by Dr. H.R. Zayyad, CON (Wazirin Katsina) (B.886)
Keynote Address At the BOBA 1999 Annual Dinner Held At General Hassan Usman Katsina House, Kaduna on November 27, 1999.

I want to thank the National Executive Committee (NEC) of BOBA for inviting me as a Guest Speaker, at the 1999 BOBA Annual Dinner. It’s always a great pleasure for me to be of service to BOBA since outside my parents and my religion Barewa College has been the greatest influence in shaping my life and I am most grateful for that. Again events such as this give one the opportunity to renew past relationships and momentarily relive one’s early life as a child and an emerging adolescent. I wish us all a pleasant evening.
I have been asked to speak on the topic of “Distributional Equity in Privatization” this evening. Whilst I do not know exactly what inspired the National Executive Committee of BOBA to make this choice, I can only speculate one or a combination of the following possible reasons:-
a) The current economic situation in Nigeria is so bad that there is hardly any surplus in the hands of the vast majority of Nigerians that long term investment is the last thing on their minds. People are preoccupied with the problems of day to day existence that any new investment opportunities will be taken up only by an insignificant percentage of the total population. This may therefore widen the gap between the rich few and the teeming poor millions. Geopolitically, it may worsen the economic marginalization which some parts of the country always complained of and for which reason they always opposed privatization.
b) The recently announced programme of privatization by the Federal Government incorporates enterprises considered to belong to the commanding heights of the national economy and their alienation to
the private sector to the extent of 60 % (40 % foreign private sector and 20% Nigerian private sector) may end up creating private monopolies in place of public monopolies. It is therefore a matter of serious concern.
Whatever may be the reasons for the choice of the topic, I believe what you are interested to hear from me, is, based on my earlier experience in implementing the first phase of Nigeria’s privatization programme, steps that could be taken to ensure:
a) Equal access to the investment opportunities offered by the privatization exercise.
b) Equitable distribution of these privatized assets amongst the different classes in the society and geopolitically.
c) The provision of safety nets to cushion the negative conse quences of privatization.
I shall try to do just that. But before I go any further, let me make a few observations about this phenomenon called privatization. Privatization is both an economic and political exercise but more the latter. Second, there, are over 120 countries in the world in both developed and developing countries currently undertaking one form of privatization or other. Three, Nigeria needs to privatize, largely due to the monumental waste and inefficiencies of our public enterprises particularly the utilities. Fourthly, privatization can bestow enormous economic benefits to Nigeria quite out of proportion to the potentially undesirable socio-economic problems the programme could generate if poorly implemented. And fifthly, we lose a lot more for not privatizing and continuing with the current hemorrhage in our national resources.

The issue of distributive equity seems so central to the intent and spirit of the Nigerian privatization exercise as to deserve specific mention in the enabling legislation. Thus the Privatization and Commercialization Decree No. 25 of 1988 provides that all Nigerian citizens and associations are qualified to apply for and acquire privatized shares and assets. The idea is to ensure even spread of and equal access to privatized shares for all Nigerians both human and corporate citizens. To further enhance even spread, section 7 of the Decree provides for a share allotment procedure which allows for preferential allotment to small scale applicants and ensures that no individual is allotted more than one percent of the shares available for sale in anyone enterprise whenever there is a case of over-subscription. Specifically section 5 of the new Public Enterprises (Privatization and Commercialization) Decree 1999 provides that:-
a) The shares on offer to Nigerians shall be sold on the basis of equality of states of the Federation and of the residents of the Federal Capital Territory, Abuja.
b) Not less than 1 % of the shares to be offered for sale to Nigeri ans shall be reserved for the staff of the public enterprise to be h eld in trust by the public enterprises for its employees.
c) Where there is an over subscription for the purchaser of the shares of a privatized public enterprise no individual subscriber shall be entitled to hold more than 0.1% equity shares in the privatized public enterprise.
In reality, however, not all Nigerian “citizens and associations” were able to exercise this right of qualification to apply for and acquire privatized shares. Judging from the number of applications for shares in the thirty five (35) public enterprises privatized through public offer of sale of shares on the Nigerian Stock Exchange between 1989 -1993, just over 800, 000 Nigerians exercised that right.
The highest number of applications received for any TCPC public offer was
140,417 in respect of the African Petroleum Plc, which also happens to be the most widely held public company in Nigeria today. This figure was far ahead of the next highest recorded for the National Oil and Chemical Marketing Company Plc with 99,291 applications. These enterprises happened to be among the first to be offered by the TCPC in 1989 when the enthusiasm for the programme was highest and when resources were still available because the effect of SAP had not begun to take its toll on the Nigerian middle and working classes.
The number of applications in subsequent offers dropped sharply to as low
as 966 in one of the enterprises, and to under 2,000 in as many as seven of the 35 enterprises privatized through public offers. Despite the relatively
widespread advertisement, the low volume of applications was probably an
indication of apathy and/or indifference on the part of most Nigerians to the opportunities of acquiring shares in privatized public enterprises.

