Privatisation: Key to economic sustainability

Economy and Market

Continued from last week

This will result in not only the enhanced profitability of these entities but also ensure continuous growth & sustainability, improved governance and visibility.

Deferred Public Offer – This method is better suited to public enterprises that do not meet the listing requirements of the Exchange or require extensive work to become market ready. With a positive future outlook, they can be first privatised by private placement with a clause to make them public after a predetermined period or once certain conditions have been met.

Thisprovidesanopportunity for private investors to bring them up to profitability, after which listing them on the Exchange will promote sustainability. Currently, majority of State Owned Enterprises (SOES) fall under this category and Deferred Public Offering approach may be best suitable to improve their viability to investible funds for revitalization and to further stimulate the economy rather than leaving them at their current state of underperformance.

Core Investor Asset Sale – Simply put, this occurs when government decides to cede 100percent ownership holdings on such entities to the private sector.

Concession – This is the temporary transfer of public resources, utility or other assets from the government to the private sector to develop, operate and manage for a specified period of time. In typical concessions, the concessionaire ( private sector) is obligated to pay a fixed amount or percentage of revenues as agreed in the contract to the government for the concession. Concessions are an effective method for the privatisation of public assets without the government loosing permanent control of those assets as ownership automatically falls back to the government after the contract elapses.

Summarily, privatisation has an effect in shifting the Governments focus from immediate political goals to long-term economic goals, which leads to development of the domestic economy.

Having noted that many developing countries require restructuring of their State Owned Enterprises (SOES) in order to improve efficiency, which can be achieved through privatisation. It is also important that the Nigerian capital market is involved in all structural reforms especially those relating to public private partnerships and privatization. This is because the market helps to provide right-sized capital, encourage investment culture and create investment liquidity.

This will go a long way in further strengthening the capital market and attract more foreign investment thereby boosting the economy and ultimately fostering fundamental economic growth. Ultimately, the government should look beyond the immediate revenue gain from privatization, and privatize entities that will open up the real sector of the economy and make individual businesses profitable and sustainable.

This move will also free up government resources and cause a focus on its primary role of creating an enabling environment to support economic growth. Furthermore, the spillover effect of privatization will unwittingly develop all sectors of the economy which can also be attributed to government’s efforts.

Article contributed by State Owned Enterprises Department of The Nigerian Stock Exchange

Article contributed by State Owned Enterprises Department of The Nigerian Stock Exchange