The Effect Of Privatization Of Government Parastatals On Nigerian Economy

Project and Seminar Material for Economics

The Effect Of Privatization Of Government Parastatals On Nigerian Economy

Abstract

The research work is aimed at studying the problems of privatization of Federal Parastatals with particular reference to NITEL and its subsidiary M-Tel. Many African countries including Nigeria embarked upon the establishment of Public Enterprises, managed and controlled by the government of each country. However, the problems of insufficient enterprise autonomy, defective capital structures resulting in heavy dependence on the national treasury for operational purposes, and economic depression of the nation, called for privatization of these public enterprises as a measure of reform to avoid total collapse of the system and grounding of the economy. Hence Privatization is a tool or reform for economic management of modern industrial economy.The objective of the study is to examine the reasons and basis for privatization, the effects, the types and problems of privatization of federal parastatals in Nigeria. The population of the study was made up of disengaged and retained staff of both NITEL and M-Tel in Rivers and Enugu States respectively. The sample size was determined using Yamani’s formula and Chi-square for testing of hypotheses. The survey research method was adopted in eliciting data from respondents for this study. The major findings are that, privatization exercises in Nigeria are prone to self-inflicted complications, lack of transparency due to corruption that has remained the omnipresent obstacle that erodes every exercise in Nigeria. In meeting the above findings, the recommendations proposed for privatization exercise in Nigeria are; The privatization exercise should ensure the evolution and development of a near perfect policy, economic reformation and restructuring of Nigeria’s political economy. Finally, the federal government should have a proper labour policy to resolve terminal benefits matters in collective bargaining.

Chapter One

Introduction

1.1 Background of the Study

Privatization is a relatively new word not until about a decade ago, it made on prominent feature in the politics and economy of many countries. It is defined as the process of changing the ownership of government companies to private ownership through the sale of the shares of such companies to individual who will manage the companies efficiently and profitably.

Originally privatization was a feature of developed nations, they adopted privatization as more of a political rather than an economic policy.

The believe was that the private sector was more effective and efficient in managing the resources. Therefore, the government decides to sell public corporation to the private sector which with its profit oriented motive was expected to perm better n running those companies and hence contributed more to the economic development they belief the political stand of the government in power will be strengthened and consolidated with time.

However, the economic aspect of privatization it is has dominate the political aspect ad today it is adopted as a major economic reform policy.

1.2 Statement of the Problem

Nigerian economy has been at a low ebb since the 80’s with large debts and unprecedented high rate of unemployment retrenchment of workers which gives rise to a significant reduction in capacity utilization shortages of essential raw material, dwindling foreign exchange earnings and a continuous rise in inflation. Against this backdrop, statement of probes to be investigated shall include:

  1. Privatization of government parastatals its effect on Nigeria economy
  2. What are the benefits of privatization, is going to benefits all the citizens or not.
  3. Will privatization make the cost of utilities higher or reduce it.
  4. What is involved in the privatization of a major utility 9NEPA)
  5. Is it only the rich that would benefit from the privatization (i.e in terms of buying of shares).
  6. Will government still have interest in the privatized companies or not.
  7. Are we undertaking privatization to satisfy foreigners or not,
  8. How much money is the government going to make from the privatization.
  9. How long is the privatization programme going to last?

1.3 Objective of the Study

The objective of the study are as follows:

  1. To examine the problems of privatizing federal parastatals in the country.
  2. To examine the institution frame work guiding effective privatization in terms of government transparency.
  3. To examine the effect of privatization on the labour market and employees of such parastatals.
  4. To examine the type of privatization adopted by the government and her agencies that will suit the aspiration of the citizenry.
  5. To ascertain the faith of the retained staff of the parastatals after privatization.

1.4 Research Questions

The research questions for this study are as follows:

  1. What are the problems on privatizing federal parastatals in the country?
  2. What is the institutional frame work guiding privatizations in terms of government transparency?
  3. What are the effects of privatization on the labour market and employees of the affected parastatals before and after the privatization?
  4. What type of privatization exercise was adopted by the federal government and her agencies and how was it accepted by the citizenry?
  5. To what extent does the faith of the retained staff of the privatized parastatals be guaranteed in terms prompt payment of salary/allowance and out right dismissed for flimsy reason?

