28 June 2009
Lagos — The increasing number of success stories of privatised firms has continued to justify the exercise, which began in Nigeria in1988. The Aluminium Smelter Company of Nigeria (ALSCON) in Akwa Ibom State was dead or almost dead. ALSCON produced its first metal in 1997, but was never fully completed before it suspended production in 1999.
In February 2007, a company, RUSAL closed a deal to acquire a majority stake in the ALSCON, breathing life into it again. According to the terms of the deal, RUSAL purchased a 77.5 per cent block of shares in ALSCON, a 193,000-tonne smelter (reduction, anode-producing and casthouse areas), a port on the Imo River, and a power-generating station.
The resuscitation exercise appears to have worked. Some two weeks ago, ALSCON commenced large scale production of aluminium products.
National Fertiliser Company of Nigeria (NAFCON, sold to Notore Chemical Industries Ltd in August 2005, is working again. The company was one the showpieces of Nigeria's manufacturing sector, but it collapsed in a manner characteristic of most government enterprises.
Other success stories of privatisation include Eleme Petrochemicals Company Limited (EPCL). Established in 1988, Eleme was a 100 per cent subsidiary of the Nigerian National Petroleum Corporation (NNPC). The Indorama Group was declared core investor after its privatisation in 2005. With that it was resuscitated and it is now working well.
EPCL is strategically positioned to feed the growing demand of plastics in Africa. The total production is over 550 KTA of world-class olefins and polyolefins. Eleme Petrochemicals is to be one of the leading suppliers of polyolefins on the African continent.
These examples are self-evident advantages of privatisation. However, in reiterating the case for privatisation, we are not unmindful of sour points like the privatisation of the Ajaokuta Steel Company and Nigerian Telecommunication Company (NITEL).
But rather than condemn privatisation over these examples, we believe they raise the issues of transparency, due diligence and the enforcement of post acquisition plans, which are part of the privatisation agreement.
We also believe that in many cases, the opposition of privatisation has arisen from the fact that many Nigerians have been used to government providing essential services in the fashion of the socialist system. People have been historically conditioned to it.
But dominance of government in these sectors has its roots in the colonial system, when the task of providing infrastructural facilities such as railway, road, bridges, water, electricity and port facilities fell on the colonial government. There was the absence of indigenous companies with the required capital to go into the provision of such services. Besides, the foreign trading companies were unwilling to embark on these capital-intensive projects in a foreign land. It was more profitable for them to exploit raw materials as quickly as they could to be used in their counties.
As part of the Babangida administration's Structural Adjustment Programme (SAP), privatisation and commercialisation became necessary on account of government's wasteful operation of its enterprises.
Privatisation enhances efficiency from profit consciousness, the absence of government interference through political rather than economic decisions, and pressure from shareholders.
Additionally, since privatisation occurs alongside deregulation, it enthrones competitiveness of the market and could be the greatest spur to improvements in efficiency.
Even if this argument is considered theoretical, we believe that there is enough reason in the success cases cited above for government to continue the privatisation exercise with more urgency. Remaining government enterprising such as the refineries should be privatised, with Eleme Petro-chemicals as a reminder here.
Also, bad cases of the privatisation exercise should be revisited with due considering of capital and managerial ability to resuscitate affected forms.
Although, the global economic downturn has made governments in some countries repossess stakes in private companies temporarily, we believe that the fundamental problem was one of regulation, and that the private sector still remains the engine of economic growth and development.
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