PRIVATISATION IN NIGERIA   Comments by Professor Anya O. Anya, Chief Executive, The Nigerian Economic Summit at the Netherlands Congress Center (NCC), The Hague as part of the Independence Day Celebration by The Nigerian Embassy at The Hague  All over the world, the public service as a matter of experience, has not been known for their capacity to create wealth. Consequently, public enterprises have usually been perceived as drain pipes for government budget, thus creating budgetary strains and avoidable burden on the economy.  It became a national policy imperative therefore to disengage the public sector from those areas where the private sector has the comparable advantage to perform, while letting the state concern itself with the provision of infrastructure, security and the enabling environment for business to thrive through enhanced wealth creation. It is important to observe that for many developing countries like Nigeria it was perhaps unavoidable for the government, in an earlier epoch, to promote the initial investments in the early phase of national development when the private sector was almost non-existent. Unfortunately the government got herself so involved in business that could best be tackled by the private sector, that government could no longer perform her traditional functions: the provision of infrastructure and security through the maintenance of law and order as well as the promotion of an enabling and conducive environment for investments and wealth creation.   Privatisation as a tool for economic management came to the front burner when Chile became the first country to turn public assets/businesses to private operators in the early 1970s.  Since then, over 140 countries (both developed and developing) have embraced privatisation as a route to economic growth and prosperity. While the details and strategies of the privatisation exercise may vary in each of these countries, the ultimate objective is to liberalise the economies through increasing private sector involvement and capacity utilisation. A critical aim is to free enterprises from control by rigid and bureaucratic structures, and make the management of such enterprises more flexible in their management and investment strategies.  In Venezuela, it is termed Capitalisation while Brazilians call it Flexibilisation.  In other countries such as Argentina, United Kingdom and Mexico where it has worked, different tags have been adopted but the aim and purpose have remained the same.  It is worth noting that over 120 countries have embraced the idea of privatisation.  In the process of privatisation, more investible capital have been injected into the various economies through local and foreign investors to the benefit of the country at large. In the process, funds that would have been committed to the maintenance of otherwise inefficient enterprises have been freed into more productive sectors of the economy.   In the case of Nigeria, the issue of mismanagement and under-utilisation which led to huge wastage of resources and manpower potentials gave the government of the day no other option but to pursue quickly the privatisation programme. There are about 600 public enterprises in Nigeria run by or controlled by the Federal Government. Many more are controlled by State Governments. These companies take a sizeable portion of the Federal Budget and account for over 5,000 appointments into their management and Board – a powerful source of political patronage.  Transfers to these enterprises ran into billions of naira.  These transfers were in form of subsidized foreign exchange, import duty waivers, tax exemptions and/or write-off of arrears, unremitted revenues, loans and guarantees and grants/subventions.  These companies were also infested with many problems which became an avoidable drag on the economy such as - abuse of monopoly power, defective capital structure, heavy dependence on treasury funding, rigid bureaucratic structures and bottlenecks, mismanagement, corruption and nepotism. With all these problems the government had no other option but to take a positive step.  In March 1988, the then Nigerian Head of State, Ibrahim Badamosi Babangida promulgated a decree establishing the Technical Committee on Privatisation and Commercialization (TCPC).  The committee was formally inaugurated in July 1988 to undertake the task of reform of public enterprises, as an integral and critical component of the Structural Adjustment Programme (SAP), which was started in 1986.  The reform as conceived has two interrelated components – Privatisation and Commercialisation. The overall objectives of the privatization exercise were:                       To improve on the operational efficiency and reliability of our public enterprises;                     To minimise their dependence on the national treasury for the funding of their operations;                     To roll back the frontiers of State Capitalism and emphasise private sector initiative as the engine of

growth;                     To encourage share ownership by Nigerian citizens in productive investments hitherto owned wholly

or partially by the Nigerian Government and, in the process, to broaden and deepen the Nigerian market.

  During the first phase of the exercise which spanned from July 1988 and June 1993, the following programmes were executed:                       36 enterprises were privatised through public offer of their shares;                     4 enterprises were privatised on Deferred Public Offer method;                     8 enterprises were privatised via Private Placement method;                     8 enterprises were privatised via Sale of Assets method;                     1 enterprise was privatised through Management Buy Out method (MBO).                     Sale of non-water assets of about 18 River Basin Development Authorities.   Under the Phase I programme, about 88 public enterprises were either fully or partially privatised.  These were enterprises in which the Nigerian Government invested jointly with foreign or private Nigerian investors.  With the exception of the Cement and the Oil Marketing companies, the capitalisation of most of them was small.  The huge capital-intensive and basic industries like the Fertiliser Companies, Sugar companies, Vehicle Assembly Plants, Paper and the Steel Mills which hold vital positions in the economy could not be privatised for various reasons ranging from financial insolvency to negative networth.  Finally, there was lack of clarity of Government’s policy on some critical issues associated with the Implementation of the programme.  The issues include:-  

-                     Whether to privatise as “is” or rehabilitate before privatisation. -                     To relieve the Enterprises’ managers of their duties before or after privatisation. -                     The type of regulatory framework that will be in place. -                     Whether the sales should be given to both foreigners and Nigerians. -                     The valuation methods to be used. -                     The role of foreign core investors in the ownership and management of the national economy. -                     Loss of jobs resulting from the privatisation. -                     Income inequality arising from the ownership of privatised assets. -                     Whether to deregulate before or after privatisation. -                     Utilization of the privatization proceeds -                     Whether Government should go ahead and own any ‘Golden Shares’ -                     The level of transparency in the programme

The exercise had an unqualified success.  Unlike other countries, the privatisation exercise in Nigeria was done by Nigerians for Nigerians without any foreign technical assistance. The programme succeeded in relieving the government of the huge and growing burden of financing public enterprises, minimised the overstretching of government’s managerial capacity through a redefinition of the role of the supervising ministries, created a large body of shareholders and deepened and broadened the Nigerian Capital Market to the position of being the most developed in black Africa.  The market capitalisation of the Nigerian Stock Exchange (NSE) through which the shares were sold has grown from N8.9 billion in 1987 (before privatisation) to N65.5 billion in 1994 (after the Phase-I) and currently stands at N428.9 billion as at the end of August 2000.  The catalytic effect of the volume of shares released into the market via the privatisation exercise cannot be over empahsised.   In summary, we can say that the Phase-I of the privatisation has given the Nigerian economy some benefits, like:  

i)   Performance of the privatised enterprises so far has led to a considerable increase in the volume of corporate taxes accruing to the national treasury.  Thus not only has the drain on public finances been halted, it has become a positive bonus, with subsidy soaking deficits – being replaced by tax-yielding profits.

  ii)  The sale of shares and assets realised over N3.7 billion as gross privatisation proceeds from the

privatisation of 55 enterprises whose total original investment according to the records of the Ministry of Financed Incorporated (MOFI) was N652 million.  This represents less than 2% of the total value of the Federal Government’s investments as at 30th November 1990 which stood at N36 billion.

  iii) The programme of privatisation has greatly minimised the scope of political patronage in the form of

Board appointments and jobs for the boys.  Under the Phase-I of the programme, the Federal

Government relinquished about 280 Directorship positions in the privatised enterprises.  The operational autonomy enjoyed by these enterprises has put a stop to their use as dumping grounds for political appointees at management and board levels.

  iv) Privatisation has massively expanded personal share ownership in Nigeria.  Over 800,000 shareholders

were created, almost twice as many as there were in 1988 when the exercise started.  The programme has also intensified the operations of the Capital Market, created new awareness in the virtues of shareholding as a form of savings rather than an elitist pastime, which it was thought to be. This is a good development which enhances capital formation and economic growth.

  v)  By reducing the reliance of public enterprises on the government for finance, the programme of

privatisation has encouraged new investments in the enterprises concerned.  The cold hands of Treasury Control have been replaced by the warm hands of the Capital Market which are as stimulating as they are invisible.  Many of them have discovered that it is easier to raise funds through the capital market than it is to do so from the treasury, once the necessary investor confidence has been developed.

  vi) The new operational autonomy of these enterprises and their liberation from political interference in day

to day management has improved the internal efficiency of these enterprises allowing them to liberalise their purchasing as well as rationalise labour practices. This has increased massively their profitability.  The negative perception of public enterprises in the minds of the general public as nobody’s business has also changed.

  vii) Flotation of shares of privatised enterprises have greatly stimulated the rapid growth of the Nigerian

Capital Market and helped to deepen and broaden it.  As stated earlier, market capitalisation has grown from N8.9 billion in 1987 to over 65 .5 billion by 1994 and N428.9 billion as at August 2000.

  viii) Privatisation has allowed the management of privatised enterprises full freedom to realise their

optimum potentials. This has led to more productive employment and economic growth in general terms.

