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PRIVATIZATION OF GOVERNMENT ASSETS:Assessing the Rationale (2)

By Eze Nwabgaraji
African Experience with Privatization But for few instances of concessioning, the primary methods of privatization in Nigeria and several African countries have been through share issue sales and asset sales.

By share sales, the government engages in floating shares on the stock markets with individuals encouraged to participate in the equities as beneficial owners of the corporation or business that is being privatized.

By floating the company in the equities markets, the government eventually transfers operating and managerial functions to the new owners, unless in a situation where the government is still the largest block owner of the privatized enterprise. Even then, the government can still transfer managerial and operational functions to the broader pool of the owners.

Some of the great advantages of share sales include the broadening of the local stock markets and introduction of the populace to participating in equity ownership of previous government corporations. Nigeria, Ghana, and Kenya pursued this method of privatization to some limited extent and some of the success stories of privatization regimes in these countries have been those done through equity sales to the public. For example, Ashanti Gold Fields in Ghana and the privatization of Kenyan Airways.
One of the major impediments of the share sales option is the lack of awareness within the public about participating in the stock markets and the fact that most Africans are poor and may not have the resources to participate adequately in such schemes.

However, schemes such as offering equity shares at discounted prices or on deferred terms to people who have little capital, but may be directly involved in a particular production sector may assist in solving some of the inherent problems.

For example, the Ugandan Tea Growers Corporation experiment where tea farmers gradually buy into the corporation’s factories as they sell their tea and initial subscriptions are pegged at reasonably low cost to the growers.
This directed group ownership schemes holds great promises if Africa has to continue on the part to privatization.

It is important for privatization to be accepted by a larger portion of the population. If a significant number of people are involved in ownership of these corporations, public resentment may be lowered to minimal levels.

Full or partial asset sale on the other hand, is a method where the state sells the target corporation to a strategic investor. Full sale is where the entire asset is sold outright to the strategic investor and partial sale is where a majority or minority interest in the corporation is sold, with the government retaining interest in the privatized entity.

The argument always advanced by proponents of full and partial sale is that the new owners in an outright sale will better manage the corporation and that efficiency in the long run will be beneficial to the public. For partial sales, the argument is to bring in a strategic partner (owner) who will also infuse capital, managerial know how, and eventually increase the value of the corporation.

The biggest supporters of full or partial sale of government assets on the African continent to strategic investors are always the government privatizing agencies and some of the biggest business interests, who invest in these enterprises.

Economists and observers of African development challenges have always cautioned and advised on graduated approach to privatizations. Corruption and sharp practices by government officials among African countries is one of the greatest challenges facing privatization schemes.

In most of the cases of privatization in some of Africa’s large economies, Nigeria for example, there has not been any serious attempt to measure the success rates of the numerous corporations that have been privatized. Have the corporations produced the desired results expected or advanced by the governments?

One notable consequence of the push for privatization in Africa though is the near abandonment of serious economic infrastructure development. The argument that has been emerging is why engage in the building or development of businesses, while existing ones are being privatized?

Privatizations schemes in some African countries also seem not to have been planned very well to carry along the general public, especially the workers within the target corporations. (It is worthy of note that majority of public corporations that are targets of privatization in Africa are also some of the largest employers of labor in these countries).

In Nigeria for example, the numerous attempts that have been made to privatize the former national
telecommunications carrier has been fraught with allegations of fraud, marginalization of the corporation’s employees, and sabotage. In Ghana, the national trade union complained about its exclusion at the decision levels about privatization and eventually, the trade union was given a seat on the country’s Divestiture Implementation Committee, which oversees the sale of state assets.

In Niger, telecommunication workers embarked on nationwide strike to protest government’s attempt to break up the national telecommunications carrier without taking the interest of the workers into consideration.


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