The Effect Of Privatization And Commercialization Of Government Owned Companies In A Depressed Economy Like Nigeria

The Effect Of Privatization And Commercialization Of Government Owned Companies In A Depressed Economy Like Nigeria

Abstract

This research work was carried out in a bid to examine the effect of privatization and commercialization of Government owned companies with case study as NNPC. Enugu, and with particular focus on the problems on a depressed economy like that of Nigeria. In an attempt to reach the nook and cranny of the said topic, this research work was done in five chapters (Subdivided into the chapters). With chapter one, dealing with the introduction, statement of the problem, significance of the study, hypothesis formulation, scope and limitations of the study, while chapter two deals with the review of related literatures and amongst. Other things treated on the historical objectives of privatization and commercialization with particular attention to Nigeria own case. It also trampled some arguments put forward by certain concerned citizens. And chapter three touched the angles of the methodologies used in carrying out the research work.

Data was collected through primary method, questionnaires and personnel interviews. Through secondary data which comprises the management, subordinate staffs of selected company which constitute the sample size etc. Whereas, chapter four deals with presentation of data and analyses, with use of tables, percentages and the use of T. test approach and decision taken on the basis of the data collected, analyzed and tested. Chapter five was basically talking about the whole research work in a nut shell, by way of summary, conclusion and recommendations. It suffers me to say that since privatization and commercialization programme was embarked upon there are pervading sense of committal and dedication amongst the workers of the company. This goes to indicated that the programme is necessarily helpful to corporate health of the company and the country at large towards revamping the bastardized economy.

Table of Contents

• Title
• Declaration
• Approval
• Dedication
• Acknowledgements
• Abstract
• Table of contents
• List of tables

Chapter One:

Introduction

• 1.1 Background to the Study
• 1.2 Statement of the Problem
• 1.3 Objectives of the Study
• 1.4 Research Question
• 1.5 Statement of Hypothesis
• 1.6 Significance of the Study
• 1.7 Scope of the Study
• 1.8 Limitations
• 1.9 Definition of Terms
• References

Chapter Two:

Review of Related Literature

• 2.1 Introduction
• 2.2 Conceptual Framework
• 2.3 Theoretical Framework
• 2.4 Empirical Review
• 2.5 Impact of Privatization on Nigeria Economic Growth
• References

Chapter Three:

Research Methodology

• 3.1 Design of the Study
• 3.2 Area of Study
• 3.3 Population of the Study
• 3.4 Sampling and Sampling Techniques 3
• 3.5 Instrument for Data Collection
• 3.6 Method of Data Collection
• 3.7 Method of Data Analysis

Chapter Four:

Data Presentation and Analysis

• 4.1 Introduction
• 4.2 Analysis of Research Questions
• 4.2.1 Objective One
• 4.3 Objective Two
• 4.4 Objective Three
• 4.5 Objective Four

Chapter Five:

Discussion, Conclusion and Recommendations

• 5.1 Discussion
• 5.2 Conclusions
• 5.3 Recommendations
• 5.4 Suggestion for Further Study
• Bibliography
• Appendix

Chapter One

Introduction

In Nigeria, the Decree No 25 was enacted in July 1988 to set up the privatization and commercialization programmes, as at this year 2001. The origin of privatization started with Milton Friedman of the monetary economist theory. He was of the opinion that if public enterprise were given over to private individuals it would improve the economy of the country.

This he argued would give room for proper accountability and generate revenue for the upliftment of the economy and country at large.

Milton Friedman’s monetarist idea was put to test in 1978 when Margaret Thatcher, British Prime Minister, came to power. She adopted Friedman’s approach to economic analysis and tried the idea of privatization and like a harmattan bust fire the idea has engulfed the whole world.

Though the British Prime Ministers, Mrs. Thatcher did not find it easy with her political opponents. At the beginning of her fiesta of privatization in Britain, a fellow conservative and former prime Minister with an impeccable Tory pedigree, Lord Stockton (better know as Harold Macmillan) turned out to be the sharpest and most devastating critics of the Thatcher’s Policy of Privatization. According to Lord Stockton, privatization is akin to selling off the family heirloom” in order to raise spending money a folly of calamitous proportions. Lord Stockton’s perceptions was confirmed by the present perilous state of the British economy which is racked by colossal trade and budgetary deficits, rising inflation, unemployment, homelessness etc a few years after squandering billions of pound and steering from the public companies such as British Airways, British Telecommunication, inland water resources etc. Thatcher after her experience in 1986 swept the argument by improving the British economy through privatization exercise.

In Nigeria, starting from 1987 when there was a crash in the crude oil prices nationalized industries in this country became the animous of trauma. Today, people actually expected the Power Holding company of Nigeria (PHCN) to breed darkness rather than light. The Nigeria Airways still grapples with things like schedules … with little success.

