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Thursday, May 20, 2010

Discourse 120 Privatization in Nigeria

Friday Discourse (119)

Dear Nasiru El-Rufa’i

My task was made easy by the publication of a recent interview you granted the Weekly Trust which was published in the last edition of the magazine. One important product of that interview, you will be delighted to know, is how it helped to clear the air about the honesty of your intention. You were able to demonstrate that you are just one of those youths who take their assignment seriously, doing it to the best of their ability and within the confines of space they are allowed in the power landscape of government. Such youths want this country to move forward; hence, they employ whatever they could muster of scholarship, professionalism and intelligence, and invest them into their assignments which they carryout in good faith.
Though functionally we belong to different sectors of the society – yours the corridors of power, ours social commentary as far as the issue of privatization is concerned – a mutual respect is nevertheless important. The nation will benefit better from your privatization job if you also believe in the honest intention of others. I was therefore disturbed when in the interview you said, “When you sit down and see those who are saying don’t privatize this and that, it is people who are benefiting from the system, either because they get LPOs, contracts or their brothers are employed there.” In logic we call this type of argument “fallacy of composition.”
At any rate, this writer has never written about privatization as a subject of his discourse before. He cannot also recall when last he was in Abuja for one contract or another, at least since the inception of this regime. This piece is coming from a village in the rural areas. I believe the country will benefit more if a mutual respect exists between agents of government and the press. After all, in logic, you do not question the motive, but the strength of the argument. Once you consider the person in your evaluation of an argument, you fall into another fallacy called ad hominem.
You also need to change your conception about the stake of Nigerians in privatization. Consider your statement: “all the people kicking and screaming, they don’t own the shares. They were not elected to take decisions…” Well, you can be forgiven because you are not a politician. However, your leaders, those who were elected supposedly, know very well that they were never elected to take decisions unilaterally without consultation with Nigerians or being responsive to their “kicking and screaming.” Any leader that does not consult is a bad governor and anyone that does not respond is a tyrant. I am afraid to say that this government has tirelessly worked to earn the reputation of bad governance and tyranny as far as decisions are concerned.
That takes us to the fourth point. It is clear that important decisions are taken unilaterally by government based on generalizations and without resort to detailed records, to public opinion or to the constitution. Take for example how, according to your testimony, the decision to sell the mint was arrived at by government. “It is the Central Bank of Nigeria (CBN)”, you revealed, “that presented through the President that look, the mint needs more money, mint needs to be efficiently run and so it should be privatized. They gave their reasons. The President sent the reasons to the NCP for deliberation. It was deliberated upon with the minister of finance who is the majority shareholder in the company and they decided to sell their shares.”
From the above statement, it is clear that the conclusion to sell the mint was based on the premises that, one, it applied to the CBN for more funding and, two, the desire to run it efficiently. I want to know from our bankers how many thousands of times in a day do companies across the country go to them seeking for funding of one thing or another. There is absolutely no relationship between funding and the efficiency of a company. If efficiency is desired, does privatization guarantees efficiency? Malam, this is the crux of the matter. And the answer is NO, NO, NO. I will return to this later.
If records were submitted by the CBN to the government, they must have been cooked; otherwise, we would not have learnt the contrary from both the Chairman and the Managing Director of the mint. The two gentlemen have clearly testified on the viability of the mint in public. The President himself has showered encomiums on it just two weeks ago when he commissioned its new complex in Abuja. It has enlarged its capacity, a fact that you accepted in the interview even though you went ahead to preempt its failure by saying, “but it will also run down in the next two or three years because government does not know how to run business.”
Nigerians are concerned about the mint because it does not only print their notes but also all sorts of sensitive documents including their passports, certificates, checkbooks and government revenue receipts. The privatization project is receiving a lot of punching now because it has reached a stage where it is dealing with government bodies that have direct impact on our lives and which are seen to constitute the major assets of government.
Just for fun Nasiru, how do you meet a common man in Zaria city, if you go for a weekend, and tell him that government is selling its ‘injin kudi’ to some people? It may sound funny, but that is exactly the concern. It is not the issue of accounting, but of economics as well as security. You could not dismiss this even in your interview. That is why you said: “Central Bank can have someone there and the federal government can have someone there to keep an eye on them.” If the ‘foreigners’ are ready to invest in Nigeria, NITEL is there, let them buy it. Why did they shy away from it? Are they here for the mint because it has a new factory and it is cheap to run?
This concern over selling large parastatals of government brings us to our fifth point, the issue of the constitution. I agree that privatization was invented since 1986 and the selling of public enterprises started almost fifteen years ago and has continued throughout the period of military rule, backed by a decree. We are now under a constitutional government. However, on this matter, there is little to show that the constitution is followed; rather, convenience is found in continuing with the military decree. The constitution (s. 16) has gone into details regarding the commitment of government to what it calls “major sectors of the economy”. In a rare instance, the constitution (s. 16 (4) (a) defined them and the commitment of government to them in the following unambiguous words:
“The reference to the “major sectors of the economy” shall be construed as a reference to such economic activities as may, from time to time, be declared by a resolution of each House of the National Assembly to be managed and operated exclusively by the Government of the Federation: and until a resolution to the contrary is made by the National Assembly, economic activities being operated exclusively by the Government of the Federation on the date immediately preceding the day when this section comes to force, whether directly or through the agencies of a statutory or other corporation or company, shall be deemed to be major sectors of the economy.”
As a student of law, I hold the strong opinion that privatization of agencies like the mint, NITEL, NEPA, Nigerian Ports, etc, violates the letters and spirit of section 16 of the constitution. The constitution is not advocating for a complete market economy, but a mixed one where the state will, to use the words of s. 16 (1) (b), “control the economy in such manner as to secure the maximum welfare, freedom and happiness of every citizen on the basis of social justice and equality of status and opportunity.”
I am glad that the National assembly is developing interest in the powers it has over this matter as enshrined in s. 16 (3) (a,b) of the constitution. We shall push them to “administer”, as the constitution put it, “any law for the regulation of the ownership and control of such enterprises.”
All what we said above do not touch on the basic assumptions underlining privatization. The National Council on Privatization (NCP) has recently published a small pamphlet titled Frequently Asked Questions on NITEL Privatization. It promised that “subscribers and businesses will benefit through greater access to phone services, significant improvements in the quality of service and greater competition that will eventually lead to lower costs.” “Nigeria’s economy”, it said, “will benefit from up to USS$1billion in new investments in the medium term, increase in employment, a better trained work force via the acquisition of new skills and technology, and increased productivity.” All these points can be contested. We will just pick on one or two using your interview.
One may ask, why shouldn’t NITEL be allowed to improve as it is, without privatization? The obvious answer you will give is what you said in the interview i.e. “government does not know how to run business.”
In that interview, you compared the productivity of NITEL with that of GSM operators, saying: “Last year, the NCC licensed two GSM operations to roll out in addition to NITEL. They started service in Airport. The two organs are now eight months. They have signed on nearly 400,000 Nigerians that have GSM phones in eight months! In over 100 years, since NITEL in one form or another started, NITEL has only 400,000 customers. Just compare. Two private companies achieved in eight months. One government company achieved 40,000 in 100 years. Which one would you take?”
Here is the problem with your thought, my dear. It is surprising that a professional of your reputation will compare NITEL with GSM this way. It is absolutely absurd because the technologies are not the same. Providing 400,000 landlines is not the same as providing 400,000 satellite lines. Could the same GSM operators, simply because they are private, have provided Nigerians in eight months all the massive infrastructure of masts, cables, offices, equipment and trained staff that NITEL now has at its disposal and on which the GSM depends?
Also, take note of the fact that NITEL, in whatever form it was operating, had to deal with different systems of communications over 100 years that you mentioned, and their decisions were not restricted by the myopic goal of profit making, but by social goals like geographical spread, employment and so on. I will prefer NITEL to GSM operators because its landlines are still more reliable. I can get to anywhere from my village here. Ask any GSM holder on the street of Kaduna or Lagos about the frustration he encounters when using his handset and you will be shocked by his answer. Some people have already abandoned theirs. It does not work. Simple.
You see, the issue of efficiency on which the concept of privatization is entirely hinged is not totally true today as when it was expounded in 1776 by Adam Smith in The Wealth of Nations. The argument that private firms are more efficient than government firms is relative. In many instances it is not a fact but simply sentiment. It is relative to the size of the firm in question. If it is small, then it can be easily managed privately. If it is big, intended to cover wider areas and in a developing society with low per capita income like ours, the equation becomes complicated by the inclusion of many variables. Then, the yardstick of efficiency itself becomes elastic like a spring, very difficult to fix.
If NITEL were after profit, then no town in the North would have had any telephone line in the past 100 years. Why haven’t we seen Intercellular and MTEL extend their services to Yola, Maiduguri, Sokoto or Yauri, to date? Why should government instruct NITEL to digitalize such towns? The answer is that there is enormous social benefit in having different parts of the country becoming interconnected. This is important for governance, political stability and economic growth, benefits that cannot be quantified in naira and kobo and hence outside the purview of profit making. Our GSM operators are yet to reach those towns. In this respect NITEL is a great success.
Affordability is another thing. N50.00 a minute of GSM rate is not something that 95% of Nigerians can afford. Here, GSM is a failure compared to NITEL. Finally, the risk of failure is there. As a government organization, NITEL can absorb many shocks that GSM operators cannot. I will not be surprised if one day NITEL remains the only GSM provider, weeding out MTN and ECONET.
Your comparison was therefore odious. Government does not need to think like an accountant. It needs to think and behave like an economist, who does not measure efficiency using the figures on the balance sheet alone but as an aggregate of financial and social benefits accruing from its investments.