  The Technical Committee on Privatisation and Commercialisation wound up her activities and submitted a report to the President on June 05, 1993.  The TCPC  also transformed to the Bureau for Public Enterprises (BPE).  The Bureau was to monitor the performance of the enterprise privatised in the past exercise and plan for the future phases. Because of the success of the past exercise, the military government under General Abdulsalam Abubakar promulgated the Public Enterprises (Privatisation and Commercialisation) Decree No. 28 in early 1999 (before the hand-over to a democratically elected government).  The Decree kicked off the Phase II of the privatisation exercise under the Bureau for Public Enterprises (BPE).  The Decree allows BPE to alter, add, delete or amend the provisions in the document in the best interest of the country.  Initially sixty-one (61) enterprises were slated for privatisation (36 partial and 25 full privatisation) but because of the new powers granted BPE, it has increased the list by 37 extra enterprises (some of which were originally meant for commercialisation).  Some of the big government companies being privatised now include National Insurance Corporation of Nigeria (NICON), Nigerian Re-insurance Corporation, Nigerdock Plc, National Aviation Handling Company (NAHCO), Nigeria Railways Corporation (NRC), Nigerian Ports Authority (NPA), Nigerian Postal Services (NIPOST) and Savannah Sugar Company.  This is an indication of the enhanced interest in and success that privatisation has achieved in Nigeria.  In December 1999, the democratically elected government of President Olusegun Obasanjo picked interest in the privatisation exercise and gave it a boost by establishing the National Council on Privatisation (NCP) with the Vice-President, Alhaji Atiku Abubakar, as its Chairman.  The Council is empowered among other things to determine the political, economic and social objectives of the Privatization and Commercialization programme, approve guidelines and criteria for valuation of public enterprises marked out for privatisation - including choice of strategic investors - identification of enterprises to be privatised or commercialised, and approve the prices for shares or assets of the public enterprise to be offered for sale.   

The privatisation exercise is seemingly slow as a result of the desire of the government to ensure maximum transparency in the process as well as introduce measures that will sensitise the people to participate massively. Overall, this second phase should help the government raise funds to:

-       narrow down the budget deficit; -       payback public debt; -       avoid new borrowings; -       restructure other enterprises; -       support social sectors as education, health, power and rural development.

  Since December 1999, about 9 enterprises more have been privatised, adding 2.5 billion shares to the capital market while the Federal government realised a revenue of N35.6 billion from the sales. The programme as envisaged in the near term are as summarised in the attached table *. Privatisation is geared to transform the Nigerian economy. Given the size of the population (120 million) and the potential market which includes the West African sub-region, the scope for foreign investment is enormous. Given the relative transparency and technical competence that has characterised the on-going programme, the attractions of the Nigerian economy for foreign investors could prove irresistible.   For the medium term it is possible to envision the emergence of Nigeria as one of the attractive depots for foreign investment given the present Governments’ determination to create the necessary enabling environment to attract investors through the privatisation programme, the direct fight against corruption and the other sources of hidden costs for operators in the economy, and the stated commitment to make the private sector the engine of growth as a strategic option. Given the efforts to address social flash-points such as the Niger Delta, there is a basis for cautious optimism that the Nigerian economy may yet, despite incipient worries, become the first African Leopard.   

Table 1.     Nigeria: Privatization Action Plan                                                                                   Completion                                                                                                                                              

Electric Power Sector Reform

           Retain the services of an expert to develop a national energy policy.                                                May 2000          Complete draft policy document.                                                                                                              June

2000          Appoint Legal/Regulatory adviser.                                                                                                          June

2000          Submit new Electricity Law and Regulatory Framework Law to the National Assembly                 Dec. 2000          Restructure the national electricity power company (NEPA) with a view to creating self               June 2001

standing companies for power generation and distribution for privatisation thereafter.              

Emergency Power Projects            To address the immediate need for a reliable source of power for industrial users in Lagos         May 2000

and other key urban centers, the government has initiated an emergency power program with the support of the World Bank, to attract on a build-operate-own basis, independent power producers to supply electricity to the national grid. The NEPA will be able to offer local industries a guaranteed supply of power at a premium rate based on cost-plus pricing, while residential and other consumers will continue to be provided with less reliable electricity supply, but at a subsidized rate.

         On completion of the new legal and regulatory framework for the sector, several independent      July 2000  power producers will be expected to compete along side unbundled NEPA in an active electricity market in which the tariff schedule is liberalized.  

Telecommunication Sector            Bring policy on telecommunication up to international standards.                                                               June

2000          Submit a draft telecommunication law and a draft policy framework for the sector.                                   Dec.

2000          Complete the reform of the legal and regulatory framework.                               

Nov. 2000          Strengthen the telecommunication regulatory authority (NCC).                                                                   

Ongoing          Retain the services of a privatisation adviser for the privatisation of the national                                     Dec.

2000               telecommunication companies (NITEL/M-TEL) and bring them to the point of sale.   Petroleum Sector Reform            Complete management audit.                  

June 2000                         Adopt an action plan for the full deregulation of the petroleum sector.                                                   Jan.

2001          Bring the refineries to the point of sale.                                                                                                         Oct.

2001 Reform in Other Sectors            Issue a call for competitive bids for the privatisation of the fertilizer factories                                       June

2000             (NAFCON/FSFC).                                    

         Complete the ongoing sale of government shares in banks, cement companies, and oil                      June 2000        marketing firms already listed on the Nigerian Stock Exchange.          Complete the divestiture of government holdings in hotels.                                                                     Dec.

2000          Issue calls for competitive bids for Nigerian Airways with assistance from the IFC.                            March

2001          Technical review of the options available regarding the privatisation of the Ajaokuta Steel              Sept. 2000

Complex, understanding with Fund staff on steps to be taken.                                      No further capital injections into the Ajaokuta Steel Complex.                               Break up NEPA into a number of companies that will be responsible for power generation,          transmission and distribution with World Bank Technical Assistance.  

Source: IMF/Nigeria stand-by arrangement, August 2000

  Privatization of Public Enterprises in Nigeria: The Views and Counterviews

By May Ifeoma Nwoye, Ph.D., Nigerian Institute of Management, Nigeria

The issue of privatization has been a subject of intense global debate in recent years. In Africa, it has remained highly controversial and politically risky. Privatization in Nigeria has not been a popular reform. It has received so much criticism from labor, academia, and individuals. There have been numerous strikes against proposed sell-offs by unions fearing loss of jobs. While proponents of privatization see that aspect of economic reform as an instrument of efficient resource management for rapid economic development and poverty reduction, the critics argue that privatization inflicts damage on the poor through loss of employment, reduction in income, and reduced access to basic social services or increases in prices. Whatever are the views of the two parties, the only group that has no voice in the matter is the poor. The author is of the view that privatization is not inherently good or bad, but the poor performance or effectiveness depends on implementation (Nightingale and Pindus, 1997).

This paper draws extensively from the empirical research by the author, Management Practices and Performance Determinants of Public and Private Sector Enterprises in Anambra, Edo and Delta States of Nigeria: A Factor Analysis (Nwoye, 1997). Comparing the effectiveness of public versus private service delivery, the analysis shows no clear evidence that private service delivery is inherently more effective or less effective than public service delivery but rather that each sector has its own strengths and weaknesses. 

The paper provides a general overview of the extent, effect, and consequences of privatization of public enterprises in Nigeria in terms of opinions held within various schools of thought. The paper is not intended in any way to be a panacea in the treatment of the overall subject of privatization; rather, it is a review of support or apprehension specifically relating to the issues of employment, income, social services, and economic welfare including prices.

Conceptual Issues

 

The concept of privatization in recent times evokes sharp political reactions from many angles. Privatization can be defined as the transfer of ownership and control of enterprise from the state to the private sector. Various groups have also defined it differently. The Privatization and Commercialization Act of 1988 and the Bureau of Public Enterprises Act of 1993 defined privatization as the relinquishment of part or all of the equity and other interests held by the Federal Government or any of its agencies, in enterprises whether wholly or partly owned by the Federal Government. But, however privatization is defined, it transfers ownership of production and control of enterprises from the public to the private sector. It is an ideological concept.

Justification for Establishment of Public Enterprises

Many reasons have been adduced as the justification for creating public enterprises. Following are six important ones:

The first of these, especially in the context of developing countries such as Nigeria, is the development emphasis. In many developing countries, the resources available to the private sector are not adequate for the provision of certain goods and services. For example, the investments required in the construction of a hydroelectricity-generating plant or a water scheme for a large urban center are quite enormous and the returns on such investments will take a very long time to realize.

Secondly, political considerations influence governmental involvement in the provision of certain social and economic services. In many African countries, development is closely associated with the provision of social services; consequently, the performance of the government, in many of these countries, is evaluated on the basis of its ability to provide different types of public services in areas where such services do not exist.

The third reason for governmental intervention in the provision and management of goods and services in many parts of the world is the fact that no person should be permanently deprived of the access to such facilities because of lack of finances or by reason of geographical location.

A fourth reason relates to the need to protect the consumer, which may not be of interest to the private sector. For example, government intervenes in the provision of education in many countries to protect children, who are not capable of making important decisions for themselves, by making education up to a certain age compulsory and free.

