Second in a series on Nigeria culled from the
Financial Times Survey, March 30, 2000
PRIVATISATION BY TONY HAWKINS
CORNERSTONE OF ECONOMIC REFORM
The quality and cost of power, transport and
telecommunications are the main obstacles to
investment and growth
Privatisation is the cornerstone of economic and socio-political reform in
Nigeria. Without it, President Obasanjo’s ambitious reform agenda will
come to nothing.
For this all-important reason, the programme’s slow progress-it is now 18
months since the interim military head of state Abdulsalami Abubacar gave
the go ahead-while disappointing, need not be as serious a setback as it
might appear.
So far, only two relatively minor transactions worth some $35m, have been
completed. These involve the repurchase of controlling stakes in the
country’s two successful cement companies, West African Portland Cement and
Ashaka Cement by Britain’s Blue Circle Industries. In both cases, the
federal government has sold its shares to a core investor, and also through
the Nigerian Stock Exchange, to the investing public.
However, there is much more to privatisation in Nigeria than such
straightforward restructuring of ownership. In addition to this central
element, three other aspects of the programme is crucial. Privatisation is
a vehicle for reviving non-energy private investment in the economy,
especially, though not only, foreign direct and portfolio investment.
During the 1990s, political uncertainty and an erratic economic policy
regime notwithstanding, Nigeria attracted more foreign direct investment
(FDI) than any other African country, the bulk of which went into the oil
and gas sectors. The two cement privatisations and the sale of the
government’s shares in three downstream oil marketing companies will bring
in new FDI while also injecting new life into the stock market.
More importantly, they will infuse new life and direction into businesses
which, because the foreign shareholders did not have control, had tended to
drift. Ultimately, new money is less important than management and
technology.
Second, privatisation is all about sending signals to Nigerians and
foreigners alike, that the government is serious about rolling back the
frontiers of the state and ensuring greater transparency.
“Due process is essential,” says Atedo Peterside, founder and chief
executive of the country’s leading investment bank, IBTC. He contrasts the
measured due process of the bidding for oil marketing companies with the
hasty, now stalled, deal with US energy group Enron, to provide emergency
power supplies to the country, which was not part of a competitive bidding
process.
His criticism is shared for different reasons by Nasir el Rufai, who heads
Nigeria’s privatisation agency, the Bureau for Public Enterprises. He
argues that had the Enron deal gone through in its original form, it would
have put paid to the privatisation of Nigeria’s notoriously inefficient
electricity utility, NEPA, for 20 years.
The third element relates to the rehabilitation and expansion of Nigeria’s
ramshackle infrastructure. Arguably, the quality and cost of power,
transport and telecommunications are the main obstacles to investment and
growth.
There is just no way that the state will have either the funding or skills
and technology to establish first-world infrastructure in Nigeria. This
will have to be done by the private sector, leaving the government with the
key role of establishing efficient and effective supervisory and regulatory
authorities to ensure a level playing field in the power and telecoms
sectors.
Grandiose projections of fiscal impact of privatisation are played down by
Mr. El Rufai, who estimates that successive governments have invested some
$80bn in the parastatal sector.
“We will be lucky to get $20bn of that back,” he says, stressing that the
real objective is not the sale of assets for cash that could be used to
redeem debt or alleviate poverty, but the creation of a cost-effective and
efficient business environment.
The detailed programme launched last July, but subject to frequent revision-
earlier this month another 37 oil service companies were added to the
original list of more than 60 enterprises-is a three-phase affair. The
first and easiest phase is the full divestiture of the federal government’s
shares in 14 companies in cement, banking and oil marketing industries.
This should be completed by the third quarter of 2000, bringing in some
$200m.
Four consortia are bidding for the largest oil marketing company, National
Oil Co of Nigeria, 80 percent of whose shares are being sold. This
includes Shell’s 40 percent stake as well as the government’s 40 percent
holding. A strategic investor will buy up to 60 percent of the equity with
the balance being sold through the stock market. Mobil Nigeria and South
Africa’s Engen, controlled by Petronas of Malaysia, are the frontrunners.
BP is thought likely to buy African Petroleum, while a Nigerian consortium
in association with German interests is favoured to win the bid for
Unipetrol.
Phase two, starting later this year, will be much tougher. The government
has to try and sell its least attractive assets, mostly in the
manufacturing sector-three paper manufacturers, three sugar companies and
half a dozen vehicle assembly plants along with a number of hotels. Mr. El
Rufai says there are no accounts for most of these enterprises, which will
make due diligence a nightmare.
Nigeria’s large domestic market and the potential for using the country as
a platform to penetrate other markets within the Economic Community of West
African States (Ecowas) might attract some foreign players. But it is
difficult to be optimistic about prospects for the vehicle assembly plants.
If they are to be sold it will be for a song unless the government is
willing to offer market protection guarantees and other incentives that
would have far-reaching implications for industrial policy and tariff
protection for the economy as a whole.
The final phase-partial divestiture of the government’s stakes in the
utilities-is the key to sustained economic recovery. The timetable
envisages this task being completed within three years, which looks
optimistic given the magnitude of the task on the one hand and the
political cycle on the other. It may be, however, that by 2002
privatisation will have built up the necessary political momentum for the
timetable to be fulfilled.
sidi sanneh
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