The Problem With Nigeria’s Privatisation

 

Godwin Owoh, executive chairman, Society for Analytical Economics, Nigeria

BY HELEN ENI

 

Since Nigeria embraced deregulation and began to divest from enterprises in the 1980s, various administrations have implemented the policy with varying degrees of success. For instance, between 1985 and 1993, Ibrahim Babangida, former military president, deregulated the electronic media and the telecoms sectors paving the way for private sector entry into the sectors hitherto the exclusive preserve of government. Olusegun Obasanjo, former president, also raised the bar with the gradual deregulation of the downstream oil sector and also privatised many state-owned enterprises before the end of his tenure in 2007. President Goodluck Jonathan has carried on the privatisation exercise, focussing on the power sector, which was initiated by Obasanjo. The exercise culminated in the recent unbundling of the Power Holding Company of Nigeria, PHCN, into 11 distribution companies, seven generation companies and a transmission company in what is said to be Africa’s largest privatisation transaction. Despite the many hiccups that have trailed the deregulation and privatisation process, many believe it is the best way to go for the country to achieve sustainable development. However, Godwin Owoh, an economic policy analyst, thinks otherwise. Owoh, who is the executive chairman, Society for Analytical Economics, Nigeria and president, Union Consulting International, an international training, consulting and macroeconomic research outfit with offices in the United Kingdom, UK, Kenya and Nigeria, says the privatisation process in the country has been fraught with fraud. He argues that what the country needs is efficiency in the running of government enterprises rather than sale to the private sector, which he insists exists only in name. He speaks on this and other issues with Helen Eni, deputy editor. Excerpts:

 

How would you access the privatisation of government enterprises, which is one of the elements of the Structural Adjustment Programme, SAP, of the 1980s?

Conceptually, structural reforms are things that are normal within every economic management system. The government needs to readjust the basic economic prices inflation rate, exchange rate, interest rate and then align them to the target growth rate for the economy. These prices are key indicators of how the economy is performing. So when there is some sub-optimal result, you need to readjust certain economic indicators or patterns like the fiscal policy, the tax regime, the monetary policy and the emphasis on the cost of governance vis-a-vis the expenditure, especially as it relates to the fiscal deficit to GDP ratio. So once you check all these things, there may be a need to say okay we need to liberalise trade or constrain trade, control capital flight and all that. So these are normal things that happen within an economy from time to time. Although SAP was introduced and ended in the military era, we are still taking some of its characteristics privatisation, deregulation, and all of that. These are the normal ingredients of trying to develop a competitive economy. But if you are privatising and you are not following the principles in practice, you will not achieve the desired result. If you look at the set buying up these government assets, they are almost, and in all cases not less than 95 per cent, driven by government, politicians, former this and that in government. There are no core private sector initiatives in this respect. So my direct interjection is that rather than use the word privatisation, we should use the word efficiency in government because all those money you are seeing coming in and out are still linked to government. A government functionary would loot government coffers and give the money to his friend who will then use it to buy a government enterprise as an investor. We are deceiving ourselves.

 

Are you then faulting the privatisation process?

What we should insist on is efficiency in government. Efficiency covers what you want to achieve in commercialisation and privatisation because if the government owns an establishment and the right persons are put there, the waste, corruption are thoroughly checked and punished, it will be productive and it will be working. Look at the case of PHCN (Power Holding Company of Nigeria). Why do you need Manitoba all the way from Canada to come in as management consultants when all the resources would be provided by the Nigerian government? Is it not ridiculous? Then you have ministers and all these top government functionaries who, rather than run the enterprises entrusted in their care, specialise in reading speeches at conferences and seminars. They spend half of their time in Europe, America, Dubai, etc. By the time they leave office, they would have scooped enough resources to establish private businesses here, Dubai, UK, USA, etc and they run them efficiently. So the problem is that we have accepted that government is a place where you will come and loot public funds. Once we say no to that, things will change. In China, all those productions you are seeing are owned by government and they are efficient.

 

Don’t you think your position on privatisation is against the global trend where businesses are being handed over to the private sector while government concentrates on policy issues and regulating the environment?

If you check countries where they are abandoning production, you will see that they are those that are corruption laden because there is no difference between the man in government and the one in the private sector. Have you pondered why they fail to run government companies well while in government but run theirs well as private sector people? I’ve just said that in developing countries, 96 per cent of whatever success you achieve is drawn from that aggregate pool called government and that policy issues, formulation and all that is not the problem. It is the actual empirical standard of those policies that is relevant to both the man in government and the man outside government. In developing countries like Nigeria, there is nothing like private sector, everybody is government dependent. If you are a private sector entrepreneur, you may not be able to pay the bills of your enterprise. But if you secure a big contract from government, you will be awash with resources and then view yourself as a private sector practitioner. Check the Dangote success story and all these big multinationals, their success are all linked to government support. So why not call a spade a spade. Let us adopt the model of private sector that our culture is long dictating, that is, government must do business, so that in government, you have those that are doing the policy, you have those that are doing the business, and we will now insist on efficiency. All these politicians, government functionaries, top civil servants, are contractors.

 

Are you saying that government should remain in business?

Excellently so because they are doing business through the back door; they should come through the front door, the open door. All those directors you see in the ministries and government agencies incorporate businesses to be doing business and contracts.

 

But experts maintain that business should not be in the hands of government.

