ISSUES IN PRIVATIZATION AND RESTRUCTURING IN SUB-SAHARAN AFRICA [7]
By
7. Conclusion
"A healthy State is one that can recognize its own limits, tap the creative and productive talent of its private citizens, and can accept its full responsibility to ensure that the fruits of the labour of its public and private enterprises are justly shared." (Colombia Journal of World Business, Fall 1986, p. 60.)
Much of the privatization carried out in sub-Saharan Africa can be described as "donor" privatization. Very often, the sale of public enterprises to the private sector is in fulfilment of the conditionality set by the Bretton Woods institutions and other aid agencies. For example, privatization features as a policy orientation by the US Agency for International Development (USAID). Thus in 1985 the former US Secretary of State, George Schultz, in his telegraphic message to the African field offices of USAID, stressed the urgency to impress upon those receiving aid of the need to embark on privatization. The message went on "parastatals are generally an inefficient way of doing business ... In most cases, public sector firms should be privatized". The USAID African field staff were to get involved in "an average of at least two privatization activities by the end of 1987".36
The request by donors to African governments to privatize often finds African bureaucrats unprepared, and given such unfavourable conditions as the deteriorating economic situation, high unemployment, underdeveloped capital markets, inexperienced professional sector accountants, bankers, lawyers etc. and an unstable political system with weak bureaucracies incapable of designing and implementing the privatization process, privatization becomes a very difficult affair.
There is, in some cases, a stark lack of negotiating experience by government with both foreign and domestic investors due to a lack of business orientation by government bureaucrats. This leads to the donor agencies formulating both the agenda and the main parameters of policy negotiation. For instance, in the privatization of the state-owned steel mill in Togo, the lessee extracted quite unusually favourable concessions including a long-term monopoly on iron and steel sold in Togo. The unfortunate result is that governments may react passively to initiatives pressed on to them by international agencies. The local bureaucrats feel deprived of a sense of ownership of the reforms, and hence the difficulty in implementing such reforms, also due in part to inadequate political preparation.
In the end "many of the adjusting countries adjusted in name only" and they openly flouted the Bank's directive either by "implementing less than half of the recommended conditionality or implementing recommended policies and then reversing them or implementing the formal conditionality, but undoing its effects through countervailing measures."37 In some cases the speed at which privatization is carried out is so rapid that the absorptive capacity of the economy becomes overstretched at the same time that the government administrative capacity is overtaxed.
Role of the State in development
An issue of great importance brought forward by privatization and economic restructuring is that of the appropriate role of the State in the industrialization of Africa. In this connection, the federal Government of Nigeria appointed a commission in 1981 to examine "the organization, structure, management and job content of all public corporations and federal government-owned companies and other parastatals". The commission, otherwise known as the Onosode Commission, in one of its recommendations called for a "roll back of the frontiers of government."38 In this regard it has been observed that most African States are too weak to implement the necessary structural adjustment and that vigorous and effective government policies are crucial for effective economic reforms. It follows that what is needed is the strengthening of the State for greater effectiveness.
The launching pad of any reform has to be improvements in government capabilities to mount effective interventions in support of industrialization. One of the main lessons of African development is the central role which bad government has played in bringing about poor economic performance. This has led many observers to turn to laissez-faire and the private sector as an alternative to government-directed development. But the transition to a "private sector-led and politically and institutionally pluralist economy in Africa will demand a significant and effective government role". As Peter Drucker asserts "the economic sphere cannot and will not be considered to lie outside the public domain. But the choices for the economy -- as well as for all other sectors -- are no longer either complete government indifference or complete government control". While it is true that the majority of parastatals in Africa perform badly because of their place in national development especially utilities and basic industries the way to improve their performance is definitely not to dismantle the State but rather to reconstruct it and transform it from a major part of the problem to a major part of the solution, to sustain the process of economic reforms. A lean government does not necessarily mean a better government as witness the spate of redundancies in the public sector which has not resulted in greater efficiency. In fact in many cases most of the downsizing has been counterproductive.
In this regard, one should take seriously the comments made by Professor Earnest Wilson III when he addressed an international conference in Lagos (Nigeria) in 1990 on the implementation of privatization and commercialization:
"In Africa, the public-private relationship is predatory; in Asia, it is a partnership. In Africa, the State preempts the private sector; in Asia the State promotes the private sector; in Asia there is growing prosperity; in Africa, growing poverty. Africa errs, I argue, when the State ignores the need for closer public-private sector cooperation. A central and key linkage in public-private relations is the business interest associations -- the chambers of commerce, the employers' associations, and so forth. African governments should promote their ties with these business interest associations, and not restrict them."39
There is a need to dismantle the disabling environment through the modification or elimination of those functions of state agencies that control and dominate the private sector in such areas as industrial licensing, foreign exchange controls, registration of new businesses, certain financial controls, etc. But it has also been stressed that the accomplishment of industrialization in Africa will be postponed for a long time if governments of those countries featuring a weak industrial base were to stand aloof and rely solely on the market. Perhaps what is needed is a market system leavened by efficient government.
