Problems and Prospects of Privatization in Nigeria

Problems and prospects of privatization in Nigeria is topical not because its Leaders are playing politics with privatization and the process has become a never ending one, but because the policy was a good one which was intended to cut waste of scarce resources, bring good governance closer to the people and lessen the economic hardships of citizens.

Each government from 1988 to 2015, carried out privatization of  public enterprises but have not been able to sell the whole firms, due to controversies and governments determination to do it right.

In this article, we shall define economy and privatization and then list the methods of privatization, give a brief history of privatization in Nigeria, offer reasons why successive governments embarked on the privatization of public enterprises, discover whether the problems outweighed the benefits, discuss the present outlook, share success stories and then round-off.

By the end of this article, you would have no doubt that despite the problems of privatization, the prospects for success is far greater the hindrances.

As you are aware that privatization occurs in an economy, let’s clarify the relationship they share by defining economy. So …

What is Economy?

Oxford Advanced Learners Dictionary defines economy, as “the relationship between production, trade and the supply of money in a particular country or region”. Whereas …

Microsoft Encarta Encyclopedia defines economy, as “the production and consumption of goods and services of a community regarded as a whole”.

Both definitions reveal that trade; production and consumption of goods and services, supply of money and payment for productive services, take place in an economy of a particular region or country and privatization affects some of these activities.

A brief History of Nigeria’s Privatization

After the discovery of oil in the Niger Delta, the country built its foreign trade on only one commodity, oil and whenever the price fell in the International Market, it negatively affected the implementation of the country’s budget.

During the oil boom, government set up huge public enterprises like the Nigerian Airways, Nigerian Railways, Nigerian Postal Services and Nigerian Aviation Handling Company etc, which it funded with grants.

President Ibrahim Babangida introduced SAP in 1986 with the policies of deregulation of agricultural sector, privatization of public enterprises and devaluation of the naira, and suspension of the ban on foreign investments into Nigeria.

The introduction of SAP gave government the political will to block leakage of revenue, remove waste in the running of government and its Agencies, Ministries, and Directorates, increase the collection of revenue, and improve efficiency of the public service.

Because of SAP, government re-examined funding of public enterprises and it became clear that they were a huge drain on its limited resources. This realization led to the policy of privatization and commercialization.

President Ibrahim Babangida began the privatization program in 1988 by enacting the Technical Committee on Privatization and Commercialization (TCPC) decree.

In 1993, TCPC transformed into Bureau of Public Enterprises (BPE) and its functions included selection of public enterprises that were to be privatized or commercialized, recommendation of firms put down for full or partial privatization or commercialization, recommendation of the method of privatization and the implementation of government approval on public enterprises,  to mention but a few.

In 1999, the head of state General Abdusallami Abubakar in line with the past government’s privatization policy enacted the Public Enterprises Privatization and Commercialization decree, before handing over to a civilian government headed by Chief Olusegun Obasanjo.

After inauguration, President Olusegun Obasanjo continued the privatization drive by creating the National Council on Privatization (NCP), to supervise the process and approve recommended enterprises listed for either privatization or commercialization by BPE.

BPE is the Secretariat of NCP with Alhaji Atiku Abubakar, the then vice president of the country serving as was chairman of council. Between 1999 and 2014, government has sold over 144 public enterprises and more are undergoing evaluation before sale.

For instance, after the sale of African Petroleum, the new owners listed the shares in the stock exchange to expand the capital market and increase market capitalization of the Nigerian stock exchange.

We have been talking about privatization and so you are right to wonder …

What Is Privatization?

Privatization is simply an economic policy of transferring the ownership of public enterprises to private entrepreneurs.

A well implemented sale process ought to generate good money which government could use for meeting infrastructural needs and funding very important projects all over the country.

Since we have explained what privatization means, let us see the methods available to government for sale of public enterprises.

Strategies for Implementing Privatization

Methods for carrying out the privatization of public enterprises include:

• Sale of shares to citizens through the stock exchange.
• Private placement by the public enterprises to preferred investors through the stock exchange.
• Management buy-out by distribution of shares to employees or Management of the firm free or at a small price.
• Asset sale by auction to a strategic investor.
• Voucher privatization by allotment of vouchers representing units of shares given to citizens free or at a small price.

As at date, the Nigerian government has successfully used sale of shares, private placement, asset sale to strategic investors and management buyout, to sell its shares in public enterprises.

At this point of discussing the problems and prospects of privatization in Nigeria, it is necessary to find out the main reasons that led government into privatization and commercialization of its public enterprises.

The Reasons for Privatization of Public Enterprises

Some of the reasons for privatization of public enterprises are as follows:

• To solve the problem of waste of its resources for financing operations of unproductive public enterprises.
• To solve the problem of preferential treatment in public enterprises.
• To stop the problem of large scale misuse of grants due to lack of sense of responsibility by public servants managing these firms.
• To stop the appointment of incompetent staff to handle vital positions.
• To break the monopoly by inefficient giant public enterprises
• To cut off bureaucracy in the operations of these public firms.
• To stop poor service delivery by employees.
• To stop corruption of public officials.
• To stop miserable performance due to lack of competition.

