IMPACT OF PRIVATIZATION AND COMMERCIALIZATION OF PUBLIC ENTERPRISES ON THE NIGERIA ECONOMY

ABSTRACT
 
This research work is titled “Impact of Privatization and Commercialization of Public Enterprises on the Nigerian Economy”. One of the economic policies of the government is the widening up of its developmental project and with the conceptual views of enhancing the development of a vibrant private sector with marginal public participation in the productive activities. In attempt to discourage the slow rate of private role in economic growth and in an effort to speed up development and equally compensate for the lack of active private sector, the government came to play active role in economic advancement. Also, in order to ensure a viable economic, increasing Gross Domestic Product (GDP), improved standard of living and income per capital of its citizenry, the government did not only develop and finance necessary physical and human infrastructure, but also invested direct in productive activities through state owned public enterprises. Data for this work was gotten using questionnaire. The chi-square formula was used to test the hypotheses, the population size is 733 while the sample size is 244. Some of the findings of this study indicated the need for the review of policies on privatization and commercialization of public enterprises on the Nigerian economy. Among the conclusion made were that privatization and commercialization have not really performed up to its expectation; hence the need for review and strengthening of the system. EEDC and NITEL need a holistic commercialization approach so as to serve their teeming customers satisfactorily and thereby effect a reasonable contribution to the nation’s Gross Domestic Product (GDP). The researcher also suggested that a study could be conducted on the strategies for improving the performances of privatized and commercialized public enterprises
CHAPTER ONE
INTRODUCTION
1.1      Background of the Study                                        
A public enterprise is an establishment wholly owned, financed and controlled by the government for the purpose of providing a specific service to the people. However, in this era of global economic depression, most government owed industries are being re-organized for profit-making purpose. The re-organization exercise could take the form of Privatization, Commercialization or joint-venture participation. The aim of policy among other things is to allow for private participation in financing and the management of such enterprises through equity share and debenture holding including other forms of corporate borrowing.
Before the emergence and inception of crude oil into the Nigeria economy, emphasis was on the private sector, for instance, the policy package of the first National development plan was to stimulate the development of a vibrant private sector with marginal public participation in the productive activities.
But in an effort to speed up development and to compensate for the lack of an active private sector, the government came to play a very active role in economic development; hence, the government did not only develop and finance necessary physical and human infrastructure but also investing directly in productive activities through state owned public enterprises.
To be able to transform into an industrialized economy, an underdeveloped economy has to be privately and commercially developed. The importance of establishing public enterprises or corporation began during the 19^th century with the British telecom in 1884 under the telecommunication act and gained a worldwide support in Britain thereafter.
Several nations, particularly those in Africa, have come to embrace the principle as a way of eliminating low performance and inefficiency in the public enterprise sector.
Following the trend the Nigerian economy has come to embrace privatization as a cardinal principle of the state’s economic policy.
Over the years, the Nigerian government has encourage the development of the public sector, since independence in 1960 and particularly 1970s but has been commonly non successive because of government attitude towards public enterprises business management.  In Nigeria, most government owned industries and establishments remain citadel of corruption, gross inefficiency and consequently a heavy drain on the economy. As a means of combating this menace, the (IMF) and World Bank have advocated the nation policies of privatization and commercialization. Incidentally, Nigeria has fully adopted this policy and is embarking on it with vigorously. The ultimate goal of any credible and legitimate government is to ensure sustained movement in the standard of living of the citizenry.
Toward this end, the government usually evolves development plans that will facilitate effective mobilization, optimal allocation and efficient management of national resources.
In such efforts, priority is usually given to the provision of development facilitators, such as transportation and communication as well as social overhead, such as education and health.
Drawing on the successful experience of most developed economies, all developing countries have also adopted a similar development process.
In addition to several reasons, such as the small size of the private sector or for the so called “security reasons”’ the development process had been largely dominated by the public sector.
Available evidence suggests that this public sector dominated process has not achieved the desired impact overtime, prominent among which is the lack of an inclusive framework on the consequent alienation of the people from the public policy process. This coupled with recent development in the globalizing world, have precipitated the clamor for comprehensive national economic reforms that will facilitate more efficient macroeconomic management and thereby steer the economy back on the path of sustainable growth and development.
The major components of these reforms are the deregulation that augurs well for the promotion of a private sector – led economy.
This was informed by the assumption that the private sector is more efficient in the allocation of resources, and that this level of efficient will enhance in a competitive environment emanating from the deregulation of the economy. This implies that the reliance on the market rather than the state is the accepted antidote against the problem of underdevelopment in affected economies.
The Privatization and Commercialization of state-owned enterprises (SOE) is the major strategy for obliterating the culture of public sector domination of the economy.
Nigeria is committed to following the footsteps of several countries that have embarked upon the privatization of the national economy. The scope of the nation’s privatization programme covers several sectors, including banking and finance, oil and gas, telecommunication, manufacturing, hospitality and tourism, among others.
The privatization train has now arrived into the utility sector and it is operating at varying degrees within the sub-sectors therein given the criticisms that have trailed the implementation of the privatization programmes in other sectors. It appears timely to review the impact this reform has created on the nation’s economy.
This with a view to ensuring compatibility of the policy orientation with the overall goal of poverty alleviation through wealth creation and sustainable development, rather than focusing on growth as an end of itself.
Against this background, the topic, “impact of privatization and commercialization of public enterprises on Nigeria economy is aimed at addressing the issues that have jeopardized the workability of the policy.
Since the colonial era, public enterprises have assumed increasingly diverse and strategic development roles in the Nigeria economy. This was accentuated during the oil boom era of the 1970s and 1980, when the military regimes decided to take control of the commanding heights of the economy. The sectors covered include manufacturing, agriculture, banking and finance, services and public utilities such as telecommunications, power and water.
A survey report indicates that as at 1987, there were about 1500 public enterprises (PEs) in Nigeria, made up of 600 at the federal level and about 900 smaller PEs at the state and local levels. These enterprises accounted for about 30-40 percent of formal sector employment. It is estimated that successive Nigeria governments invested about 800 billion naira (approximately US $90 billion equivalent) in the PE sector over two decades. These were made up of equity loans, subventions from the Treasury and loan guarantees.
These investments yielded only $1.5 billion in dividends and loan repayments from 1980 – 1987.
Given the persistent failure, these enterprises require continuous massive subsidies but deliver only intermittent and sub-standard services. About 40 percent of non- salary recurrent expenditure and 30 percent of capital expenditure was expended annually on these enterprises. Net outflows from the government to the public enterprise sector haven been estimated at $2 billion annually. The presence of non- performing PEs has effectively impeded entry by potentially mere efficient private operators. In the wake of economic recession that began in 1981 following the collapse of oil prices, the activities of the public enterprises attracted more attention and underwent closer scrutiny, much of it centering on their poor performance and the burden they impose on government finance. The above precipitated the disposition of the government towards a national privatization programme, the implementation of which commenced in 1988. The federal government subsequently promulgated degree No.25 on privatization and commercialization in July 1988 to give legal backing to and formally initiated Nigeria’s privatization and commercialization programme.
According to the degree, the nation’s privatization programme is expected to address the following areas among other things; (A) Restructure and rationalize the public sector in order to lessen the preponderance of unproductive investments; (B) Re-orientates the enterprises towards a new horizon of performance improvement, viability and overall efficiency; (C) Ensure positive returns on investments in commercialized public enterprises, (D) Check absolute dependence of commercially – oriented parastatals on the treasury and encourage their  patronage of the capital market.
 
