Don't Miss


Home   >   Market - Finance   >   Finance   >   The Case for Privatisation and SMEs in Nigeria and Sub-Saharan Africa (Part 2)

The Case for Privatisation and SMEs in Nigeria and Sub-Saharan Africa (Part 2)

By on March 28, 2011

The benefits arising out of privatisation are too crucial for Nigeria to ignore in the context of its long-term growth plans:
* Depending on prudent implementation, privatisation can help strengthen capital markets by widening local ownership through reservation of shares for citizens.

* Many governments have successfully reduced national debt by raising money through disinvestment and related instruments, curbing the need for subsidies and tax concessions.

* Privatisation engenders healthy competition that helps expand markets, establishes best practices and improves production and service standards.

* World Bank research confirms substantial performance improvement in private enterprises with the removal of administrative constraints typical of public sector operation.

* Developing countries like India and Brazil with strong commitment to free markets have succeeded in acquiring massive foreign investment by privatising public sector monopolies.

Foreign direct investment in Africa jumped from less than $1 billion in 1995 to $6.3 billion in 2000. Although this makes for a healthy increase, the flow of investment into Nigeria and the rest of sub-Saharan Africa remains curtailed because of local restrictions.

The region lacks competitive markets and consistent regulatory frameworks that provide the right atmosphere for privatisation. Considering its past experiences, it is imperative that Nigeria formulate effective public sector reforms before pushing ahead with any further sale of public assets. Moreover, such measure must be undertaken as part of a larger effort at promoting economic efficiency.

The privatisation of utilities and large public-sector infrastructure tends to throw up even harder challenges. Nigerian lawmakers must be particularly concerned about strengthening institutional mechanisms that regulate market operations.

This entails reinforcement of administrative and legal systems, capacity building of implementation agencies and reduction of corruption and political interference. The failed disinvestment of Nigeria’s flagship RORO Port in Lagos is a case in point when it comes to demonstrating the pitfalls in the privatisation process in this corner of the world.

The three separate facilities at the Lagos port that handle an estimated 180,000 tonnes of annual cargo was under private operation for a number of years. The owners showed huge salary expenditure to explain dismal profits averaging just over $40,000 annually, forcing the Nigerian Port Authority to resume control.

Within a year and without any further investment, profits had jumped back up to over $1 billion.

Although shocking, such incidents suggesting massive corruption have regularly punctuated Nigeria’s economic recovery. Some estimates go so far as to say that 70 Kobo of every Naira the federal government spends is absorbed by the very bureaucracy that it meant to deliver it. Whatever the direction of its privatisation policies, governance in Nigeria is as much in need of radical reforms as its economy!

We have continued to witness frequent industrial squabbles in privatized public enterprises. The crux of retrenchment of employees of public firms undermines decades of manpower experience and waste of training funds used to train staff of privatized firms. The result is the saturation of the unemployment market and wanton waste of valuable experience and technical know how. None or late payment of retrenchment benefits has continued to generate frequent industrial squandered.

Access to credit for a large body of interested persons has proved an intractable problem. Although licensed banks were advised by the Central Bank of Nigeria to extend credit to all interested persons, for operational reasons, the banking system has not responded favourably. This problem has tended to dampen enthusiasm, particularly amongst the working class whose earnings are hardly sufficient to meet their normal needs, let alone have surplus to invest.

One reason for the bank attitude is that the system has gone through rather traumatic changes in recent years, and perhaps once the banks overcome the problems posed by the changes, the situation may improve. Employers of labour have been advised to assist the employees with share purchase loans and the response has been most encouraging.

A considerable part of the over-subscription experience in the offers for sale arose from the intervention for large institutional investors who saw in privatisation an opportunity to broaden their investment portfolios.

With emphasis being given to the small individual investors, such institutional investors are unable to obtain the quantities they require.

Source : Vanquard