The fifth reason for governmental intervention in the provision of certain goods and services relates to the indivisibility that characterizes such services. Some facilities, such as bridges, tunnels, roads, streetlights, and waste disposal facilities, cannot be divided or partially provided. Either streetlights are provided for the benefit of everybody in the community or they are not. Facilities of this type must therefore be provided publicly and financed through taxation.

The sixth reason for governmental intervention is the consciousness of the national security. Certain facilities, like the National Ports Authority and the police, are too vital to be left at the mercy of private citizens.

The evolution of public sector enterprises often takes one of two forms. First, they could evolve from local calls or responses to an ad-hoc economic crisis, a specific shortage, flagrant abuse of monopoly or oligopoly powers by private producers, economic bottlenecks and scarcities, apparent market failures in resource allocation, etc. It is economic crises that create socioeconomic conditions that justify public

intervention. Alternatively, the evolution can take the process of a carefully planned body of ideas involving the issues of management, financial control, and/or pricing. In most situations, the primary interests of the society such as “welfarism” [1] are predetermined and postulated. These two processes have characterized the evolution of public sector enterprises in Nigeria, which dates back to the precolonial era. 

A Brief Historical Perspective on Development of Public Enterprises in Nigeria

The private sector was the traditional structure of the world’s economies. The Nigerian economy is largely private-sector based. The public sector emerged in Nigeria as a result of the need to harness rationally the scarce resources to produce goods and services for economic improvement, as well as for promotion of the welfare of the citizens. The involvement of the public sector in Nigeria became significant during the period after independence.

The railways were probably the first major example of public sector enterprises in Nigeria. At first, conceived mainly in terms of colonial strategic and administrative needs, they quickly acquired the dimension of a welcomed economic utility for transporting the goods of international commerce, like cocoa, groundnut, and palm kernels. Given the structural nature of the colonial private ownership and control of the railways in the metropolitan countries, it would hardly be expected that the Nigerian Railways Corporation could have been started as any other project than as a public sector enterprise for such mass transportation.

The colonial administration was the nucleus of necessary economic and social infrastructural facilities that private enterprise could not provide. Facilities included railways, roads, bridges, electricity, ports and harbors, waterworks, and telecommunication. Social services like education and health were still substantially left in the related hands of the Christian Mission. But even at this initial stage government itself moved positively into some of the direct productive sectors of the economy: the stone quarry at Aro, the colliery at Udi, and the saw mill and furniture factory at Ijora. Those were the early stages.  

The emergence of the crude oil industry into the Nigerian economy, after the civil war in the 1970s, with the associated boom intensified governmental involvement in production and in control of the Nigerian economy. One major aim of government at that time was to convert as much as possible of the growing oil revenue into social, physical, and economic infrastructural investments. The Nigerian Enterprises Promotion Decree of 1972, which took effect on 1 April, 1974, with its subsequent amendment in 1976, provided a concrete basis for government’s extensive participation in the ownership and management of enterprises. Given these developments, public enterprises at the federal level had exceeded 100 in number by 1985; and these had spread over agriculture, energy, mining, banking, insurance, manufacturing, transport, commerce, and other service activities. Before long, the range of Nigerian public enterprises had stretched from farm organizations to manufacturing, from municipal transport to mining, from housing to multipurpose power, and from trading to banking and insurance. At the state and local governmental levels, the range of activities that had attracted public sector investment also had become quite large. Thus, a variety of enterprises - with public interest in terms of majority equity participation or fully-owned by state and local government as well as other governmental entities - became visible in various parts of Nigeria. Between 1975 and 1995, it was estimated that the Federal Government of Nigeria had invested more than $100 billion in public enterprises.

Problems of the Economy in the 1980s

The 1980s witnessed steady economic deterioration and seemingly faulty economic policies. At the beginning of the 1980s, the country had entered difficult times. Scarcity of foreign exchange had set in. By the mid-1980s, reality had dawned on the nation’s economy. Retrenchment of workers was rampant in both private and public sectors. There were inflation, very high levels of unemployment affecting both skilled and unskilled workers, and low levels of plant capacity utilization. The origin of the socioeconomic difficulties was generally traced to the global economic recession which opened with the decade of the 1980s. Earlier, these socioeconomic problems had forced the Federal Government, under President Shehu Shagari, to embark on an economic stabilization program (Aboyade, 1974).

The problems of performance of the public sector enterprises in Nigeria were further complicated by the downturn in socioeconomic development in the country due to the global economic recession and the collapse of the oil market. Thus, Nigeria’s precarious fiscal and monetary posture could no longer sustain the requirements of its public sector enterprises, particularly since they performed below expectations in terms of their returns on investments and quality of services. Towards the end of 1980s, the public enterprises, which had grown too large, began to suffer from fundamental problems of defective capital structures, excessive bureaucratic control and intervention, inappropriate technologies, gross incompetence, and blatant corruption. With the deep internal crises that included high rates of inflation and unemployment, external debt obligations, and foreign exchange misalignment, Nigeria and many other African countries were strongly advised by the worldwide lending agencies, particularly IMF and the World Bank, to divest their public enterprises as one of the conditions for economic assistance. With the intensified push for economic liberalization, Nigerian and other African leaders were told that privatization as an economic reform would help cut public sector inefficiency and waste, provide greater scope to the private sector, attract more investments, bring in new technologies, and hence revive economic growth. Thus many countries, including Nigeria, embarked on privatization and other market oriented reforms to pull them out of the structural imbalances (Nwoye, 1997).

It is against this background that the Structural Adjustment Programmes (SAP) proposed a kind of reform which would affect the goals, administration, and management of most of the public sector enterprises for purposes of efficiency (Federal Republic of Nigeria, 1986). One of the main objectives of SAP was, therefore, to pursue deregulation and privatization leading to removal of subsidies, reduction in wage expenses, and retrenchment in the public sector ostensibly to trim the state down to size.

Under the reformation scheme, public sector enterprises were expected to be classified into three broad categories:

1. fully privatized or partially privatized,

2. fully commercialized or partially commercialized, or

3. retained as public sector institutions.

Whereas SAP has shown the broad categories under which the public sector enterprises can be grouped, it

has failed to actually classify the existing enterprises into specific categories. 

Privatization in Nigeria

Privatization in Nigeria was formally introduced by the Privatization and Commercialization Act of 1988, which later set up the Technical Committee on Privatization and Commercialization (TCPC) chaired by Dr. Hamza Zayyad with a mandate to privatize 111 public enterprises and commercialize 34 others. In 1993, having privatized 88 out of the 111 enterprises listed in the decree, the TCPC concluded its assignment and submitted a final report. Based on the recommendation of the TCPC, the Federal Military Government promulgated the Bureau for Public Enterprises Act of 1993, which repealed the 1988 Act and set up the Bureau for Public Enterprises (BPE) to implement the privatization program in Nigeria. In 1999, the Federal Government enacted the Public Enterprise (Privatization and Commercialization) Act, which created the National Council on Privatization chaired by the Vice President, Alhaji Atiku Abubakar. The functions of the council include:

making policies on privatization and commercialization; determining the modalities for privatization and advising the government accordingly; determining the timing of privatization for particular enterprises; approving the prices for shares and the appointment of privatization advisers; ensuring that commercialized public enterprises are managed in accordance with sound commercial

principles and prudent financial practices; and interfacing between the public enterprises and the supervising ministries in order to ensure effective

monitoring and safeguarding of the managerial autonomy of the public enterprises.

The 1999 Act also established the Bureau of Public Enterprises (BPE) as the secretariat of the National Council on Privatization. The functions of the bureau include among others to do the following:

implement the council’s policies on privatization and commercialization; prepare public enterprises approved by the council for privatization and commercialization; advise the council on capital restructuring needs of enterprises to be privatized; ensure financial discipline and accountability of commercialized enterprises; make recommendations to the council in the appointment of consultants, advisers, investment

bankers, issuing houses, stockbrokers, solicitors, trustees, accountants, and other professionals required for the purpose of either privatization or commercialization; and

ensure the success of privatization and commercialization implementation through monitoring and evaluation.

The subsequent exercise brought with it controversies that are still raging on. Western countries, and in particular IMF and the World Bank, have been blamed for forcing the privatization of public services and natural resources in Africa as a condition for development assistance (Nwoye, 1995). They are accused of telling impoverished countries to turn their public services over to private owners and to sell off their oil, gas, mining, electric, telecommunication, transport, and water companies, which are also said to be conditions for debt relief. Many African countries are neck deep in debt and begging for debt forgiveness. It is said that Nigeria has a debt burden of $32.3 billion, where servicing is estimated to gulp as much as

$2.91 billion in 2003. 

Bias against Privatization

Given the fact that the initial impetus for privatization in Africa came from creditor institutions, especially the IMF and the World Bank, as part of the push for structural adjustment, many believed that there must be a hidden agenda in the form of economic exploitation. It is principally the conditionality that was attached to privatization vis-à-vis debt relief and financial assistance that provoked resentment from the public view, especially labor, which views privatization as creditors’ initiative. As in some of the other African countries, resentment is intensified because a good number of the larger enterprises being privatized are bought over by foreign interests.

