News Column

LCCI Cautions Govt Against Privatising Boi, Boa

August 11, 2014

Ade Ogidan - Business Editor

- Urges more port-friendly operations

THE Lagos Chamber of Commerce and Industry (LCCI) has cautioned the Federal Government against the privatization of key Development Finance Institutions (DFIs), especially the Bank of Industry (BoI) and Bank of Agriculture (BoA).

Also, LCCI expressed concern over the high cost of goods clearance and other services at the nation's ports.

Furthermore, the top city chamber called on the politicians not to overheat the polity, in order to ensure that untoward distractions are not engendered in the system.

In a communiquÉ issued yesterday at the end of its council meeting, the LCCI maintained that the privatisation of the DFIs could compromise the current efforts by the Federal Government in shoring up the fortunes of the real sector of the economy.

The communiquÉ signed by the LCCI president, Remi Bello pointed out that the proposal by the federal government to privatise the banks could be counter productive as development objectives are often at variance with profitability objectives.

The development objectives of the DFIs will be compromised in the event of their privatization because the primary objective of a typical private enterprise is profit maximization, while the worry of government should be development-which "is the fundamental basis for government intervention in an economy."

Indeed, "the global practice is for DFIs to be government-owned because of the peculiarities of their mandates. The basic objective of development finance is to support the growth and development of the real sector and infrastructure in the economy, which entails the provision of subsidised long-term affordable finance to investors in these sectors.

"A privatized entity would not be able to deliver this mandate because of the economics of the enterprise. Therefore, real sector financing would suffer in the event that the DFIs are privatised. Such an outcome would have consequences for the capacity of the real sector to grow and create the much needed jobs," the communiquÉ stated.

The chamber stressed in the statement "currently, cost of funds in Nigeria's financial markets is between 18 to 30 per cent and over 70 per cent of the funds are short tenured funds. It is difficult to comprehend how a private entity would lend to real sector at single digit interest rate {and with long tenure} in this scenario.

"Government should rather improve on the capitalisation of the DFIs and create a framework that would allow for an independent and professional management of the DFIs. This is the way to go.

"It is important to develop models and structures that would make public institutions work rather than duplicate them or discard them. Populating the boards of vital public institutions with politicians is not in the best interest of the economy and the country.

The chamber urged the political actors in the country not to overheat the polity, expressing concern over the unfolding desperation that has characterised the political space in the run up to 2015 elections.

"Council urged the key institutions involved in the electoral process to demonstrate the highest level of independence, transparency and fairness in the discharge of their responsibilities.

"These institutions include the Independent National Electoral Commission {INEC}, Nigeria Police Force, and the Judiciary. This is important for the credibility and sustainability of the democratic process," more so as "political stability is necessary to ensure investors' confidence and the economic progress of the country," the statement added.

On the situation at the ports, the chamber expressed concern over the cost of cargo clearing and the general operating cost in the Nigeria ports.

According to LCCI, "Nigeria ports have gained reputation as one of the most expensive ports to do business in the world. Council therefore urges the government to ensure more effective regulatory environment in the ports to protect port users.

"The government should undertake more investment in ports infrastructure to increase the capacity of the gateways to take bigger vessels in order to reduce the cost of freight to the country.

"There is also need to look at the other factors such as access roads to the ports, the tank farms, the resuscitation of the rail system to evacuate cargo, resuscitation of refineries to ease the pressure on the tank farms; the customs documentation etc. The approach should be holistic to create a more efficient port system and reduce congestion."

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Source: AllAfrica

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