As we approach the final stages of the campaign for the presidential elections, I am compelled to write this article in the hope that it captures the attention of some or all the aspirants, other politicians and decision makers in the next administration. The article is neither partisan, nor intended to favour one political party above the others.
I have seen a few manifestos where 1 or 2 aspirants have made privatisation a central plank of their economic strategy. Privatisation is not a bad thing in itself, but it must be executed at the right place and the right time. Let us look at some of the advantages of privatisation, which are:
– To generate income for the treasury;
– To enhance prosperity and foster enterprise democracy;
– To enable the government to discard liabilities and loss making ventures, thereby saving costs for the treasury;
– To improve cost-effectiveness and efficiency of a business / firm;
– Improvement in services for customers, making them more accessible and joined up;
– To reduce the impact of organisational fragmentation and minimise the impact of any perverse incentives that result from it; and
– In some cases, to facilitate capital injection into the business.
As attractive as these are, privatisation of state assets is not what Nigeria needs now and should not feature in the priority list of any credible economic strategy. For starters, what proportion of Nigerians will prioritise shareholding above job security, shelter and providing for their families at this point in time? Privatisation at this point can only benefit a tiny minority, who we cannot even be sure have the nation’s interests at heart. Asset stripping comes to my mind straightaway when I hear or read about privatisation in the Nigerian context. Examples elsewhere suggest that the new owners will simply carve up the business, focus on the viable aspects of it and discard the liabilities. The end result being that the Nigerian customers will end up being short-changed and customer service will be worse than before.
To understand this better, one needs to fully appreciate the intricacies of private finance initiatives. It may come as a surprise to hear that hardly any shrewd businessman or woman uses their own capital for any business endeavour, including the acquisition of shares in a company. All of them, without exception, and in an attempt to evade bankruptcy against their personal assets, go to lenders, who in turn carry out their due diligence by undertaking a viability assessment. In the UK, most banks and lending institutions require at least 30% profit margin as a safety net on top of capital repayment and interest.
The reason why I am elaborating this is to provide an understanding of the main drivers of privatisation – greed and profiteering. So if in error you mistakenly believe that the injection of private capital into a failing parastatal is the way forward, think again. Those who acquire shares and their lenders only have one thing on their mind – efficiency savings, which in turn leads to excessive profit, increase in share value and handsome returns on their investment. To hell with efficiency and improvement in service delivery to customers. In truth, privatisation at the wrong time and under the wrong circumstances actually worsen customer service and entrench the sharp divide between the rich on one hand and the impoverished, the dispossessed and the marginalised in the society on the other.
There are several examples of where privatisation has gone wrong. British Rail is a very good case in point. The delivery of train services by several franchises is far worse now than at anytime in history, so much so that some people are now openly advocating the re-nationalisation of the rail industry. Who is willing to hedge a bet that this won’t happen the way things are going?
The centrepiece of Nigeria’s economic strategy has to be INFRASTRUCTURE PROVISION in transport system, power supply and information & communication technology (ICT). Where is housing, health and education provisions you may ask? My conviction is that, although they are not less important, their efficient and effective delivery hinge upon adequate transport system (housing), adequate power supply and ICT for health and education facilities. If we are being honest, there is no Nigerian institution with enough gravitas to fund mega infrastructure projects. Therefore, the sources of funding have to be from either the IMF, The World Bank, from government bonds issues, from private capital & direct investment or a combination of all of them.
Whatever side of the political divide you belong, and unless you are disingenuous, you will agree that the present government has made great strides in infrastructure provision and enhance the nation’s infrastructure base. Notwithstanding, this is nowhere near enough. A country like ours, which has experienced several decades of neglect ought to have at least 80% of its gross budgetary allocation for capital expenditure dedicated, ring fenced and committed to infrastructure provision and improvement if we are to be taken seriously. Investors will not flock to these shores, as long as the basic infrastructure is moribund and belong to the 20th century.
I know of some business opportunities that have been squandered and I myself have been a victim of such unfortunate circumstance. My backers and I were about to enter into a joint venture with a university to build a 75-bed hostel within their campus. This, we later discovered would require us bearing the costs of new access road and an electricity sub-station (transformer as they’re referred to in Nigeria). The cost is so exorbitant that it effectively killed the deal. Such infrastructure are readily available and taken for granted in other countries. I am sure that mine is not the only sad episode as countless others are out there who have been frustrated and taken their business elsewhere. I certainly consider it as a blessing in disguise. It wasn’t meant to be.
I do not need to extol the benefits of adequate infrastructure provision. Aside from easing the burden of doing business, they galvanise all other sectors of the economy into action and create thousands of new jobs directly and indirectly.
Infrastructure funding cost does not need to be borne by the government alone. Housebuilding is one of the most lucrative ventures in Nigeria. Housebuilders themselves are acutely aware of the added value of adequate infrastructure provisions to land values and house prices and I suspect that many of them won’t mind giving a slice of this uplift in value if at the end of it things are better. In this respect, the government should introduce a Residential Infrastructure Levy (RIL), which will be payments made on completion of construction into a ring fenced treasury account solely for the enhancement and provision of infrastructure. If it is expedient and provided it does not undermine viability, a business equivalent could be established and called Non-Residential Infrastructure Levy (NRIL).
Another aspect that the incoming administration needs to focus on is the creation of a new environment for enterprise to flourish. By this I mean – easing the burden of business set up and eliminating bureaucracy and corruption. In the UK for example, you can register a business and open a business bank account in one day. To this end, it is suggested that the government of the day set up a National Enterprise Promotion Council (NEPC) tasked with facilitating business start-ups. NEPC will have representatives in key financial hotspots of the world – Europe, USA, Middle East, Far East etc. They will hold regular exhibitions at home and abroad to drive inward investment and their mantra would be NIGERIA IS OPEN FOR BUSINESS. If necessary, tax holidays can be dangled in front of potential investors and the provisions in the Indigenisation legislation that requires Nigerian indigenes’ ownership of a certain proportion of business enterprise can be waived in respect of foreign investment unconnected to the exploitation of our natural resources. This need not be a permanent measure.
Finally, any government must endeavour to tackle the elephant in the room – corruption with everything at its disposal. Corruption is the single most important inhibitor to attracting inward investment to Nigeria. Many world leaders and officials from reputable international lending institutions have consistently highlighted this. Well- meaning and patriotic Nigerians know that there is some truth in this and should not be offended. Instead, the incoming administration should take up the challenge and confront it with a patriotic zeal. I personally consider the eradication of corruption and the injustice arising from and associated with it as the greatest challenge of our time.
Thank you for your time in reading this.
Duyile, a Certified Built Environment professional, writes from the UK