Experience worldwide has shown that Public Enterprises (PEs) have failed to live up to expectations. They consume a large proportion of national resources without commensurate performance and service delivery. More importantly, they fail to allocate these resources efficiently. In Nigeria for instance, PEs, before the introduction of privatization, used to consume a large portion of national resources amounting to over $3 billion annually, by way of grants, subsidies, import duty waivers and tax exemptions. The huge burden that PEs impose on the economy had become untenable, unbearable and unsustainable, hence the justification for their privatization.
The current move towards economic liberalization, competition and privatization is partly informed by the gross failure of PEs to live up to expectation.
During the post independence era, the dominant economic wisdom was for direct government intervention and control of the commanding heights in the economic sector through the establishment of PEs. That was justified mostly by the need to foster rapid industrialization against the backdrop of dearth of local entrepreneurial class and indigenous capital. To that end, the Federal Government invested over a $100 billion in establishing PEs, particularly between 1975 and 1995 in order to:
- Balance or replace weak private sector
- Control commanding heights or strategic sectors of the economy
- Produce higher investment ratios
- Transfer technology, management and know-how
- Generate employment
- Even spread of development across the geo-polity
- Provide goods and services at lower costs to the people.
However, the PEs which were established with noble and egalitarian objectives, failed the country as they:
- Created economic inefficiency and macroeconomic distortions
- Consistently incurred financial losses
- Absorbed disproportionate share of public funds
- Contributed to fiscal deficits and imbalances
- Facilitated and entrenched parasitism and corruption,
- Were unable to provide the much needed services they were established to do, and
- Made macroeconomic management difficult
According to Public Commissions and Study Groups such as Adebo (1969), Udoji (1973), Onosode (1981), AI-Hakeem (1984), etc, the following factors were responsible for the dismal performance of PEs:
- lack of adequate investment capital and technical expertise
- slow decision making process
- bureaucratic bottlenecks
- frequent government interference
- economic decisions based on political expediency and massive corruption of public enterprise managers in collaboration with officials of the supervising ministries.
A 1991 survey by the defunct TCPC showed that there were about 600 PEs at the Federal level and some 900 smaller ones at states and local government levels. The estimated 1,500 PEs in Nigeria accounted for between 30-40% of fixed capital investments and the same proportion of formal sector employment. Since the survey, many more PEs have been established by the Federal, State and Local Governments.
Whilst the oil boom lasted, no one complained of the waste and inefficiencies of PEs. It was only in the wake of the economic recession which began in 1981 that attention began to be focused on the activities of PEs. At the Federal level, the 1983 Presidential Commission on Parastatals examined the operation of PEs with a view to determining the basis for a new funding scheme, appropriate capital structure as well as incentive measures to enhance their productivity and general performance. The report of the Study Groups established by the Commission revealed that the PEs were infested with problems such as:-
- Misuse of monopoly powers;
- Defective capital structures resulting in heavy dependence on the treasury for funding of their operations;
- Bureaucratic bottlenecks in their relations with supervising Ministries;
- Mismanagement, corruption and nepotism.
As government could no longer continue to support the monumental waste and inefficiencies of PEs, the programmes of privatisation and commercialisation programme was developed by the Alhaji Shehu Shagari Administration in 1983 to address the country’s peculiar socio–economic and political conditions but unfortunately, it was not implemented before the change of Government in December 1983.
The military administration which succeeded the Alhaji Shehu Shagari Administration also examined the issue under a separate Study Group on PEs in October 1984.The Study Group confirmed the findings of the 1983 Presidential Commission on Parastatals but again before any action could be taken, there was a change of a administration in August 1985.
PROGRAMME IMPLEMENTATION UNDER THE TECHNICAL COMMITTEE ON PRIVATISATION AND COMMERCIALISATION (TCPC)
Privatization in Nigeria actually began between 1986-7 when the FGN liquidated several agricultural commodity boards and various units of the Nigerian Livestock Production Company. But the programme was not fully entrenched until the establishment of the Technical Committee on Privatization and Commercialization (TCPC) and the promulgation of the Public Enterprises Privatization and Commercialization Decree No. 25 of 1988.
