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FAQ

 

 Frequently Asked Questions

 
 
What is the Bureau of Public Enterprises (BPE)?
The Bureau of Public Enterprises (BPE) is the Federal Government agency tasked with implementing the government’s privatisation programme, as the Secretariat to the National Council on Privatisation (NCP).  It has evolved from the Technical Committee for Privatisation and Commercialization (TCPC), which was established in 1988 to carry out the government’s privatisation programme.  The TCPC was transformed into the BPE in 1993, with a supervisory and technical board, although BPE retained the organizational structure and personnel of the TCPC and was made part of the public service.  BPE was recreated in 1999 as an independent body without a board, reporting only to the National Council on Privatisation (NCP), which is chaired by the Vice President of the Federal Republic of Nigeria.  The Director General of the BPE is also the member-secretary to the NCP, which is the policy agency charged by the President with overseeing the proper and effective implementation of privatisation.
 
What is a State-Owned or Public Enterprise?
There are many possible definitions of what a state-owned enterprise (SOE) or public enterprise (PE) is. We define PEs as government-owned or government-controlled economic objects that generate the bulk of their revenues from selling goods or services.  These include enterprises established to provide commercial activities in which government controls management due to its ownership stake. The definition includes enterprises directly controlled by government or in which government holds a majority of the shares directly or indirectly through other federal entities.
 
What is privatisation?
Privatisation, in the simplest term, is the transfer of ownership from the government (or public) sector to the private sector.  Privatisation can occur in one of many ways, including core investor sales, share subscription, initial public offers, asset sales, and concessions, to name but a few.
 
What is a share?
A share is a portion of a company owned by an individual, a group of individuals, or a firm.  Shares are not always physical pieces of paper as in the old days, since in many companies electronic depositories have been developed.  In Nigeria, the majority of shares are still owned by the Federal Government, but the privatisation programme has since 1999 been slowly but surely transferring shares to private hands, either through sales to core investors or by selling shares on the stock market.
 
What is a core investor sale?
A core investor sale is defined as the transfer of at least 51% of ownership, accompanied by management control, in a company from government to new private owners.  Core investors may be individuals or firms, Nigerian or foreign, with the money required to buy and operate the company, and the technical and managerial capacity needed to ensure that the company is profitable.
 
What is a stock market?
The stock market is an institution where shares (as defined above) are bought and sold.  Shares can be sold as part of daily stock market activity, through share subscriptions and initial public offerings (IPOs).
 
What is an initial public offering?
An initial public offering, or IPO, is the sale of a company’s shares on the stock market for the first time.  As part of Nigeria’s privatisation programme, the sale of shares in IPOs is reserved for Nigerian citizens only, and even then the amount that can be purchased by any one individual or institutional investor is strictly limited.  This is to avoid a concentration of shares in the hands of a small group of individuals or companies. 
 
Why do public enterprises exist in Nigeria?
Public enterprises, like in other countries, were established with good intentions for the welfare of the people. The overriding reasons for creating public enterprises in Nigeria were to:
·         Make up for a shortage of local capital for expansion and technological
         improvements;
·         Ensure government control of “commanding heights” to prevent elites from
         prospering at the expense of Nigerians;
·         Correct the market failure resulting from public monopoly and misallocation of public
         resources;
·         Facilitate regional development through government-planned and controlled location
         of public enterprises and their branches;
·         Create jobs; and,
·         Ensure adequate provision of social services.
 
And what have been the outcomes of public enterprises in Nigeria?
The outcomes have been disappointing and include:
·         Corruption and mismanagement leading to low productivity;
·         Dependence on continued funding from government budgets.  Instead of providing
         any benefits to Nigerians, Nigerians must give up many benefits themselves that 
         can’t be provided by government since there isn’t enough money;
·         Lack of real ownership and accountability, leading to the collapse and closure of
         many PEs;
·         Poor services, arrogance and insensitivity to customers.  The now defunct NEPA and
         NITEL are very vivid examples of this outcome;
·         Nepotism and ethnicism in hiring, discipline and reward system;
·         Parasitism and rent seeking behavior; and
·         Inequity in income and wealth distribution leading to reverse of Robin Hood, that is,
         government takes from the poor to feed the rich.