Several of the arguments against privatization are as follows:

Rising Prices - Opponents fear that the private sector will exploit consumers where there is monopoly or oligopoly power such as by raising the prices of goods.

Creating Poverty - At the heart of the criticism of privatization is the perception that it has not been fair - hurting the poor and the vulnerable work force, while benefiting the rich, the powerful, and the privileged - thereby perpetrating poverty.

Breaking of Unions - Workers dismissed as a result of privatization have great difficulty finding other work; the large number of people out of jobs is forced to accept jobs with lower pay, less security, and fewer benefits. They, therefore, believe that the aims of privatization are to reduce labor costs and numbers, and to break union power.

Corruption - There is this argument that even if privatization contributes to improved efficiency and financial performance, it has a negative effect on the distribution of wealth perhaps arising from corruption. Corruption is the single most destructive factor responsible for the pitiable state of affairs in many developing countries. It distorts the economy through waste and misallocation of resources and creates need for external assistance. Transparency International has for a long time decried the evil consequences of corruption and has identified acute corruption in many developing countries. For example, in 1997 [2] , its Annual Corruption Index rated Nigeria as the most corrupt country on earth, followed by Pakistan and Kenya. By 1998, the index moved and Cameroon displaced Nigeria as number one. [3] Some misguided Nigerians have argued thus “…after all, corruption is everywhere, including industrialized countries.” It is true that corruption is a worldwide phenomenon, and so are industrial development and technological advancement. Why is it then that when industrialized countries are pushing for technological invention, African countries are busy expanding only the frontiers of corruption and poverty-prone ventures?

Public Enterprises Should Stay - There is this strong belief that privatization is not necessary. Public enterprises need not run at a loss; all they require is good managers, less political interference, competent boards of directors, and especially more rational pricing policies.

Injustice - There is an assertion that it is the politicians and bureaucrats that caused the public enterprises to perform poorly but only labor is asked to carry the burden of reform. Critics view this as injustice.

Exploitation by Capitalist Countries - Privatization is seen as an imposition by foreign capitalists and agencies like the IMF and the World Bank; therefore, privatization must be meant to exploit the developing countries.

Privatization Is Foreign - Some critics have argued that privatization is neo-colonialism since the policy is being pushed by International Monetary Fund, World Bank, and their agencies. It is not an indigenous idea; therefore, it will not work.

Labor’s Demands for Job Protection -Right from the onset, the most publicly persistent and organized opposition of privatization in Nigeria has come from the labor movement. There always have been strikes and counterstrikes against any decision to privatize a government agency. Sometimes workers have succeeded in blocking or slowing down the privatization of specific enterprises. In other cases the government simply has brushed aside the labor opposition leaving a legacy of anger and political tension. What is obvious is that workers are reacting against threatened jobs or the possibility that benefits might be jeopardized under new management.

Perhaps it may be likely that it is the continued pressure from World Bank to get the reform process moving and to keep it on track that causes some of these humanitarian issues somehow to be brushed aside. These indictments are not a rarity. The fears about privatization are not only Nigerian-made apprehensions. Worldwide, proponents of labor have been the most vigorous and persistent. Critics of privatization are consistently portraying its negative effects on income distribution and worker welfare. Not enough is yet known empirically about the impact of privatization in Nigeria to form definitive judgments; the current statements on the issue still lie between propositions and conclusions.

Objectives of Privatization

It is possible that some of these popular and critical perceptions and assertions about privatization are accurate. There is no doubt that mistakes have been made in the past and that promises have not been kept, for instance the incidence of interference from political office holders. However, it may turn out to be a mistake to judge privatization from a limited perspective. The set of objectives privatization programs are meant to achieve is broad and involved; it has many fundamental components that can act together for the enhancement of microeconomic efficiency. There are, indeed, some critical long run objectives to be achieved through privatization including the following:

increasing productive efficiency; strengthening the role of the private sector in the economy, which will guarantee employment and

higher capacity utilization; improving the financial health of public services with savings from suspended subsidies; freeing more resources for allocation to other needy areas of governmental activities (for example,

finances that would have been applied for subsidies should now be channeled to the development of rural communities); and

reducing corruption because interference by politicians will cease.

Invariably, a privatization program ought to be judged and assessed by the extent to which the stated objectives have been met. Furthermore privatization could take a slow but steady developmental speed.

Agenda for a Successful Privatization Exercise

Capturing the Confidence of Labor

Government should endeavor to win over labor’s acceptance of privatization by giving them ownership of

shares in the enterprises. Workers could be allocated a percentage of the shareholding at a special discounted price.

There is need for good follow up on privatized enterprises. There is need to keep a record of accurate figures on pre- and post-privatization employment levels including statistics to show whether employment is declining or increasing to calm the fear of labor unions. Other statistics should include how much of capable and qualified labor will be absorbed by the buyers, etc.

Addendum

Labor on the other hand must also realize that many of the jobs also might have been lost anyway by retrenchment, since government could not keep subsidizing crises-ridden public enterprises indefinitely; the only exercise that could be guaranteed is constant layoff. Other than privatization, any serious attempt to address the deficiencies and losses of public sector enterprises must necessarily involve downsizing.

Inclusion of Labor

Interaction with the unions as stakeholders is often a good strategy. One of the major mistakes that is common in privatization in Africa is taking the workers for granted. When the unions are not involved in the organized process, it may be difficult to gain their cooperation. The stakeholders must be sensitized to the impending constraints that privatization is likely to bring about, especially in the short run.

Monitoring of Privatization Processes

Some countries have created strong semi-autonomous privatization commissions with participation from government, business, and other sectors. Nigeria can create such a commission consisting of governmental representative(s) - possibly the BPE, labor union representative(s), and representatives of Chambers of Commerce - to be involved in the monitoring and implementation processes.

Transparency and Accountability

One of the most important issues in privatization is the concern for transparency and accountability. The Nigerian nation is characterized by distrust and suspicion. Suspicions of corruption that follow privatization deals require that separate auditing and House of Assembly Oversight Committees be established to help in the monitoring process. Transparency creates a perception of honesty and accountability. The funds realized from sale of public enterprises can be invested in tangible public interests like services of education and health. Some developing countries apply their proceeds towards debt repayments. It is my considered opinion that money realized from sale of public enterprises and saved through withdrawal of subsidies should be invested in the hinterland for provision of infrastructure. This will not only enhance development, but also will check the drift of rural-urban migration, especially among the youth, since the cities are getting overpopulated while the rural areas are quickly deteriorating.

Consistency and Credibility

I learned sometime ago that consistency plus credibility equals economic confidence. There is no doubt

that the public always desires an unbroken record of credibility to win their confidence in any structural reform program. The key to credibility is consistency and communication. Whenever government lacks credibility, people refuse to change, until the confrontation that ensues imposes unavoidable cost on the warring parties at the expense of the economy.

Ideological Imperatives

It is quite instructive to note that successful structural reform cannot be recorded unless:

1.       the government trusts, respects, and, most importantly, informs the public adequately, every step of the way, as to why certain actions are being taken

2.       privatization is done properly with no special concessions or privileges when selling public enterprises; and

3.       the creditor countries consider Nigeria’s specific circumstances while mounting pressure on the speed of the privatization exercise because ours is a low-income country characterized by poverty.

The Bottom Line

The concluding point is that if privatization is carried out with sincerity of purpose, almost every group will come out ahead as a result of divestiture. Workers will be shareholders. Consumers will be better off because of better services. New graduates and the unemployed will get jobs because of expansion. Government will be relieved of the burden of subsidies. Investors will gain investment opportunities. Ultimately, the public (both foreigners and nationals) will be free to pursue any private economic interest.

Given the enormity of the socioeconomic problems facing Nigeria, there is every reason to worry about the state of our plans and actions. The issues involved, from development of infrastructure through production of vegetables, all have serious ramifications, not only for the public sector but also for the economy as a whole.

Bibliography

Aboyade, O. [1974]: "Nigerian Public Enterprises as an Organizational Dilemma" in Public Enterprises in Nigeria. Proceedings of the 1973 Annual Conference of the Nigerian Economic Society.

Federal Republic of Nigeria [1986]: Structural Adjustment Programme for Nigeria. Lagos: Federal Government Printers.

Nightingale, S.M; Pindus, M.N. [1997]: Privatization of Public Social Service: A Background Paper. Unpublished.

Nwoye, M.I. [1995]: Small Business Enterprise: How to Start and Succeed. Benin: Benin Social Science Series for Africa.

Nwoye, M.I. [1997]: Management Practices and Performance Determinants of Public and Private Sector Enterprises in Anambra, Edo and Delta States of Nigeria: A Factor Analysis.

National Productivity Centre, [1991]: Productivity for Self-Reliance and Excellence.

Proceedings of the 1st National Productivity Day Celebration, 21 February 1991, Lagos.

Obadan, M.I. [1993]: Wither Structural Adjustment in Nigeria. Ibadan: NCEMA Monograph Series No. 3.