Social partners
Another issue in privatization concerns the involvement of employers' and workers' organizations in the formulation of privatization policies. In almost all African countries employers' organizations consult with government for certain economic reforms advantageous to the private sector. Privatization is usually undertaken within the gamut of structural adjustment reforms and liberalization and employers' organizations often do not specifically initiate discussions with government on the handing over of specific state companies to the private sector. There is however a case in Botswana where the business community did actually put pressure on the Government "to push ahead with privatization in order to sustain the driving force of the private sector for economic expansion". Nevertheless, what private employers usually do demand from government is a level playing-field in their activities vis-à-vis state-owned companies in the same sector.
The business community in Nigeria was openly critical of the action by the federal Government in 1981 to establish a state trading company -- the Nigerian National Supply Company Limited (NNSC). At the 1983 Annual Luncheon of the Distributive Trade Group of the Lagos Chamber of Commerce and Industry, it was stressed that "state trading involves mis-allocation of capital resources since such state organization lacks the initiative, flexibility and dynamism necessary for dealing with problems of the market place [and that] Government would have been better advised to encourage indigenous entrepreneurs to undertake nationwide distribution, through good credit policies, government purchasing policies and the like, rather than establish its own distributive company".
Since a large part of the business community benefits from the import substitution regime that shelters it from outside competition it is bound to feel uncomfortable about some aspects of liberalization and other economic reforms, including privatization. This has little to do with the private sector embracing those economic incentives flowing from liberalization that promote their businesses. The divestiture decision-making process is bureaucratic and political. Therefore private sector involvement is often confined to the final stages of negotiation for bids.
However, since the announcement of the 1997 federal government budget, the Nigerian business community has been vocal in its support for privatization. The 1997 budget speech by the Head of State underlined the need for government to "take the Organized Private Sector into confidence" in matters concerning privatization and commercialization of public enterprises. In furtherance of this, the Manufacturers' Association of Nigeria (MAN) requested government "to set a time-table for the commencement of the privatization programme", while the Institute of Chartered Accountants of Nigeria (ICAN) at a post-budget workshop early in 1997 called on government "to resume the privatization of vital public corporations in order to boost their efficiency", adding that "for an ambitious economy desirous of vast foreign and domestic investment like ours, privatization remains the most effective starting point".40
The situation of trade unions is somewhat different. As government is the largest employer in most African countries, public sector trade unions constitute a vital organ of advocacy for workers' interest nationwide and their numerical strength forces government to take them seriously. In Ghana, for example, while employers are not represented on the Divestiture Implementation Committee, the trade unions are. Trade unions are generally opposed to privatization for reason of the redundancies that result. As has been noted, "few workers can be persuaded to accept the birds-in-the-bush of future employment generation in an expanding private sector over the bird-in-the-hand of secure public employment". For instance in Nigeria, the Agricultural and Allied Senior Staff Association (ANSSA) has urged the federal Government "to involve trade unions in commercialization and privatization of key public enterprises so as to ensure adequate consideration for labour's interest". It further requested that trade unions be included "in the high-powered committees to examine the various options open to government before further privatization exercise".41
Privatization and efficiency
Another important issue of privatization relates to efficiency. There are a few African public enterprises that operate with efficiency but the overall image of the majority of these public enterprises is a depressing picture of inefficiency, losses, budgetary burdens and poor products and services. It has been noted that the excesses of public enterprises -- political interference as well as downright mismanagement -- are far greater in developing countries than in the industrialized ones. For example, nationalized industries are better managed in France because the Ecole Nationale d'Administration trains future administrators for both the state industries and the civil service thus creating a better link between the French civil service and industry.
Efficiency in public enterprises has to be assessed relative to the objectives pursued by those companies and therefore a multiplicity of policy objectives has to be taken into account which these enterprises are expected to achieve -- profits for the government's revenues and for investment, assistance to underprivileged groups or regions, increased and low cost output, increased employment and price stability.