• To stop funding public firms which were not self sustaining because of bad management and poor work ethics.
• To indirectly create more employment by sale of firms hoping they would be more efficient and profitable after sale.
• To deepen the capital market by ensuring sold firms list their shares in the stock market.
• To improve collection of Tax and grow government revenue.
• To stimulate the Nigerian economy and raise the gross domestic product by the increase of productivity in these sold public firms.

The reasons for privatization are numerous but the most critical reason was that government, wanted to stop the waste of very scarce resources used in funding unproductive public enterprises.

When you examine these reasons, you would readily agree that the privatization of unprofitable and wasteful public enterprises was a good policy, which citizens should approve. But how true is this statement?

Let us answer this question, by finding out the problems and prospects of privatization in Nigeria so that we can make a balanced judgment. First we will list the problems and follow it up with the prospects.

The Problems of Privatization

Some of the problems of privatization includes …

• Selling of national assets to cronies of government officials.
• Misuse of money derived from sale of public enterprises by government officials.
• Unintentionally creating monopoly and transferring the same to foreigners.
• Self-satisfaction and poor service delivery by employees due to monopoly.
• Initial loss of jobs as some private owners, would trim the workforce as part of measures, to reposition the business for profitability.
• Firms may require large capital to restart business, which the core investors may not have after buying the asset. An example is the sale of Nigerian Telecommunications Limited (NITEL), which failed several times due to the failure of buyers, to get working capital to restart company and settle staff terminal benefits.

• Industrial unrest due to high-handedness of private owners of firms.
• The possibility of core investors stripping the assets of the public enterprise, and selling the carcass to new buyers and then bailing out without reviving the company irrespective of terms of sale to them.
• Issues of settlement of terminal benefits of retrenched staff.

After listing some of the crucial problems of privatization, it is now proper that we discuss the prospects of privatization in Nigeria.

The prospects of privatization

Some of the prospects of privatization are as follows …

• Use of money from sale of public enterprises to develop and maintain infrastructure in the country is probable.
• Efficient management of privatized enterprises by buyers may lead to expansion of business and the economy.
• Starting of additional businesses in different sectors to serve each privatized firm is very likely.
• Sale of public firms may influence the development of entrepreneurial spirit of Nigerians.
• Privatization may create more employment opportunities in the economy for citizens.
• It may lead to good service delivery to the citizens by these private firms who understand that customer is king.
• It would definitely increase government revenue by collection of corporate and value added tax from these privatized public firms.
• Misuse of resources by the new owners of the companies is not likely.
• It might provoke the Nigerian economy for massive growth.
• Raise gross domestic product due to productivity in sold public firms.
• Implementation of succession planning to carry on the companies.
• Institution of corporate governance thus making the firms more efficient than before.

As you can see, the prospects are numerous and so the next thing to do is discover how privatization has fared in Nigeria, by discussing the present outlook.

Present Outlook

From all indications, the privatization of public enterprises has its good and bad parts.

For example, if you look at the energy sector, you would conclude that the policy has not been successful because it has not yielded the elusive constant power supply for the citizenry.

But then the problem is a coin with two sides. The first side is that of consumers of services becoming a clog in the wheel of progress. For instance, many individuals and even government agencies owe light distribution companies and simply refuse to pay. This must stop if we want efficient services.

The second side is complacency and poor service delivery by some service providers after successful privatization. To address self-satisfaction and poor service delivery which are parts of the problems and prospects of privatization in Nigeria, and ensure top performance, government could use the repossession clause in the sale memorandum of these public enterprises against these entrepreneurs.

Using this clause, will act as a check to keep these private entrepreneurs on their toes and ensure continuous best possible service delivery. Else these privatized companies may turn the gains recorded by privatization of some very profitable sectors, like the Telecommunications and Energy sectors into a nightmare for the citizens.

Success Stories

When you consider some sectors where privatized public companies deliver services very well, you would realize that the privatization program was successful up to an extent.

For example, the Privatization of the Telecommunication sector was a huge success and today Nigerians are enjoying the benefits of this very important service.

Before the privatization of this sector, Nigerian Telecommunications Limited (NITEL) was the government monopoly that supplied telephone services. You would recall then that you had to sleep overnight in NITEL exchange, just to make a long distant call overseas.

Today you can seat in your bedroom and comfortably make calls to anywhere in the world provided your Telephone has credit. That is a wonderful gain from privatization.

Also, the privatization of the Telecommunication sector created millions of additional jobs, new businesses, expanded the use of Information Communication Technology (ICT) and Internet services all over the country.

Growth of output in this sector alone, contributed to increase in Gross Domestic Product of the country then, and continues to do so today.

If in the near future, major Telecommunications companies list their shares in the stock market it would create more wealth for shareholders, and fresh investors of these companies.

Conclusion

From the above submissions, you can see that the problems and prospects of privatization in Nigeria are mixed. Without a doubt the policy of privatization is good irrespective of the problems connected to the process.

Despite these troubles, it remains the best way to ensure that government uses scarce resources for productive activities, rather than waste them on bloated public enterprises that continue to gulp money, yet are unable to perform required services for which they were set up.

Finally, we restate that the prospects of privatization are very promising, and proceeds of sale of public enterprises, if well managed could help government provide some of these basic needs – like good roads, hospitals with modern equipment, modern public schools, well equipped universities, clean water and security of lives and property.

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