Privatization Of Public Enterprise In Nigeria Economics Essay

The prosperity of nations evolved from several social, political and economic postulations that eventually produced the realities of the present time. This was after series of trials and modifications. Before now, states were commonly run along socialist and capitalist divides. This is especially so in the case of USA and former USSR which happened to be the two most powerful world economic blocs. Many other nations then tied their political and socio-economic ideologies to these capitalist and socialist blocs. Today however, most countries that were toiling the path of socialism have all turned into capitalist economies, out of which privatization and its numerous paraphernalia also evolved. Economic systems have been restructured to meet current global challenges. More than 60 countries, including those with capitalist, socialist and Islamic ideologies, have joined the privatization train since the past few decades (Gusau 2000). Meanwhile different countries have different objectives for pursuing the policy of privatization. While some countries used it to balance up their budget deficits, some used it to pursue national debt reduction, efficiency of public enterprises and improvement of infrastructural facilities. Privatization is believed to possess the capability of opening ways for new investments that would create new jobs and raise more incomes for government, firms and individuals.

In Nigeria, almost all the above scenarios seem applicable as the nation was bedeviled with avalanche of socio-economic malfunctions after her independence in 1960. For instance, Hayatuddeen (2000) opined that our privatization programme (in Nigeria) has been largely driven by the need to put government finances in order and lessen the current economic difficulties. Historically, privatization was formally initiated in Nigeria by the Privatization and Commercialization Act of 1998. The Act later set up the Technical Committee on Privatization and Commercialization (TCPC), with a mandate to privatize 111 public enterprises and commercialize 34 others. By 1993, the Committee has privatized 88 out of the 111 enterprises under it. In the same 1993, the Federal Military Government promulgated the Bureau for Public Enterprises Act which repealed the 1988 Act and set up the Bureau for Public Enterprises (BPE) to implement the privatization programme in Nigeria. Furtherance to the above, the Federal Government in 1999 enacted the Public Enterprise (Privatization and Commercialization) Act, which also created the National Council on Privatization. Having laid down the foregoing legal and statutory foundations, privatization became a reality in Nigeria, even though many even believe that, but for the pressure from her creditors, Nigeria would not have taken the programme as seriously as it has been taken. This is in line with the assertion of Sayyad (1990) that the core of privation is a World Bank programme for economic resuscitation, and that workers should endeavor to take advantage of the programme by participating in it functionally.

Today, privatization has become a subject of intense economic, political and academic discourse. In Nigeria, and indeed in almost all African countries, this ideology has become a sensitive public issue that has generated a constellation of criticisms from social activists, academia and labour unions on one hand, and commendations from the supporters of government on the other. There is no doubt therefore that such an important public issue needs constant assessment, both from the academia and the government itself. The basic tenet of the privatization policy is the idea that efficiency in running what used to be public enterprises is guaranteed. This is expected to be achievable through multiple ownership strategy and risk allocation between different contracting parties. This interprets that both risk and benefits from such enterprises are spread to as many members of the public as possible. This study therefore intends to measure performance of the process thus far, from academic perspective.

1.2 STATEMENT OF THE PROBLEM

Market globalization, powered by knowledge-based technology, brought about keener economic competition among countries and regions of the world. It becomes clearer by the day that government in economics could not alone cope with the challenges of globalization. Therefore new economic reforms started to emerge, privatization being one of them, and probably the most popular today.

Nwoye (2009) identified economic development, political expediency, social equity and consumer protection, resource (finance) management, and national security as the justification for the establishment of public enterprises. However, the Nigerian nation in 1980s witnessed a steady deterioration of the economy and what Nwoye (2009) described as seemingly faulty economic policies, leading to poor incomes, loss of jobs, dilapidating infrastructures, scarcity of foreign exchange and low level of capacity utilization. Towards the end of 1980 therefore, the public enterprises began to suffer from fundamental problems of ineffective capital structures, excessive bureaucratic control and intervention, dysfunctional technologies, technical and manpower incompetence and wanton corruption. The World Bank and IMF advised Nigeria to divest public enterprises and embark on privatization as an economic reform that would help cut public sector inefficiency but revive economic growth.

