The Effect Of Privatization And Commercialization Of Government Owned Companies On Developing Economy

Project and Seminar material for Public Administration

Project and Seminar material for Public Administration

Chapter One

1.0 Introduction

1.1 Background Of The Study

Today, we are witnesses to sweeping changes that are taking place in the economies of both developed and developing countries. These changes relate to efforts to move away from government ownership, control or participation in the economy towards free enterprise and increased operation of market forces. On the whole, the changes ar3e making for the reduction in the role of government in the economy with a corresponding expansion in private sector ownership control and participation.

Despite the numerous measures in form of economic policies consisting of several incentives to promote industrial, agricultural, and other activities, the Nigerian economy for example still exhibits very prominent features of underdevelopment and such features includes poor managerial skill, heavy reliance on a single commodity oil, which has failed to provide the much needed capital in huge sums as expected for the conscious implementation of a single strategy of development.

Public business enterprises creates a solution in which national funds that would have been better spent to guarantee new economic activity and employment opportunities for the army of unemployed is being used to subsidize deadwood that would neither grow nor change. Public enterprises are enterprises that are controlled by the state, they are non-profit oriented enterprises.

The participation of the states in enterprises in Nigeria dated back to the colonial era. The task of providing infrastructural facilities such as railway, road, bridges, water, electricity and port facilities fell on the colonial government due to the absence of indigenous companies with the required capital as well as the inability or unwillingness of foreign trading companies to embark on this capital intensive projects.

This involvement was expanded and consolidated by the colonial welfare development plan (1946 – 1956) that was formulated when the labour party came to power in the United Kingdom. This trend continued after independence such that by 1999, it was estimated that successful Nigerian governments has invested up to 800 billion naira in public owned companies.

The privatization and commercialization net of the 1988 and the Bureau of Public Enterprises Net of 1995 defined privatization as the relinquishment of part or all of the equity and other interests held by the federal government or any of its agencies in enterprises whether wholly or partly owned by the federal government.

Although the public enterprises have been subjected to criticisms, one to poor management and inefficient utilization of resource and mostly regarded to a dead wood that will neither grow nor change, it was these construct criticism levied against them that led to the idea of privatization and commercialization in which the exercise would enhance efficiency in the economy, rid firms of the crude and undue governmental interference which have been the bane of most public enterprise in Nigeria and other developing countries and also limit the drain by the public enterprise on government resources but the basic objective of the exercise is to enhance efficiency and profitability in the government owned industries.

1.2 Statement Of The Problem

Privatization takes an existing government services, and replaces it with a private service. But over the years in Nigeria for instance the sheer waste and inefficiency of government owned industries became glaring from the early 1980s in with the onset of economic crisis, by then, public companies had become heavily dependent on the national treasury for the financial operation and their activities were characterized by mismanagement of the funds and operations, corruption, misuse of monopoly power and bureaucratic suffocation from supervising ministries, Obadan (2000; Olukeshi; 1993:16)

However, as noted by some writers, the actual performances of many of the public enterprises have left much to be discussed. Many of them were not responsive to the changing environment of the growing and dynamic economy and they did not posses the necessary tools for translating into reality the hopes of successful commercial operations. It was obvious that the commission‟s report of cost effectiveness and insufficient attention to financial records by parastatals. If recommended an increased role of the private sector especially in non sensitive or non security related parastatals Olukeshi (1993:1).

Therefore, the policy of privatization and commercialization of the development of the nation‟s economy has been called to restructure and reverse the economy in the country and make it a better place.

1.3 Objective Of The Study

  1. To find out the effect of privatization and commercialization of government owned industries in developing economy.
  2. To know the reason why government embark on privatization and commercialization of their own industries in developing economy.
  3. To find out if privatization and commercialization of government owned industries improved the efficiency of service delivery on developing economy.
  4. To identify the problems militating against privatization and commercialization of governmental owned industries on developing economy.
  5. To determine whether privatization and commercialization help to solve the problems of government owned industries on developing economy.

1.4 Research Questions

In other to identify the problems that are militating against their performance, the following research questions were put forward.

  1. Why did government embark on privatization and commercialization of their own companies in developing countries?
  2. What impact does the privatization and commercialization have on government owned companies or industries on developing countries?
  3. What are the problems militating against government owned companies in developing economy?
  4. To what extent does privatization and commercialization proffer solution to the problems associated with government owned companies on developing economy?

1.5 Significance Of The Study

A research is carried out to find out solution to the various problems that face mankind in the environment or society. This study tends to create awareness to citizens of developing countries and economic planners on the implications of the privatization and commercialization of the public enterprises in developing economies. The importance of this study has both theoretical, practical and policy values and would help in the assessment of government owned industries.

Also, the study will also stimulate further enquiry in the study of policies particularly in the area of economic development.

Again, the study will be of immense academic importance as it will give direction to students of political science and public administration for further research into a new economic development. At the practical level, the study will help to keep Nigerians and other developing countries abreast with the challenges in an area of privatization and commercialization. This will help to mobilize not only their intellectuals but also the policy makers and administrators to rise to the challenges of analyzing and integrating this new development in history.

1.6 Scope Of The Study

The scope of this research is limited to Enugu state. Focus is also on PHCN formally owned by the federal government. This company is expected to make profit while charging competitive prices.

The scope of this study is also limited to the activities concerned with privatization and commercialization of public enterprises in Nigeria and other developing economies which was facilitated as a result of the failure and inefficiency surrounding its (PHCN) activities and program to the public.

1.7 Limitation Of The Study

The research work is limited by the time span within which the researcher is required to complete this work.
Finance was another constraint to the study. The financial problem, make the researcher not to travel far to get all necessary data for the work.

Limited material was another constraint to the completion of the work.

Another limitation problem of the study was the attitude of respondents. Some of the respondents were reluctant to disclose information to the researcher which would have led to more accurate assessment of the situation.

The cost of newspapers, (journals, magazines and national dailies also caused problems to the researcher.

Distance and exit also constitute constraint which hinders the project work. The school authority restricts the movement of the student which made it difficult for the researcher to easily travel out and get the necessary material for the work.

1.8 Definition Of Concepts

This study is made up of two important concepts the outright sale of government owned companies to private individuals in terms of privatization and the operation of government enterprises as profit making ventures that changes market prices for their operations in the commercialization.


Privatization can be defined as narrowly as the transfer of government owned shareholding in the designed enterprise to private share holders, comprising of individuals and corporate bodies.


Commercialization on its own, means the re-organization of enterprise wholly or partly owned by the government in which such commercialized enterprises shall operate as profit making commercialized enterprises shall operate as profit making commercialized ventures without subvention from government.

Government owned companies

Government owned companies are companies hold, directed and controlled by the government.

Monopoly power

The excess of price over marginal cost is a measure of monopoly power.

Private sector

Private sector according to giant paper back dictionary, private sector is that part of a country‟s economy consisting of privately owned businesses etc.

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