Forward - business

Lots of criticisms have trailed the Bureau of Public Enterprises supervised privatization program of the federal government. From alleged, manipulation of the bid process, to favour appointed or anointed individual or group, to deliberate abuse of assets in order to reduce their worth, to outright under valuation of assets-all, a possibility, especially, under the last regime of President Obasanjo of “anything can happen”.

But of all these allegations, the one I have not been particularly sold on is that of fair prices for the assets. This is not because it is not a possibility but because, given the condition and models vis-à-vis what is currently available in the market, they could not have attracted any price that was significantly different.

Anybody who has ever acquired a fairly used property knows that he must necessarily, do a valuation-determine the worth in terms of potential benefit under the current and not future condition, of such assets before making an offer to the offeree. And this requires an in-depth knowledge of commercial and financial issues.

Under commercial issues, two different opinions are frequently formed: that of the seller and that of the buyer. While the seller- Nigerians, would be inclined to think of the future value of such assets to the buyer and would want this to be reflected in the price- off course, the government doesn’t talk of capital gain since they claim to be selling below cost price, the buyer in turn, would be inclined to think about the present value of the assets and accordingly, give his bid price. Therefore, should the assets be made up of relics, this would be reflected in the bid price of the assets. And where most of the assets and expertise are to be replaced in order to improve on the performances of the company, the buyers bid price would then, be even lower. Any other course of action on the part of the buyer than this would mean him paying the seller-Nigerians, for his own expertise and machineries.

On the financial aspect which can be manipulated if both parties are in agreement, the net worth of the asset can be obtained by simply deducting, from the book value, that is, the purchase or historical price, the total liabilities attributable to it. This can produce a negative value since the book value is fixed while the liabilities are not, affected by factors like inflation.

Another method is to get the market value of the assets involved, that is, what they would fetch if they were to be sold and then deduct the liabilities. If they are discarded models, then they would attract scrap values but where they are current, the seller is most likely to realise a tangible amount. This method is more favoured by the buyer since he would need to know how much could be quickly realized from such assets should there be reasons for him to quickly take out his investment.

The last method but by no means the least, which I would discuss, is the replacement value method. As the name implies, it is the cost of replacing worn out and worthless assets. A situation where large portions of assets are to be replaced, like in NITEL and the steel companies, it would then require very little tasking of the brain to understand that the price would never be up to the general public expectations especially, for the uninformed. In summary, the economic gain from the exercise is paramount to both parties. This cannot be discussed exhaustively here due to certain limitations.

But rather than dissipate energy and time discussing price under the privatization program where most of the companies slated for sales, last functioned operationally some two decades and the half ago, we should be more concerned with such companies falling into the hands of foreign competition who, after acquiring them, only repaint the surrounding walls and keep the entire premise under security watch without any activity going on or at best, converting the premises into a depot for the purpose of warehousing finished products from their parent companies- little value is added to the economy in terms of direct employment and technology transfer. Gold spot and Limca soft drinks, acquired some years back by the world giant, coca-cola, is a living testimony to how take over can be used to kill off competition and establish monopoly.

Ilobi Austin, an event analyst writes from warrri. his articles on Nigerian and international affairs can be downloaded @ www.vibratingaustin.blogspot.com

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Article Source: ArticlesBase.com - Nigeria’s Privatization Program: Those Assets Prices Might Just be Fair