Experts have argued that the Federal and State Governments have the capability to unlock Nigeria’s huge potential and achieve sustainable economic growth through privatization.
The experts, who spoke at a Webinar organised by the Nigerian Stock Exchange (NSE), in collaboration with the Nigeria Governors’ Forum (NGF), and the Nigerian Investment Promotion Council (NIPC), submitted that privatisation is the only avenue for governments to unlock economic potential inherent in government-owned enterprises.
Speaking on the theme, “Privatisation in Nigeria and the Outlook for Sub-national Economic Development,” the Director-General, Securities and Exchange Commission (SEC), Lamido Yuguda, said there is indeed no better time to discuss alternative funding sources at the sub-national level given the devastating effect of the COVID-19 pandemic.
Yuguda, who was represented by Executive Commissioner, Legal and Enforcement, Reginald Karawusa, noted that the capital market’s primary role in any economy is to facilitate capital formation as a viable option to raise funds for long term projects.
According to him, by creating a system for capital allocation, investors are able to price risk efficiently, while issuers have the opportunity to raise funds to finance projects and may choose to raise equities or debts.
He said: “Sub-national issuers in Nigeria have been able to access the debt capital market over the years. Since 1978, state governments in Nigeria have raised close to N900 billion through debt issuances. A significant part of these funds were deployed to finance capital projects across the country.”
He said the ability of states to continue to borrow in a sustainable manner has been severely impacted in recent times, as given the huge infrastructure gap, decreased allocation from the federal purse owing to relatively low oil revenue, and the depressed level of internally-generated revenues, states are barely able to pay salaries after servicing their outstanding loan obligations.
Yuguda continued: “Privatisation is an avenue for governments to unlock economic potentials inherent in government owned enterprises. The focus on Nigeria’s journey on privatisation has largely been on the Federal Government.
“There have been several phases of privatisation exercises in the past with emphasis on enterprises operating in different sectors of the economy including oil and gas, hospitality, mining among others.
“Several enterprises are still owned and controlled by the government, both at the state and federal levels. A number of these entities have the capacities to generate cash flows and corporate profitability.
“However, owing to certain inefficiencies, these entities are underperforming, and in some cases subtracting from value. Perhaps this is the time for state governments to revisit the privatisation value proposition. There are several benefits to privatisation.”
He said privatisation has numerous benefits, as the proceeds from the sale of government’s interest in these enterprises would help augment budget shortfalls and can be applied towards funding critical infrastructure.
“Beyond the funds to be generated, governments will enjoy cost savings as there would be no further requirements to fund these entities post-privatisation.
“There are further benefits to be enjoyed through the taxes that would be paid in the future by those entities. As they undergo strategic transformation and become positioned for profitability, these entities are able to create jobs and employ residents of their host states, facilitate infrastructure development and further positively impact the economy in other areas” he added.
In his remarks, the Chief Executive Officer, NSE, Oscar Onyema, said the webinar is part of the Exchange’s strategic strive in assisting the states towards economic sustenance.
According to him, privatisation occupies a critical position in economic globalisation, and provides an avenue for raising the bar towards economic development.
“Given COVID-19, there is no better time to re-visit privatisation and cascade this to the sub-national levels,” he said.
Also speaking, the Chairman, Nigerian Governors Forum (NGF), Dr. Kayode Fayemi, said the states have been constrained to increase spending in a bid to mitigate the effects of the pandemic.
He said: “containment is fairly in place, but more needs to be done to ensure progress is not lost; and that is where privatisation comes in. If the private sector takes over in critical sectors, state governments can focus on education and health among others.”
Fayemi assured that the NGF will continue to partner with the NSE to bring in long term financing for infrastructure development.