In Nigeria today, the failure of many public enterprises and even major infrastructures is as a result of the tight stranglehold of the government on business enterprises and social facilities. The federal government has made concerted efforts since the past one decade to actualize wide spectra of its privatization policy. However the success of it is yet to be fully actualized. Several reasons accounts for this. Lack of proper education, corruption and weak financial institutions are parts of the problems. This research will be concerned with ‘to what extents’ have these been affecting the success of the privatization policy. It will also unveil the reality or otherwise in governments claim that privatization has thus far changed the socio-economic fortune of Nigerians. Amali (2000) asserted that the Nigerian economy is dominated by the public sector, which is characterized by inefficiency. A large chunk of public fund and bulk money from banks were used to establish and run most of the existing enterprises. The direct and indirect impacts of this on public fund and the banks’ financial resources have been debilitating. It also has negative effect on small-scale enterprise sector whose growth has been stunted by the afore-mentioned problems. A World Bank Report (1999) puts it that the size, weight and poor performance of the public enterprise sector added 25 percent to the cost of running private business in Nigeria. The argument in favor of government’s relinquishing the responsibility of running public enterprises in Nigeria to private investors, as well as embarking on the new global concept of public-private-partnership (PPP) has also held sway since the past ten years in Nigeria. It is believed that such partnership will engender stronger economy. The main objective of the privatization as earlier mentioned is therefore to eliminate inefficiency in public enterprises by turning them over to private enterprises and running them on pure business principles (Amali 2000). No wonder a common slogan of the Obasanjo administration (1999-2007) which pursued the privatization policy with great vigor is that “government has no business in doing business”. The foregoing seem to suggest that there is the general consensus, globally, that governments should reduce their direct involvement in all profit-oriented public enterprises and allow private business managers to handle them. Nigerian government has taken pro-active step in this direction, and many erstwhile business enterprises are now practically in the hand of private investors. The concern of this study is to undertake a critical appraisal of the privatization issues and determine how well it has fared in meeting public expectations in Nigeria.

1.3.0 RESEARCH QUESTIONS AND OBJECTIVES

Emerging from the background above are the research questions and objectives highlighted below:

1.3.1 Research questions

Has privatization lead to generation of more employment and higher income on the part of individuals and the government?

Has privatization lead to increased efficiency of the privatized public enterprises?

Has privatization lead to making more goods, social services and infrastructure more accessible and more affordable to the people?

What is the level of awareness, perception and participation of the Nigerian people on the government’s privatization policy?

1.3.2 Research Objectives

The objectives of this research include the following:

1. To assesses the socio-economic impact of privatization, with emphasis on the following spheres:

â- Employment generation;

â- Income generation (government, firms, individuals);

â- Development of ancillary industries;

2. To evaluates the level of Nigerian public awareness; perception and participation in the privatization process;

3. To assesses the problems militating against the policy of privatization in Nigeria;

4 To proffer appropriate policy framework for ameliorating the current challenges facing the privatization policy in Nigeria.

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 THE CONCEPT OF INFRASTRUCTURE

The concept of “infrastructure” is used in a broad sense to mean, collectively, the transportation of people, goods and information; and the provision of public services and utilities, such as water and power, and the removal, minimization and control of waste. It also includes environmental restoration (Nubi 2003).

Infrastructure has been described as the aggregation of all facilities that allow a society to function effectively. It is also seen as a wide range of economic and social activities crucial to creating an enabling environment for economic growth and enhanced quality of life. They include housing, electricity, pipe-borne water, drainage, waste disposal, roads, sewage, health, education, telecommunications and institutional structures like police station, banks and post office. It is simply, the engine needed to drive the city. Nubi asserted that by its very nature, physical infrastructure must be responsive to social objectives such as health, safety, economics, employment and recreation. The changes in these social objectives, however, will normally find expression in the body politic, which allocates the funds for its provision and maintenance. The above description is relevant to the issue under this research as almost all government establishments being privatized fall within it, and they are germane to societal socio-economic livelihoods.

2.2 MODELS OF PRIVATIZATION

The Public-Private-Partnership (PPP) and Concession is one of the modern and widely adopted approaches towards actualizing the privatization policy of government the world over. It has been successfully applied in USA, China, UK and many of the emerging economies around the world to provide housing, electricity, health services, power, even the running of prison. In Nigeria both federal and state governments has adopted the model in the provision of electricity, transport and urban housing among others, and they are relevant to this study.