Transparency International, “Transparency International publishes 1997 Corruption Percpetion Index”, Press Release, Berlin 31 July 1997

Yahaya, S. [1991]: "The Performance of Public Enterprises in an International Context: An Empirical Study" in Public Enterprises in Nigeria. The Nigerian Economic Society Annual Conference, Sokoto.

World Bank [1994a]: Adjustment in Africa: Reforms, Results and the Road Ahead. Washington, DC: The World Bank.

World Bank [1994b]: World Development Report, 1994: Infrastructure for Development. Washington, DC: The World Bank.

About the author:

May Ifeoma Nwoye, Ph.D., (Nigeria), obtained her BBA (Accounting) from George Washington University, USA, MBPA (Finance) from SouthEastern University, Wasington DC, and Ph.D (Management), University of Benin, Nigeria. She is Certified National Accountant of Nigeria (CNA), and a member, Nigerian Institute of Management. She is a Nigerian female writer. Her doctoral dissertation research was related to the Public and Private sector enterprises in Nigeria. She is the author of a number of books and many scholarly articles on entrepreneurship and management in many local and international journals. E-mail : maynwoye@yahoo.com 

[1] ‘Welfarism” - the set of attitudes and policies characterizing or tending toward the establishment of a welfare state (note of the editor).

[2] Transparency International, “Transparency International publishes 1997 Corruption Percpetion Index”, Press Release, Berlin 31 July 1997, p. 2. Available at:http://www.transparency.org/cpi/1997/cpi1997.pdf (added by the editor)

[3] See: http://www.transparency.org/cpi/1998/cpi1998.html (added by the editor)

 

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The impact of the privatization of public sector enterprises on labour relations and conditions of work and employment

in the air and land (rail) transport sector

Dr. Susana Corradetti

 

Symposium on the Social and Labour Consequences of Technological Developments, Deregulation and Privatization of Transport

Discussion Paper No. 2

Geneva, 1999

Discussion papers are preliminary documents circulated to stimulate discussion and critical comment

INTERNATIONAL LABOUR OFFICE GENEVA

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Foreword

The present paper is derived from a broader study of this topic which is being prepared by the author in collaboration with Dr. Ricardo Foglia and Dr. Carlos Alfonso Tomada.

Geneva, July 1999.

Contents

Foreword

1. Brief review of the situation before privatization 2. Legal instruments effecting the change of management of state enterprises 3. Review of changes in conditions of work and employment in public enterprises in the

transport sector based on an analysis of the relevant agreements 4. How the trade unions have reacted to changes in standards and practice resulting from the

privatization of airlines and railway enterprises

Annex. Principal variables considered for the purpose of describing changes in labour relations in the public enterprises

1. Brief review of the situation before privatization

The legislative changes which opened the way to the privatization of state enterprises took place at a time of high levels of foreign debt, domestic inflation, investments mostly concentrated in the financial sector and falling exports. They followed a political decision -- agreed upon with the opposition immediately before the handover of power -- to send a clear signal to the markets and the international financial institutions regarding the right course to take in the interests of good governance. This decision was supported by large sections of the population which, encouraged by media campaigns, felt that the efficiency of the public services would greatly improve if they were transferred to the private sector. In addition, the umbrella trade union organization adopted a position of broad support for the new authorities.

This was the background to the economic emergency and reform laws that were enacted and which defined the guidelines and models for transforming the State and changing state policy as a service provider. This far-reaching process was initiated partly in response to immediate economic demands; it was marked by a certain haste and, especially in the transport sector, by the lack of any clear policy or goals for the enterprises being privatized. One might say, then, that the requirements and conditions for transferring ownership were determined by the laws and regulations as they evolved.

The Government's stated objectives in pursuing privatization included the following:

breaking up monopolies; promoting investment; reducing public expenditure; ensuring continuity of service; improving efficiency.

2. Legal instruments effecting the change of management of state enterprises

In addition to the general principles it sets out, the State Reform Act (Ley de Reforma del Estado) authorizes a series of initiatives in specified state enterprises. These initiatives include the following:

deregulation; privatization; decentralization; award of concessions and licences.

Deregulation, as the name implies, means freeing certain sectors (e.g. the ports sector) from regulations both with regard to the provision of the service, charges levied, etc., and with regard to conditions of work and employment.

Privatization is the process of transferring to the private sector certain state-owned enterprises of potentially high profitability.

Concessions or licences are generally accompanied by state subsidies and used in cases where an enterprise has low profit potential or where transfer of assets is not possible (for example the land on which the railway network was built).

Decentralization means handing over responsibility for the maintenance of particular services to provincial and municipal authorities.

For the purpose of this paper, land (rail) transport can be said to have involved a range of initiatives (privatization, concessions and decentralization), while in the case of air transport only privatization was used.

3. Review of changes in conditions of work and employment in public enterprises in the transport sector based on an analysis of the relevant agreements

Before considering matters such as daily working hours, organization of work, contractual categories, wage and salary structure, leave, responses to technological change, management methods and forms of participation, it is necessary to consider a number of specific issues of particular relevance to the air transport sector which determine the scope for change in existing agreements:

(a) The trade union structure in the air transport sector is based on six unions which are represented ex officio; these were originally company unions but expanded as activities grew and diversified. The unions represent the following groups:

(1) administrative, cleaning, repairs, passenger handling and catering staff on the ground; (2) aircraft maintenance ground staff and technicians -- the union which is closest to the traditional "industrial" unions; (3) supervisory and managerial staff on the ground, including department chiefs and even junior managers (in spite of their aspiration in the past to represent management); (4) flight engineers, who have seen their role diminish as their function has been "designed out" of modern aircraft; (5) cabin staff, who attend to passengers during flights; (6) pilots and co-pilots, who fly the aircraft and are the highest authority on board.

(b) transport enterprises had to take into account a somewhat unusual feature of one category of posts. Pilots, flight engineers and cabin staff were not merely covered by the general minimum conditions of employment applicable in the public sector under the Labour Contracts Act; they were also covered by provisions originally enacted for the Argentine Air Force concerning flight safety, which impose limits on operating hours and rest breaks on board aircraft and on the ground, depending on the type of aircraft. These provisions have been amended on successive occasions, and those currently in force are based on a regulating decree of 1994 which introduced greater "flexibility" into conditions of work and employment(1) and in this respect went along with the general trend towards reducing minimum legal standards. These provisions comply with the international standards established by the International Civil Aviation Organization (ICAO) and the directives issued to aircraft manufacturers, and are not open to collective bargaining.

As regards collective bargaining in these two transport sectors (rail and air), we note that while collective agreements have been concluded in the rail sector with the purchasing companies (privatization was done by line or branch line), the air companies have not concluded a collective agreement on conditions of work and employment with all the relevant sectors; they have effectively implemented changes on which the unions were not consulted and to which they have little opportunity of replying. In both cases, changes have been made with regard to conditions that had already been agreed with some or all of the relevant unions.

The changes in question affect the following areas:

(1) Daily working hours: Provisions to extend daily working hours and make them more flexible, to the detriment of previously established conditions of reduced working days and fixed shifts which gave entitlement to overtime. As was noted with regard to the flight unions, this was facilitated by the legislative changes.

(2) Organization of work: Previously, in both sectors, a limited number of specific tasks were assigned to each worker, who had to perform those tasks as a regular and permanent part of the job. Under the new collective agreements, that concept has given way to the concept of polyvalence (flexibility). This means that the allocation of tasks to a given

post has become less rigid in that workers will now also have to perform other complementary or related tasks. This allocation of many different tasks seems ill-advised and is not in practice applied to the unions representing pilots, flight engineers and cabin staff, whose functions are quite specific and cannot be altered (for example by changing rosters or by sudden changes of aircraft) without affecting flight safety, particularly in the case of pilots.

(3) Contractual job categories: The changes brought about by the introduction of "polyvalence" will affect the entire system of job categories and the corresponding pay scales. Broadening posts to include tasks other than those traditionally associated with them, and combining those tasks with those normally associated with other posts, will "flatten" the pyramid of job categories (and, consequently, also the associated wages and salaries pyramid) and, by increasing daily working hours and mobility, will reduce the staff levels needed to provide services. Such reductions have been achieved in various ways such as voluntary redundancies, early retirements and layoffs which in some cases preceded the formal act of privatization.(2)

(4) Salary structure: In the public companies, the breakdown of salaries was based on occupational category, working time and length of service in the post, without any reference to company productivity. Remuneration consisted of a basic contractual salary plus supplements for such things as good attendance record and length of service. For managerial staff and flight crews, the daily expenses component was a form of indirect salary, with some items being considered as remunerative and others given in kind. With privatization, this salary structure began to change radically as new criteria and parameters were established. This meant -- especially in the rail sector -- a system of variable pay with per diem allowances and food vouchers (the latter with a reduced tax rating), while in the air transport sector preference was given to daily allowances given in kind (accommodation and meals). At the same time, as profitability criteria were introduced, there was a trend towards reducing indirect salary in the form of free services or preferential rates for employees -- benefits which were laid down in collective agreements before the time of privatization.

