What is the Bureau of
Public Enterprises (BPE)?
The Bureau of Public Enterprises (BPE) is the
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
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
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
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
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:
up for a shortage of local capital for expansion and technological
government control of “commanding heights” to prevent elites from
the expense of Nigerians;
the market failure resulting from public monopoly and misallocation of public
regional development through government-planned and controlled location
public enterprises and their branches;
adequate provision of social services.
And what have been the
outcomes of public enterprises in Nigeria?
The outcomes have been disappointing and include:
and mismanagement leading to low productivity;
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
of real ownership and accountability, leading to the collapse and closure of
services, arrogance and insensitivity to customers. The now defunct NEPA and
NITEL are very vivid
examples of this outcome;
and ethnicism in hiring, discipline and reward system;
and rent seeking behavior; and
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:
quality of services from public enterprises, including NITEL, NEPA, NNPC,
Steel companies, and Nigeria Airways, are very bad and leave much to be
enterprises operate below capacity and are among the most inefficient in
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;
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;
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
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:
achieve higher allocative and productive efficiency, leading to faster
economic growth and development;
strengthen the role of the private sector in the economy through job
creation and economic development;
improve the public sector’s financial health by reducing the burden
incurred by having to subsidize PEs; and,
free resources for use in sectors important to all Nigerians, such as
education, health, housing, transportation, and other infrastructure
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:
incurred financial losses;
a disproportionate share of credit;
to financial deficits and imbalances;
to and entrenched parasitism and corruption; and
rapacious military-civilian elites to politics.
What are some of the benefits of privatisation to the economy and the society?
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:
corruption and parasitic mentality;
capital and modernize technology in our industries, many of which have not
seen any improvements for years;
capital markets by increasing the number of companies traded;
monopolies and remove arrogant nature of service, thereby increasing
competition and leading, in many cases, to lower prices;
efficiency, transparency and better management;
debt burden and fiscal deficits;
massive and perennial pension funding gaps;
ownership base and create popular capitalism through the stock market;
funds (through taxes, for example) for investment in social sectors;
foreign investment and create a positive image profile for Nigeria;
flight capital (money taken out of the country because of political and
economic instability) back to Nigeria;
the government to focus on deprived social sectors like education, health,
water, sanitation and rural infrastructure; and
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.
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
must maintain transparency in transactions and convince investors that
their investments are secure;
government must negotiate, monitor, and enforce contracts with private
suppliers of management and finances;
must ensure that resources from privatisation sales are put to productive uses;
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:
public sector’s financial health, leads to lower deficits and lower debt;
transfer of money to public enterprises in the aggregate. These transfers
become positive if the government actually starts collecting taxes from
privatized firms; and
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
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?
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
Subsidised Foreign Exchange
Import Duty Exemptions
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.
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
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
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:
of monopoly powers;
capital structures resulting in heavy dependence on the treasury for funding;
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:
||US $28 bn|
| Upstream Petroleum
| Downstream Petroleum
||US $17 bn|
||US $14 bn|
| Machine Tools/Minting
||US $650 m|
||US $850 m|
|US $1.4 bn|
||US $1.8 bn|
| Vehicle Assembly
||US $1.7 bn|
| Oil Marketing
||US $1.9 bn|
| Commercial/Merchant Banks
|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.