BPE October 18, 2018

But why privatisation?

Experience worldwide has shown that public enterprises have failed to live up to expectations. They tend to consume a large proportion of national resources without discharging the responsibilities thrust upon them. More importantly, they fail to share out these resources efficiently. One only needs to review the level of coverage of the National Electricity Power Authority (NEPA) and its inefficiency in providing electricity balanced against what NEPA draws from the Federal Treasury for this point to be settled.  PEs consume about N200 billion of national resources annually, by way of grants, subsidies, import duty waivers, tax exemptions, and the like.

Data obtained from various government departments and estimates reveal that in 1998, Nigerian PEs enjoyed about N265 billion in transfers, subsidies and waivers, which could have been better invested in our education, health and other social sectors. Table 1 below shows the breakdown of these actual and shadow transfers:

TABLE 1 – TRANSFERS TO PARASTATALS AND AGENCIES (1998)

In the case of Nigeria, it is clear that we cannot afford to spend or subsidise a few PEs with resources equal to more than twice the nation’s capital expenditure budget. Furthermore, Nigerians have the right to expect government to direct scarce resources to attacking poverty through investment in health, education and rural development – social programme’s that will benefit millions of Nigerians, not just a few thousand urban elite that are employed by, or capture the subsidies granted to the public enterprises.

There are almost no public enterprises in Nigeria today that function well.  While they were created to lessen the shortcomings of the private sector and spearhead the development of Nigeria, many of them have smothered entrepreneurial development and fostered economic stagnation. NITEL, NEPA and the Nigerian National Petroleum Corporation (NNPC) are the best examples of these.  Public enterprises have served as platforms for patronage and the promotion of political objectives, and consequently suffer from operational interference by civil servants and political appointees.

Public enterprises have also contributed to income redistribution in favour of the rich over the poor, who generally lack the connections to obtain the jobs, contracts or the goods and services they are supposed to provide. The annual burden of over N200 billion that PEs impose on the economy has become untenable, unbearable and unsustainable.

PEs consumed nearly half of all the revenue made from the sale of crude oil since 1973.  Estimates of the Vision 2010 Committee indicate that Federal Government investments in PEs stood at over US$100 billion (N13.5 trillion) in 1996. The return on these investments averaged less than 0.5% per annum.  According to a TCPC Survey, public enterprises account for between 30% and 40% of fixed capital investments.

Various studies on the performance of PEs in Nigeria have been conducted.  Adebo (1969), Udoji (1973), Onosode (1981) and Al-Hakim (1984) chaired these commissions.  The findings of the studies were consistent in demonstrating that PEs are infested with problems such as:

• Abuse of monopoly powers;
• Defective capital structures resulting in heavy dependence on the treasury for funding;
• Bureaucratic bottlenecks;
• Mismanagement;
• Corruption; and

Unfortunately, it is extremely unlikely that the Government will ever recoup these investments. A mere sample of some sectors and estimated values of FGN investment is summarised in Table 2 below:

Table 2 – FGN investments in selected PEs

N/A – Not available

Source: Federal Ministry of Finance, Other Government Records

It is clear that the cumulative value of FGN investment by way of equity, loans and other transfers to the 62 enterprises is estimated at nearly US $70 billion – nearly a third of Nigeria’s total oil revenue since 1973.  As at December 2000, the total liabilities of 39 PEs were in excess of N1.1 trillion, with accumulated losses of N92.3 billion