It is also, necessary to mention that although public enterprises such as telecommunication had impacted positively on the economy and lives, it should however, not be allowed to hamper peoples health and environment Odey, J. (2009) argued that we  must balance the social, economic and environmental aspects of our developmental areas.
 
The decision for economic reform of the Federal Government which resulted to the introduction of privatization and commercialization policy has brought a relief to the public cry about some vices prevalent in some public enterprises. In the word of Abba, U.E. (2008), he argued that some public enterprises whose establishments are hinged on regulatory philosophy have also not lived up to standard due to endemic corruption in these enterprises as officials collect bribes and truncate their primary reasons for establishment.
 
Ordinary, the major argument for privatization is in terms of efficiency in the switch from public to private ownership resulting in the adoption of more precise and measureable objectives on the part of the owners of which creates the environment and incentives to monitor and control management effectively, Ikechukwu, (2013).
1.2          Statement of the Problem
There is no doubt that in a developing country like Nigeria, one of the vital tools considered by many, as a panacea for the growth and development of the economy is privatization and commercialization of public enterprises.
However, some of the problems which hinder the impact of privatization and commercialization on the nation’s economy include;

1. Absence of accountability
2. High level of corruption
3. Lack of transparency
4. Under utilization of human and capital resources
5. Low education of the public on the benefit of privatization and commercialization.
6. Concentration of privatized and commercialized public enterprise on the few privileged individual
7. Problem of inconsistency in the system