Good! In an ideal environment where you have politicians and leaders who are actually out for welfarism, where they do not consider profit, where they live for the public, where they are not excessively interested in their own personal wealth maximisation, yes, because of their orientation as welfarists. In such an ideal environment, they would leave business for capitalist, those who are out to maximise profit. But that is exactly what the politicians are doing: they are maximising profit with policy, they are maximising profit with the laws they are making in the National Assembly, and they are maximising profit as ministers and all that. That is the truth. So because of that, there is need for a change of paradigm. The change of paradigm now in view of the circumstance is to admit that it is no more possible to separate politics from business. What is important is to do it within the clear context of transparency and openness. If Julius Berger, for instance, puts up an advert calling for suppliers, those that will get the job will be coming from government. So there is a direct fusion of business and government in Nigeria. If we want government to abstain from business, then it has to drop the resources because right now it is in control of the resources. If the budget is delayed or not approved in any year, everything is grounded. Once the budget is released then economic and business activities will start. Therefore government is the major driver of the economy.

 

So what role do you think the private sector should play if government controls the resources and does business?

We should say there is no private sector, there is no public sector, what we have is aggregate sector in the country. All these conglomerates and companies are government dependent. The private sector exists in name only. Government influences major decisions in that so-called private sector. If for instance you want to engage a managing director, you will have to put someone who is acceptable to them because if you put someone they disagree with they will simply withdraw their patronage and your business will crumble. It happens in the banking sector. The terminal endpoints of decisions they accept in most corporate entities are government driven.

 

Why do you think some people are critical of deregulation even when it is said to be the way to go for the country to achieve sustainable development?

Deregulation is a very nice thing but not deregulation for the purpose of diversion and alteration of the key objectives. SAP failed to achieve a key objective of reducing unproductive investments in the public sector and intensifying the growth potential of the private sector because of the excessive infiltration of personal wealth maximising instincts among the then Nigerian technocrats that worked with the military. They perhaps allowed too much of personal interests to influence the economic decisions, prescriptions, recommendations and the suggestions they made to the then military leaders. For instance if you say remove subsidy from agriculture, that is good in itself, but what happens to the money that comes out. Did you channel it to where it is supposed to go? Did the reduction in subsidy in agriculture lead to the reduction in the cost of administration of government? Did it remove the number of foreign travels that the then leaders did? Did it reduce the overseas holidays and those frivolous expenditures that went on in government and is still going on now? So these are critical questions because these factors are still prevalent today.

 

You are bringing in the issue of corruption.

Corruption is at the centre. And surprisingly the people have now accepted it as the norm. The danger in this country is that people in government who perhaps grew up in the private sector where costs and benefits were measured, where inputs were measured against output, when they get into government, the next thing they tell you is forget about efficiency. But these are the group of people controlling 94 per cent of the resources, which means being in government is a scooping process. We are made to understand that once you are in government, don’t expect efficiency and that is very wrong. In North Korea, for instance, every production is handled by government. Most successful airlines in the world are run by government. Ethiopian Airline is an example. There are state-owned airlines in South Africa and all over the world. These are government institutions. The truth is that the public sector must be efficient and less wasteful otherwise it becomes a cycle of strings of patronages that people just go, scoop up what they want to scoop as public sector people and then begin to enjoy what they have by running private sector empires after leaving government. If you tie that to what we are seeing now, you will see that there is no single entrepreneur in this country that is surviving outside government patronage. Why should that be? Where is the private sector if the concept of the private sector is simply public sector persons in public offices who enjoy their loot wearing private sector garment. That is the problem and that is why you see the trend of development, the trend of innovation, standards and ethical conducts going down from year to year. Take any index of good performance, what you had last year will definitely be better than this year; it is going down every day because the system is recycling itself and this is dangerous for us.

 

What kind of index are you referring to because the economy of the country is still said to be growing at a healthy rate?

How has this growth impacted on the socio-economic life of the people, in education, manufacturing, security, services, etc.? Is it creating jobs? No. When you relate this growth to the current human happiness report 2013, which defines the aggregate of how the household have been affected by all the economic programmes of the country, you will understand my position. Nigeria was so badly rated. Nigeria is number five in Africa with Ghana as number six. If you look at that report, you will observe that the country that came first in Africa is Angola and it is 61st in the world. Mauritius is second in Africa, 67th in the world; Algeria is third, 73rd in the world; Libya is fourth, 78th in the world. Nigeria is fifth and 82nd in the world. If you look at the top five, you have Denmark, Norway, Switzerland, The Netherlands, and Sweden while the worst five are Togo, Benin, Central African Republic, Burundi and Rwanda. Among the best five countries in Africa, about three are oil-producing countries. Nigeria that is the largest or number one oil-producing country came fifth. Ghana that has just started producing oil last year is sixth, which means Nigeria is not doing well in economic performance. China came 93rd in the world and we are rushing to China. South Africa came 96th perhaps because of the emergent high level of corruption in that country. So this is the most recent aggregate summary of how countries are faring because when you talk of the happiness report, it is not just defined as the emotional meaning of happiness; it is an aggregate, evaluation of quality of life of the people of 156 countries in the world. It measures, the economic performance, the income of the household, the level of corruption, quality of education, etc everything that makes life complete. That is the report that has just been issued by the United Nations Sustainable Development Solution Network.

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