What is Privatization?
Privatization is the process whereby the ownership, control and management of public enterprises are diverted from the government to private individuals. Privatization is closely linked to commercialization which is the process of managing or running a business primarily for financial gain. When the ownership of a public enterprise is diverted to an individual or group of individuals, these ones run it principally for profit. Privatization and commercialization is the transfer of government-owned industries or parastatals to the private sector.
The history of privatisation in Nigeria can be traced back to 1986 when the government made the first official statement on privatization. Then, the government decided to reduce its holdings in businesses such as hotels, food beverages, breweries, electronic industries, etc. Since then, privatization has been one of the cruxes of government activities in Nigeria.
There has been the privatization of many public enterprises such as in the power sector which was meant to divert the control of electricity generation and distribution from the government to private individuals. This was in a bid to ensure stability in the power sector through an adequate supply of electricity to the consumer at a reasonable cost. However, as seen with the power sector, privatization has not fully achieved all that it is meant to in Nigeria. This article writes on the problems of privatization and commercialization in Nigeria. Here, you will read on the challenges of privatization in Nigeria that have hindered its success.
Problems of Privatization and Commercialization in Nigeria
Corruption remains one of the biggest obstacles to progress in Nigeria, especially with privatization. It is because of corruption that privatization policies and laws are often discarded to suit the interest of a few individuals. Examples of corrupt practices in privatisation exercise include:
- When superior technical bids do not get the successful bid for a firm
- When selected core investors refuse to pay fully for a public enterprise after they had been earlier certified as technically and financially competent.
- When companies with small asset turnover are approved of handling larger public agencies which are obviously bigger than their capacities.
- When financial records of privatized firms are not regularly audited or even when audited, are not coherent.
- Audits are not done physically for transparency’s sake but in data rooms of the BPE (Bureaucracy of Public Enterprise). This allows for manipulations and distortions.
- Government corporations and landed assets are recorded as those of subsidiaries.
- When asset acquisition agreements are not straight forward. Many public enterprises such as the Oshogbo, Jos and Katsina steel rolling mills were sold at ridiculously cheap amounts to organizations that lacked the capacity to run them. These steel rolling mills are non-functional today.
Lack of Human Capacity Building
There is a need for increased human capacity development with the agencies that carry out the implementation of privatization policies. Privatization processes are better implemented by experienced and trained personnel. There have often been reports of how the staff of the BPE (Bureaucracy of Public Enterprise) has not handled contracts and purchase agreements well. Human Capacity building will involve regular training seminars, cross border training exercises, etc.
Lack of Human Capacity Development among private companies
Most companies that acquire public enterprises do not have the capacity in terms of human development, knowledge and skills to run the enterprise successfully. What is more, many of these private organizations will prefer not to invest in training their personals. This then leads to the failure of the enterprise under their watch.
Non-agreement of Labour unions
Many people lose their jobs during privatization process. Apart from the various implications; psychologically and socially on those who lose their jobs, there is also an increase in number of unemployed, all as a result of privatization, this is why labour unions are usually opposed to the sales of the major enterprises. Also, after privatization, those who have lost their jobs are usually left to fend for themselves, with no support from the government. The Social Safety Net scheme usually ends up on paper and is not actualized. Until the government and BPE design and implement the Social Safety Net Scheme effectively, labour problem will not be solved and labour groups will always be opposed to Privatization in spite of its benefits.
The inability of the privatization programme to attract foreign investors
It is rather unfortunate that the privatization programme in Nigeria is unable to attract credible foreign investors. This can be traced to the lack of political and economic stability in Nigeria. Nigeria’s business environment and economic policies are not conducive enough to attract foreign investors. This is because investors are not assured that their investment is the secure or smooth operation of the business.
Lack of Financial and Technical competence of core investors
It has been noticed that often times, core investors involved in privatization process in Nigeria, lack financial standing and technical competence. Let us take for example, the case of NITEL where Investor International (London) Limited (IILL) was the core investor. The IILL was able to pay only the mandatory deposits of $131.7 million out of $1.317 billion. There is a need for the BPE and NCP (National Council on Privatization) to properly examine the companies that win the bids for privatization for their technical, financial and administrative competence.
Undervaluation of some assets
Other implementation problems of the privatization programme in Nigeria include the undervaluation of some assets. Bureau of Public Enterprises (BPE) and the National Council on Privatization (NCP) should put a strong mechanism in place to ensure to make sure that public enterprises slated for privatization are not undervalued. External investigators and auditors should be called to determine the values of the assets.
Absence of market competition
Privatization should also come with deregulation where more firms are allowed to enter the market. This will help increase the competitiveness of the market. It is only through an increase in competition that there can be improvements in inefficiency.
Lack of a reliable regulatory body
The lack of a regulatory body to serve as checks and balances to private individuals and companies after they have bought public enterprises has added up to the failure of the privatization process in Nigeria. Many wealthy and influential personalities know they can do and get away with irregularities and so they do not deliver on their promise in running the enterprise successfully.