Adetola (2010) identified four models of this PPP. These are:

Management and lease contracts (which entails government investment and ownership with management by private sector for a fee),

Concessions (management of public enterprise by a private outfit for a period of time. The 105 km Lagos-Ibadan Expressway is currently under this arrangement at the cost of 90billion naira),

Greenfield projects (design, build, finance and operate as well as build, own, operate and transfer among others) and

Divestiture (full or partial transfer of government equity to a private sector in a government-owned enterprise).

2.3 HISTORICAL PERSPECTIVE

Hayatudeen (1990) in his paper titled the macro-economic implication of privatization and commercialization observed that the Technical Committee on Privatization of Companies (TCPC) was inaugurated in 1988 to improve efficiency in the country’s companies, by changing the orientation toward management under private ownership. He reviewed the growth of public companies, the macro-economic consequences of privatization as experienced by other countries and how to utilize the gains accrued. He said further that the idea of ‘supply creates demand’ was not questioned until the 1920’s depression, when Keynesian idea supported the need for government intervention and involvement in the means of production was considered a succor to the masses. This is to ensure that natives has input in local business and make essential needs affordable. The main objective of this programme is to improve cash flow by elimination of government subvention and stimulation of appropriate allocation of resources.

Economic benefits of the policy are economic growth due to reduction in unproductive spending, it creates access to capital at reduced price, improved efficiency, create employment improved exchange rate, emergence of new entrepreneur, better labour-management relationship while the served capital can be channel to infrastructure improvement.

Odushola (2001) in a paper titled Socio-economic Implication of Privatization of Public Utilities in Nigeria opined that the process was necessitated by the performance of multinational companies and that changing of ownership may bring relief to the privatized ones. He said enable atmosphere should be provided to enable those companies survive and government should not interfere with their policy. This connotes that government should only play regulatory roles.

An opinion of economic analysts has been in the same direction-in favor of privatization. Among the proponents of the policy is Awopegba (2001) who reviewed privatization of commercialized public enterprises in Nigeria and its implications for better efficiency, labour productivity, and enhanced human welfare. He concluded that government took over some essential services to achieve egalitarian benefit for the society. He mentions the case of Great Britain where privatization ushered in efficiency, reduction in labour and overhead costs. He concluded that privatization enhances efficiency through improved human factor, and encourages competition, efficiency and revenue for the nation. These are the crux of this study with particular case of Nigeria.

2.4 A CRITICAL APPRAISAL OF PRIVATIZATION IN NIGERIA

In attempting a wider outlook of the issue, Adoga (2008) asserted that privatization has been defined by economic scholars and jurists to encompass a wide range of options for involvement of private capital and management in the running and operations of public enterprise. It may involve the total transfer of public ownership and asset structures to private companies. It may also be a conversion of public enterprises to private entities, or the incorporation of new private entities in place of public enterprises. Another option could be public-private participation in the running of public enterprises, which can be by management transfers, leases, operational concessions, development leases, build, operate and transfers etc.

2.5 PROS AND CONS OF PRIVATIZATION

Privatization has several benefits. This, according to Adoga (2008) includes reduced government bureaucracy, reduced state monopolies and ensuring level playing fields. Others are reduced ineffective management, correct defective capital and financial structures, increase competitiveness, increase the quality of goods and services, reduce corruption and control by Government, increase staff quality and supervision, improve market analysis, free up government funds, create employment, re-invigorate the local economy, expand local businesses, attract direct foreign investments, expand capital markets, redistribute wealth, improve technological transfer, enhance trade control regulations etc.

Globally however, privatization has been engulfed with complex problems with each country having its own peculiar solutions. These problems include private firms concentrate on profit making to the detriment of essential public service, private firms render more expensive services, private firms fail to invest in infrastructure. They also reduce public workforce and experience. Meanwhile these problems range from country to country; he concluded that specific privatization models attract specific types of problems.