(5 )Leave: By contrast with the prevailing trend before privatization, leave has been reduced and broken up into shorter periods as companies have acquired greater discretionary powers to organize work and the concepts of efficiency central to privatization philosophy have taken hold.

(6) Response to technological change: Despite the obvious need for modernization which rail and air companies had pointed out, agreements devote little attention to staff training and there are some indications of increased risks in air travel.

(7) Management methods and forms of participation: An analysis of the collective agreements in the rail sector highlights certain particular aspects of union/company relations in this area. The agreements now include provisions for joint union/company proposals which stress the importance of aspects such as productivity, efficiency, quality, customer satisfaction, training, maintenance of harmonious labour relations, respect for

agreed procedures for arranging working hours, fair conditions and pay, profitability, cooperation, teamwork, etc. The emphasis is on the service user (as the intended beneficiary of company and union endeavours) and on service quality, aspects which were not emphasized in the organizational culture of the public companies. The provisions in question did not allow the possibility of union participation.

In general, the enterprises have taken over areas of decision-making in which decisions were previously taken in collaboration with the unions, and the bodies established for that purpose have been effectively neutralized.(3) Something similar is evident with regard to the right to information -- a right embodied in the rail sector agreements but not actually implemented in practice. The establishment of "worker directors" entitled to 10 per cent of the shares allocated to employees under the Ownership Participation Programme (Programa de Propiedad Participada) has been no more successful in promoting staff participation in the management of privatized companies.

It seems appropriate at this point to give a brief overview of past versus present trends in labour relations in the privatized enterprises; though something of a generalization, it shows what is happening in the sector discussed here.  

Before privatization After privatization

Personnel management Preferential salaries, additional benefits, significant indirect salary component

Preference in recruitment to family members of employees and unionized workers

Internal labour market based on length of service and experience

Reduced daily working hours and overtime

Labour stability High level of rotation of

management staff (union as stable reference)

Overstaffing

Reduction of additional benefits and indirect salary

Internships, bursaries, flexible hiring arrangements

Internal labour market based on formal qualifications, high level of rotation

Flexible working hours, reduced overtime

Greater internal flexibility Greater discretionary powers for

enterprise Reductions in staff levels

(redundancies, retirements, etc.)

Union participation Uniform union strategies based on claims and demands

High level of participation and union membership

Selective benefits

Diversified and more defensive union strategies

Lower level of participation and union membership

Abolition of benefits

Collective bargaining Centralized bargaining Decentralized bargaining by sector

One collective agreement per enterprise

Separate collective agreements for each enterprise

4. How the trade unions have reacted to changes in standards and practice resulting from the privatization of airlines and railway enterprises

One of the legal instruments which determined the unions' position in the face of the privatization of the public enterprises was the regulating standard respecting the constitutional right to strike, specifically in the public services. This standard, invoking the need to protect service users, severely restricts the available means of direct action. Workers found themselves obliged to maintain minimum services as well as facing other constraints which, in the event of non-compliance, could lead to dismissal.

In the early stages of privatization, the Government assured the unions' umbrella organization that the trade union structure and social programmes of the privatized industries would be maintained. The instrument known as the Ownership Participation Programme (Programa de Propiedad Participada), already mentioned, was aimed at individual workers themselves, not at their trade unions. In the air transport sector, it was not a success owing to poor implementation and consistent losses by the companies. Only a few unions showed any interest in acting as advisers or as workers' representatives in this area.

As regards disputes, three distinct union strategies can be identified: confrontation (an option which is supported by a minority but is for the time being limited to unions in state enterprises); "hard" bargaining (characterized by critical support of the Government); and "soft" bargaining (the majority approach, adopted by unions which supported the reform programme).(4)

This meant that many unions had to adapt to their new role within the so-called "social economy" and become involved in the contracting out of services and the administration of retirement and pension funds (for example by organizing management bodies in the private social security system within Argentina's mixed system).(5)

Other factors have also contributed to the low incidence of conflicts during the privatization of the transport sector. Some of these are of a general economic nature -- the growth in unemployment, for example -- while others stem from the decline in union membership and staff cuts. The trade unions have also had to adapt to the transition from a single state employer to several private employers with different management cultures and basic aims which are more specific than during the period of state ownership and which are achieved by means of relatively soft adjustments in terms of staff cuts, pay cuts, etc.

More recently, the unions have been trying to extend areas and scope for participation. A new difficulty is that of getting the employers to renegotiate collective agreements which were

concluded in the early stages of privatization to their own advantage, in an effort to reinforce support for privatization.

Annex

Principal variables considered for the purpose of describing changes in labour relations in the public enterprises  

Situation in the public enterprises

Stated objectives of privatization

Results (in terms of labour relations in the sector)

Obsolete technology resulting from low investment*

Inadequately capitalized enterprises*

Low productivity Poor quality of service Little autonomy and poor

continuity in staff management

Inefficient labour cost allocation

To eliminate the burden on the national budget

To recapitalize the enterprises through direct foreign investment**

To increase labour productivity

To relieve the State of its role as producer of goods or provider of services

To introduce a new model of labour relations based on private management

Increase in investment and technological development

Increase in labour productivity/reduction in staff levels

Weakening of unions Limited increase in staff

participation New autonomous and diverse

legal framework which promotes labour flexibility

* These features were evident particularly during the period immediately before privatization. ** In some cases, companies were "paid" through foreign debt servicing.

1.  By increasing "flexi" hours, reducing compensation for accidents at work from 30 to 20 times the monthly salary, etc.

2.  The proviso in the previous item concerning the flight unions still stands. However, with regard to the cabin staff, their role has been reduced as a greater volume of work has been assigned to the flight stewards and greater use has been made of non-continuous contracts which allow the hiring of seasonal staff who do not form part of the company's permanent establishment.

3.  A particular example was the 1991 agreement covering the flight engineers which provides for restructuring of these posts.

4.  The Rail Union endorsed this strategy, while some unions in the air transport sector initially adopted a harder line but had to give ground in the face of inflexible management attitudes.

5.  In the rail sector, for example, redundant workers have set up cooperatives to repair rolling stock.

Updated by BR. Approved by OdVR. Last update: 28 September 2000.

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Privatisation In Nigeria: Critical issues of concern to civil society

 

 By

 

 

OTIVE IGBUZOR 

Programme Co-ordinatorCentre for Democracy and Development (CDD)

2, Olabode Close, Off Association Avenue, Ilupeju Estate,P.O. Box 15700, Ikeja, Lagos, Nigeria.

Tel: +234 1 8043221, 4730705, 8033039797igbuzor@cddnig.org   

or otiveigbuzor@yahoo.co.uk

 

 

 

A PAPER PRESENTED AT A POWER MAPPING ROUNDTABLE DISCUSSION ON THE PRIVATISATION PROGRAMME IN NIGERIA ORGANISED BY SOCIO-ECONOMIC RIGHTS INITIATIVE (SERI) HELD AT NIGER LINKS HOTEL ABUJA ON 3RD SEPTEMBER, 2003 

 

1.            PREAMBLE

The participation of the state in enterprises in Nigeria dates back to the colonial era. The

task of providing infrastructural facilities such as railway, road, bridges, water, electricity and

port facilities fell on the colonial government due to the absence of indigenous companies

with the required capital as well as the inability or unwillingness of foreign trading companies

to embark on these capital-intensive projects. This involvement was expended and

consolidated by the colonial welfare development plan (1946 – 56) that was formulated

when the labour party came to power in the United Kingdom. This trend continued after

independence such that by 1999, it was estimated that successive Nigeria Governments

have invested up to 800 billion Naira in public owned enterprises.

 

For a large part of the twentieth century, there were countries in the world (Eastern bloc)

that promoted state ownership of the means of production while others (western bloc)

promoted private ownership of the means of production. A good number of countries

practiced what was termed a mixed economy i.e. a combination of public and private

ownership of the means of production. However, at the end of the twentieth century with the

end of cold war between the eastern and western blocs, private ownership of means of

production took ascendancy. Today, the received wisdom is that the state should recede

and that private ownership of the means of production is the only viable approach to efficient

production of goods and services, economic growth and development. Consequently, there

is a move all over the world to privatize erstwhile public enterprises. In this paper, we

examine the practice of privatization meant to promote private ownership of means of

production in Nigeria and the critical issues of concern to the civil society. But first, let us

explicate the concept of privatization and its philosophical basis.

 

 

2.         THE CONCEPT OF PRIVATIZATION

 

 Although the concept of privatization is an is an emotive, ideological and controversial one evoking sharp political reactions, its political origins, meaning and objectives are not ambiguous. Iheme defines privatizations as:

 

……………any of a variety of measurers adopted by government to expose a public enterprise to competition or to bring in private ownership or control or management into a public enterprise and accordingly to reduce the usual weight of public ownership or control or management. However, in a strict sense, privatization means the transfer of the ownership (and all the incidence of ownership, including management) of a public enterprise to private investors. The later meaning has the advantage of helping one to draw a line between privatization and other varieties of public enterprise reform. It is also the sense in which the term has been statutorily defined in Nigeria.