 

What is the current condition of Nigeria's public enterprises?
There were about 590 public enterprises at the end of 2000, of which only 160 were involved in economic activities, generating goods and services. Over 5,000 board appointments are made to man these enterprises, with enormous patronage power given to high-level officials, such as the directors, managing directors, and boards. About $100 billion was spent by the Federal Government of Nigeria (FGN) to establish these public enterprises between 1973 and 1999. Unfortunately their rate of return is less than 0.5%, while they employ just 420,000 workers, out of a total Nigerian population of nearly 170,000,000. These public enterprises, on average, consumed $3 billion annually in direct and indirect subsidies between 1992 and 1999, and they pose major stumbling blocks for obtaining debt relief for Nigeria. 
 
The continued inefficiencies of our public enterprises have negative consequences as listed below:
  • The quality of services from public enterprises, including NITEL, NEPA, NNPC, Steel companies, and Nigeria Airways, are very bad and leave much to be desired;
  • Public enterprises operate below capacity and are among the most inefficient in the world;
  • Public enterprises have become a source for political patronage, corruption, parasitism and rent seeking for the political elite, to the harm of the nation’s long-term economic growth;
  • Rather than helping the nation and the people in alleviating poverty, Nigeria’s public enterprises have become reverse Robin Hoods. Privatisation is the only way to remove these problems and promote efficiency, transparency, and corporate governance;
  • Public enterprises take government attention and funds away from areas important to individual Nigerians.  Government should do what it is supposed to do, which is to focus on providing adequate healthcare, education opportunities, infrastructure development (running water, garbage removal, sewage), environmental protection, and good governance; and
  • The continued drain of public enterprises endangers Nigeria’s position in the global economy.  If we do not take this opportunity to expedite structural reform and privatisation, Nigeria will be left out of the moving train of liberalization and globalization.
Will privatisation help change this?
Yes, privatisation can and will lead to positive change in the current situation by working to reverse these certain dangerous trends.  As has been noted throughout this document, privatisation is designed to remove government from business and bring in proper business people to do so.  This means that government will spend its time, energy and money taking care of Nigerians rather than a few companies.  It also means that the real business people that take control of PEs will make sure that the companies work, thereby creating jobs, increasing competition, lowering prices, and increasing quality.  No one can guarantee that this will be achieved overnight, but experience around the world has shown that privatisation has positive long-term effects on economies in most countries.
 
What are the objectives of privatisation?
The objectives, which the Federal Government of Nigeria’s privatisation programme is meant to achieve, are numerous and involve, as a basic component, the improvement of economic efficiency. Generally, the programme has four objectives:
 
  1. To achieve higher allocative and productive efficiency, leading to faster economic growth and development;
  2. To strengthen the role of the private sector in the economy through job creation and economic development;
  3. To improve the public sector’s financial health by reducing the burden incurred by having to subsidize PEs; and,
  4. To free resources for use in sectors important to all Nigerians, such as education, health, housing, transportation, and other infrastructure development initiatives. 
The scope of the privatisation programme, which commenced in 1999, includes the partial or total sale of shares owned by the Federal Government, its parastatals and other agencies in PEs active or dominant in at least 13 key sectors.  The total value of investment to be transferred from the public sector through privatisation is in excess of $100 billion.
  
