AN ASSESSMENT OF PRIVATIZATION POLICY OF PUBLIC COMPANIES IN NIGERIA

(Business Administration and Management)

AN ASSEESSMENT OF PRIVATIZATION POLICY OF PUBLIC COMPANIES IN NIGERIA

CHAPTER ONE

1.1       INTRODUCTION

Since the beginning of the outgoing administration in May 1999, the Bureau of Public Enterprises has been dynamic with the sale of public firms to local and foreign private interests.

The policy of the government is to make Nigeria a private sector-driven economy where the government will regulate but leave business to those who can run it.  But privatization, which transfers ownership of production and control of enterprises from the public to the private sector, has been very controversial. It has generated strong debates, everywhere especially in developing countries, where it is perceived to have more negative impact.  

While proponents of privatization see it as an efficient way of promoting competition and enhancing growth, critics argue that it makes the poor poorer by increasing unemployment and reducing access of the poor to basic goods and services through increase in prices. In Nigeria, there have been several protests by unions that are opposed to the proposed sell-off because of the fear of losing their jobs.

The most recent were the auctions of the Egbin Power Plant to KEPCO, a Korean firm, Kaduna refinery to China National Petroleum Company and Port Harcourt refinery to a local consortium. Apart from the fear of job losses, many workers argue that the sale of public enterprises to either foreign owners or domestic investors is an infringement on their rights as Nigerians.  The privatization journey in Nigeria may be said to have really started in the 1980s when the country witnessed economic deterioration. 

The Technical Committee on Privatization and Commercialization was established in 1988 under the chairmanship of late Dr. Hamza Zayyad. Dr. Ifeoma Nwoye of the Nigerian Institute of Management, in her study on the privatization of public enterprises in Nigeria, said the socio-economic difficulties of Nigeria were traceable to the global economic recession, which opened with the decade of the 1980s. She said, “The problems of performance of the public sector enterprises in Nigeria were complicated by the downturn in socio-economic development in the country due to the global economic recession and the collapse of the oil market.

Thus, Nigeria’s precarious fiscal and monetary posture could no longer sustain the requirements of its public sector enterprises, particularly since they perform below expectations in terms of their returns on investments and quality of services.  “Towards the end of 1980s, 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. “With the deep internal crises that included high rates of inflation and unemployment, external debt obligations and foreign exchange misalignment, Nigeria and many other African countries were strongly advised by the worldwide lending agencies, particularly the International Monetary Fund and the World Bank, to divest their public enterprises as one of the conditions for economic assistance. “With the intensified push for economic liberalization, Nigeria and other African leaders were told that privatization as an economic reform would help cut public sector inefficiency and waste, attract more investments, bring in new technologies, and hence revive economic growth.

1.1              BACKGROUND OF THE STUDY

Although various committees Ani (1969) Udoji, (1973), Onosode (1981) have advised on the rationalization of the public sector, privatization of the public real issue in Nigeria until the early 1980s.

Usuman, (1988) in the publication contained in the central bank of Nigeria report stated that as a result of the collapse of oil prices and the consequent contraction in foreign exchange earnings coupled with the surge in imports resulting mainly from an over valued naira all these led to the serious balance of payments problems and debts crisis and huge budget deficits prior to the oil price collapse, the huge windfall revenue accruing from oil exports prompted the government to assume a greater role in the economic life of the nation by embracing the concept of an entrepreneurial state as the engine of growth, the government did own and maintained several industries which spread over agriculture, manufacturing transport, commercial and other services activities.  It also interrented very heavily in the operation of public firms and markets.

The report continues that the extent of the growth of public sector in Nigeria is illustrated by the fact that at the beginning of 1986, there were about 500 companies abroad parastatalism which the federal government had invested over N36 billion ad equity, loan and subventions.

Usuman explained that while private sector investments were fielding handsome returns, the government realized less than N500 million yearly from its investment and principal repayments on the huge loan of these enterprise which repayment constituted a big drain on its finance the government also became unhappy with a situation where as much as 40 percent of its capital investment budget of support public enterprises, the provision of those goods and services were often costly should remain inefficient and subject to political manipulation.