The problem of low participation is particularly worrying because it affects
mainly the vulnerable economic groups who were earmarked for protection
and preferential treatment by the share allotment procedures developed by the Technical Committee on Privatization and Commercialization based on the provisions of Decree No. 25 of 1988. For example in order to encourage participation by the low income earners and even students, the TCPC lowered the threshold shareholding to as low as 100 shares only. It also printed and distributed 600,000 application forms through such unusual media as Post Offices, Chambers of Commerce, Local Government Council Officers, etc. in addition to the traditional ones, i.e. Stock Brokers, Banks and Issuing Houses. Who are vulnerable economic groups? By vulnerable economic groups I mean those Nigerian citizens, groups or associations that are handicapped by one form of constraint or the other in the effective exercise of their right of participation in the privatization exercise.

The inhibiting constraints that lead to economic vulnerability could take
various forms such as:-
(i) financial limitations arising from limited discretionary income;
(ii) lack of awareness of investment opportunities offered by the
privatization exercise;
(iii) inhibitions against share ownership imposed mainly, by factors of
culture and/or religion, and
(iv) lack of accessibility to timely information, about the offers generally and particularly lack of accessibility to the offer documents.
Apart from these factors that could lead to vulnerability, there are certain
categories of individuals who may not be constrained by any of the factors but are nonetheless vulnerable in the sense of being apathetic. Similarly, certain geopolitical groups may be vulnerable not for lack of affordability or even cultural/religious inhibitions but purely because of low political mobilization. Whatever the reasons, the VEGs need to be brought into main stream participation in the privatization exercise.

The vulnerable economic groups are mainly those who cannot afford to
buy any shares at all, even when they are aware of the availability of the shares and of the profits and benefits that could accrue to them. Such people simply have not got adequate disposable income to enable them purchase shares in any enterprise. Most Nigerians who are without permanent jobs and/or surplus income and those who have not cultivated any investment habit belong to one category or the other of these vulnerable economic groups.
Members of these groups, as individuals and & groups, are usually the members of society worst affected by the vicissitudes of the nation’s, economic fortunes particularly during the past two decades. They are caught in an economic trap from which they could hardly extricate themselves on their own. They need to be helped out.
In this paper I have tried to identify VEGs by residence, their occupation, their status in society, organizational types and other special interest groups as follows:
a) Grouping by place of Abode
-rural dwellers in general
-urban poor
b) Grouping by Employment
- agricultural workers;
- non-agricultural “extractive” workers; unskilled and semi- skilled workers; the formal and informal sectors.
c) Grouping by Status
- students;
- women
- married couples rearing children;
- poor families;
- the retired;
- the elderly/aged.
d) Grouping by Organizational Types
- community development associations;
- co-operative societies including producer cooperatives;
- guild associations;
- trading associations;
- traditional money lending associations;
- mutual benefit associations;
- trade unions.
e) Other Groups
- religious groups not interested in profit-making enterprises;
- town and clan progressive/development unions.
Characteristics OF VULNERABLE Economic GROUPS
The vulnerable economic groups of the Nigerian society have certain common characteristics which distinguish them from other groups. Probably, the most dominant of these characteristics is that they are relatively poor. Poverty, as used here, is multi-dimensional in definition including the level of real income, the level of education of the individuals and groups concerned, among other factors. In particular, the poverty of the vulnerable economic groups implies that they lack any surplus over subsistence income.
Vulnerable economic groups live, more or less, for the present. What matters most to them is their present consumption and welfare. Neither the future in general nor future income in particular, from which investment in shares is often made, has any significance to them. As a result, these groups do not bother to save, as investment is not only made from savings.
Most of the vulnerable economic groups are still found in family-based
business organizations whose long-term stability depends on the vagaries of the personal fortunes in the life of the family head in particular. They shun the anonymity of modem public limited liability companies where the individual is invariably lost in the crowd. They are usually averse to losing personal ownership and control of the family business which they proudly regard as private property.
Limitations AND Special Problem
Most members of the vulnerable economic groups are victims of some attitudinal limitations and special socio-cu1tural and economic problems. It is worthwhile highlighting these problems as their recognition is a necessary step towards solutions that could be proffered for them.
Certain traditional cultural values and practices constrain members of the vulnerable economic groups to be wary about risk taking through investments. Some religious values are in favour of extolling the virtues of poverty while others ask their adherents to despise some practices connected with present day financial transactions including usury and interest as well as lending and borrowing.
The timing of sales of shares during religious festivals such as Christmas, Easter, Eid-el Kabir, Ramadan and Eid-el Fitr could deprive otherwise willing members of the vulnerable economic groups of the opportunity of buying shares at a time when they have to normally spend the bulk of their savings on religious festivities and celebrations. The National Council on Privatization may have to review its recently announced time table for public offers of shares which are concentrated around these events between December 1999 and April 2000. Failure to do so could result in massive under-subscriptions, apart from depriving the VEGs the opportunity to participate meaningfully in the privatization exercise. This is particularly necessary in view of the potential size of such public offers of shares for sale and the absorptive capacity of the capital market.
Over the years, persons belonging to vulnerable economic groups have perceived government-owned and managed enterprises as being set up
essentially as social welfare projects which are not meant to generate profits.