1.5 Hypotheses

For the purpose of this study, the following assumptions will be subjected to critical text.

Hypothesis 1
  • Ho: There is positive correlation between privatization of federal parastatals and associated problems
  • Hi: There is no positive correlation between privatization of federal parastatals and associated problems.
Hypotheses 2
  • Ho: The privatization exercise is not directly related to the due process as such lacks transparency.
  • Hi: The privatization exercise is directly related to the due process as such does not lack transparency.
Hypotheses 3
  • Ho: The privatization has negative effect on the labor market as well as the employees.
  • Hi: The privatization has positive effect on the labour market as well as the employees.
Hypotheses 4
  • H0: Ownership of the company partly by the federal government and partly by the private sector (partial privatization) is not the aspiration of the citizenry.
  • Hi: Ownership of the company partly by the federal government and partly by the private sector (partial privatization) is the wish of the people.
Hypotheses 5
  • H0: The retained staff of the company are not well taken care of after privatization
  • Hi: The retained staff of the company are well taken care of after privatization.

1.5 Significance of the Study

The significance of the study can be viewed from the major standpoints: Practical and academic

(a) Practical Significance

This kind of study will assist in broadening understanding of the followings:

  • To employees of paratatals in general, it will expose the relationship existing between them and their employers, which will be of interest to them in their respective paratatals.
  • Specifically to retained staff of NITEL and M-TEL understudy; it will expose to a large extent the going-on in this organizations with regards to the relevant variables and comparative analysis of government actions over some relevant years.
  • To policy makers and regulators like BPE; it will present through its analysis that could assist them in enunciating polices that will not only have positive impact but also to remain relevant in the policy by performing such functions as proper guide lines for privatization and employees safety and protection in such manifestation.
(b) Academic Significance
  • It will contribute to the enrichment of the literature on privatization and its associated problems.
  • It will support ways (of interest to academics) based on the empirical evidence of enhancing the employment situation rather than out rightly lay off staff on the pretense of privatization which affects the economy.
  • The study will serve as a body of reserved knowledge to be preferred to by researchers.

1.6 Scope and Limitation of the Study

In researching the topic “Problem on Privatization of federal parastatals in Nigeria”, the researcher focused on strategies and due process used by the federal government and Bureau for public enterprises in privatizing NITEL and M-TEL. However, the privatization exercise is still in its infancy in Nigeria as such, detailed information on this study is lacking which makes the study difficult to adequately access the outcome of the exercise.

In addition, the researcher does not claim to have identified all parameters used in the privatization exercise. This is as a result of some limitations which includes; time constraints, financial constraints and data constraints.

1.7 Definition of Terms

NITEL:

Nigerian Telecommunication Limited

M-TEL:

Nigerian Mobile Telecommunication Limited

GSM:

Global System for Mobile Communication

BPE:

Bureau for Public Enterprises

Transcop:

Transitional Corporation of Nigeria Plc.

Privatization:

Removing the government ownership of organization to the private sector. (Comas 2005;20): The Pain and Gain of privatization.

Chapter Five

5.0 Summary of Findings, Recommendation and Conclusion

5.1 Summary of Findings:

It has been analytically proved that privatization remains one of the major reforms Mechanism in every ailing economy of a country or Parastatal. This reform is associated with problems which help in making the exercise ineffective if not properly checked.

In this research work, attempt was made to seriously examine the problems on privatization of federal parastatals with particular reference to NITEL and its subsidiary M-Tel, with chosen population figures in River and Enugu States respectively.

In order to achieve the objective of this study, some research questions were formulated. Consequently, the questions in the questionnaire were based on these research questions which were eventually distributed. Having known the population of the study through the two chosen states, the sample size was determined using a sample method of “Yamani’s formular” which also determined the number of questionnaire to be distributed.

