Privatisation and Sector Competitiveness

The Central Bank of Nigeria (CBN) Annual Report for 2010 quoting National Bureau of Statistics (NBS) data provides growth rates of sectors in the Nigerian economy. It should surprise no one that the fastest growing sector in 2010 was communications at 34.5 per cent! The sector has in fact sustained above-30% growth since 2001 when the digital mobile license auctions were held becoming 4.6% of total GDP (higher than manufacturing and banking and insurance!). The telecommunications sector vividly demonstrates not just the power of private capital and management in transforming sectors, but also illustrates the role government can play in fostering sector competitiveness and transformation through sensible policy (in this case through the BPE’s telecommunications policy 2001), and effective regulation. The second fastest-growing sector, solid minerals grew at 12.3% in 2010. Unfortunately mining activity is insignificant relative to total GDP so its high growth rate makes little effect on the wider economy! The other fast-growing sectors are building and construction (12.2%); hotels and restaurants (12%; wholesale and retail trade (11.2%) and real estate (10.4%). Moderately growing sectors include commercial, social and personal services (9.9%); manufacturing (7.6%); transport (6.7%) and agriculture (5.7%). Low growth sectors include crude petroleum (4.6%); finance and insurance (3.9%) and utilities (3.3%). Crude petroleum only recently began to grow after the amnesty programme restored peace in the Niger-Delta allowing increase in crude output; the financial sector has been hobbled by industry turmoil and has not only become slow-growing, but has also declined to 3.6% of GDP; utilities, essentially government-owned are the slowest-growing entities in the Nigerian economy! Certain sectors do not show up in the GDP data including automobiles and steel/aluminium. Now let’s relate all these to the privatisation data released by BPE and published in the media some weeks back. The data showed that BPE had privatised 122 enterprises in fourteen (14) sectors between 1999 and 2007. The sectors were automobile; cement; steel and aluminium; oil and gas; hotel and tourism; banking and insurance; sugar; solid minerals and mining; paper and packaging; sea ports and terminals; agriculture; aviation; block making; and energy. The data of course puts a lie to the propaganda spread so casually by opponents of privatisation that “80 per cent of privatised companies had failed” and supports BPE’s position that 70% were indeed successful. The list of “performing” companies includes Benue Cement Company; Cement Company of Northern Nigeria; WAPCO; Ashaka Cement; Onigolo Cement, Benin Republic; and Calabar Cement Company in the cement sector. Others are LPG Calabar Depot sold to Sahara Energy; Oando Plc; African Petroleum; Conoil Plc; West African Refinery Company of Sierra Leone and Eleme Petrochemicals all in the oil marketing and petrochemicals sector. In the hotel and tourism sector, successful privatisations include Golden Tulip Festac; Southern Sun Ikoyi; Le Meridien Abuja (now NICON Luxury); Transcorp Hilton and several others. Banking and insurance privatisations include FSB International Bank (part of the contemporary Fidelity Bank); IMB (part of Finbank); NAL Merchant Bank (Sterling Bank); NICON Insurance and Nigerian Re-insurance. There are many other examples of successful privatisations in solid minerals and mining, ports and terminals, agriculture, block making and energy sectors. The data also reveals that government failed even in sectors in which there were no issues of sector competitiveness-cement; oil marketing; hotels; ports and terminals; banks; energy companies etc!!! A careful analysis of the data in fact suggests that the much-trumpeted privatisation failures especially in automobile and steel sectors establish issues of lack of sector competitiveness, rather than necessarily company-specific performance or lack of it. It is analytically dubious for instance to shout to the rooftops over the “failure” of steel sector privatisations, when it is well known that the sector was a failure (as well as a funding drainpipe) long before the government sold off assets in that sector. Is there a need to review and prescribe a sector strategy and policy framework for steel rather than engage in a useless argument over steel sector privatisations? A similar argument relates to automobile (actually motor assembly plants) sector. The simple truth as one friend who had the misfortune of working in that sector has shouted himself hoarse explaining is that the auto assembly plants were structurally uncompetitive once Nigeria devalued its previously over-valued currency. Why do we think the technical partners-Peugeot, Volkswagen, and Mercedes etc. abandoned them to us and went back to their countries? Does anyone think these firms would have abandoned their investments if they saw prospect of success? The only factor that interested the foreign partners in those motor assembly plants was the huge exchange rate subsidy provided by the government of Nigeria through its over-valued currency! Once our dollar reserves were exhausted and we were forced to devalue the currency, the absurd logic of transporting completely knocked down vehicle parts thousands of miles to Nigeria was lost, and these “partners” duly walked away. The point again is that Nigeria needs a policy framework that carefully reviews the automobile value chain, decides what role Nigerian firms can be competitive in playing and creates conditions to enable Nigerian enterprises take advantage accordingly. The point I make is that we may be better off examining the competitiveness of economic sectors in Nigeria and evolving policy to build such where such opportunities exist, rather than a simple-minded lamentation over the “failure” of steel and automobile privatisations.