What is the case for privatisation?
There is clear evidence that public enterprises have contributed to our economic stagnation and poor national image. Public enterprises have:
  • Created economic inefficiency;
  • Consistently incurred financial losses;
  • Absorbed a disproportionate share of credit;
  • Contributed to financial deficits and imbalances;
  • Contributed to and entrenched parasitism and corruption; and
  • Attracted rapacious military-civilian elites to politics.
What are some of the benefits of privatisation to the economy and the society?
Privatisation is not an end in itself, but it is a key tool for improving the efficient allocation of resources, for mobilizing investment, and for stimulating private sector development. It is expected to bring about the following benefits:
  • Reduce corruption and parasitic mentality;
  • Infuse capital and modernize technology in our industries, many of which have not seen any improvements for years;
  • Strengthen capital markets by increasing the number of companies traded;
  • Dismantle monopolies and remove arrogant nature of service, thereby increasing competition and leading, in many cases, to lower prices;
  • Promote efficiency, transparency and better management;
  • Reduce debt burden and fiscal deficits;
  • Resolve massive and perennial pension funding gaps;
  • Broaden ownership base and create popular capitalism through the stock market;
  • Generate funds (through taxes, for example) for investment in social sectors;
  • Attract foreign investment and create a positive image profile for Nigeria;
  • Attract flight capital (money taken out of the country because of political and economic instability) back to Nigeria;
  • Allow the government to focus on deprived social sectors like education, health, water, sanitation and rural infrastructure; and
  • Create more employment opportunities as a result of expansion.
What should be the essential role of the government in making privatisation work?
The government must devise sectoral policies that introduce competition and promote private sector development.
  1. It must establish and maintain a strong regulatory framework for the remaining monopolies, public and private, to ensure that fair business practices are adhered to, keep prices down, and generally oversee the particular sector; 
  2. It must maintain transparency in transactions and convince investors that their investments are secure;
  3. The government must negotiate, monitor, and enforce contracts with private suppliers of management and finances;
  4. It must ensure that resources from privatisation sales are put to productive uses; and
  5. Importantly, it must manage the inevitable political and social tensions that arise and ensure that enterprise reforms are implemented, with special attention to the issues of foreign ownership and labour layoff.
What are the long-term benefits of privatisation on the economy and job creation efforts?
The sale of public enterprises would reduce the level of employment in the short-run, because of the elimination of excess labour. Unemployment, however, is expected to decrease in the medium- and long-run as the rate of growth of the economy increases along with the growth of the private sector.
 
The implications of privatisation from the larger perspective can be stated as follows:
 
  • Improves public sector’s financial health, leads to lower deficits and lower debt;
  • Reduces transfer of money to public enterprises in the aggregate. These transfers become positive if the government actually starts collecting taxes from privatized firms; and
  • Has a positive impact on the development of the financial sector.
Does privatisation lead to overall growth in the economy?
There are, of course, no guarantees but privatisation can be an important element for increasing the workforce in the long term. If private management functions on an efficient and profitable basis, it should be expected that its business would increase over time as a result of higher production and lower product cost. Prices of products, increased demand for goods and services and job opportunities and wages will also increase.
      
What are the impact of privatisation on workforce and employment?
 Indeed, with new investments in the privatized enterprises, better resource allocation, operational efficiencies, and better corporate governance are likely to pave the way for expansion and job creation. These improvements in turn will bring about better working conditions, higher pay and more sustainable employment in the long run.
 
Nonetheless, the impact of privatisation on employment is a widely recognized concern in most countries. When a public enterprise has excess labour, its privatisation designed to raise efficiency is likely to lead to some lay-offs.  At the same time, privatisation stimulates the new owners to inject additional capital and production technologies involving capital-deepening technologies. Normally, the average cost per unit of output declines, as would the wage component and employment, at least in the short-run. However, if the lower average cost leads to lower product price, output expansion is possible, followed by higher demand for labour using even the new technology.     
 

But why privatisation?

Experience worldwide has shown that public enterprises have failed to live up to expectations. They tend to consume a large proportion of national resources without discharging the responsibilities thrust upon them. More importantly, they fail to share out these resources efficiently. One only needs to review the level of coverage of the National Electricity Power Authority (NEPA) and its inefficiency in providing electricity balanced against what NEPA draws from the Federal Treasury for this point to be settled.  PEs consume about N200 billion of national resources annually, by way of grants, subsidies, import duty waivers, tax exemptions, and the like.
 