But even on the basis of accounting, how true is the assertion that private firms are efficient? For a better answer we may need to write Anderson and its 500,000 partners and shareholders worldwide. If anyone thinks that by privatizing NEPA or NITEL our telephone or electricity problems will be over, then he is in for a big shock. Just two weeks ago, we learnt that Railtrack, the British private company running British railways, has become insolvent. The government had to take over the management of the 15,000 km rail and over 2,400 stations under the control of the firm.
The stories are many. Enron is another and before it were millions of companies and consortia that have gone bankrupt since 1776. These are daily happenings in the industrialized world where, we assume, corruption is minimal and their citizens have a high per capita income that makes them patronize such services. The fact that Anderson has shredded millions of implicating documents at Enron is enough a proof that private companies, even in the West, and no matter their reputation, are not sufficiently vaccinated against the corruption virus.
Added to this is what you mentioned about the indebtedness of British Telecom to the tune of $40billion and Deutsche Telecom $30billion. Where is the accounting success story in these figures? The fact remains that they refused to buy NITEL not because they were indebted as you said in the interview, but because of the terrain and atmosphere in which NITEL operates is not conducive for privatization. That is why no one is ready to buy it either. Well, NITEL is not a hot potato. Please let them leave it alone for us. Do not also bother looking for investors so desperately. It is not an overstayed cake.
You see, your argument about the efficiency of Nigerian private firms would have been plausible if your research and statistics department were able to furnish us with the success stories of over 100 firms privatized in Nigeria between 1987 and 1999. Some have been privatized for fifteen years, some ten, etc. If you do not have one such department, please consider setting up one. I will be glad to publish its findings free of charge for your bureau.
But before then, I have endeavored to furnish you, free of charge, with one story at least, of a nearby factory. It is the sad story of Madara Ltd, Vom (formerly Vom Dairy) which was among the first firms to be privatized way back in 1987. The facts here can be found in the March 1987 edition of Analyst and reported by Steve Raymond in The Standard of March 24, 1987. The company was formed in 1939 by the British to supply their troops with butter during the Second World War. We all enjoyed its yoghurt on campus in the late seventies and early eighties. The federal government had 80% of the shares; Benue and Plateau states 20%. It was valued at N7.4million before sale. West African Milk Company (WAMCO) offered N4million and was ready to incur all liabilities. But it was sold to late Maj. Gen. Shehu Musa Yaradua of blessed memory for N2million only, without any liability. Yaradua acquired 55% of the shares, NACB 25% and Plateau State 20%. Immediately, the number of workers was reduced from 102 to 26, seven of whom were watchmen.
I paid a visit its site at Vom last week to see whether its privatization is successful. What I saw was an abandoned complex, as shown in the picture on this page, with only a watchman and some people in the rear processing kaolin. No cattle, no forage, nothing around. Recently, people have started vandalizing its machines, as told by the watchman. WAMCO on the other hand is still there, successfully going on and providing us with its product, Farmfresh. What went wrong with Madara Ltd? Privatization, the Nigerian way of course!
The problem we have at hand regarding NITEL, NEPA and other major parastatals of government is that of deliberate incompetence, not of an inherent organic incapacity. Think about this. I strongly believe that NITEL will tremendously improve if government will appoint as its head competent people like Malam Nasiru El-Rufai and give him the free hand to choose a management team from other equally competent and honest Nigerians. Within a short time they will successfully carry out all the necessary restructuring and rid the organization of all its bad eggs. Bajoga improved a lot in NITEL.
But those in government, for obvious reasons, would prefer to sell it, as they did to Madara. They will only appoint competent people into board and management positions based on political patronage while they employ capable hands only if they can use them. That is why we are unhappy with Obasanjo. And should he continue for the next twenty years practicing this tradition, he will achieve nothing.
I have a simple analogy on privatization which I share with villagers around. I don’t know how it would suite your office at Maitama, Abuja. It is a case of a heavily drinking father who cannot manage the affairs of his home properly. He cannot even repair his leaking roof. One day, someone met him and said: “This house is dilapidating. Please sell it to me. I will repair it beautifully. Thereafter, you can use the proceeds to pay for the rent.” The father agreed, in defiance of objections from his children. He sold the house to the stranger who repaired it and rented it to them, as promised. However, the drinking father soon blew the proceeds of the sale and within a year the family became penniless. The family resorted to selling its farms and possessions in its bid to keep the house in the succeeding years. Eventually, it became totally bankrupt and was evicted from the house and was today living in wilderness. May God save Nigeria.
Nasiru, I am sincerely and deeply concerned that you will one day be made to shoulder the greatest blame in our history. You are doing things today with the approval of your bosses, as you rightly said recently, in all honesty and vigor. When they hit the rock like Madara Ltd, as they would almost certainly do, the honesty of your intention would not vindicate you; neither would your bosses defend you, even if they will be alive then.
Why not try commercialization and liberalization? Or why don’t you try convincing the President to allow these parastatals to be restructured by competent and honest brains like yours?
Voices hardly reach people who are afar. You have certainly gone far. Strong voices have called you, you haven’t heard them. Mine is faint. My dear, all the same, how I wish you could hear me.

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