The efficiency of the private sector is not in doubt given the fact that private sector firms are subject to the discipline of market forces while its managers are subject to considerable incentives and discipline different from and more demanding than those which apply to public sector managers. In spite of this there is doubt in some quarters in the industrialized countries as to whether privatization has in fact led to any increase in efficiency. For instance in the UK there is public protest against the privatized public transport "because of baffling, uncoordinated timetables" to the extent that one Dr. Owens of Cambridge University has blamed the introduction of private competition for the "terrible failure of the transport system."42
In African countries, however, there are two sectors within the private sector -- the indigenous private sector and the private sector wholly dominated by branches of multinational companies. While the latter is quite efficient, the same cannot be said for management of the indigenous private sector. It is really the small and medium-sized companies that dominate the indigenous private sector and a culture of large-scale enterprise management is thus ................. among indigenous entrepreneurs. Among the indigenous small-scale and medium-sized businesses in Nigeria there is insufficient ability to "bring and hold together an able staff, delegate authority, inspire loyalty and handle successful relations with labour and the public".43
However, most of the indigenous professional firms like those of accounting, law and medicine etc. perform very well given their size and owner-managed culture. There are also some medium-sized indigenous companies quoted on the stock exchange which are very efficiently run like the Ikeja Hotels Plc., the Kabo Holdings and the ADC Airlines all in Nigeria. Some of these have bought a few of the public enterprises like the purchase in 1993 of the Federal Palace Hotel in Lagos by the Ikeja Hotels Plc. and of the Durbar Hotel in Kaduna (Nigeria) by the Kabo Holdings.
For the majority of indigenous owner-managed small businesses, the excessive drive for a quick return on investment often yields substantial profit but without accompanying efficiency in the use of modern management techniques. As has been rightly noted by a Nigerian indigenous entrepreneur, "the business of this day and age demands sound administrative competence and know-how such as is not possessed by many small Nigerian businessmen who rely mainly on shrewdness and instinct in the running of their enterprises".
Openness to the world economy and the market-friendly approach
The World Bank report (1991) -- World Development Report: The Challenge of Development -- argues that economic growth in a developing country can more readily be achieved by opening to the world economy and integrating the national economy with the world economy.
The report does not rule out the role of the State but its market-friendly philosophy tends to indicate that, in order to derive optimum benefit from state intervention, the State should: (a) intervene selectively as it is inadvisable for the State to undertake physical production or to indiscriminately protect domestic production; (b) apply checks and balances and hence the need to subject state intervention to the discipline of international and domestic markets; and (c) intervene openly by making state intervention transparent and not subject to the discretion of public officials but to laid-down rules.
There are some who hold views different from the World Bank's approach over this matter. Although not in contradiction with World Bank' views, the example of the high performing Asian economies suggests and endorses robust state intervention as a dynamic substitute for a hands-off purely market-based approach. Examples are quoted from the high performing Asian economies where:
Policy interventions took many forms -- targeted and subsidized credit to selected industries, low deposit rates and ceilings on borrowing rates to increase profits and retained earnings, protection of domestic import industries, the establishment and financial support of government banks, public research investment in applied research, firm- and industry-specific export targets, development of export marketing institutions and wide sharing of information between public and private sectors. Some industries were promoted while others were not.44
The protection of the home market at the early industrialization stage provided Japan, the Republic of Korea and the other emerging markets of East-Asia "a captive market" which resulted in high profits and allowed domestic companies to make greater investment and learn-by-doing to improve product quality. It was also noted that at the early industrialization stage it is inadvisable to seek an unconditional integration with the world economy. In fact Adedeji (1994) goes further to suggest that as African countries have been de facto delinked from the global economy they should "withdraw from the market system and pursue vigorously for one or two decades a fundamental transformation of (their) political economy based ... on self-reliance, self-sustainment, democracy and justice with equity".45
However, what Japan, the Republic of Korea and Taiwan did when they experienced early rapid growth was selective integration with the world economy, i.e. they sought integration to the extent dictated by self-interest. It has also been observed that since openness to the world economy is a multidimensional concept, a country may decide to be open in some direction e.g. trade, and not in others like foreign direct investment or financial markets since openness is affected by factors like the stage and state of national development. There can be irreversible losses when the "wrong kind of openness is attempted or the timing and sequence are incorrect". Therefore, an African country should be wary in its choice of either a wholly export based economy or an economy with a substantial manufacturing base supporting export growth.