INCEPTION OF TCPC
Soon after its inauguration, the TCPC began the work of planning and analyzing the scope of its functions, establishing a Secretariat and infrastructural support around which it could operate efficiently, selecting suitable staff, making contacts with relevant ministries and departments to ensure that it did not inhibit their functions or work at cross purposes with them. The idea was to ensure a thorough exercise within the operational framework given by the Federal Military Government in a way that other African and third world countries could benefit from the Nigerian experience. The initial ground work covered the following:
- developed, considered and adopted a comprehensive code of conduct for members of the TCPC and the staff of its Secretariat. The high point of the Code of conduct was that all members of staff were barred from the purchase of shares or assets of any PE privatised by the TCPC;
- designed, considered and approve Standing Orders to regulate the operations of the TCPC;
- designed, considered and approve conditions of service to govern the appointment of staff of the Secretariat of the TCPC;
- designed a Manual of Administrative Procedure to guide the orderly development of an effective and result-oriented Secretariat of the TCPC;
- designed an organizational structure for the TCPC Secretariat with detailed job descriptions for the Management Staff;
- designed an Accounting Financial System Manual to guide the Secretariat in the management of the Committee’s funds and to ensure accountability for public resources entrusted to the Committee;
- advertised for staff, interviewed and appointed suitable candidates for different positions within the Secretariat to ensure that they could assume duty by 1st January 1989;
- compiled a Register of Professional Advisers, Accountants, Solicitors, Issuing Houses, Brokers, Estate Valuers, etc, nationwide;
- held discussions with most of the Honourable Ministers in charge of enterprises affected by Decree No. 25 of 1988 in order to explain the direction of the Committee’s work and to solicit their co-operation and support;
- compiled information on affected enterprises covering:-
- published accounts for the past six years;
- reports on Commercialization and Privatization exercise undertaken by the affected enterprises since 1986 when the policy was first announced.
- developed, considered and approved programme of work to ensure completion of the work of the Committee within the life of the then Military Administration, and
- developed and published guideline on Privatization and Commercialization to enlighten the Nigerian citizenry on the importance of the programme and a separate set of guidelines for the affected enterprises.
In order to accelerate the implementation of the privatization and commercialization programme, the TCPC adopted a multiple approach as follows:
- The use of Sub-Committees comprising of knowledgeable individuals in the society selected on their personal merits to undertake diagnostic studies of affected enterprises, covering technical, financial, organizational and management aspects.
- Appointment of Technical Advisory Groups (TAGs) consisting of reputable financial institutions and teams of experts to undertake similar diagnostic studies.
- Appointment of Financial Advisers (FAs) usually Merchant Banks or Accounting Firms with cognate experience and reputation to prepare detailed briefs on capital restructuring of affected enterprises.
- Assignment of professional staff in the TCPC Secretariat to undertake diagnostic work on simple cases of privatization and commercialization and to prepare Information Memorandum for the consideration of the TCPC.
- Appointment of other professionals such as Issuing Houses, Estate Valuers and Legal Practitioners to deal with the different aspects of the programme implementation.
The Sub-Committee approach was used for most cases of commercialization and in a few cases of privatization, especially where the enterprise involved was of strategic importance, multi-faceted or not slimly organized. The approach enabled the TCPC to achieve the twin objectives of tapping the best human resources that Nigeria could offer and facilitating the widest participation of Nigerians in the implementation of the programme.
The TAG and FA’s approaches were used for most cases of privatisation, and a few cases of commercialization where the affected enterprises were very well organized, or slimly organized.
The rationale for the TAG and FA’s approach was manifold. First, it ensured timely execution of the privatisation exercise by vesting responsibility in capital restructuring of affected enterprises in Merchant Banks (Lead Consultants). Secondly, it reduced the work load of the TCPC by minimizing the co-ordination of the work of separate consultants. Thirdly, the approach helped to encourage the development of the financial consultancy services market in Nigeria.
In all cases, the TCPC developed guidelines to ensure uniformity and comprehensiveness in the Sub-Committees, the TAGs and the FAs. Once the assignments of the Sub-Committees, the TAGs and FAs were completed, the stage was set for the implementation of their various recommendations.
