Skydips

lapses in the privatisation programme, government decided in the best interest of country to suspend it at the end of 1994. In spite of this suspension, the Federal Government in its 1995 budget speech reaffirmed its commitment to the PEs institutional reform. Thus, a new policy of contract leasing was to replace the sale of shares in PEs as from January, 1995 (FRN, 1995). The leasing arrangement was to involve contract leasing enterprises to both local and foreign entrepreneurs on as it were basis. In its 1996 budget statement, government indicated its intention to allow the private sector entrepreneurs to invest and compete with the public sector in the provision of utilities, particularly, electricity, transport services and telecommunication whose enterprises were initially commercialised. Not much was done within the 1995/97 period in the sphere of contract leasing arrangements.

However, in 1998, Federal Government budget statement, perhaps, in line with the spirit of the Vision 2010 Report, finalized also in 1998 (FRN 1998), government resolved to commence the privatisation programme to evolve a private sector-led Nigerian economy focusing more, specifically, on NITEL, NEPA and NIPOST.

Against the background of the criticisms and setbacks of the first phase of the programme, government expressed its determination to ensure that the gains of the programme for the populace outweigh whatever losses that would occur. Besides, it is anticipated that the programme would be instrumental to the-evolution of a wider business ownership and also to the stimulation of the process of competition necessary for the ensurance of efficiency. To this end, the ‘Guided Privatisation’, a microeconomic strategy, was adopted to the neglect of the former macroeconomic approach adopted in the first phase.

In this regard, the Decree No. 28 of May, 1999, was promulgated to provide a legal backing to the guided privatisation programme. In accordance with this decree, the National Council on Privatisation (NCP) is at the apex of programme institutional framework for the policy reactivation of the privatisation programme. Additionally, the decree makes provision for the re-establishment of the BPEs for the implementation of the privatisation policies designed by the NCP.

SELF ASSESMENT EXERCISE 4

Which approach was adopted by Nigeria in the first and second phases of privatisation programme and why?

i. The fairly wide spread equity share holding ownership across the ethnic and income groups. This has probably led to the expansion of the capitalisation of the Nigeria Stock Exchange from about N12 billion in 1989 to about N70.5 billion and N285 billion in 1991 and 1996, respectively;

ii. The improvement of the market awareness of citizens as the capital market becomes a preferred vehicle for divestment to ensure wide spread equity share ownership;

iii. The high price movement from the pre-policy bases, in the process of allowing such prices to reflect their production cost, such that the privatised enterprises have consequently generated high capital appreciations to sustain business operations;

iv. Enterprises’ significant turnover and profitability which allow for self-sustaining operations; and

v. Post policy increase of cash dividend pay-out of about 363.6%.

Demerits

It is important to note that the privatisation programme, just like any other normal programme has its own peculiar problems, In fact, such problems are within the areas of the social, economic, political and ideological settings. They include, among several others, the following:

The socio-political and ideological problems

It is important to recall that, conceptually, privatisation has ideological connotations as theoretically revealed in the classical/neo-classical and liberal/neo-liberal expositions. In this regard, to the programme critiques, the policy could be seen as an imposition of international capitalism which should be discarded. Besides, quoting the guideline to the implementation of guided privatisation in the second phase of the programme in Nigeria, some of these critiques, referring to the 40:40:20 equity structure for government, foreign entrepreneurs and Nigerian investors, respectively, see it ideologically, as a way that the government’s 40 percent shareholding would prevent the substitution of private monopoly for public monopoly which might not be in the nation’s interest in a market-oriented environment. It is therefore argued that the equity structure, as planned, cannot provide privatised enterprises sufficient guarantees of freedom from external interference. This may subsequently foreclose the prospects of efficient management and worthwhile returns.

Inaccessibility to credit

In recognition of the impacts of the on-going economic crisis on the populace, particularly, in Nigeria and also the precarious financial and fiscal postures therefrom,

many prospective equity shareholders may not seem to possess enough investible funds to process their application forms contrary to the expectation of government.

Perhaps, in anticipation of this possibility, the Central Bank of Nigeria (CBN), within the first phase of the programme, gave a directive to all commercial banks in the country to grant credit facilities to prospective equity shareholders In spite of the appropriateness of this directive; it failed because only two banks complied with it.

Perhaps in recognition of this failure, the Nigeria government stated in the second phase of the programme under its recent guided privatisation scheme that a Nigeria Trust fund would be established to provide credit facilities to prospective equity share holders. This recognition has further led to be establishment of a shares purchase Fund aimed at the provision of credit facilities to prospective shareholders.

Uncooperative attitude of some public officials

Under the privatisation programme, affected PEs would be insulated from all ministerial controls and interference. It is therefore improper on social, political and ideological grounds for some officials of the PEs former supervisory ministries to misconceive the programme as a way to reduce their power and thereby oppose it.

Whereas, such officials would be less vocal in their opposition than the professionals, the impact of their opposition could be devastating and harmful to the programme. For example, it could result in serious programme implementation delays which could paralyse the entire programme. These delays were noticed in the first phase for success.

Problem of geo-political income-group spread

Contrary to the anticipation of government, there are usually imbalances in equity shareholder distribution among income groups and geo-politically. For example, inspite of the level of awareness which was heightened through publicity, the problems of imbalances in equity share holder distribution among income groups and geo-politically were-unresolved in Nigeria. The emerging problems therefrom aggravated the Nigeria tribal consciousness. Besides, there is the fear that it could worsen the already skewed income distribution against the under-privilege and the poor. Efforts must be geared towards equitable spread among income groups and regions in the country as much as possible.

Problems of Labour Retrenchment:

In most African countries (Nigeria, Ghana, Tanzania, Zambia etc.) where privatisation policy is adopted, labour unions have usually perceived the policy as anti-labour. This perception arises from assumption that the privatisation of PEs would culminate in driving restructuring which would inevitably result in massive retrenchment of workers. In this regard, most labour unions usually oppose the adoption of the policy in African countries.

The Fear of Fixing Arbitrarily High Prices

It is important to recall that under the regulatory developed devices, prices of utilities and social services were stated below their production costs. This explains why government adopted the subsidisation policy to augment the established prices.

However, with the privatisation policy, all forms of subsidies have been eliminated.

Besides, all affected PEs are to be self-reliant, self-financing and self-sufficient. There is therefore the fear of high price movements arising from arbitrary fixing of tariffs in PEs processes of allowing such prices to reflect their production costs and have some mark-up to allow for self-financing operations.

SELF ASSESMENT EXERCISE 5

Weigh the pros and cons of the privatisation policy in Nigeria