Selling assets is not just about money

For a change, the recent news in Nigeria has been dominated by a substantive economic matter – should the Federal Government sell some of the assets it owns to fund other pressing needs? On one side of the debate we have an assortment of Governors, businessmen, Senators and public commentators who think selling assets is a good idea. Let’s call them The Thatcherites. On the other side, you have labour unions, Senators (again), civil rights activists and public commentators (again) who think selling the assets is an abomination. Let’s call them The Statists.

In the spirit of full disclosure, let me state that if I had to vote for one or the other, my vote will definitely go to The Thatcherites. But it appears this debate is either about how much the government can ‘rake’ in from the sales or why they should not be sold because they will be bought by you-know-who and should instead be made to work better. These views don’t tell the full story.

Cost is not value
Imagine an asset; say an airport that cost the government $100m to build. When the time comes to sell it, the highest bidder only tables an offer of $30m for it and it is sold to him. The Statists will cry out and say it confirms their worst fears – the government has sold ‘prized assets’ for a pittance to its friends. But the reality is that just because the government spent $100m on something does not mean it is worth that amount.

We know how contracts are awarded in Nigeria and contrary to the current drama in the House of Representatives; padding is not a new thing in Nigeria. A big chunk of the cost of building such an airport might simply have disappeared into private pockets. So how much is it worth? The answer is what anyone is willing to pay for it which in this case is $30m.

The sober reality here is that just because the sale figure does not match expectation does not mean that Nigeria is being ‘cheated’. It is the natural result of the way we have always done things.

Some ‘assets’ are worth zero
When an investor offers to pay $30m for the airport, what is he really saying? Let’s imagine that the airport makes a profit of $1m every year. What that investor is buying is the right to collect that $1m profit every year until he makes back his $30m investment and then some more.

But consider Nigeria’s 3 refineries. From January to July this year, they have managed to lose N42bn ostensibly while trying to turn crude oil into petrol. Or to put it another way – it has cost them N41bn to generate N720m of revenues. So the question to ask is – how much should any normal person pay for the right to lose billions of naira? The correct answer is zero. Sorry Nigerians, those refineries are worth the same thing as those iron pots they use to cook jollof rice for parties.

So why sell them? Well, the first reason is that it frees the government from being the one making those losses. That money can go towards something else. Secondly, if we can find anyone crazy enough to buy them, we should let that person have a go at trying to make them work. Maybe they have some ideas on how to cut costs and use technology to increase efficiency.

Remember when the government collected $2bn from the privatisation of run down power assets? Since then it has put in far more than that amount in bailouts to the industry. If you sell for zero, there is less reason to bailout the owner in future.

Selling cash cows
There are 2 reasons to sell assets. You need a large amount of money now to fund other things you want to do. Or you want to get rid of something that is costing you money and giving you a headache. Nigeria’s airports and refineries fall into the latter category – they are a mess and government has no track record of ever running such things competently.

But how about NLNG in Bonny? The government owns 49% of it and does not have a say in how it is run. It simply collects around $1bn in dividends every year from it. Why should you sell something that is well run and gives you income?

Just last week, the British Government via its DfID arm, put Nigeria’s infrastructure requirement at a staggering $70bn per year. We can agree that selling some loss making airports located in the middle of nowhere or moribund refineries will not get you the kind of money you need. When you find yourself in the kind of situation that Nigeria is right now, you have to sell something substantial to raise good money. A very rough estimate suggests the FG’s stake in NLNG might be worth a minimum of $28bn. That will solve a lot of problems right now and allow the government invest in infrastructure that can put a bottle rocket under the economy.

The days and months ahead will be interesting as the debate progresses. It will be a challenge to have an informed debate free of emotion and sensational stuff. Here’s a unique opportunity, not just to raise money, but to change the nature of the Nigerian government and what it should do.
The debate has to be about more than just money or who is buying what for how much. Otherwise in 10 years’ time we might find ourselves discussing the same problems of dead refineries and airports with no electricity.