Challenges Of Privatisation In Nigeria
May 5, 2014
Since the beginning of the outgoing administration in May 1999, the Bureau of Public Enterprises has been dynamic with the sale of public firms to local and foreign private interests.
The policy of the government is to make Nigeria a private sector-driven economy where the government will regulate but leave business to those who can run it. But privatization, which transfers ownership of production and control of enterprises from the public to the private sector, has been very controversial. It has generated strong debates, everywhere especially in developing countries, where it is perceived to have more negative impact.
While proponents of privatization see it as an efficient way of promoting competition and enhancing growth, critics argue that it makes the poor poorer by increasing unemployment and reducing access of the poor to basic goods and services through increase in prices. In Nigeria, there have been several protests by unions that are opposed to the proposed sell-off because of the fear of losing their jobs.
The most recent were the auctions of the Egbin Power Plant to KEPCO, a Korean firm, Kaduna refinery to China National Petroleum Company and Port Harcourt refinery to a local consortium. Apart from the fear of job losses, many workers argue that the sale of public enterprises to either foreign owners or domestic investors is an infringement on their rights as Nigerians. The privatization journey in Nigeria may be said to have really started in the 1980s when the country witnessed economic deterioration.
The Technical Committee on Privatization and Commercialization was established in 1988 under the chairmanship of late Dr. Hamza Zayyad. Dr. Ifeoma Nwoye of the Nigerian Institute of Management, in her study on the privatization of public enterprises in Nigeria, said the socio-economic difficulties of Nigeria were traceable to the global economic recession, which opened with the decade of the 1980s. She said, “The problems of performance of the public sector enterprises in Nigeria were complicated by the downturn in socio-economic development in the country due to the global economic recession and the collapse of the oil market.
Thus, Nigeria’s precarious fiscal and monetary posture could no longer sustain the requirements of its public sector enterprises, particularly since they perform below expectations in terms of their returns on investments and quality of services. “Towards the end of 1980s, the public enterprises, which had grown too large, began to suffer from fundamental problems of defective capital structures, excessive bureaucratic control and intervention, inappropriate technologies, gross incompetence and blatant corruption. “With the deep internal crises that included high rates of inflation and unemployment, external debt obligations and foreign exchange misalignment, Nigeria and many other African countries were strongly advised by the worldwide lending agencies, particularly the International Monetary Fund and the World Bank, to divest their public enterprises as one of the conditions for economic assistance. “With the intensified push for economic liberalization, Nigeria and other African leaders were told that privatization as an economic reform would help cut public sector inefficiency and waste, attract more investments, bring in new technologies, and hence revive economic growth.
Thus, many countries, including Nigeria, embarked on privatization and other market oriented reforms to pull them out of the structural imbalances.” Since the drive for privatization in developing countries emanated largely from international creditors, many experts believed it could be a form of economic exploitation. The views of critics may not be discarded as majority of the companies being privatized are purchased by foreign companies. Economic like Prof. Sam Aluko, have faulted the outgoing regime’s privatization programme, saying that the accompanying mass retrenchment has shown that it is not human development-oriented. Aluko said the sale of public enterprises to a few privileged Nigerians had only succeeded in making a few people rich at the expense of the vast majority. This, in addition to other anti-poor policies, Prof. Ade Adejugbe said, had made unemployment higher and poverty deeper despite the recorded improvement in growth indicators. Other economists have also said that in developing countries, privatization must be pursued with utmost caution. Paul cook and Yuichiro Uchida, of the University of Manchester, United Kingdom, in a study on privatization and economic growth in developing countries, found that the effects of privatization on these countries might be negative. They claimed that since theoretical literature argued that change in ownership alone at the microeconomic level was not sufficient to guarantee greater enterprise efficiency, then other reforms more directly related to enterprise development, might play a crucial role. The World Bank, which could be described as the originator of privatization, also has its reservations, particularly in the poor developing countries. Otive Igbuzor of the Centre for Democracy and Development, in his paper on privatization in Nigeria, quoting the World Bank, said, “Most privatization success stories come from high income and middle-income countries. Privatization is easier to launch and more likely to produce positive results when the company operates in a competitive market-friendly policy environment and a good capacity to regulate. “The poorer the country, the longer the odds against privatization producing its anticipated benefits, and the more difficult the process of preparing the terrain for sale.” If this assertion is a pointer, then privatization in Nigeria is bound to be controversial. Nigeria, by international and domestic standards is a poor country. The World Bank’s annual Human Development index is a comparative measure of life expectancy, education, and standards of living for countries worldwide. It could also be a measure of the impact of economic polices on quality of life. The 2006 HDI for Nigeria-based on 2004 figures was 0.448. The country ranked 159th out of 177 countries and 76th out 102 developing countries for which the index was calculated.
The Central Bank of Nigeria still quotes the 2004 poverty rate of 54.4 per cent while the World Bank states that about 70 per cent of Nigerians live below poverty level. Experts have, therefore, said that for Nigeria to reap the benefits of privatization poverty must be tackled and employment generated. If the private sector must be made the engine of growth for the economy, an enabling of operating environment must be provided. “If basic infrastructure that aid production are still in the poor state that they are, the private sector can do no magic to turn the economy around because there is a limit to the facilities that they can provide for themselves,” Adejugbe said. In the same vein, the Chief Executive Officer of Economic Associates, Lagos, Dr. Ayo Teriba, said there was no need talking about the continuation of policies or the privatization program when the county had so much money saved abroad while her citizens were still wallowing in poverty. He said, “The new government should focus on ways of using Nigeria’s wealth to solve Nigeria’s problems.” The 2006 IMF country report on Nigeria lent credence to Teriba’s stance. The report, which stated that Nigeria still lagged behind in infrastructure, said growth had been weaker in the country than in other less-developed countries. The report stated, “Growth, which has been weaker than in other less-developed countries, would benefit from significant infrastructure spending.
The authorities could finance this by drawing on the country’s higher oil wealth, which increased by 91 per cent of non-oil gross Domestic Product in net present value terms over the past year. “Although large overall fiscal surpluses and low public debt should protect fiscal sustainability, greater spending must have a sufficiently high import content to safeguard the single-digit inflation objective and to avoid crowding out of non-oil private sector activity. In the light of the high levels of capital spending, strengthening of the initially weak public financial management practices is imperative to avoid the wasteful spending associated with past oil booms.” Economists say there are certain reasons why some major enterprises must be publicly controlled. These include the inadequacy of the private sector to provide certain goods and services that require enormous investments, the fact that the financially incapable in the society must not be totally deprived of access to basic goods and services and national security. The indivisibility clause also requires that facilities such as roads, railways and streetlights be provided by government and financed through taxation. However, experts have said that privatization may not be inherently good or bad. It is the mode of implementation that determines its effectiveness. “But the greed that had been displayed by past Nigerian leaders in their quest to amass ridiculous wealth has made the genuiness and ultimate efficiency of the ongoing privatization programme questionable,” an expert said. In this regard, Nwoye said, “One of the most important issues in privatization is the concern for transparency and accountability. Nigeria is characterized by distrust and suspicion. Suspicions of corruption that follow privatization deals require that separate auditing and legislature’s oversight committees be established to help in the monitoring process.” If there is transparency, citizens may not be too suspicious of privatization moves because it creates a perception of honesty and accountability. “If privatization is carried out with sincerity of purpose, almost every group will come out ahead as a result of divestment. Workers will be shareholders. Consumers will be better off because of better service. New graduates and the unemployed will get jobs because of expansion and government will be relieved of the burden of subsidies among others,” Nwoye said.