Agusto Consulting has cautioned the federal government over its plan to relinquish national assets to private hands, saying, the risk involved is unquantifiable.
Agusto Consulting, in a report titled “Rethinking Nigeria’s Models for Infrastructure Development,” noted that, the benefits of relinquishing control to the private sector are glaring, but remain difficult to implement.
Noting that the federal government’s handing off certain critical assets of the country that have been dormant over the years will positively impact on the country’s budgetary allocation, but added that this decision has caveats and risks associated with operating models that involve private sector participation regardless of the levels of participation.
“First is the high level of corruption in the country and the lack of accountability by the country’s leadership. There is the risk that the government may sign a bad contract skewed in favour of the private business, akin to the case of Process and Industrial Developments (P & ID) that threatened about a quarter of the country’s external reserves, a case that remains in the British courts.
“This could result from inadequate due diligence in awarding the contract and inadequate understanding of the terms among other factors. Sanctity of contracts is also important for a private investor embarking on an agreement with the government as history has shown that this has been a major issue in Nigeria.
“There is also the risk of underperformance or incompetence on the side of the awardee especially in a concession model. The government’s persistent control over pricing may adversely affect the ability of a private sector investor to recoup capital within the projected timeframe.
“This can arise from inflationary pressures and not being able to transfer additional costs to customers. Another risk is the mindset of Nigerians who typically see models like concessions as a government project and are not willing to pay for services offered by the project,” the report noted.
Agusto Consulting said, given the government’s weakening revenue generation capacity, private sector involvement is a good approach to tackling the country’s infrastructural deficit and growing revenue.
The report noted that there is a potential increase in taxes collected from private sector companies in the medium term if they are sold off and run successfully by the private investors. “Nigeria’s non-oil taxes to nominal GDP has averaged about three per cent over the last five years, comparing less favorably with Kenya’s 15 per cent and Ghana’s 12 per cent in the same period. Increased employment and improved service quality are also some identified benefits.
“More so, these private sector companies can be encouraged to list on the Nigerian Stock Exchange which is also good for our financial ecosystem. Savers will have more investment outlets to channels their funds, resulting in a deeper financial market.”