Government of the federation has major function that informed the establishment of these public enterprises which of cause has to do with control of the resources,  raising of funds that will enable it to provide certain infrastructural facilities, particularly in services requiring heavy financial investment, creation of jobs, facilitates economic growth and development.
Nevertheless, the negative impact of this programme and the need to proffer solution which will enhance economic growth and development brings about this research work.
1.3    Objective of the Study
This research is being carried out primarily to determine the impact of privatization and commercialization of public enterprises on the Nigeria economy with regards to strengthening the role of the private sector in the economy, which will guarantee employment and higher capacity utilization.
The specific objectives of this study are as stated below:

1. To determine the extent to which privatization and commercialization has contributed to the country’s yearly Gross Domestic Product (GDP).
2. To ascertain if privatization and commercialization will engender better resource allocation for government amenities
3. To determine the profitability ratio of selected privatized public enterprises before and after the privatization and commercialization.
4. To ascertain the relationship between the relationship between the growth level of privatized enterprises and non- privatized public enterprises from 2010 -2014.

1.4     Research Questions
In order to give credence to the viability of this study, the researcher tends to formulate the following testable research questions:

1. Do you think that privatization and commercialization has positively contributed to the nation’s yearly Gross Domestic Product (GDP)
2. Do you agree that privatization and commercialization will provide better resource allocation for government amenities?
3. To what extent do you think is the profitability ratio of selected privatized public enterprises before and after the privatization and commercialization?
4. Do you think that there is a significant relationship in growth level between privatized and non privatized public enterprises in the given period of 2010 – 2014?

 
 
 
1.5         Statement of Hypotheses
The hypotheses for this work are as follows:
H0:      Privatization and Commercialization has not contributed positively to the nation’s yearly Gross Domestic Product (GDP)
H1:      Privatization and commercialization has a positive contribution to the country’s yearly Gross Domestic Product (GDP)
1.6       Significance of the Study
The importance of this study cannot be overemphasized in the fact that privatization and commercialization of public enterprises is being restored as a solution for public enterprises, importability, inefficiency and unproductively. This study is very essential and timely especially since privatization and commercialization of public enterprises is being pursued in Nigeria with many potential investors still ignorant of the benefit derivable from such investment. Considering the fact that there is limited literature on the impact of the activities, this research therefore searches to enlighten the general public about the impact of privatization and commercialization of our inefficient public enterprises.
It is also hoped that research work will definitely create or stand as important reference for further research work.
The government administrators will find this work valuable as it will help them in future planning about privatization and commercialization of public enterprises.
The work on privatization and commercialization will go a long way to address the issues that have impeded on the progress of the policy.
This research work is beneficial in the fact that the outcome will encourage various investors to invest on public enterprises being privatized.
1.7     Scope of the Study
The scope of this research work focused strictly on the impact of privatization and commercialization programmes of public enterprises on the Nigeria economy and the work will cover the period 2010-2014 because information within this period are found more recent and relevant for the researcher’s purpose.
There is no doubt that the privatization and commercialization of the public enterprises have many impact on the economy of the nation, on infrastructural development of the nation, on the standard of living of the nation in the development of manpower of the nation but this study is only concern on the impact this privatization and commercialization of public enterprises such as the then NEPA, and NITEL.
 
1.8       Limitations
In the course of this work, the researcher had to be confronted with the understated problems:

1. TIME CONSTRAINT: The stipulated time frame for this study was not enough, that is, the time is considered too short for a topic as wide and interesting as this to be adequately and effectively handled.
2. FINANCIAL CONSTRAINT: This is another problem encountered during the process of this research work. None availability of adequate finance was a huge hindrance towards effective execution of the researcher’s efforts.

1.9    Definition of Terms

1. A) PRIVATIZATION AND COMMERCIALIZATION: Privatization can be defined as the transfer of ownership and control of enterprises from the state to the private sector.

PRIVATIZATION AND COMMERCIALIZATION nef of 1988 and Bureau of public enterprises define privatization as the relinquishment of part or all of the equity and other interest had by the federal government or any of its agencies whether wholly owned by the federal government.
B)  PUBLIC CORPORATION:  Public corporation or enterprises are organizations that engage as a result of government activity in the capacity of an entrepreneur. These can be seen as those enterprises or corporation built, owned and managed by the government. They are being financed by public funds especially through taxation and also operate on monopoly.