Need for perspective on privatisation issues

IT is apt to put in perspective the challenges that have beset the privatisation programme. It is ill-advised to be gung-ho like Mr. Osita Okechukwu, the national publicity secretary of the Conference of Nigerian Political Parties (CNPP), who has called on President Goodluck Jonathan to stop the programme and order a probe of the exercise.

The maxim that opinions are free but facts are sacred has been lost on the ill-conceived band of privatisation adversaries. For record purposes, the Bureau of Public Enterprises (BPE) has privatised over 120 enterprises since its birth and the challenges being experienced by some privatised firms cannot lead to throwing out the baby with the bath water.

And are the challenges being faced by the firms as a result of privatisation? Or as a result of policy somersaults by the government and the general unfavourable business environment?

Let’s ask, in what state were these enterprises prior to privatisation? Take the steel sector, for example. The 20,000 workers in the sector were mostly idle since it was only Katsina Steel Rolling Mill, out of all the enterprises in the sector, that was producing, and even then it was producing at a very low capacity.

Only government can keep idle hands as employed while they are doing next to nothing. Almost all the government-owned enterprises could not pay the salaries of the workers since they were not producing, as a result of which their unpaid salaries and other entitlements kept piling up.

Indeed, it was funds from the sale of the enterprises that were used to pay off their unpaid salaries and allowances, which would have, otherwise, remained unpaid.

Delta Steel, after ten years of closure, started producing again just one year after privatisation. They are currently producing at about 30 per cent of installed capacity, which is better than its production at any time before now, even when it was brand new, with some of the sacked idle workers now being recalled.

A cursory examination of just a fraction of the enterprises that were privatised from 2000 to date shows that the core investors are doing their best to operate in a very difficult business environment.

It should also be noted that prior to their privatisation, most of the public enterprises had been operationally grounded and were in comatose state.

Most of them had been closed down for several years, while the majority of them had retrenched all their work force. Companies that come readily to mind that fall in that category are Jebba Paper Mills, which closed production in 1996, Leyland closed production in 1986, Delta Steel was operationally grounded for ten years until the new owners commenced production in 2006, Eleme Petrochemical had never broken even before privatisation despite the enormous amount of money that was invested, the Federal Superphosphate Fertiliser Company (FSFC) in Kaduna was shut down since 1988 and came back to full production in 2007 following privatisation, after it had been in dormancy for a period  of 19 years,  etc.

This is the sad tale of public enterprises in Nigeria. In addition to the above facts most of the public enterprises, because of years of neglect and lack of proper management, ended up with technologically outdated and obsolete equipment and facilities that could no longer be used by the core investor. Typical examples of that scenario are all the seven red brick companies and VWON where it was discovered that they have obsolete and outdated equipment.

Let us remember that most of these companies operate in an unfavourable economic environment for private enterprise to flourish.

According to the latest World Bank report on the ease or difficulty of doing business in a country, Nigeria is ranked 137 out of 183 countries. The criteria used to arrive at the conclusion are, starting a business, dealing with construction permits, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and closing business.  The issue of ease of business, or lack of it, is further compounded by the lack of regulatory environment that govern business transactions in some of the key sectors of the Nigerian economy.

A typical example is the automobile industry, which dates back to the early 1960s with an annual capacity of 108,000 cars, 45,000 trucks and buses, 10,000 tractors and over a million motorcycles and bicycles. There are also about a hundred components and parts manufacturers.

The industry reached a peak in 1981, with its fortunes deteriorating steadily since then, with current capacity utilisation, of especially the vehicle assembly plants, at less than 10 per cent. In the last 10 years, more than 90 per cent of vehicular input into the Nigerian economy is imported and 90 per cent of the imported vehicles are used ones. The vehicular import averaged 100,000 units annually in the last three years. The issue is that all the privatised vehicle assembly plants in the country are operating without a sector policy that can protect them and boost their productivity.

In spite of the unfriendly environment, a significant number of the privatised enterprises are doing well in terms of increased production and improved financial performance. A number of enterprises, that were virtually dead or moribund before privatisation, have been rehabilitated. Examples of these include the Jebba Paper Mill, Savannah Sugar Company and Benue Cement Company.