 

In a similar vein, Starr  defines privatization as a shift from the public to the private sector, not shifts within sectors.  According

to him, the conversion of a state agency into an autonomous public authority or state owned enterprise is not privatization

nether is conversion of a private non-profit organisation into a profit making form.

 

The Privatisation and Commercialisation Act of 1988 and the Bureau of Public Enterprises Act of 1993 defined

privatization as the relinquishment of part or all of the equity and other interests held by the Federal Government or any of its

agencies in enterprises whether wholly or partly owned by the Federal Government. Although privatization is not defined in the

Public Enterprises (Privatisation and Commercialisation) Act of 1999, we can assume that it is deemed to have the same

meaning.

 

From the definitions above, three things are clear. First, for privatization to take place, there

must be in existence public enterprises, which need to convert into private enterprises.

Secondly, there is the reasoning that private ownership or control or management would be

better than public ownership. Finally, privatization is premised on the fact that there are

problems with public ownership of enterprises and privatization is part and parcel of a reform

agenda to turn around these enterprises so that they can deliver goods and services more

efficiently and effectively. As we shall show later, this kind of reasoning is ideologically loaded

and cannot be substantiated by the existential reality of Nigeria.

 

3.            PHILOSOPHICAL BASIS OF PRIVATIZATION

 

As noted above, the concept of privatization is heavily loaded with ideology. According to Rodee

et al, ideology refers to ideas that are logically related and identify those principles or values that

lend legitimacy to political institutions or behaviour. Ideology may be used to justify the status

quo or to justify attempts (violent or non-violent) to change it.  For a major part of the twentieth

century there were two opposing ideologies on how society should be governed and developed:

capitalism vs socialism or ideologies of the right vs ideologies of the left. Capitalist ideology

typified by neo-liberalism insists that a self – regulated system of market will bring about

spontaneous process of development. On the other hand, the Socialists and many other

variants such as the interventionists argue that unregulated capitalism will always bring about

poverty, unemployment and human misery and there is the need to intervene to regulate the

market. At the end of the 20th century with the end of the cold war, there is an ascendancy of

capitalism and neo-liberalism hence the renewed drive for privatisation.

 

4.            PRIVATIZATION IN NIGERIA

 

Many counties of the world have embarked on privatization programmes at different times. Chile

introduced privatization programme in 1974. The United kingdom implemented a rigorous

privatization programme during the regime of Margaret Thatcher in the 1980s. As Iheme has

argued, the British decision to embark on privatization programme was largely informed by the

need to cut back on public spending rather than the need to promote efficiency and competition.

The 1990s witnessed the implementation of privatization progrmmes in many countries of the

former eastern bloc like Russia, Romania, Czechoslovakia etc. It has been documented that

more than 8,500 State owned enterprises in over 80 countries have been privatized in the past

12 years.

 

Privatization in Nigeria was formally introduced by the privatization and commercialization

Decree of 1988 as part of the Structural Adjustment Programme (SAP) of the Ibrahim Badamosi

Babangida administration (1985 – 93). As McGrew was argued, SAP is a neo-liberal

development strategy devised by international financial institutions to incorporate national

economics into the global market:

The vision of a “global market civilization” has been reinforced by the policies of the

major institutions of global economic government namely up to the mid 1990s.

underlying them structural adjustment programmes has been a new-liheral development

strategy – referred to as the washing on consensus which prioritizes the opening up of

national economics to global market forces and the requirement for limited government

intervention in the management of the economy.

One of the main objectives of SAP was therefore to pursue deregulation and privatization

leading to removal of subsidies, reduction in wage bills and the retrenchment of the public

sector ostensible to trim the state down to size.

 

The Privatization and Commercialisation  Decree of 1988 set up the Technical Committee on

Privatization and Commercialisation (TCPC) under the chairman of Dr. Hamza Zayyad to

privatize 111 public enterprises and commercialize 34 Others. In 1993, the TCPC concluded its

assignment and submitted a final report having privatized 88 out of the 111 enterprises listed in

the decree. Based on the recommendation of the TCPC, the Federal Military Government

promulgated the Bureau for Public Enterprises Act 1993 which repealed the 1998 Act and set

up the Bureau for Public Enterprises (BPE) to implement the privatization programme in Nigeria.

In 1999, the Federal Government enacted the Public Enterprise (Privatization and

Commercialization) Act 1999 which created the National Council on Privatization under the

chairmanship of the vice President. The functions of the council include:

·                    Making policies on privatization and commercialization.

·                     Determining the modalities for privatization and advising the government

accordingly.

·                    Determining the timing of privatization of particular enterprises

·                    Approving the prices for shares and the appointment of privatization advisers.     

·                    Ensuring that the commercialized public enterprises are managed in accordance

with sound commercial principles and prudent financial practices.

·                    Interfacing with the public enterprises, together with the supervising ministries, in

order to ensure effective monitoring and safeguard of the managerial autonomy

of the public enterprises.

 

The Act also established the Bureau of Public Enterprises (BPE) as the secretariat of the

National Council on Privatization. The functions of the bureau include:

·                    Implementing the council’s policy on privatization and commercialization

·                     Preparing public enterprises approved by the council for privatization and

commercialization.

·                     Advising council on further public enterprises that may be privatized or

commercialized

·                     Advising council on capital restructuring needs of the public enterprises to be

privatized.

·                    Ensuring the update of accounts of all commercialized enterprises for financial

discipline.

·                     Making recommendations to the council in the appointment of consultants,

advisers, investment bankers, issuing houses, stockbrokers, solicitors, trustees,

accountants and other professionals required for the purpose of either

privatization or commercialization.

·                    Ensuring the success of the privatization and commercialization exercise through

effective post transactional performance monitoring and evaluation.

·                    Providing secretarial support to the council 

 

 

5.            CRITICAL ISSUES OF CONCERN TO CIVIL SOCIETY

The civil society in Nigeria is not homogenous. It is made up of different kinds of people who

became civil society activists for different reasons. There are at least five categories of people in

the civil society movement in Nigeria. First, there are those who are interested in transforming

society and they see civil society activism as an avenue to accomplish this. Secondly, there are

those who build their career as civil society workers. They therefore see civil society activism as

a career or profession just like any other career or profession. Thirdly, there are those who

utilize civil society activism as a means of survival. They have no job and have no option but to

hang on to civil society work as a means of survival. They are prepared to leave civil society

work as soon as they find a good job. Fourthly, there are stooges who utilize NGOs to promote

the interest of government (GONGOs) or individuals. Finally, there are quasi-government NGOs

formed principally by wives of President, vice-President, Governors and Local Government

Chairmen. The concern of particular civil society organisation is therefore dependant on the

category of civil society and their orientation. For instance, NGOs formed by the wives of Chief

Executives are not likely to be opposed to any government policy such as privatization.

 

In this paper, we shall discuss the critical  issues of concern to civil society about privatization in

Nigeria under three headings:

a.                 Concerns about the philosophical and constitutional basis of privatization

b.                 Concerns about Equity and Gender Issues

c.                  Concerns about implementation problem.

 

a. Concerns about the philosophical and constitutional basis of privatization: There are

civil society activists who are concerned about the philosophical basis of privatization. They

argue that privatization is a neo-liberal approach to development, which is imposed by the

Brettons Woods institution as part of globalization that can only favour rich countries and

individuals. They argue that privatization is anti-labour and will always lead to unemployment. In

addition, privatization is always anti – poor. It is clear that in most cases, privatization

particularly of public utilities like road, electricity, water etc. will always lead to increase in prizes.

Meanwhile, it has been documented that whenever user fees are introduced in the provision of

social services, the utilizations by the rich increases while utilization by the poor decreases. This

is compounded by the fact that there is a lot of double talk and hypocrisy in the whole business

of privatization. While Government is busy selling off public enterprises on the one hand, it is

simultaneously investing in old/new public enterprises eg. Ajaokuta Steel Complex and

Railways. Only recently the Delta State Government announced the purchase of African Timber

and Plywood(A.T and P) Sapele and the Osun State Government announced that it will soon

start the production of drugs.

 

There is also the concern for the disregard for the constitution and rule of law in the whole privatization process. The 1999 constitution not only provides that the state operate in a way to prevent the concentration of wealth or the means of production and exchange in the hands of few individuals or group but also that the state should operate and manage the major sectors of the economy (section 16). The privatization process in Nigeria is a fragment abuse of this provision of the constitution.

 

In addition, privatization of public enterprises is being pursued with scant regard to the laws of the country. For instance, attempts were made to privatize NEPA when the law that sets it up prohibits private ownership of electric company in Nigeria.

