To sell or not to sell government’s assets

Recession is now the buzzword in Nigeria; even children understand that things are no longer the same. To this end, the Federal lawmakers, Thursday, resolved to invite President Muhammadu Buhari to come address a joint session of the National Assembly, on how he plans to take the country out of the current economic downturn.

With Gross Domestic Product (GDP) at -2.06 percent and very weak currency, experts have told Buhari that he must spend his way out of the recession. But where is the money? While previous governments were known for their spending spree, there is hardly enough in the government’s coffers to complement Buhari’s austere style, with external reserves down to $25.45b, as at August end, and crude oil Nigeria’s main foreign exchange earner struggling to find stability within the $40/barrel price band.

As if the backward growth is not bad enough, inflation rate is at all time high above 17 per cent, and interest rate at 14 per cent coupled with the fact that the monetary and fiscal authorities – the Central Bank of Nigeria (CBN) and the Ministry of Finance differ on how to improve the economy.

Finding Money At All Cost
Notwithstanding the disconnect the within economic system, the Federal Government is left with the task of looking for ways and means to find money to exit recession. The easiest alternative being suggested appears to be to sell off public assets.

While it was arguably easy for the previous governments to sell the very weak purchasing power occasioned by galloping inflation and naira devaluation, which the CBN calls currency adjustment, makes it very challenging for ordinary Nigerians to raise funds to purchase such assets if government eventually decided to sell.

The Senate last Thursday, called for a re-strategising, to boost confidence in the economy and attract fresh investments. A lot of arguments have gone back and forth on the wisdom to sell off government assets, most of the discourse have centred on the success or otherwise of previous divestment by government. At best, many of these assets were plunged into worst situations than they were at the point of disposal.

But the CBN Governor, Godwin Emefiele, wetted the appetite in 2015, when he declared that government could rake in up to $50billion, now about $20billion, if it sold its equity in the Nigerian National Petroleum
Corporation (NNPC) and Nigeria LNG Limited (NLNG) alone, not to mention the other assets.

Rationale For Sale
It was the quest for social-economic development that led to the establishment of public enterprises, some of which were subsequently privatized due to poor management.

Regrettably, the vision for setting up such enterprises was dashed, as their operations were brazenly characterised by inefficiency, massive corruption, ineptitude, nepotism and gross mismanagement, leading to the collapse of some of these enterprises.

It became obvious that it was time to let go, especially as it became globally accepted that government has no business in building enterprises, but should devote efforts to creating environment suitable for a private sector-led enterprise development.

The Senate leadership made recommendations for the Federal Government to sell its stakes in the NLNG, as well as, in the upstream oil joint venture (JV) operations; in financial institutions like the Africa Finance Corporation; and the privatisation and concession of major airports and refineries. The National Arts theatre, the National Stadium and the Race Course, Nigeria Railway and others.

The President of the Dangote Group, Aliko Dangote, Africa’s richest man, argued that it was the way to go. Also, the Emir of Kano, Mohammed Sanusi II, joined others to canvass the wisdom to sell.

Experts on the other side of the divide, who spoke with The Guardian, are not so convinced. In fact one of the lawmakers asked: “If we sell off all the assets today in the name of recession, if we experience another recession in say 10 or 15 years, what will we sell then?” This group fears that desperation could make government dispose of the assets at giveaway prices, as well as, the not having the right attitude to deploy the proceeds from the sales.

To underscore their fears, Nigeria spent between 1973 and 1995 about $100b to establish some public enterprises, but more than a decade after; their privatisation could only raise meagre $1.6b gross earnings, which appear that the nation had been pillaged.

Appraising Past Sales
Apart from the telecommunications sector, which has yielded significant dividends, other public enterprises are still struggling. Among them are; Aluminium Smelter Company of Nigeria (ALSCON), Ajaokuta Steel Complex, Delta Steel Company, Nigeria Reinsurance Corporation, Daily Times, Electricity Metre Company of Nigeria, Peugeot Automobile of Nigeria (PAN), Federal Super-phosphates Fertilizer Company Limited, Nigerian Sugar Company, Zuma Steel Rolling Mill and the Nigerian

Iron Ore Mining Company.
The Katsina Rolling Mill is not doing optimally, while the Delta Steel Company is operating at around 10 per cent of its capacity.