Data obtained from various government departments and estimates reveal that in 1998, Nigerian PEs enjoyed about N265 billion in transfers, subsidies and waivers, which could have been better invested in our education, health and other social sectors. Table 1 below shows the breakdown of these actual and shadow transfers:

TABLE 1 - TRANSFERS TO PARASTATALS AND AGENCIES (1998)
Transfer/Waiver/Subsidy
Amount (N bn)
Percent of Total
Subsidised Foreign Exchange
156.5
59%
Import Duty Exemptions
12.5
5%
Tax Exemptions/Arrears
15.0
6%
Unremitted Revenues
29.5
11%
Loans/Guarantees
16.5
6%
Grants/Subventions, etc
35.0
13%
TOTAL
N265.0
100%
 
In the case of Nigeria, it is clear that we cannot afford to spend or subsidise a few PEs with resources equal to more than twice the nation’s capital expenditure budget. Furthermore, Nigerians have the right to expect government to direct scarce resources to attacking poverty through investment in health, education and rural development – social programme’s that will benefit millions of Nigerians, not just a few thousand urban elite that are employed by, or capture the subsidies granted to the public enterprises. 
 
There are almost no public enterprises in Nigeria today that function well.  While they were created to lessen the shortcomings of the private sector and spearhead the development of Nigeria, many of them have smothered entrepreneurial development and fostered economic stagnation. NITEL, NEPA and the Nigerian National Petroleum Corporation (NNPC) are the best examples of these.  Public enterprises have served as platforms for patronage and the promotion of political objectives, and consequently suffer from operational interference by civil servants and political appointees.
 
Public enterprises have also contributed to income redistribution in favour of the rich over the poor, who generally lack the connections to obtain the jobs, contracts or the goods and services they are supposed to provide. The annual burden of over N200 billion that PEs impose on the economy has become untenable, unbearable and unsustainable.
 
PEs consumed nearly half of all the revenue made from the sale of crude oil since 1973.  Estimates of the Vision 2010 Committee indicate that Federal Government investments in PEs stood at over US$100 billion (N13.5 trillion) in 1996. The return on these investments averaged less than 0.5% per annum.  According to a TCPC Survey, public enterprises account for between 30% and 40% of fixed capital investments.
 
Various studies on the performance of PEs in Nigeria have been conducted.  Adebo (1969), Udoji (1973), Onosode (1981) and Al-Hakim (1984) chaired these commissions.  The findings of the studies were consistent in demonstrating that PEs are infested with problems such as:
 
·         Abuse of monopoly powers;
·         Defective capital structures resulting in heavy dependence on the treasury for funding;
·         Bureaucratic bottlenecks;
·         Mismanagement;
·         Corruption; and
·         Nepotism.
 
Unfortunately, it is extremely unlikely that the Government will ever recoup these investments. A mere sample of some sectors and estimated values of FGN investment is summarised in Table 2 below:
 
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Sector​ Enterprises FGN Investment
 Infrastructure/Utilities​3US $28 bn
 Upstream Petroleum​1​NA
 Downstream Petroleum​6US $17 bn
 Steel/Aluminium/Mining​9US $14 bn
 Machine Tools/Minting​2US $650 m
 Fertilizer​2US $850 m
 Paper​​3 US $1.4 bn
 ​Sugar​4US $1.8 bn
 Vehicle Assembly​6US $1.7 bn
 ​Media​3​NA
 Insurance​2 ​NA
 ​Oil Marketing​3​NA
 Cement​​5​NA
 Transportation/Aviation​3US $1.9 bn
 Commercial/Merchant Banks​5​NA
 Agro-Allied​​5​NA
 Total​62 About US $70 bn
 
Table 2 – FGN investments in selected PEs
 
N/A – Not available
Source: Federal Ministry of Finance, Other Government Records
 
It is clear that the cumulative value of FGN investment by way of equity, loans and other transfers to the 62 enterprises is estimated at nearly US $70 billion – nearly a third of Nigeria’s total oil revenue since 1973. As at December 2000, the total liabilities of 39 PEs were in excess of N1.1 trillion, with accumulated losses of N92.3 billion.