SEC tasks FG, states on privatisation

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By Itohan Abara-Laserian

Lagos, Nov. 17, 2020 The Securities and Exchange Commission (SEC) says privatisation presents enormous potential to serve as alternative funding source for both the Federal and State Governments, if properly harnessed.

Mr Lamido Yuguda, the Director-General of SEC, stated this on Tuesday 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).

The webinar had its theme as: “Privatisation in Nigeria and the Outlook for Subnational Economic Development’’.

Yuguda, who was represented by Mr Reginald Karawusa, Executive Commissioner, Legal and Enforcement, SEC, said the theme seeks to address one of the issues relevant to financing for state governments.

He said there was indeed no better time to discuss alternative funding sources at the sub national level given the adverse impacts brought about by the COVID-19 pandemic.

According to him, the capital market’s primary role in any economy is to facilitate capital formation by creating a system for allocation of capital.

“Investors are able to price risk efficiently while issuers have the opportunity to raise funds to finance projects and in doing so, issuers may choose to raise equities or debts.’’

He said that privatisation had numerous benefits as the proceeds from the sale of government’s interest in these enterprises would help augment budget shortfalls and can be applied toward funding critical infrastructure.

“Beyond the funds to be generated, governments will enjoy cost of 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 explained that “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. However, the ability of states to continue to borrow in a sustainable manner has been severely impacted in recent times.

“With 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.

“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 has 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,” Yuguda said.

The D-G said the discourse was crucial in the light of current economic realities.

“This is as a number of these deals were consummated through the listing of these entities on the NSE; some of these companies have been positively transformed and have returned value to shareholders.

“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 under performing 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 privatization,’’ he said.

Mr Oscar Onyema, Chief Executive Officer of the NSE, said the webinar was part of its strategic strive to assist states in their drive toward economic sustenance.

Onyema said that privatisation occupied a critical position in economic globalisation and provided an avenue for raising the bar toward economic development.

“Given COVID-19, there is no better time to re-visit privatisation and cascade this to the subnational levels,’’ he said.

Also speaking, the Chairman of the Nigerian Governors Forum, Dr Kayode Fayemi, said that state governments had been constrained to increase spending in a bid to mitigate the effects of the pandemic.

According to him, 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 critical sectors, state governments can focus on education and health among others,” he said.

Fayemi assured that the forum would continue to partner the NSE to bring in long term financing for infrastructure development.

Governor of Lagos State, Babajide Sanwo-Olu, there were many federal government assets waiting to be privatised.

According to Sanwo-Olu, where a state does not have comparative advantage, the state will partner the private sector to take over.

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