Investors are watching. From paper mills and hotels to telecom companies, Nigeria’s second phase of privatization is happening live on the Internet.

Private investment is needed to develop new power generation sites.

It happened last October. The transition government of General Abubakar launched an Internet campaign to lure core investors into acquiring 40% stakes in 19 companies. Three months later, the government agency then in charge of privatization issues, the Bureau of Public Enterprises (BPE), announced that the call had reached a group of 48 strategic investors interested in the telephone monopoly. For the average Nigerian, the news might have gone virtually unnoticed, except that private operators have been testing the market by promising telephone access within 24 hours&mdashinstead of the usual 10 years. This did capture the Nigerian fancy.

The focus of investor interest lies in the giant Nigerian Telecommunications (NITEL), followed closely by the National Electric Power Authority (NEPA) and the National Fertilizer Company (NAFCON). As the government tries to shake off loss-making ventures in the name of efficiency, even small paper mills, sugar refineries, steel rolling mills, and hotels are up for sale. Richard Herb, the expat managing director of Lagos’ Eko Hotel, narrates the particulars of how the once-moribund hotel was bought: “We had a 49% stake but we had no say in any decisions. The hotel was badly run, it was state run. We reached a deal and took control in January 1998. We started investing and reorganizing the hotel, it was a big job. However, the moment you privatize and take total control, banks are quite happy to lend you money.” The Eko Hotel is now integrated into the larger Meridien hotel group.

Greek expat Emmanuel Matsakis is general manager of the Nicon Noga, a Hilton-owned five-star hotel a scarce kilometer away from Abuja’s ministry buildings. Although never state-owned, Matsakis’ hotel faces many of Eko Hotel’s current business challenges - literally. Recently transfered from Bahrein, he is exposed on a daily basis to the hustle of Abuja’s corporate deal-making between ministry officials and prospective investors. “From Monday to Friday you would think the lobby is part of the New York Stock Exchange. The cars come in and out like trains at a subway station. You go around from the reception area and overhear people booking and just a few meters away others are speaking about a business deal worth millions,” says Matsakis. The Nicon Noga has recently installed a computer terminal with Web access to assist the foreign buyers. “Whether you are in gems, metals or agriculture, Nigeria has a lot to offer,” says Matsakis.

Canice Umenwaliri

Many voices in the business community are convinced that privatization is the age old, tested way to recreate the Nigerian middle class. If 40% of some state holdings are being offered to foreigners, at least 20% is intended for sale to regular citizens through the stock exchanges at Abuja and Lagos. Stockmarket traders are hopeful that direct foreign investment will add value to many of the 19 companies slated for sale. They also regard the public flotation of companies like NITEL and Mobile Telecommunications Ltd (M-Tel) as catalysts for the depressed equity market.

“The telecommunications sector is being rated second in importance only to the oil sector by many investors. We have received inquiries from foreign and local operators asking how they would be licensed here. There are now about 125 licenses issued for various categories of telecom operations from cellular, private networks, Internet services to satellite connections. The oil industry will be relieved when the communications industry springs into action,” says the Abubakar government’s Minister of Communications, Canice Umenwaliri. “Telecoms are not just about technology, they are about business,” adds Cletus Ogbonan Iromantu of the Nigerian Communications Commission (NCC). “Prior to the establishment of this commission very little was known of the telecommunications sector as an instrument, as an angel for economic growth.”

The new civilian government has reassured its commitment to put NITEL and M-Tel on the market. A strategic partner is being sought to manage the rapidly expanding parastatals. More than 50% of NITEL’s 766,000 existing lines have been digitalized. The low teledensity in a country of 120 million people speaks of the sector’s enormous growth potential. Six regional expansion plans include 91,000 new digital lines for the southwest and submarine fiber-optic cable links from Lagos to Bonny, heart of the oil country. Three international digital gateways were integrated into the operating system late last year and all transmission routes are being upgraded. “NITEL has been generating its own funds for the expansion program. This company is now fully commercialized. Now it’s just going to be privatized,” says Umenwaliri.

The government is also pushing for a second telecom carrier for both fixed and cellular services, one that would begin entirely as a private enterprise. Apart from providing robust competition, the second carrier would shoulder the financial burden of developing the network to three million lines by 2010. “Most new services are only complimentary to the efforts of NITEL. One major project we have been working on is the appointment of a second network carrier that will serve as competition to NITEL. With that, we will consider the industry completely deregulated. I believe if we appoint a second carrier the target of three million lines should be much easier to reach,” says NCC’s Iromantu.

“The second carrier will invest money to set up a parallel network to NITEL’s and will enhance the industry’s attempts to expand the network,” says Buba Bajoga, managing director of NITEL. But Bajoga warns that deregulation could produce geographical imbalances with private operators courting ‘cream urban areas’ rather than the less lucrative countryside. “The deregulation process should be such that people are awarded both urban and rural areas. The telecom industry has made a profit in urban centers, but should plow into rural areas. You need this for the social and political development of any society,” says Bajoga.

Buba Bajoga

For a nation as impassioned over soccer as Nigeria (known there as ‘football’), the Junior World Cup this year was a big event. NITEL made sure that payphones, fax machines, and e-mail services were in place to greet the fans. Given the chance, they would have gladly wielded cell phones too. M-Tel, the public company for cellular services, operates some 30,000 lines. As impressive as M-Tel’s revenue generation has been, the Nigerian soccer fan has to pay a dear price to take his mobile to the stadium. Liberalizing the sector will bring costs down. And players like Nokia, Ericsson, British Telecom, and Siemens are already sounding out the field.

The entrepreneurial spirit of Nigerians is palpable even in the street

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The concept of privatization has not been wholly worked out for companies like NEPA which still require restructuring. Preparing the parastatals for sale is a task unto itself. In NEPA’s case it involves breaking up the corporation into generation, transmission, and distribution units. Nigeria’s eight electric power stations, all run by NEPA, can only handle half of the generating capacity of 5,867 MW. Power outages are frequent and prolonged cuts are an obstacle for private manufacturing companies to take off. For now, President Obasanjo’s energy policy will inherit the previous government’s promise to electrify rural areas for which approximately $11 billion were allotted in the 1999 budget. But private investors are sought to develop 16 power generation sites all over the country. The word is still out on that one.

More profitable companies like the cargo-handling Nigerian Ports Authority (NPA) are subtly privatizing certain activities at their facilities like stevedoring or outsourcing the tugboat services. Port privatization is widely regarded as medicine to reactivate tottering naval companies. In this sector, the talk is more of ‘joint management’ than outright sell-offs to investors. Wali Ahmed, NPA’s managing director, is saying yes to a cautious privatization. “What we are trying to do is the following: once privatization starts, services like pilotage, dredging, and documentation of goods and cargo will already have been privatized here,” says Ahmed. But he adds: “We are not privatizing per se.” The 1999 ‘budget of realism’, nevertheless, refers to the privatization process as ‘irreversible’ and seeks to make the sale of Nigerian patrimony as transparent as possible. Transparency means see-through not only on the selling side, but also for the buyer.