APPRAISAL OF  PRIVATIZATION AND ITS IMPACT ON  PRODUCTIVITY OF  PUBLIC ENTERPRISE

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APPRAISAL OF  PRIVATIZATION AND ITS IMPACT ON  PRODUCTIVITY OF  PUBLIC ENTERPRISE

CHAPTER ONE

INTRODUCTION

1.1          BACKGROUND OF STUDY

Public companies were developed to aid Nigeria’s socioeconomic growth, particularly following independence in 1960. The primary objective in this respect had been to speed up growth and economic self-sufficiency through “economic nationalism.” Thus, public businesses are one of the tools via which the government intervenes in economic growth rather than allowing market forces to control the rate of development. According to Ayodele (2004), up until the mid-1980s, Nigeria depended significantly on public businesses for the creation, administration, and allocation of utilities and social services. They were viewed as important vehicles not just for mobilizing and allocating public investment resources, creating jobs, and redistributing wealth, but also for deciding government budgets and accelerating general economic development.

Adeyemo (2005) observed, in his reflections on Turkey, Mexico, India, and Nigeria, that the construction of public businesses was based on what he saw as barriers to economic growth in post-independence governments. It is also worth noting that in Nigeria, like in many other developing nations, public businesses are utilized as last-resort employers. According to Hemming and Mansor (1988), state-owned firms enable governments to pursue social equality goals that the market would otherwise overlook. Similarly, Ugorji (1995) discovered that state enterprises were created for political purposes. Many government projects were utilized to employ constituents, political supporters, and friends. The placement of public companies and the distribution of government employees have been justified further on the grounds of preserving the federal character and promoting national cohesion.

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The indigenization strategy of 1972, as established by the Nigerian Enterprises Promotion Decree, was another element that spurred the expansion of Nigeria’s public sector. It was intended to command the economic commanding heights. Furthermore, the program provided a much-needed legal foundation for expanded government intervention in the ownership and management of important sectors of the economy. According to Adeyemo (2005), notwithstanding the incentive given to them, Nigerian state enterprises have received harsh criticism. Their troubles were so severe that many Nigerians were disillusioned. These complaints range from a lack of productivity/profitability to an over-reliance on government subsidies. According to Ogundipe (1986), government capital investments in public firms totaled around 23 billion Naira between 1975 and 1985. In addition to equity investments, the government provided N11.5 billion in subsidies to several government companies. All of these expenditures contributed significantly to the growth in government spending and deficits.

In general, although receiving a considerable amount of public budgetary investible money, public expectations from these firms were largely unfulfilled. Furthermore, state firms suffered from gross mismanagement, which resulted in inefficiency in the use of productive capital, corruption, and nepotism, all of which hindered the government’s capacity to carry out its tasks properly. (1991, World Bank). However, due to the financial consequences of the global economic crisis on the Nigerian economy, the public-sector-led development plan has proven unsustainable. This, in turn, prompted dramatic economic adjustments and changes, one of which is the emphasis in Nigeria on reduced government involvement in production, management, and resource allocation. According to Nwoye (2010), the Privatization and Commercialization Act of 1988 formally introduced privatization in Nigeria, which later established 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 passed the Bureau for Public Enterprises Act of 1993, which abolished the 1988 Act and established the Bureau for Public Enterprises (BPE) to carry out Nigeria’s privatization program. The Federal Government approved the Public Enterprise (Privatization and Commercialization) Act in 1999, which established the Vice President-chaired National Council on Privatization (NCP).

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1.2           STATEMENT OF PROBLEMS

The concept of privatization poses its own challenges.The greatest problem faced by the federal government during the beginning of the privatization and commercialization programme in July, 1988 was the sound implementation of the programme. Although Guislain, opined that  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 and it is made no easier by the multiplicity of possible objectives and actors with different, often conflicting interests.

According to Adesanmi (2011), the Nigeria  government, set up the Bureau of Public Enterprise (BPE) to privatize and commercialize, public enterprises with the objective of reducing or eliminate the drain on public treasury. The goal was to  reduce corruption, modernize 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. Microeconomic hypothesis as observed by Tullick (2015) 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 Nigeria? However, whether the BPE has met and realized these objectives is a matter that is open for debate. This research attempt 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. Upon this premise that this study seeks to appraise privatization and its impact on  productivity of  public enterprise.

1.3          OBJECTIVES OF THE STUDY

the broad objective of this study is to present an appraisal of  privatization and its impact on  productivity of  public enterprise. Other specific objectives includes:

  1. Toexplore  the pattern of privatization embarked by public enterprise
  2. To establish the reasons for privatization  of public enterprise in Nigeria.
  • To ascertainwhether privatization has improved the financial performance of enterprises as anticipated.
  1. To investigatewhether privatization has improved the productivity and efficiency  of formerly state owned enterprise

1.4 RESEARCH HYPOTHESIS

HO!: Privatization has not improved the financial performance of enterprises as anticipated.

HO2: Privatization has not improved the productivity and efficiency  of formerly state owned enterprise

1.5 SIGNIFICANCE OF THE STUDY

The state and federal level of privatization and commercialization of public enterprise may not be completed within the first four year of the four republics. Which is due to the consideration of issues on the floor of the house that are to be decided by the federal government state legislators on the type full partial and the actual establishment for the exercise which will require a gradual process. The recent constituted committee on privatization and commercialization programmes reviews the roles of an accountant which must be appreciated in the execution of the programme by x-raying in pros and cons in the financial statements/records both in the planning down to control exercises.

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Findings from the study will be significant to government precisely  Legislators, accountants and other stakeholders of parastatal involved or affected in privatization. The study will also add to body of empirical literature and also serve as a reference material for students and scholars who wishes to conduct further studies in related field.

1.6    SCOPE OF WORK

The scope of this study borders on an appraisal of  privatization and its impact on  productivity of  public enterprise. 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 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  PHCN.

1.7 Limitation of the Study

This research project, like all human endeavors, had some challenges that threatened to derail the study’s completion. One of the reasons is that the time allotted for this work was so limited that the researcher did not have enough time to complete the task thoroughly. During data collection, the researcher also had to put forth extra effort to understand the respondents’ interview schedules, several of whom fell into the incomprehensible age group. Also, there were financial and transportation constraints to deal with. Insufficient funds tend to impede the efficiency of the researcher in sourcing the relevant materials, literature, or information and in the process of data collection (internet, questionnaire, interview).

1.8 DEFINITION OF TERMS

Privatization:: This can be defined as a total transfer of government owned equity interest wholly to private investors.
Full Privatization: This can be defined as a total transfer of government owned equity interest in an enterprise wholly to the private investors.
Partial Commercialization: This is the process of running government owned parastatal in a manner to cover the overhead cost while leaving the capital cost to be done by the government.

Public Enterprise: This can be defined as the government owned establishment. They are often called parastatals