The relevance of privatization in Africa
As a result of the deteriorating economic situation in sub-Saharan Africa in the face of enormous efforts at liberalization and restructuring, there are those who doubt the positive effect of World Bank/IMF prescriptions on the industrialization of Africa. For instance, Heidi Vernon-Wortzel and Lawrence H. Wortzel (1989) maintain that privatization "is no more a solution to the problems of SOEs than SOEs were a solution to the problems they were created to solve". Paul Starr (1987) notes that "the illusory appeal of privatization is to provide a single solution for many complex problems", adding that if privatization has any merit at all, it is to remind everyone "that the public-private mix ought not to be considered settled for all time". Howard Stein (1992) is emphatic in his view that the effect of the World Bank/IMF prescriptions will be to "deindustrialize the existing manufacturing base in many African countries without encouraging any significant replacement". He refers to the huge devaluation of African currencies and the negative consequences this has had e.g. the encouragement of cheap imports which undercut local production. Devaluation also penalizes those manufacturing companies that depend on imported inputs. He is of the opinion that "simply getting the prices right and removing the public sector from influencing the economy in the hope that the private sector will respond, will do little to alter conditions in sub-Saharan Africa". Clive Hamilton (1989) observes that the implementation of policies of liberalization could have a dangerous effect on development and growth in developing countries. Guy Arnold (1994) contends that the newly industrializing countries of South-East Asia achieved their economic breakthroughs "with the ruthless use of state interventions or subsidies" designed to give international advantage to their companies. He notes that both the European Union States and Japan subsidize and protect their industries and agriculture "when it makes sense to do so even while lecturing Africa about the benefits of market forces". He then observes that Africa has actually been deindustrializing under IMF pressure.
Happily, the Africans themselves have started to report on the benefits of privatization. Eddie Iroh (1997) regards privatization "as a sure means of removing patronage from public officers". E.M. De Giorgio (1996) quotes the chief executive of Zambia Privatization Agency (ZPA) as noting that the most significant and lasting benefits of privatization "will not be cash received" but the capital investments made, the jobs created, the transformation of inefficient, subsidized companies into profit making and competitive businesses. Mark Ashurst (1996) reporting on the success of privatization in Zambia observes that the country was for the first time exporting coffee and cotton while the export of cut flowers has increased from $5 million in 1991 to $54 million in 1996. William Okecho (1996) notes that all Ugandan companies are performing better under better private sector management and are at the same time "providing regular tax revenues". Hamza Zayyad (1994) in referring to the Nigerian capital market after privatization and commercialization, notes that there have been more offerings of primary issues in the last five years than in all the past thirty years of the existence of the stock exchange. He talks of the demystification of the capital market operations as the ordinary Nigerian no longer regards the capital market as an elitist affair. "There is no local government in Nigeria today where there are no shareholders", he adds. He reports that when his Bureau of Public Enterprises (formerly known as Technical Committee for Privatization and Commercialization) started functioning in 1989, there were only 15 stockbrokers in the country and that by 1994 the number of stockbrokers had risen to 53. Emmanuel Agbodo (1996) notes that many of the privatized Ghanaian enterprises have been modernized and brought back to production. He records that the ABC Brewery doubled its production between 1992 and 1995 while the Ghana Agro-Food Company (GAFCO) increased employment from 500 to 700 by July 1996. Similarly, the Ghana Tropical Glass Company is fast becoming the leading producer of beer bottles in West Africa. Furthermore, in Zimbabwe the Grain Marketing Board came from a loss of more than $100 million to a profit of $21 million in 1995.
However, these differing viewpoints on the merits and demerits of privatization constitute two sides of the same privatization coin. Those who express caution and doubt as well as those who are sanguine about its benefits based on practical results achieved thus far have all enriched our understanding of privatization both as a concept as well as a practical proposition.
What is important is the evaluation of privatization in terms of its contribution to economic efficiency and growth as well as to the wider functioning of society. Studies have shown (Graham Ward, 1993) that production costs for private businesses are between 20 to 40 per cent lower than those in the public sector. It is obvious that the market-induced pressure to keep down costs and increase profits is a more effective discipline for the private business than political directives to economize in the public sector. Barry Gibson of the British Airports Authority (a privatized company) has noted that one of the effects of privatization has been the shaking up of corporate culture thereby turning erstwhile nonchalant public servants with little incentive to serve customers into efficient, effective, profit-propelled and risk-taking managers. He, however, sees little point in debating the "boundary" separating the public from the private sectors once those in business, whether public or private, realize their duty to be one of achieving greater efficiency and effectiveness as well as productivity and concentrating on customers as they continue to improve their products and services.46 In a similar vein, Mouhamadou Deme (1997) calls for a "complementarity" between the public and private sectors and advocates an energetic working relationship comprising a "rehabilitated" public sector, a dynamic private sector as well as a free and democratic civil society.
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Concluded
March 2002