rules for investors; ensure that successful bidders keep to the agreed performance terms; streamline the processes, and better manage post-privatisation concessions.
These are noble steps that should however be taken with dispatch. We are worried at the lack of urgency towards privatisation and indeed, over the overall economy, which is taking a severe bashing occasioned by falling oil prices and sub-par production levels. The IMF insists that privatisation, to be fully rewarding, must be accompanied by liberalisation of the operating environment. The National Assembly should therefore speed up passage of business-friendly bills, repeal the Railways Act 1955, fast-track the Petroleum Industry Bill, review the concession laws and renew the BPE Act to make it easier for the state to recover privatised assets that fail performance benchmarks.
For Nigeria especially, privatisation is crucial, given the dismal record of public enterprises that were steeped in corruption. But following the privatisation of 10 regional water boards in 1989, some 99 per cent of consumers reported improved safe water in Britain. The EC also found that the British railway network saw the greatest improvement among European Union nations between 1997 and 2012 following the privatisation of British Rail.
Nigeria desperately needs to attract private funding to meet the expected rise in its overall infrastructure spending from $23 billion in 2013 to $77 billion by 2025, higher than South Africa’s $60 billion, according to PwC, the consulting giant. Instead of adding to the $500 million borrowed from China for airport modernisation that was mired in controversy, we should emulate the Saudis who are forging ahead with plans to privatise all 27 airports in the conservative kingdom. The privatisation of 19 airports in Australia led to a 25 per cent improvement in operational efficiency and opened sources of FDI and created jobs, according to the Airports Council International. FDI will naturally follow reputable investors.
Experts acknowledge that mass privatisation has some drawbacks if improperly handled as Russia found after a rigged process that created a new class of oligarchs. The key to success is learning from ours and others’ mistakes that included cronyism, false nationalism and failure to build institutions and processes that liberalise the operating environment and guarantee the sanctity of contracts.
The BPE is badly tainted, having presided over a number of shady auctions that failed to deliver the expected dividends to the economy. It needs a total overhaul and a new, untainted management. Henceforth, we need to clearly state that certain sectors require guided sale and that misguided nationalism has no place in this globalised era. There is no point handing over railways to untested Nigerians as we unwisely did with power assets or taking incompetent investors from other under-performing Third World countries for our steel, mining and aviation assets. Strong regulatory, tax, employment, training and fiscal remittance laws will adequately take care of Nigeria’s interest.
In the meantime, Buhari should demonstrate his seriousness by quickly constituting a new NCP and setting out a timeline for a full blast programme to transfer all state commercial assets to the private sector.