A total of eighty six (86) questionnaire were distributed to both disengaged and re-engaged staff of NITEL and M-TEL in both Rivers and Enugu States. Out of which, eighty three (83) respondents were returned. In Enugu State with 50 respondents and Rivers State with 33 respondents returned respectively. It might also interest us to know that the respondents study included sexes, ages and educational qualifications.

Various sample techniques were contributively used in this study. Among them are the “Yamani’s formular”, simple percentage and the non-parametric statistics called chi-square.

The data used in this study were collected through primary and secondary sources. The questionnaire were analyzed using simple percentages while the hypotheses were tested using non- parametric statistic called chi-square at 5% (0.05) level of significance.

At the end the exercise of this study, the following findings were made:

The respondents agreed that the privatization exercise embarked upon by the federal government on NITEL and M-TEL was a reform in a right direction.

The respondents also strongly agreed that though, like a toad that likes water but not water, they like the privatization reform but not partial privatization.

The respondents are aware of the militating problems associated with the privatization of NITEL and M-TEL but argued that some of these problems are self inflicted complications which ought to be addressed properly.

Obviously, the respondents agreed that the privatization exercise does not follow-due process as such, lacked transparency. This argument was based on corruption that has remained the omnipresent obstacle that erodes every exercise in the country. The respondents argued that the privatization has resulted in the saturation of the un-employment market and wanton waste of valuable experience and technical know how.

The retrained and disengaged staff of there parastatals are not well taken care of after privatization. This is because, there is no proper labour policy to resolve terminal benefits matters in collective bargaining.

Another finding of the study indicates that government parastatals like NITEL and M-TEL are of more economic burden to the government, hence privatization.

Though, the respondents strongly agreed that privatization of NITEL and M-TEL will enhance greater accountability and development of better management practice. It raise apartment question, who privatizes the public sector? Can a regulator regulates itself or can one be a judge in your court?

Another finding also indicates that privatization will raise financial resources that will be channeled to development of infrastructure. Considering $750m sales of NITEL and M-TEL to Transcorp, how much was paid if actually money was paid and to whom? This tells us the level of corruption in the country and under development.

The respondents strongly agreed that the privatization motive in Nigeria’ is to enable the money barons to buy the public enterprises and not for economic restructuring

5.2 Recommendation

Based on the findings of this study, the following recommendations are therefore made to improve the problems on privatization of federal parastatals.

  1. There should be strict compliance of both regulators and participants to the rules and time frames of the 1999 privatization and commercialization act and customary international privatization practices that will ensure the evolution and development of a near perfect policy and the economic reformation and restructuring of Nigeria’s political economy.
  2. Since corruption has made privatization not to follow due process or being transparent, the EFCC and ICPC should audit, investigate and prosecute from 1999 to date any public officer of government official for economic sabotage or crime arising out of privatization.
  3. The federal Government or the labour Ministry should have a proper labour policy to resolve terminal benefit matters in collective bargaining involving the BPE, the management of the public enterprises, the management of the private firm, the employees union of the public enterprises, other professional consultants etc.

It is pertinent to know that no manager likes serving two masters at a time. Serving two masters at a time does not obey the rule of unity of command stated by Henri Fayol in his fourteen principles of administration. Therefore, partial privatization should be ruled out but policies and rules be made to check the privatized firm.

Since the crux of retrenchment of employees of parastatals undermines decades of manpower experience and waste of training funds, the privatization agencies should pre-condition the minds of staff for viable entrepreneurship with possible orientation before retrenchment as to make retrenched staff self employed.

5.3 Conclusion

With careful and analyzed study and findings, it is pertinent to conclude that the suggested recommendations will certainly galvanize and ensure optimal value of privatization to the Nigeria economy in the longer term since the associated problems in privatization becomes the bone of concern.

With a new government and economic team, a new national council of privatization, it will be a new opportunity to inculcate best global practices into the Nigerian privatization exercise to eliminate lack of transparency and undue process believed to be dominant factors in the privatization exercise. This will help in no small measure the labour and the un-employed market, the staff of the privatized parastatals before and after privatization who suffered for no faults of theirs.

Finally, it is the researcher’s belief that this work will go a long way in helping and enriching the knowledge of other students, corporate bodies and the public at large.

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