A Case for Privatisation: Part 1

Welcome back! In my last blog post I discussed the economic and political factors that led to the private sector becoming so involved in the delivery of basic services in Africa. This blog post will expand on the arguments for the involvement of the private sector.

The failure of the state

It’s important to note that the failure of the state in providing basic services led to a shift in public perception of the state and fuelled debates regarding policy reform to allow more involvement of the private sector. This is largely due to inadequate services, issues with corruption which inhibits effective resource allocation and the inability to service the entire population.

Gandy, 2003 discusses the numerous political issues present in Lagos ultimately adversely impacting on the supply of basic services. In addition to this, the rapid urbanisation of the city as a result of fast population growth exacerbates the challenges facing Lagos in terms of the supply of water and sanitation. Clashes between different levels of government, lack of investment in the supply chain, large availability disparities between income groups and ongoing problems with corruption resulted in a very small portion of the population actually being serviced by public infrastructure.

The rest of the population had to resort to other means, adding to the rising informal economy of the city. This includes depending on water from wells, boreholes, water tankers, various illegal connections, street vendors and in some of the more extreme cases collecting water from open drains (Gandy, 2003). These services were unable to be regulated by the city’s government – as result of weak enforcement capabilities - leading to over inflated prices and substandard quality (Gandy, 2003). The most adversely impacted were the inhabitants of slums, whose low household incomes often meant they were denied access to fresh water.

Political protest by Nigerian youths, March 2010 - (This is Money, 2015)

The ‘other’ private sector

As mentioned above, the state’s inability to provide basic services to the whole population led to small scale operators servicing the rest. The article by Solo, 1999 claims that the presence of small scale operators isn’t the problem, it’s the persisting state-led monopoly which ipso facto deems these operators illegal. She implies that had there been policy reforms encouraging small scale ‘entrepreneurs’ to provide what the state could not, then the negative aspects associated with the small scale operators in Lagos would most likely not have occurred. It also provides economic opportunity for people that is within a legal framework, and given the small scale nature of these providers, the money will most likely circulate within the local community rather than being syphoned out.

Solo goes on to look at some of the advantages brought by these small scale entrepreneurs, specifically; greater customer service quality; lower rates in the presence of competitive markets; diversified products in response to their knowledge of local markets and consumer habits; appropriately responsive to demand; capacity to service the poor; and ability to innovate. She believes that these independent providers should not replace the public sector, but to complement it. Additionally, government’s role should not just include the legitimisation of such operators, but also include encouraging other small scale entrepreneurs to enter the market to promote competition (Solo, 1999).

Has this worked?

Abidjan is the largest city in the Ivory Coast where the private  concession SODECI (Societe des Eaux de Cote d’Ivoire) manages and supplies the water. The government’s ability to effectively manage this arrangement resulted in it being quite successful, particularly given the shared goals of both the government and the private company in recognising the social value of water (Solo, 1999).

Additionally, SODECI involved small scale operators in the supply chain  whereby particular members of the community could operate holding tanks. The holding tanks could be filled up with water supplied by SODECI for a fixed price and the water sold from the holding tank was also fixed. This enabled tank operators to generate income through additional services, such as home delivery, but not through raising the price of water. Enabling the tank operators meant more economic opportunities for people whilst also increasing profits for SODECI through increasing sales rather than raising prices (Solo, 1999).

To conclude…

The involvement of the private sector in the delivery of basic services has the potential to be reach a wider portion of the population with greater efficiency without pricing out low income groups as seen as in Abidjan. Ultimately though, the government still needs to maintain a strong presence, particularly with policy guidance to ensure the private sector is held accountable.

Reference List:

Gandy, M (2006) Planning, Anti-planning and the Infrastructure Crisis Facing Metropolitan Lagos, Urban Studies, Vol. 43, No. 2, 371-396.

Solo, T.M. (1999) Small-scale entrepreneurs in the urban water sanitation market. Environment and Urbanisation, Vol. 11, No.1 Pp 117-132.