By 
In the first five years of this decade, 37 sub-Saharan African countries together raised more than $ 11 billion through privatization programs. While most of this corpus was obtained in low-value transactions in competitive sectors, the figure places the region alongside Europe and Latin America in global privatization trends. While Africa, Ghana and Zambia are among the top contributors, Nigeria takes the undisputed lead. Africa’s third-largest economy contributed more than 70% of the $ 975 million generated between 2004 and 2005, most of it through a single deal that involved the divestment of a major port operation.
Across Africa, privatization had become the guiding principle for countries trying to develop dynamic private sectors and expand their economies. However, countries continue to face tough challenges in terms of disappointing social indicators, poor infrastructure, and huge productivity deficits. Essentially, the continent’s integration into the world economy has been hampered by extreme poverty, especially in western regions, where it continues to vitiate attempts at sustainable development.
Nigeria has managed to lead the group in an aggressive privatization in Africa based on the understanding that it is the only relevant and economically viable means towards rapid and inclusive growth. Since the return of civilian rule at the end of the last century, Nigeria has also prioritized poverty alleviation on the basis of robust macroeconomic policy interventions. The axis of its effort has been to curb state spending and participation in direct economic production, the mobilization of resources and the promotion of local and foreign investment. However, given its overwhelming dependence on oil exports and the severe mismanagement that marked successive decades of military rule, Nigeria is facing a dizzying rise.
While its intention to reform the economy has never been questioned, Nigeria’s track record in handling privatization deals has been fairly verified. The broad parameters of his initiative were built on past successes in other parts of the world, from the UK to Russia, and from Europe to the US and Asia. Nigeria’s formal introduction to the concept came with the Privatization and Marketing Decree of 1988, an initiative mandated by the IMF-funded Structural Adjustment Program. In 1999, the Bureau of Public Enterprises (BSE) was established by enactment of the federal government to prepare and implement the government’s privatization policies. Embarrassingly, several of the early privatization deals ended in fiasco.
The government of former President Obasanjo sold two refineries to a private consortium, but the sale was later canceled by the government of the late President UM Yar’Adua on allegations of wrongdoing. Subsequent efforts to privatize the refineries have had to come to a halt due to political loopholes. The divestment of Nigerian public sector telecommunications monopoly NITEL ended in disaster when the company suffered huge losses and failed debt obligations, forcing the government to retake control earlier this year. The now-defunct national airline, Nigerian Airways, also did not take off despite several marketing attempts. In addition to indicating ineptness in policy and implementation, these cases, more importantly, serve to highlight the widespread failure of large companies in Nigeria.
In the US, small businesses with fewer than 500 employees account for 99.9% of the nation’s 24 million businesses. SMEs in the European Union together provide 65 million jobs or two-thirds of all employment, while 90% of all Latin American companies are microenterprises. Closer to home in Kenya, 2003 figures reveal that SMEs contributed 18% of the national GDP. Considering the global trends of the last decades, the arguments in favor of SMEs versus large companies are simply overwhelming. Rapid business development in an atmosphere conducive to private sector growth is the only way Nigeria can hope to achieve its MDG commitments or indigenous Vision 2020 targets.
The benefits from privatization are too crucial for Nigeria to ignore in the context of its long-term growth plans:
• Depending on prudent implementation, privatization can help strengthen capital markets by expanding local ownership by reserving shares for citizens.
• Many governments have succeeded in reducing national debt by raising funds through divestment and related instruments, curbing the need for subsidies and tax concessions.
• Privatization generates healthy competition that helps expand markets, establishes best practices, and improves production and service standards.
• The World Bank research confirms a substantial improvement in performance in private companies with the elimination of the administrative restrictions typical of the operation of the public sector.
• Developing countries such as India and Brazil, with a strong commitment to free markets, have succeeded in acquiring massive foreign investment through the privatization of public sector monopolies.
Foreign direct investment in Africa jumped from less than $ 1 billion in 1995 to $ 6.3 billion in 2000. Although this is a healthy increase, the flow of investment into Nigeria and the rest of sub-Saharan Africa remains restricted due to local restrictions. The region lacks competitive markets and consistent regulatory frameworks that provide the right environment for privatization. Given its past experiences, it is imperative for Nigeria to formulate effective public sector reforms before going ahead with any further sale of public assets. Furthermore, such action should be undertaken as part of a larger effort to promote economic efficiency.
Privatization of public services and large public sector infrastructure tends to pose even more difficult challenges. Nigerian legislators should be particularly concerned about strengthening the institutional mechanisms that regulate market operations. This involves strengthening administrative and legal systems, building the capacities of implementing agencies, and reducing corruption and political interference. The failed divestment of Nigeria’s flagship port, RORO in Lagos, is a good example when it comes to demonstrating the pitfalls of the privatization process in this corner of the world.
The three separate facilities at the port of Lagos that handle an estimated 180,000 tonnes of cargo annually were under private operation for several years. The owners showed a huge salary expense to explain the dismal earnings averaging just over $ 40,000 a year, forcing the Nigerian Port Authority to resume control. In one year and without any additional investment, the profits rose again to more than a billion dollars.
Although scandalous, these incidents suggesting massive corruption have regularly marked Nigeria’s economic recovery. Some estimates go so far as to say that 70 Kobo of every Naira the federal government spends is absorbed by the very bureaucracy it was purporting to deliver. Whatever the direction of its privatization policies, governance in Nigeria needs as much radical reforms as its economy.