Another example of satisfactory performance by privatised enterprises in spite of the difficult operating environment can be seen in the performance of the sea-port terminals. The performance of the sea-port terminals after privatisation, is very satisfactory despite the inability of the government (through the Nigerian Ports Authority, the landlord) to adequately fulfil most of its obligations under the concession agreement.

Most have by far surpassed the covenants and projections contained in the concession agreement in terms of infrastructural development, procurement of equipment and traffic volumes.

The private terminal operators have invested more than US$300 million in procurement of equipment and improvement of fixed assets.  The ambience of the port terminals and safety of cargo have significantly improved.  Most of the indicators of increased efficiency, lower ship dwell and turnaround time, faster clearing of goods, improved cargo turn around, etc, have significantly improved compared to the pre-concession levels. This is attested to by all impartial analysts of the Nigerian port system.

In addition, apart from other macroeconomic impacts, over US$6 billion is expected to accrue to FGN over the life of the concessions (from entry, monthly throughput/royalty and annual lease fees).

Unfortunately, one of the key objectives of the ports reform, that of reduced cost to users, has not been achieved, largely due to the absence of an independent economic regulator and other factors, most of which are not the making of the terminal operators and sometimes beyond their control.

Between 1988 (when the privatisation programme started) and 1993, TCPC privatised 89 out of the 111 enterprises slated for partial or full privatisation. During the same period, the body prepared a comprehensive framework for commercialisation applicable to all public enterprises and specific reform packages for 30 out of the 34 affected enterprises. Performance Agreements were entered into with 26 of the 30 enterprises for which reform packages were available.

Within the same time frame, TCPC offered 1,486,772,063 shares to Nigerians across the nation.  Privatisation massively expanded personal share ownership in the country in former public enterprises. As at 1993, over 800,000 shareholders were created, almost twice as many as there were in 1988 when TCPC was established.

The programme demystified the operations of the capital market and created a new awareness in the virtues of shareholding as a form of savings rather than an elitist past time that it was thought to be.

Also, between 1988 and 1993, the Federal Government relinquished about 280 directorship positions in the privatised enterprises. A total of N3.7 billion was realised as sales proceeds and considerable savings realised through the withdrawal of subventions to commercialised public enterprises.

The naysayers of privatisation would do well to remember that privatisation has since provided the likes of First Bank, Union Bank, Afribank, IMB, UBA, FSB, Assurance Bank with private investments, skilled management and private sector management principles. We are all witnesses of the improved services of these banks and ipso facto, the gains to the economy.

Before the divestiture of government shares in the three leading marketing companies – Oando (then Unipetrol), ConOil (then NOLCHEM) and Africa Petroleum (AP) — government interference in the operations of these companies by way of board appointments loomed quite large.

In the circumstance, their operations were hardly efficient and optimal. Following privatisation in 2001, the fortunes of these companies have since changed for good, such that shares of Oando and Conoil are among the best performers in the capital market.

The BPE is blamed for all problems associated with privatised enterprises, even those that the BPE was in no way connected with. Take for example the concession of the Ajaokuta Steel Complex and National Iron Ore Mining Company, which were not done by the BPE but by the then Ministry of Power and Steel Development.

Let us not forget that even in countries with favourable business environment, talk less of Nigeria where this is not the case, businesses do fail and close down. The privatised enterprises should therefore not be treated as exceptions since they also operate in the same environment and indeed the reality is that they are doing better than a lot of companies in spite of the fact that they had been run down before privatisation

Finally, the impact and benefits of privatisation should also be viewed from the prism of the larger society. Such holistic approach must be adopted because public enterprises were not established to benefit only Public Enterprise (PE) workers.

It would therefore be misleading to analyse privatisation using such a narrow framework. Rather it should be remembered that PEs have myriad stakeholders – the general public (which ought to benefit from PE services), the government (and therefore tax payers), which own PEs, the economy as a whole (that ought to gain from PEs efficiency) and of course PE workers.

Mallam Suleiman is an Abuja based analyst