In the process, some 600 highly qualified Nigerians and over 200 professional advisers (Chartered Accountants, Solicitors, Estate Valuers, Engineers, Stock Brokers and Issuing Houses) were involved in the implementation of the programme in one way or the other. Indeed, the TCPC believes that no other programme in Nigeria had ever enjoyed broad based participation of highly qualified Nigerians like the programme. All the professional advisers and individuals were Nigerians, because as a deliberate policy, the TCPC decided that the programme should be used for training of local consultants.
Between 1989 and 1998, only 55 enterprises were sold using the following privatization strategies:
- Public Offer for Sale of Shares
- Private Placement
- Sale of Assets
- Management Buy–Out (MBO)
- Deferred Public Offer
The programme was a huge success even though it focused on only the competitive sectors of the economy. Commercialization was also undertaken but it was not quite successful given the lack of political will to implement the salient features of the programme.
Between 1994 and 1998, the programme went through a great lull. The then military administration attempted to lease or contract out the management of PEs instead of privatisation.
PROGRAMME IMPLEMENTATION UNDER THE BUREAU OF PUBLIC ENTERPRISES (BPE)
The current privatization programme was reinvigorated in 1999 with the promulgation of the Public Enterprises (Privatization and Commercialization) Act No. 38 of 1999, which established the National Council on Privatization with the BPE as its Secretariat.
The Public Enterprises (Privatization and Commercialization) Act No. 38 of 1999 provides the enabling legislation for the implementation of the privatization and commercialization programme. Part 1 of the First Schedule to the Act listed the PEs for partial privatization while Part 2 listed the PEs for full privatization. Part 1 of the Second Schedule of the Act listed the PEs for partial commercialization, while Part 2 listed the PEs for full commercialization. PEs for full commercialization are those PEs that are expected to operate profitably on a commercial basis, and raise funds from the capital market without FGN guarantee. Such PEs are to adopt private sector procedures and processes in running their businesses. In order to ensure effective coordination and proper implementation of the programme, the enabling act also provides for the establishment of the following institutions/bodies:
THE NATIONAL COUNCIL ON PRIVATIZATION (NCP)
The NCP, which is chaired by the Vice President, is the apex body charged with the overall responsibility of formulating and approving policies on Privatization and Commercialization. It is equally the approving authority for all the actions and activities of the Bureau.
COUNCIL’S AUTHORITY TO AMEND OR ALTER THE SCHEDULES AND PROVISIONS OF THE ACT
Section 1 (3) of the Act provides that the NCP may, from time to time, by order published in the Gazette, alter, add, delete, or amend the provisions of the First Schedule to the Act.
Section 6 (3) of the Act provides that the NCP may, from time to time, by order published in the Gazette, amend the Second Schedule to this Act so as to alter the category to which any PE listed in the Schedule shall be classified.
Section 31 of the Act provides that the NCP may make regulations generally for the purpose of giving effect to the provisions of the Act.
THE BUREAU OF PUBLIC ENTERPRISES (BPE)
BPE is the Secretariat of the NCP and is charged with the overall responsibility of implementing the policies and decisions of Council.
STANDING COMMITTEES OF COUNCIL
- Technical Committee
- Policy and Monitoring Committee
- Finance Committee
- Publicity Committee
- Legal Committee, and
Each of these Committees is chaired by a sitting member of Council.
In its strictest sense, privatisation means the transfer of both ownership and management of an enterprise into private hands. However, in broader terms privatisation has taken many forms involving either transfer of ownership (which naturally results in change of management) or management. Whatever option is chosen, the key objectives include:
- Reduce/Eliminate Government’s financial obligations to public enterprises
- Maximize investors’ incentives to invest
The Privatization Act gives the National Council on Privatisation sufficient flexibility in deciding the appropriate method/strategy to be adopted in privatizing each enterprise. However, in choosing the strategy for each enterprise, the following are always taken into consideration:
- Government Policy
- Opportunities and Constraints, and
- Nature and operational state of the enterprise
The programme is therefore wide, dynamic and whichever strategy adopted is superior to the hitherto prevailing situation whereby government owned, managed and controlled the PEs. However, in considering the strategy to be adopted, priority is always given to the most economically and socially efficient option in order to maximize the benefits accruable to the government, the citizens as well as the economy as a whole.