Usuman (1989) declared that the federal government therefore decided to fully privatize some of its investment, terminate support for others, which would be partially privatized and commercialized, fully or partially.  Some others that would poster the efficient use of resources.

Recognizing the need to restructure these enterprise, therefore the Babangida Administration had to take a firm decision to privatize and commercialize some of the parastatals as a possible solution to the problem facing the enterprises.

Onibude, (1985) lead us to believe that in 1981 the president Shehu Shagari administration set up the Onosode commission on parastatals to study and recommend how these can be solved in order to enhance efficiency and performance.  The commission recommend that commercially oriented parastatals able to subject themselves to the whims and caprices of the capital market should be encouraged to borrow money on their own or issue bonds.  Against this background, therefore, on October 1, 1985, the federal government announced her intention to transfer at least for a start, some publicly owned assets from public to private ownership.

Balogun (11987) observed that many of the problems which seem internal to parastatals derive from the realities of the social and political environment in which they operate and to propose only reforms internally to the parastatals or in their relations with government as the answer to the problem of getting parastatals to satisfy public expectation is simply to ignore significant varieties.  Expert interpret this to mean that the commission recommended privatization of certain public enterprises.

It was not too long why-Buhari took over as the head of state, that he appointed a study on statutory corporations and state owned companies to review the financing, profitability and performance records of public ventures.  The group headed by Hakim (then Managing Director and Chief Executive Bank of the North) identified the major problems of these enterprises as vague and conflicting objectives, inadequate autonomy, flexibility in decision making in appropriate capital structure, under utilization of assets, absence of good credit control and inability to collect debts, lack of adequate cost control measures.

Its most important recommendation as a possible solution to or at least an amelioration of these problems is selective privatization.  And so purely on the grounds of pragmatism, it became necessary for government to take a hard look at these parastatals and that was why it decided that some measures of privatization and commercialization should be undertaken.

 

1.2              STATEMENT OF THE PROBLEM

All along, we have assumed that we are all clear on the concept of privatization.  It is however appropriate that we define it more succinetly as an attempt by the government to reduce public sector intervention in economic activities.

This implies that the nature of privatization largely varies according to the type of public sector, intervention in all the enterprises to be privatized.

This privatization could involve reduction in state privatization example, sale of government share, expansion of privately provided education, health care e.t.c.

The reduction in state subsidy, example the introduction of user charges where they did not exist (tolls on federal and state high ways) reduction in existing subsidies.  Example those on petroleum fertilizer, etc reduction on subsides to parastatals, like National Electric Power Authority, Nigeria Airways, Nigeria Telephone Exchange, Nigeria Railways Corporations etc.

Reduction in state regulations example allowing private Airlines to operate removal of rent and price controls, deregulation of interest rates. Etc.  Thus there is an obvious need to consider privatization along the lines of what function the public enterprises perform.  The study is also aimed at identifying the problems and solutions to the issue of privatization in Nigeria.

 

 

1.3              OBJECTIVES OF THE STUDY

This study seeks to look at the structural problems and prospects of the privatization programmes using the united  Bank for Africa, Plc as the local point of departure.

It looked as the inherent contradictions and weaknesses associated with privatization programmes within the context of Nigeria neo colonial, political economy and possibly suggest, ways and means of alleviating the problems.

1.4              SIGNIFICANCE OF THE STUDY

Nigeria has suffered a great deal from mono-cultural dependence in the export commodity; she has also neglected agriculture that used to account for the occupation of more than half of the total population of million people as at 1960. 

Therefore a country that was predominantly agravian producing enough food crop for the domestic consumption and export, eventually turned to be a net importer of food items.  The import of between (1974 – 84) were remarkable for excessive increase in importation of most commodities even though ones that we have resources to produce with negative impact in our balance of payment position, the resulting problems made Nigeria to resort to self seeking economic policies geared towards achieving self reliance.  Therefore the emphasis was on increasing our industrial base.  But greater percentage of government industrial policies were directed to public investment neglecting private sector initiative but industrialization cannot be complete without private sect.

Problems and prospects of privatization in Nigeria contributed a whole lot in terms of national, output and employment.

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