IMPACT OF PRIVATIZATION ON BUSINESS DEVELOPMENT IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND TO THE STUDY

Privatization occupies the center stage in global economic is regarded as an avenue for raising productivity and enhancing overall economic growth. This is achieved through increased involvement of the private sector in productive economic activities through the sale of public enterprises to the private sector, with a view of improving economic efficiency with privatization; the role of government in direct productive activities diminishes as the private sector takes over such responsibilities. Under such a setting, government is expected to provide essential infrastructure and an enabling environment for private enterprise to thrive. Privatization is predicated on the assumption of state inefficiency and “absolute” efficiency of the market. As an innovative economic policy, Privatization started in Chile under the Military Government of General Augusto Pinochet in 1974 and was adopted in Britain between 1986 and 1987 as a central part of economic policy shift (Hanke, 1987).

Privatization (the transfer of government owned share-holding in public enterprises to private shareholders) is one of the revolutionary innovation in economic policies of both developed and developing countries (Igbuzor 2003). The ultimate goal of any credible and legitimate government is to ensure sustained improvement in the standard of living of the citizenry. Towards this end, Nigerian government found it necessary to design a developmental plan that will facilitate effective mobilization, optimal allocation and efficient management of national resources. To achieve this aim, public enterprises were established across the country to carry out these obligations. Towards the end of 1980, the public enterprises which had grown too large began to suffer from fundamental problems of defective capital structures, excessive bureaucratic control and intervention, inappropriate technologies, gross incompetence and blatant corruption (Aboyade, 1974). With the deep internal crises that included the high rate of inflation and unemployment, external debt obligation and foreign exchange misalignment, Nigeria and many other African countries were strongly advised by the World Bank and I.M.F to divest (privatize) their public enterprises as conditions for economic assistance (Nwoye: 2003).

Privatization in Nigeria started in 1986 as an integral part of Structural Adjustment Programme (SAP). Prior to this period, the Nigerian state has participated actively in public enterprises (Nwoye, 2003). This trend continued until 1988 when privatization programme was officially launched (Anya, 2000; Igbuzor, 2003). The Federal Government privatized 89 Public Enterprises (PEs) between 1988 and 1993 in the first phase while 32 enterprises were privatized in the second phase which ran from 1999 to 2005 (Mkpuma, 2005). It was envisaged that privatization would improve operational efficiency of our inefficient public enterprises (PEs), reduce government expenditure, increase investment and employment as well as ensure job security in Nigeria (Subair and Oke, 2008; Jerome, 2008).

Surprisingly, since the official introduction of privatization in 1988 and the policy has been a subject of intensive debate and has remained highly controversial in Nigeria. Most Nigerians hold divergent views on the contribution of the privatization programme to the Country’s economic development in its two decades of existence in Nigeria.