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Privatization: Nigeria aims to put 36 state assets in private hands

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Privatization: Nigeria aims to put 36 state assets in private hands

The Bureau of Public Enterprises (BPE), Nigeria’s privatisation agency, intends to sell 36 state-owned assets in 2021.

This is according to The Economist Intelligence Unit report for July 2021. The BPE intends to raise N493.4 billion (US$1.2 billion) from selling these state-owned assets, which include power-generation plants and free-trade zones.

Why is Nigeria selling its assets?

According to the report, the reason for the assets sale is to generate revenue for the government while also reducing operational inefficiencies and increasing competence through private investments.

Furthermore, significant shortages in oil and non-oil earnings have resulted in such a massive wave of privatizations. Fiscal revenue was 44.6 % below official budget predictions in the first five months of 2021 and infrastructure investment was considerably below plan.

Privatization in Nigeria has had a poor track record

The Bureau of Public Enterprises, has a lousy track record of following through on its privatization plans. According to the Director-General of the BPE, Alex Okoh:

“Since its creation in 1999, the bureau has generated more than N1 trillion (US$2.4 billion) 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 to 2020, the Federal Ministry of Finance reported zero privatisation proceeds even though revenue from sales had been expected in each year.”

The report stated that 2019 saw policymakers disclose a proposal to cut government stake in existing joint ventures. Partnerships with global oil corporations to 40%, down from an average of 57.5%, are unquestionably desirous of the opportunity advantages of privatization. However, the authorities have been hampered by a number of roadblocks. Ownership and control of public assets are being relinquished. It is unlikely that the BPE will meet its 2021 objective.

Bottlenecks to privatization in Nigeria

The deterrents to privatization in Nigeria can be traced to an erratic regulatory environment for private-sector participation in public utilities, questionable asset valuations, sizeable liabilities held by the enterprises, litigation entanglements, and public opposition to the sale of strategic state assets.

Although there has been an increased drive to divest from loss-making public companies as a method of saving money, privatization revenues will not compensate for an appallingly low tax base in terms of relieving budgetary strains or an over-reliance on oil income.

Impact on the Nigerian economy

The report said, “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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