Why Proposed Privatisation Of 36 State Assets Won't Succeed, Address Overdependence On Oil — Report

A report by the Economic Intelligence Unit has stated that the proposal by Nigeria's privatization agency, the Bureau of Public Enterprises, to privatize 36 state assets is likely to fail in its objective of generating revenue for the government. 

It stated that despite the good aim of reducing operational inefficiencies and improving productivity, the BPE's poor record of implementing its privatisation schedule, would not yield improvement.

It referred to a claim by the director-general of the BPE, Alex Okoh, who noted that since its creation in 1999, the bureau has generated more than N1trn (US$2.4bn) from the sale, commercialisation and concession of 234 public assets but pointed out that such transactions occurred in the early years of Nigeria's privatisation programme as only a little progress had been made in the past decade.

It, however, noted that money accrued from privatisation would not compensate for the low tax take plaguing the government or an over-dependence on oil revenue. 

EIU, therefore, suggested upcoming budgets to include new taxes or increases to existing taxes, in particular value-added tax (VAT).

The report partly read, “Nigeria's privatisation agency, the Bureau of Public Enterprises (BPE), plans to privatise 36 state-owned assets in 2021. The agency aims to raise N493.4bn (US$1.2bn) from selling or concessioning the assets, which include power-generation plants and free-trade zones. 

“The objectives of privatisation are to generate cash for the government and in the process reduce operational inefficiencies and improve productivity through private investment. Such a large wave of privatisations is a testament to significant shortfalls in oil and non-oil earnings. 

“In the first five months of 2021, fiscal revenue was 44.6% below official budget projections, and spending on infrastructure was well below target. However, the BPE has a poor record of implementing its privatisation schedule. The director-general of the BPE, Alex Okoh, said that since its creation in 1999, the bureau had generated more than N1trn (US$2.4bn) from the sale, commercialisation and concession of 234 public assets. 

“But many of the transactions occurred in the early years of Nigeria's privatisation programme. Little progress has been made in the past decade. For the three years before 2020, the Federal Ministry of Finance reported zero privatisation proceeds even though revenue from sales had been expected in each year. Policymakers, who in 2019 announced a plan to reduce government equity in existing joint ventures with multinational oil companies to 40% from an average of 57.5%, undoubtedly want the benefits of privatisation. 

“But the authorities have been impeded by various obstacles to relinquishing ownership and control of public assets. It is doubtful whether the BPE will achieve its 2021 target. Not only has half the year already passed, but an erratic regulatory environment for private-sector participation in public utilities (for example owing to price controls), questionable valuations of assets, sizeable liabilities held by the enterprises, litigation entanglements and public opposition to the sale of strategic state assets are all deterrents. 

“Although there may be a renewed push to divest from loss-making public enterprises as a means of alleviating fiscal pressures, privatisation receipts will not compensate for an abysmally low tax take or an over-dependence on oil revenue. 

“Because of this, we continue to expect upcoming budgets to include new taxes or increases to existing taxes, in particular value-added tax (VAT). We continue to expect a VAT hike to 15%, a revenue measure that appears unavoidable considering persistent budget deficits. 

“However, we continue to expect fiscal deficits in 2021-25, averaging 2.9% of GDP a year."

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