This mind set, buttressed by the impersonal nature of government enterprises and their well-known frustrating red-tapism, has made vulnerable economic groups to expect no profit to come from government parastatals and corporations. As a result, members of this group have little or no trust in the viability or profitability of government-sponsored economic ventures, including those being put up for privatization. I recall vividly my encounter· with a local chief in Akwa Ibom State at the Itu Town Hall in Sept., 1990. After addressing the local community leaders on the virtues of shareholding in privatized enterprises, the chief politely thanked me. He said 30 years earlier in 1960 late Dr. Nnamdi Azikiwe had persuaded them to purchase shares in the Nigerian Cement Company, Nkalagu. To date none of the shareholders had ever received any dividend from Nigercem and I had not advanced any evidence to show that the situation had changed for the better. I had to explain to him the peculiar problems of the Nigerian Cement Co., particularly the effects of the Nigerian Civil War on the organization etc. I believe he was speaking the minds of his people.

By far the most serious problem to which vulnerable economic groups have been exposed to is that of the vicious cycle of poverty. Their inability to raise funds to buy shares makes them incapable of sharing in the profits accruing from the operations of such privatized enterprises. Being incapable, they sooner or later become unable to participate in the operations of the capital market, thereby completing the vicious cycle of poverty. Special efforts will have to be made to tackle the listed limitations and problems and thereby extricate the vulnerable economic groups from the clutches of this vicious cycle of poverty. Given the nature of the problems, the initiative for tackling the problems will best be taken by those outside the groups especially by government and its agencies.

General Remedies
The following general remedies to ensure distributive equity in the privatization exercise are recommended:
i) Government should continue to encourage the vulnerable economic groups in the society to participate in buying shares in enterprises being privatized by devising ways and means of strengthening the economic base of the groups so as to make them have adequate disposable resources from which to buy shares. Conscious efforts must be made to reduce the other economic burdens of the group through the provision of increased social welfare services mainly in the health, education, housing and transport sectors.
ii) Every effort should be made to ensure that the past does not control the future, i.e. that only those who have savings are able to participate in the privatization programme. A special Trust Fund should be created at State level from which interested citizens could borrow at attractive interest ratios to invest in privatized shares. The share certificates can be used as collateral for such facilities and the dividend income from the investment can also be utilized to repay the loans.
iii) To further encourage the vulnerable economic groups to buy privatized shares government should consider adopting the following inducements: graduated payment for shares say by gradual deduction from monthly salaries; in the case of persons in full time employment in both public and private sectors; sale of shares at a discount to vulnerable economic groups only; particularly those working in that industry to which the enterprise being privatized belongs; subsidized share loans (by employers of labour) to help the vulnerable economic groups; in the form of salary advances. Tax deducibility of outlays on the purchase of privatized shares.
iv) A special programme of public enlightenment for the vulnerable economic groups should be designed and prosecuted with a view to making them aware of and knowledgeable in investment opportunities and stock exchange operations. The packages of the enlightenment programme should be targeted at the various categories of vulnerable economic groups already identified. The package of enlightenment programme should, among other things, include adverts campaigns and audience participation programmes on Radio and Television networks.
v) As evidence exists that most of the rejected applications for shares during the first phase of privatization came from the vulnerable economic groups, the BPE should reserve the right of vetting the rejected applications with a view to protecting the interest of small investors. In addition the Issuing Houses should be required to force their receiving agents to scrutinize all applications properly before receiving them so as to effect necessary corrections at source. Avoidable errors such as incorrect address, signature in capital letters can be eliminated at source.
vi) Support should be given to bodies such as to the Zonal Shareholder
Associations, and the Nigerian Share-holders Solidarity Association to be able to harness the interests of small-scale shareholders and also to contribute positively to the growth and development of the privatized enterprises.
vii) Deliberate attempts should be made to widen share ownership base while retaining high standard of economic efficiency. The models of Employee Stock Ownership Plans and Consumer Stock Ownership Plans already successfully operated in other parts of the world could be modified and adopted for use in Nigeria.
viii) Members of the vulnerable economic groups who are identified as major consumers or distributors of the products of an enterprise being privatized should be given preferential percentage allotment of the shares and be allowed to pay for the allotment in installments.
xi) Stiff legal penalties should be prescribed for persons who attempt to
acquire shares allocated to States other than their own or for using surrogate shareholders in contravention of the rule against multiple applications.
Mr. Chairman, distinguished Ladies and Gentlemen, thank you for listening and God bless.