The Privatisation Debate

The ugly revelations at the senate committee set up in July 2011 to investigate the failed privatisation exercise embarked by the Bureau of Public Enterprise (BPE) have thrown up, once again, the debate on the privatisation and commercialisation programmes and policies of the federal government  over the years.

The country has continued to lose colossal sums of money and resources in the name of privatisation of public enterprises. According to media reports, the BPE’S Director General, Bolanle Onoagoruwa, disclosed to the senate Committee that the Aluminium Smelter Company of Nigeria (ALSCON), Ikot Abasi, Akwa Ibom State built at the cost of $3.2bn was sold to Russel, a Russian-based company for $139million. A similar story goes for Daily Times, Delta Steel Company in Delta State, and Eleme Petro – Chemical in Rivers State sold to Folio Communications, Global Infrastructure, and Indorama respectively at paltry sums in comparison with the nation’s huge investments in them.

In the same vein many Nigerians felt that the sale of the Kaduna and Port Harcourt refineries in 2007 to Bluestar Oil Services Ltd, a consortium that comprised the Dagote Group, Zenon Oil, and Transnational Co-operation was under – valued and not transparent. Thus the consortium’s withdrawal from the deal and its (the deal) revocation by the late President Umaru Musa Yar’Adua’s administration were greeted with jubilation across the country. The late President Yar’Adua’s action was seen as a clear demonstration of his respect for public opinion and strict adherence to due process.

But why did, successive administrations in Nigeria embrace privatisation as a sure and direct route to economic progress. From the early 1980s the country began to experience serious balance of payments and debt crisis and huge budget deficits resulting from the collapse of oil prices and the consequent contraction in the foreign exchange earnings. During the period, the country also faced a surge in imports arising from an over-valued naira. Before the oil price collapsed, the enormous windfall accruing from oil revenue impelled the government to assume a greater role in the economic life of the country.

Thus as at 1986 there were about 6,000 public enterprises in Nigeria controlled by the Federal Government in which it had an investment of over N36 billion as equity, loans and grants/subventions.

Besides, these public enterprises with over 5,000 appointments into their managements and boards enjoyed transfers in form of subsidised foreign exchange, import duty waivers, tax exemptions and/or write-off of arrears, and unremitted revenues. And the various state governments also owned and controlled many public enterprises in which they invested billions of naira.

Sadly, the federal government realized less than N500 million annually from its huge investment and had to worry about the interest and principal repayments on the burdensome loans of these enterprises. Consequently, and as a condition for IMF and the World Bank’s support for President Ibrahim Babagida’s Structural Adjustment Programme (SAP), the Federal Government decided to commercialise fully or partially some of its investments, fully privatised some others and terminate support for those which would be partially privatised.

Though the debate over privatisation as an instrument for national economic management has been raging among economies and across many countries for several decades, in Nigeria, the first categorical official statement of intent on privatisation was therefore that made by President Ibrahim Badangida in his January 1986 budget speech.

Privatisation is a complex issue. Frankly, it is a two-edged sword. It can make a country great. It can also destroy a country. Why? Because if not well conceived and handled, it can give rise to social, economic, and political turmoil.

Privatisation is a subject over which people tend to take extreme ideological positions. In Nigeria, while some people see the country’s privatiosation as a policy designed to correct distortions arising from past poor public investment decisions, others perceive it as a deliberate and conscious attempt by the power elite to  appropriate the national wealth to the detriment of the working people.

Public outburst against the sale of public enterprises and other national assets to few individuals rests on a number of fundamental economic, social, political, and institutional arguments. The arguments are complex but they are not new. Going into the arguments fully will take us beyond the concerns of this piece. But essentially they revolve around the issues of economic efficiency, equity, and ideology. Several studies carried out by scholars including Spann and Christenaan who compared the operations of voluntary, public, and profit making hospitals in the US and private and public railroads companies in Canada respectively found no significant difference between private and public provisions.

The inefficiency associated with public provision in Nigeria is due to downright “thievery” and indiscipline which are more pronounced in our public organizations than the private sector.

Considering the country’s low level of development and the imperfections both of structure and operation, government intervention is required to influence the distribution of wealth in a desired fashion. This is because private provision may not only be inequitable but may also be subject to economic inefficiencies.

The ideological arguments revolve around the perception that collective provision and finance cater for communal, rather than, self interest. Such communal provision reflects more correctly the pattern in our traditional societies before they were corrupted by western notions of private interests.

Therefore, even if we have committed ourselves to privatisation, it is imperative to openly discuss and come to terms with its overall philosophy and political economy, realizing that the exercise involves loss of jobs, greater distributional inequality, vesting the national assets in the hands of a few individuals and so on.