THE IMPACTS OF PRIVATIZATION OF THE PRODUCTIVITY OF FORMERLY OWNED STATE FIRMS/BUSINESSES
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY
Public enterprises were established, to enhance Nigeria’s socio economic development, especially after independence in 1960. The major concern in this regard had been to accelerate development and economic self-reliance through ‘’economic nationalism.’’ Public enterprises thus reflect one of those instruments by which government intervenes in economic development rather than allow market forces to dictate the pace of development. According to Ayodele (2004), Nigeria relied heavily upon public enterprises, up to the mid-1980s, for the development, management and allocation of utilities and social services. They were seen as major instruments not only for the mobilization and allocation of public investment resources, employment generation and income redistribution, but also for determining government finances and the acceleration of overall economic development.
Adeyemo (2005), reflecting on Turkey, Mexico, India and Nigeria, noted that the establishment of public enterprises was premised on what he considered as obstacles to economic development in the post-independence states. It is also instructive to note that in Nigeria like many developing countries, public enterprises are used as employers of last resort. According to Hemming and Mansor (1988), state owned enterprises enable governments to pursue goals of social equity that the market ordinarily ignores. Similarly, Ugorji (1995) observed that public enterprises had been established for political reasons. Many government undertakings were used to provide jobs for constituents, political allies, and friends. The location of public enterprises and the distribution of government employment have further been defended on the need to maintain .federal character and promote national integration.
Other factors that accelerated the growth of Nigeria’s public sector were the indigenization policy of 1972 as enacted by the Nigerian Enterprises Promotion Decree. It was designed to control the commanding heights of the economy. The policy further provided the much needed legal basis for extensive government participation in the ownership and control of significant sectors of the economy. According to Adeyemo (2005), Nigerian public enterprises have come under gross criticism in spite of the impetus given to them. Their problems were so enormous that many Nigerians became greatly disillusioned. These criticisms vary from the lack of productivity/profitability to reliance on large government subsidies. Ogundipe (1986) once argued that between 1975 and 1985, government capital investments in public enterprises totalled about 23billion Naira. In addition to equity investments, government gave subsidies of N11.5 billion to various government enterprises. All these expenditures contributed in no small measure to increase government expenditures and deficits.
Generally, public expectations from these enterprises were largely unmet, despite the sizable proportion of public budgetary investible funds which were being allocated to them. In addition, public enterprises suffered from gross mismanagement and consequently resulted to inefficiency in the use of productive capital, corruption and nepotism, which in turn weakened the ability of government to carry out its functions efficiently. (World Bank 1991). However, given the financial impacts of the global economic crisis on the Nigerian economy, the public sector- led development strategy became unsustainable. This in turn propelled radical economic adjustments and reforms, one of which is the emphasis on less of government in the production, management and the allocation of resources in Nigeria. Consequently, Nwoye (2010) stated that Privatization in Nigeria was formally introduced by the Privatization and Commercialization Act of 1988, which later set up the Technical Committee on Privatization and Commercialization (TCPC), chaired by Dr. Hamza Zayyad, with a mandate to privatize 111 public enterprises and commercialize 34 others. The Federal Military Government promulgated the Bureau for Public Enterprises Act of 1993, which repealed the 1988 Act and set up the Bureau for Public Enterprises (BPE) to implement the privatization program in Nigeria. In 1999, the Federal Government enacted the Public Enterprise (Privatization and Commercialization) Act, which created the National Council on Privatization (NCP) chaired by the Vice President.
1.2 STATEMENT OF PROBLEMS
The concept of privatization poses its own challenges. In this context, it is apposite to examine the objectives of privatization. In the words of Guislain, defining privatization objectives is an important exercise that should be undertaken as early as possible. Many privatization programs have foundered when clear objectives were lacking or where conflicting objectives were simultaneously pursued. The definition of objectives is not an easy task, however, and it is made no easier by the multiplicity of possible objectives and actors with different, often conflicting interests.
According to Adesanmi (2011), the government, set up the Bureau of Public Enterprise (BPE) to privatise and commercialise, as the case may be, public enterprises with the objective of reducing or eliminate the drain on public treasury. It also seek to reducing corruption, modernise technology, strengthen domestic capital markets, promote efficiency and better management, reduce debt burden and fiscal deficit, resolve massive pension funding problems, broaden the base of ownership of business. Others include generating funds for the treasury, promoting governance, attracting foreign involvement and attract back flight capital. Whether the BPE has met and realised these objectives is a matter that is open for debate. This paper attempted to assess the operation of the privatization scheme in Nigeria, determined its level of performance/productivity. It also proffered objective solutions for the amelioration of gaps.
Microeconomic theory predicts that incentive and contracting problems create inefficiencies stemming from public ownership, given that managers of state-owned enterprises pursue objectives that differ from those of private firms and face less monitoring. Not only are the managers’ objectives distorted, but the budget constraints they face are also softened. Empirical evidence shows a robust corroboration of this theoretical implication in several countries. How true is this for Africa? The study will also appraise the nature of the contracts between these firms and government in the pre and post-reform period and show how the contracts address three interrelated problems: information asymmetry, incentives and commitment.
1.3 OBJECTIVES OF THE STUDY
a) To understand the extent and pattern of privatization
b) To establish the results of privatization in Nigeria.
c) To establish whether privatization has improved the performance of enterprises as anticipated.
d) To outline policy lessons that can be learned from the privatization exercise.
1.4 RESEARCH QUESTIONS
To have an in-depth knowledge of this study, the following research questions will be considered:
a) What is the extent and pattern of privatization in Nigeria?
b) What has been the result of privatization over-time in Nigeria?
c) Has privatization improved the performance of enterprises as anticipated?
d) What are the policy lessons that can be learned from the privatization program?
1.5 RESEARCH HYPOTHESIS(S)
H1: There is a relationship between privatization and productivity of formerly state owned companies
H0: There is no relationship between privatization and productivity of formerly state owned companies
H2: There is a relationship between government management of companies and the performance of such companies
H0: There is no relationship between government management of companies and the performance of such companies
1.6 DATA SOURCES AND SCOPE OF WORK
For this study, we will be taking a very close look as formerly public enterprises that have been transferred to private individuals or corporations. The study will engage the assessment of former employees as well as the public to evaluate the performance of the firms now and before. Previous studies have shown that the measure to understand the impact of privatization is to use the return on shares, equity and asset approach. This method will also be implored, but more to it will be the perception and profitability of these new organizations. The study will also focus on the decrease in government expenditure in businesses and how these funds have been redirected to providing basic amenities for the populace. As a basis of scoping, we will be taking a look into organizations like NITEL, PHCN, among others.
1.7 Research Design
Data for this thesis will be collected using a quantitative, survey-based methodology. This approach is important when causal relationships among the underlying theoretical constructs need to be examined. Self-administered questionnaires are considered to be the most appropriate tool as well as interviews. Most importantly, this method is quick, inexpensive, efficient, and can be administered to a large sample (McCelland, 1994; Churchill, 1995, Sekaran, 2000; Zikmund, 2003). To ensure that the questions are clearly understood and there is no ambiguity among them, a pre-test will be conducted.
Respondents will be selected to conduct the study. Descriptive analysis for the entire sample will be performed using SPSS (Statistical Package for the Social Sciences).
In this study, where relationships are being established, two statistical methods will be used to analyze, interpret, and test data related to the study. Sample percentage (SP) arranged in tables will be used to analyze respondent’s bio-data and hypothesis of the study will be tested by the use of Pearson's Coefficient of correlation. The analysis of data and testing of hypothesis will be based on the responses obtained through interview and questionnaire administered.
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