2.6 PRIVATIZATION OF PUBLIC ENTERPRISES IN NIGERIA

The issues of privatization have been a subject of intense global in recent years (Nwoye 2001). In his work titled Management Practices and Performance Determinants of Public and Private Sector Enterprises in Anambra, Edo and Delta States of Nigeria: a Factor Analysis opined that in Africa, it has remained highly controversial and politically risky and that privatization in Nigeria has not been a popular reform as it has received so much criticism from diverse interest groups. Comparing the effectiveness of public versus private service delivery, the analysis shows no clear evidence that private service delivery is inherently more effective or less effective than public service delivery but rather that each sector has its own strengths and weaknesses. This study intends to assess more firms and their socio-economic impacts.

CHAPTER THREE

3.0 METHODOLOGY

A study of this nature requires a relatively diverse and large volume of data and information required for answering the research questions and actualizing the research objectives. The approaches to realize this goes as follows:

3.1 DATA SOURCES

3.1.1 Primary Data will be sourced through reconnaissance surveys, direct observation, photographs, oral interviews, and administration of structured questionnaires to both employees and employers of the selected industries.

3.1.2 Secondary Data will be obtained from archival materials, which shall include publications such as books, journals, conference proceedings, company annual reports and government gazettes. Also electronically-posted data and information through the Internet is being sought.

3.2 SAMPLING TECHNIQUE

3.2.1 Sample Frame and Size

The sample frame for this study is the 111 privatized public enterprises in Nigeria, from which the sample size will be drawn. The sample size shall be five prominent privatized enterprises in Nigeria. 10 percent sample size of each of them will be targeted for questionnaire administration. Complementary oral interviews will be scheduled with relevant senior management officials in each organization.

The intended sampling technique is the stratified and random sampling method. Stratified sampling method is a sample of a population that is proportionally representative of the different strata or interests in the survey. The workforce of the five organizations proposed for the study will also be stratified into three, viz: the management staff, the senior/intermediate, and the junior staff, all on proportional representation basis.

The research method being considered for the study is justified by the following considerations:

It gives accurate analytical and validity result;

It saves time and reduces cost;

The sample size will be able to produce a generalize result which can give insight to policy review, and open way for further scholarly research

The study will be capable of expanding the current frontiers of data, information, and knowledge on the privatization policy in Nigeria.

For the random sampling technique, the subjects in each stratum will be randomly selected as representative of that group. Prominent privatized business organizations in Nigeria and the Bureau for Public Enterprises (BPE) will be targeted for sampling, using both primary and secondary data-gathering methods to elicit information on socio-economic characteristics, technology and infrastructure among others.

3.3 DATA ANALYSIS

Data from the survey is expected to have dependent and independent variables. These will be carefully collated, coded and analyzed with the use of Statistical Package for the Social Sciences (SPSS) Version 16. Both descriptive and inferential statistics would be used to analyze and depict most of the variables and their interrelationships.

CHAPTER FOUR

4.0 ANALYSIS

4.1 TIME SCALE AND RESOURCES

As presented in Table 1, the research will span through a period of twelve weeks, covering the process of reconnaissance, data gathering, data processing, writing final report and submission. The research exercise will be distributed over four Research Assistants who would be employed, trained and mobilized for field work under the supervision of the Principal Researcher.

Table 1: Time Scale and Resources

ACTIVITY

DURATION

MANPOWER REQUIRED

Reconnaissance

1 Week

**2

Recruitment and Orientation of Research Assistants

3 Days

*1

Data Gathering

2 Weeks

**4

Data Collation and Coding

1 Week

**3

Data Processing

2 weeks

*1

Report Writing

3 Weeks

*1

Data Cleaning and Editing

2 Weeks

** 2

Submission of Final Report

1 Day

*1

* = Principal Researcher only

** = Principal Researcher and the number of Research Assistants indicated

4.2 REFLECTIONS

This study was motivated by the observed gap in the available research works on the socio-economic perspective of the privatization program in Nigeria. It is expected that this study will bridge the existing research gaps created by over-generalization by previous scholarly works. Such gaps stemmed out of the fact that earlier studies mingled Nigeria’s case with the larger global privatization issues without in-depth appraisal of the specific industries in national case. This study will expand the current frontier of insights, data base and knowledge required by academic scholars, investors, and policy makers in their respective development concerns.