The following strategies have been consistently used in the privatization exercise, particularly since 1999:
- Competitive Asset Sale
- Core Investor Sale (of minority or majority equity stake)
- Guided Liquidation (including as a going concern)
- Private Placement
- Sale to existing shareholders, and
- Share floatation/Public offers
- Willing Buyer, Willing Seller
PRIORITY SECTORS IN THE NIGERIAN PRIVATIZATION PROGRAMME
The priority sectors in the privatization programme are the commanding heights of the economy, particularly Telecommunications, Power, Oil and Gas, Transportation, Industries and Services.
PHASES OF THE PROGRAMME
The programme was designed and divided into the following Phases:
This consisted of Banks, Oil Marketing and Cement Companies. This phase was executed through a combination of initial public offers and/or core investors’ sale strategies to give a larger chunk of the Nigerian investing public the opportunity to own shares in the enterprises.
This phase consisted of Hotels, Vehicle Assembly Plants, Fertilizer, Sugar, Paper, Steel, Media and Insurance companies. This phase was executed through a competitive asset sale, guided liquidation or core investors’ sale strategies, depending on the peculiarity of each enterprise.
This phase consists of Telecommunications, Aviation, Downstream Oil and Gas, Power and the Postal sectors. It is the current phase of the programme.
BPE REFORM ACTIVITIES AND ECONOMIC LIBERALISATION
In 1999, Nigeria began a process of accelerated reform of the key sectors of the economy to align with its changing status from a military government to an emerging democracy. This was in the realization that political democracy without attendant economic democratization would not yield the desired growth. Accordingly, Council through the BPE, was charged by the Federal Government not only to privatize public enterprises, but also to carry out sector reforms and liberalization of key economic sectors especially the extensive infrastructure sector. This was in realization of the fact that infrastructure services are critical inputs in the provisions of goods and services and significantly affect the productivity, cost and competitiveness of any economy. Consequently, policy decisions regarding their provision and sector development have ramifications throughout the economy.
Traditionally, the reform and liberalization of any economy involves several major steps, some of which include:
- formulating new policy;
- establishing a new legal and regulatory framework;
- structural changes to the sector and the institutional operatives
One of the major obstacles that Council met when it commenced implementation of its mandate was the near absence of well-articulated policies in the key sectors of the economy. Consequently in 2000, Council established the following steering committees:
- Oil and Gas Sector Implementation Committee Telecommunications Sector Reform Implementation Committee
- Transport Sector Implementation Committee
- Aviation Sector Reform Implementation Committee
- Electric Power Sector Implementation Committee
- Agriculture and Water Resources Implementation Committee
- Hospitality/Tourism Implementation Committee
- Industry/Manufacturing Sector Implementation Committee
- Insurance Sector Reform Implementation Committee
- Basic Metals Sector Implementation Committee
- Solid Minerals Sector Implementation Committee
The broad mandate of these committees included:
- Formulation of sector policies to promote competition, efficiency and transparency in the sector;
- Formulation of proposals for the attraction of private financing and investment in the sector;
- Overseeing the activities of the various government agencies, parastatals, and operators in the sector;
- Formulation of proposals for the restructuring and liberalization of the sector;
- Protection of the rights and interests of service providers and consumers; and
- Recommend the legal and regulatory framework
The work of these committees and the implementation of the privatization programme by the Bureau further revealed that there were several cross cutting issues in all the sectors that needed to be addressed. Major amongst them was the collapse of the pension system in the country which was compounded by the inadequate legislation on pension. It also became glaring that to properly manage fiscal reforms, the absence of a proper mechanism for managing cross debts was a major hindrance. In addition, a liberalized economy would require legislation on competition. In Nigeria, no such legislation existed, which meant that there existed a clear potential for unfair trade practices with full liberalization of the economy. Accordingly, the NCP also set up the following committees:
- Steering Committee on Pension Reform
- Steering Committee on Determination and Resolution of Cross Debts
- Steering Committee on Competition and Anti-trust Reform
All the Committees set up by the Council worked in accordance with their mandates and produced reports for Government. The Secretariat also collaborated with all stakeholders – the ministries, organized labour members of the National Assembly and the private sector in carrying out the reforms.