LCCI faults planned BoI, BoA privatisation

The Lagos Chamber of Commerce and Industry has opposed the plan of the Federal Government to privatise the Bank of Industry and Bank of Agriculture, saying both organisations will be unable to achieve their goals if the plan is carried out.

According to the LCCI, this is because the organisations are development finance institutions and their objectives are usually in conflict with the goals of private enterprises, which revolve around profit.

The LCCI arrived at the conclusion at its council meeting, which was held in Lagos on Wednesday.

It stated in a communiqué made available on Sunday, “The development objectives of the DFIs will be compromised in the event of privatisation, because development objectives are often at variance with profitability objectives.

“The primary objective of a typical private enterprise is profit maximisation, while the worry of the government should be development. This is the fundamental basis for government’s intervention in an economy.”

The global practice, the LCCI explained, was for the DFIs to be government-owned because of the peculiarities of their mandates, adding that the basic objective of development finance was to support the growth and development of the real sector and infrastructure in the economy, which entailed the provision of subsidised long-term affordable finance to investors.

“A privatised entity will not be able to deliver this mandate because of the economics of the enterprise. Therefore, real sector financing will suffer in the event that the DFIs are privatised. Such an outcome will have consequences for the capacity of the real sector to grow and create the much- needed jobs,” it said.

Rather than privatising the institutions, the chamber called on the government to improve their capitalisation and ensure that they are properly managed.

It said, “Currently, cost of funds in the Nigeria financial markets is between 18 per cent and 30 per cent; and over 70 per cent of the funds are short-tenured funds. It is difficult to comprehend how a private entity will lend to the 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 will 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 will make public institutions work rather than duplicate or discard them. Populating the boards of vital public institutions with politicians is not in the best interest of the economy and the country.”