The rail ways has been one long experience in how national institutions can thrive on merit ravaged by abuses of all types and descriptions, consistent not in services delving but in malignancy, Nigerian public enterprise fell in their fall long ago. The general feeling is that nothing short of a miracle can save their health. Is privatization this miracle? The Babangida administration thinks it is, plans were concluded and it was put in place into action.

The fact is that where privatization can mean hope, it can also represent a source of concern because it might concentrate wealth in the hands of a few. Furthermore, it might give multinational corporations an access to our strategic industries or rather mean a retrenchment of millions of Nigeria in other words; privatization should be carried out and done with almost care.

1.1 Background of the Study

Privatization was one of the preconditions kid down by the international monetary, fund (IMF), to assist financially the development countries of which Nigeria is one. This was to enable their economics to open up to market forces. The collapse of oil prices in 1985 and the consequent Contraction in foreign exchange earnings, coupled with the surge in imports resulting mainly from an over valued naira led to serious balance of payment problems debt crises and by budget deficits

Prior to the oil price collapse, the huge wind for all revenue occurring 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 owned and maintained several industries which spread over agriculture, mining, manufacturing, transport, commercial and other services activities.

With the coming into power of new military administration in 1985, the level of subsides to parastatals and government. Companies as part of the overall public expenditure policy assured a new dimension.

In his broadest to nation, on the occasion of the silver jubilee independence anniversary in October, 1985, the then president, General Babangida made an important policy pronouncement on the future of parastals and government companies; he announced that, as parts of the process of mopping up liquidity in the Nigeria financial system, the government would direst equity holdings in the several potentially viable parastatals, and state owned company such as hotels, breweries and distilleries.

In addition, the president declared that parastatals would be generally, encouraged to submit themselves to the discipline of the capital market. A few months later, the federal government statement of intent crystallized into a coherent and clear cut policy which was announced in the public Budget speech of 1985. On the occasion the president sait; “Government has now decided that as from 1986, the volume of no statutory transfers to all economic and quasi economic parastatals would constitute no more than 50 percent of their present levels”. They are to find the balance from increase in their price changes, tariffs and rates.

A detailed articulation for the government’s policy on privatization emerged in the structural adjustment programme which was embarked upon in July 1986 time trying to raise some revenue through user charges.
Privatization in Nigeria will be referred as a success if it turns out to be a process of reducing the size of an efficient and inefficient public sector by transferring some of its functions to a relatively more efficient private sector.

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 government owned companies 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 effect of privatization and commercialization of government owned companieson 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 government owned companies 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 government owned companies 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 government owned companies before and after the privatization and commercialization?
4. Do you think that there is a significant relationship in growth level between privatized and non-privatizedgovernment owned companies 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 government owned companiesis 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 government owned companies 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 government owned companies being privatized.

1.7 Scope of the Study

The scope of this research work focused strictly on the effect of privatization and commercialization programmes of government owned companies on the depressed 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 government owned companies 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 effect this privatization and commercialization of government owned companies such as the then NNPC.

1.8 Limitations

In the course of this work, the researcher had to be confronted with the understated problems:

A. 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.

B. 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

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 government owned companiesdefine 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.

Chapter Five

Discussion, Conclusions and Recommendations

This chapter discusses the findings of the study, draws conclusions and made recommendations. Also contained in this chapter is the suggestion for further research.

5.1 Discussion

The findings of this study indicated the need for the review of the policies on privatization and commercialization of government owned companies on the Nigerian economy. Despite the dwindling impact of the privatization and commercialization in the nation’s economy, there is still a reasonable impact agreed to have been made, which call for the need to strengthen the system as to achieve optimum result.

5.2 Conclusions

The following conclusions were drawn from the findings of this study;

1. Privatization and commercialization have not really performed up to its expectation, hence the need for review and strengthening of the system.
2. NNPC need a holistic commercialization approach so as to serve their teeming customers satisfactorily and thereby effect a reasonable contribution to the nations’ GDP.
3. Effective and efficient privatization and commercialization policies should be put in place by the government to enable the enterprises survive market competition.

Therefore, one can conclude that privatization and commercialization of public enterprise have not really met with the expected result. Notwithstanding, a reasonable impact has been made, hence the need for the strengthening of the system for more effective result.

5.3 Recommendations

The findings of this study have formed the basis for the following recommendations;

1. Privatized and commercialized government owned companiesshould be guided or protected with effective and efficient policies.
2. There should be a periodic review of the performances of privatized and commercialized government owned companies to ascertain if they are really contributing to the nation’s GDP.
3. Managements of privatized government owned companies should be taught on the need for commitment towards their duties, so as to bring impressive output.

5.4 Suggestion for Further Research

The following suggestions are made for further research;

1. Repeating a similar study at least every five years is necessary to ascertain the impact of privatization and commercialization of government owned companies on the nation’s economy.
2. Further research may consider the public perception or ratings of the privatized and commercialized government owned companies on the nation’s GDP.
3. A study could be conducted on the strategies for improving the performances of privatized and commercialized public enterprises.

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