Speaking with The Guardian on the wisdom to sell, the Dean, Faculty of Administration, Obafemi Awolowo University, Ile-Ife, Osun State, Prof.Taiwo Asaolu, believed that the unbundling the NNPC is long overdue, while he wants government to be focused on providing quality policy, infrastructure and social amenities.

He said providing the enabling business environment and support for private sector operations to crash prices is key, while calling for the amendment of the Privatisation and Commercialisation Act of 1999. He said: “The Privatisation and Commercialisation Act of 1999 should urgently be amended, to give the National Assembly requisite power to oversee, review, approve, vet, veto and monitor all major issues touching and relating to the privatisation, sale, concessioning and transfer of public enterprises and public assets in the country.”

Also speaking, the Director, Transaction Advisory Services, Ernst & Young, Damilola Aloba, is all for assets to be sold. According to him, government, through the NNPC owns between 55 per cent and 60 per cent equity in the JVs with International Oil Companies (IOCs), which are jointly funded. We equally know that the NNPC in recent years has been unable to meet its cash calls for the JV operations. As a result, he said selling the stakes in the JVs would no doubt generate significant revenues that can be utilised for infrastructure development and properly accounted for, while government stay focused on collecting taxes
(such as Petroleum Profit Tax).

He argued that privatisation is expected to engender efficient services and quality products and not necessarily to create monopolies.

“We know that governments are more focused on fulfilling political goals, than pursuing economic or business objectives. If there is anything government must do now, it is to review its assets portfolio and commence a privatisation exercise. This is what we need now as a nation, because it is a well-known fact that the private sector will better manage these assets.

“In addition, privatisation will attract foreign investors and Foreign Direct Investment (FDIs) into the country. This process must commence immediately, as we cannot continue to depend on oil revenues,” he added.

While noting that the unbundling of the NNPC will take a little longer time up to three years to produce results, he insists that it must be done, as “there is really no time left, especially going by the performance of the economy. Government, he said needs to act fast, all the various stakeholders need to be managed effectively and carried along.

On his part, a Senior Lecturer and Former Head of Departments, Political Science and International Relations, Covenant University, Dr. Moses Duruji, argued that since public utilities had failed in Nigeria, concessioning such utilities for efficiency would not be a bad idea.

“The airports have failed, the roads have collapsed and even the railway has been comatose. The NNPC should be unbundled and privatised, by removing public bureaucracy, so that the successor company in which government may retain some degree of equity can be managed like the PetroBras of Brazil and Petronas of Malaysia, competing in both downstream and upstream sectors.”

“So, I will say yes, government should sell equities in high stake ventures; to get the necessary funds to inject into the economy and enable the country move towards the path of recovery. If the general consensus among analysts that shortage of funds arising from the fall in crude oil price is responsible for plunging the country into recession, then any move to increase the available funds in the hands of government would be a welcome development. Assets in the oil and gas, transport, aviation should be considered,” he maintained.

But he insisted that the process must be transparent, warning that the assets should not be sold to government cronies or friends without the financial and managerial competence, as was the case in the past.

Also, he urged that there must be well laid down plan on how to utilize the money. “Nepotism, quota system and federal character are some of the factors that make it difficult for government to manage these enterprises profitably. Most of them were run aground; cases in point include the Nigerian National Shipping Line (NNSL) and the Nigerian Airways,” he said.

He listed the benefits of selling government’s assets to include generation of the needed revenues, higher profitability, and creation of more jobs, which will put money in the pockets of workers, increased revenue from taxes. It will also shrink the avenues for official corruption and embezzlement, as well as, government patronage.

Whatever the narrative for or against, the ultimate decision to sell or not lies in government. It takes courage to act at times like this.