 

b. Concerns about Equity and Gender Issues

 

Civil society in Nigeria are concerned that the privatization exercise in Nigeria will lead to further widening of the gap between the rich and the poor in Nigeria. Already, Nigeria is among the 20 countries in the world with the widest gap between the rich and the poor. The Gini index measures the extent to which the distribution of income (or in some cases consumption expenditure) among individuals or households within an economy deviates from a perfectly equal distribution. A Gini index of zero represents perfect equality while an index of 100 implies perfect inequality. Nigeria has one of the highest Gini index in the world. The Gini index for Nigeria is 50.6. This compares poorly with other countries such as India (37.8), Jamaica (37.9), Mauritania (37.3) and Rwanda

(28.9). There is the fear that privatisation will further widen the gap between the rich and the poor.

 

One argument that has always been used to promote privatization and used to counter the argument for equity is the argument that the private sector is more efficient. But the Senior Staff Association of Statutory Corporations and Government owned companies showed that the experience of Nigeria Ports authority (NPA) does not support this claim. According to them: 

The case of RORO Port when it was in private hands is still fresh in our minds as a glaring testimony of the anathema of privatization. The RORO terminal, which was for many years managed by a private company, claimed to have generated a paltry monthly revenue of forty four million naira (N54, 000,000.00). Out of this amount, it claimed that about forty eight million naira (representing about 80 percent of the total income) was use to pay salaries and other sundry expenses. This left a profit of six million naira (N6,000,000.00) about 50 percent of which was paid to the NPA as profit. However, when the NPA took over operations, NPA recorded a staggering sum of sixty million naira as revenue. Out of this amount, only six million naira was used for payment os salaries and other over head cost leaving a total of fifty four million naira in the coffers of government. The Consultants in Port Management that operated in both Apapa and Tin Can Island Ports are equally glaring examples of the folly of privated operations in Port management. In view of the foregoing, we hereby submit that anybody advocating for the privatization or concessioning of the Nigerian Ports Authority (NPA) is a saboteur to the socio-economic growth of this country. 

There are also concerns that the privatization programme will reinforce male

dominance and ownership of property in Nigeria. In fact, it can be argued that

women were excluded from the privatization process from the start. When the

TCPC was set up in 1988, it had fifteen members all men.

 

c. Concerns about implementation problems

 

There are concerns in the civil society that the environment of Nigeria as presently

constituted and the way the privatization programme has been implemented cannot lead to

success. According to the World Bank, the Chief architect of privatization:

 

Most privatisation success stories come from high income and middle-income countries. Privatisation is easier to launch and more likely to produce positive results when the company operates in a competitive market and when the country has a market-friendly policy environment and a good capacity to regulate. The poorer the country, the longer the odds against privatisation producing its anticipated benefits, and the more difficult the process of preparing the terrain for sale.

 

From the above quotation, four conditions are necessary for the success of any privatisation

programme. First, the country should be either be in high or middle income bracket. But Nigeria

despite its vast human and natural resources is a poor country. The Human Development Index

ranking placed Nigeria in 148 out of 173 countries in 2002. Nigeria hosts the third largest

number of poor people after China and India. Statistics show that the incidence of poverty using

the rate of US$I per day increased from 28.1 percent in 1980 to 46.3 percent in 1985 and then

to 65.6 percent in 1996.  The incidence increased to 69.2 percent in 1997. If the rate of US$2

per day is used to measure the poverty level, the percentage of those living below poverty line

will jump to 90.8 percent.

 

The second condition is that the country should operate a competitive market. The third is that

there should be a good policy environment and finally a good capacity to regulate. Any keen

observer of the Nigerian environment will know that these conditions are completely absent. A

sincere privatisation programme will therefore begin by creating the necessary environment.

This is why apologists of privatisation insists that privatisation progamme should be a part and

parcel for a comprehensive public sector reform package.  However, it has been argued that the

Nigerian Privatisation exercise is not accompanied or preceded by an articulated and properly

phased public sector reform and it will therefore not result in more efficient production of public

goods nor will it make any significant positive impact to fiscal balance

 It is instructive to note that the World Bank gives eight key lessons on experience of

privatisation.

1.                  Privatisation works best when it is a part of a larger programme of reforms

promoting efficiency

2.                 Regulation is critical to the success of monopolies.

3.                  Countries can benefit from privatising management without privatising the

ownership of assets.

4.                 The sale of large enterprises requires considerable preparation.

5.                 Transparency is critical  for economic and political success.

6.                 Government must pay special attention to developing a social safety net.

7.                  The formerly socialist economies should privatise in all possible ways that

encourage competition, and they should experiment with all available methods

that go beyond a case-by-case approach to privatisation.

8.                  In changing the public-private mix in any type of economy, privatisation will

sometimes be less important than the emergence of new private business.

The study concludes that:

 

Privatisation is not a blanket solution for the problems of poorly performing state owned enterprises. It cannot in and of itself make up totally for lack of competition, for weak capital markets, or for the absence of an inappropriate regulatory framework. But where the market is basically competitive, or when a modicum of regulatory capacity is present, private ownership yields substantial benefits.

 

Civil society activists in Nigeria are concerned that the lessons above are not taken into

consideration in the implementation of the Nigerian privatisation programme. As noted above,

the privatisation programme is not a part of a compressive public sector reform agenda. The

question of providing an appropriate regulatory environment is not taken seriously. The

implementers of the programme are in a hurry to sell off all state owned enterprises even

without adequate preparation taking into cognisance labour, gender and equity issues. Both the

political leadership and the implementers of privatisation are carrying on as if privatisation is the

only solution to poorly performing state owned enterprises, smuggling and effective distribution

of goods and services.

In addition, the standard procedures for privatisation are not followed as can be seen from the

scandals that followed the aborted sale of Nigeria Airways to Airwing of UK which had neither

solid capital base nor the required experience to merit taking over the national carrier.

 

Finally, people are concerned that there is no effective monitoring and evaluation of the

privatisation programme in Nigeria. For instance, it has been documented that fifteen

years after the initiation of privatisation programme in Nigeria, there has not been a

comprehensive assessment of the post-privatisation performance of affected

enterprises.

 

CONCLUSION

 

The Nigerian State has participated in enterprises right from the colonial era. This trend

continued until 1988 when privatisation programme was officially initiated. The initiation

of the programme in Nigeria coincided with the trend of renewed ascendancy of

capitalism and neo-liberalism. The policy of privatisation and its particular

implementation in Nigeria has created some concerns for civil society. In particular, they

are concerned about the philosophical basis which can only favour rich countries and

individuals; the scant regard for the constitution and laws of the country; the widening

gap between the rich and the poor and the possibility of reinforcing male dominance

and gender inequity.

 

The initiation and implementation of privatisation in Nigeria places a lot of challenges on

civil society organisations  to among other things:

·        Study the implications of privatisation for the economy, ordinary people and the

future of the country.

·        Expose all the deals, corruptible transactions and inconsistencies in the

conceptualisation and implementation of the privatisation programme in Nigeria.

·        Promote consumer rights

·        Promote workers rights

·        Advocate for pro-poor reforms instead of this pathological fixation on privatisation

as the only solution to the country’s economic problems.

·        Join forces with democratic anti-globalisation and anti-privatisation forces to

rescue our nation from a rapacious, parasitic and rascally ruling elite.

 

If civil society organisations in Nigeria can rise up to the above challenges, they would

have made enormous contribution to the protection of the poor and the development of

Nigeria.Iheme, E. (1997), The Incubus: The Story of Public Enterprise in Nigeria. Lagos, The Helmsman Associates. Obasanjo, O.(1999), An Address delivered during the inauguration of the National Council on Privatisation at Presidential Villa, Abuja on 20 July 1999Iheme, 1997 ibidStarr, P. (1998), The Meaning of Privatisation. http://www.paulstarr.Rodee, C. C. et al(1983), Introduction to Political Science. Tokyo, McGraw-Hill International Book CompanyIheme ibidWorld Bank, 2003 McGrew, A. (2000), “Sustainable Globalistion? The Global Politics of Development and Exclusion in the New World Order” in Allen , T and Thomas, A. (Eds), Poverty and Development into the 21st Century. New York, Oxford University Press Inc.Egwu, S. G. (1998), Structural Adjustment, Agrarian Change and Rural Ethnicity in Nigeria. Research Report No. 103. Uppsala, Sweden, The Nordic Africa Institute.Igbuzor, O. (1992), Drug Revolving Fund as a Strategy  to achieve Health for all Nigerians: A Case Study of University of Maiduguri Teaching Hospital. An unpublished Masters of Public Administration thesis.World Development Indicators, 2002Senior Staff Association of Statutory Corporations & Government Owned Companies, Nigeria Ports Authority Branch Open letter to the President. Vanguard September 15, 2000.World Bank, 2003 ibidFederal Office of Statistics (FOS)(1996) Poverty Profile in Nigeria 1980-1996Central Bank of Nigeria (1999) p.95World Development Indicators, 2002Amadi, S. (2003), Privatisation without Reforming” A paper presented at Civil Society Policy Makers Public Forum organized by Socio economic Rights Initiative (SERI) at airport Hotel, Lagos on Tuesday 22 July 2003World Bank, 2003 ibidUsman, S. (2002) “Privatisation: Progress, Prospects” in The Post Express. September 3, 2003.