A Financial Appraisal Of The Operational Performance Of Privatized Nigeria Company (A Case Study Of National Oil Plc, Lagos State)

Project and Seminar Material for Accountancy / Accounting

A Financial Appraisal Of The Operational Performance Of Privatized Nigeria Company (A Case Study Of National Oil Plc, Lagos State)

Abstract

The topic for this project is A financial Appraisal of the operational performance of privatized Nigeria company. The research study is done in order to get possible solution or recommendation to the problem of the company and to make the staff to be efficient and effective.

Privatization can be defined basically as the process of transferring the ownership of a public enterprise to the private sector. The method adopted in this paper work was purely primary sources i.e from the field an secondary sources i.e magazine, journal e.t.c. The ratio shall be used as a benchmark for evaluating the performance of the company while the data can be analyzed into two and these are pre-privatization and post privatization.

In this respect, my aspiration to go into this research work is the modern techniques of finance mobilization, privatization has grown to attain much popularly as it is how being embraced by many developed countries and developing countries.

Table of Content

  • Title Page
  • Certification
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Content

Chapter One

Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Significance of the Study
  • 1.4 Aims and Objectives of the Study
  • 1.5 Scope and Limitation of the Study
  • 1.6 Research Methodology
  • 1.7 Organization of the Study

Chapter Two

Literature Review and Theoretical Framework

  • 2.1 Literature Review
  • 2.1.1 Meaning of Privatization
  • 2.2 Privatization in Nigeria
  • 2.3 The Privatization Programme
  • 2.4 Privatization and Liberalization
  • 2.5 Historical Background and Regulatory Framework of Privatization In Nigeria
  • 2.6 The Privatization Process
  • 2.7 Establishment of an Appropriate Legal and Regulatory Framework
  • 2.7.1 Institutional Arrangement

Chapter Three

Research Methodology

  • 3.1 Introduction
  • 3.2 Data Collection Method

Chapter Four

4.0 Presentation Analysis and Interpretation via Statistical and Allied Techniques

  • 4.1 Analysis of Pre-Privatization and Post Privatization Operational Performance of Selected Companies
  • 4.2 Analysis of Ratio Mean Value
  • 4.3.1 Tax For Three Companies
  • 4.3.2 Post-Privatization and Pre-Privatization Mean Divided
  • 4.3.3 Post-Privatization and Pre-Privatization Mean Return on Capital Employed
  • 4.3.4 Post-Privatization and Pre-Privatization Mean Shareholder’s Fund Growth
  • 4.3.5 Post-Privatization and Pre-Privatization Mean Earnings Per Share
  • 4.3.6 Post-Privatization and Pre-Privatization Mean Dividend for Share After Tax

Chapter Five

Summary Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • Bibliography

Chapter One

Introduction

1.1 Background of the Study

Privation is basically the process of transferring the ownership of a public enterprise to the private sector. This can be said to be injection of private resources in order words, capital and man power (in the aspect of more qualitative management ) into public sector activities. In Nigeria, privation has led to the transfer of ownership of government establishment to the private sector

With the advent of the modern techniques of finance mobilization, privation has grown to attain much popularity as it is now being embraced by many countries both developed and developing countries which Nigeria happen to be part of them.

The need for an efficient mechanism finds mobilization need to deregulate the economy and a quest for the elimination of include political interference in the economy amongst other reason have led to recent international appeal for privation by many government.

This wide spread acceptance of privation could be accounted for by various factors these includes:

  1. The failure of government to run their parastals efficiently and effectively due to prevalent factor like bureaucracy. These have hundred their responsiveness to government public policy: hence they have constituted a drain on the nation economics
  2. The minimization of excesses of political interference and non-market oriented decision making
  3. The need to restructure internal policy due to an international economic demand for deregulation, instance of this is the international monetary funds (IMF) demand for deregulation of some third world economic s as a condition for granting loan facilities to them

Privatization has proven to be a channel through which domestic and international investment get into and perhaps stay with in the country’s economy. Also fund tied down in state owned establishment. Also fund tied down in state owned establishment can be released and redirected towards more welfare oriented program like heath are delivery, funding of education national security e.t.c.

However, in the case of Nigeria and some developing countries privatization is taking a slow pace and this can be blamed on previous bad government greed on the part of policy makers, minimal awareness of the gains of privation on the part of the majority of the populace amongst other reasons.

Privatization has been adopted as a key mechanism for deregulation policy in developing counties like Nigeria is that of accelerated domestic participation in economic activities that will enhance economic independence.

The history of privation in Nigeria and it’s implication for economic independence of the private sector owned no part of establishment, but the government and foreigners own them.

Although, the whole process was not know as privatization then it was all the same as an attempt to transfer ownership of enterprise in Nigeria to the private sector. It was further modified in 1977.

Under the indigenization exercise, the government still retained its hold on many enterprise from the global perspective, the growth in the popularity of privatization then, especially in industrial nations like Britain etc. can partly be traced to the economic development of the mid 70’s because it was used as a very vibrant tool to salvage the economy from the repercussion of the failure of the widely expanded public sector activities (Ekpentony 1992) then, privatization brought a kind of relief by providing market system, which is being required to achieve some necessary macro economics adjustments. Countries that found themselves in this situation include Pakistan and Brazil

1.2 Statement of the Problem

In privatized companies, it is strongly believed that with very sound policies, their implementation and monitoring will bring about a lot of gains both structural and financial, and the economy of large especially in the area of deregulation that will be enhanced by qualitative backward and forward linkages.

There is no organization without it’s own share of problem. The success of any organization depends on it’s ability to make a good programme and excite it. For example of privatized companies have good plans and could not execute them for the following reasons

(i) Ability to Finance:

Some privatized companies find it difficult to fiancé programme that will bring success to their bring success to their out put either caused by the ignorance by the decision makers.

(ii) Practice Competence:

some may be ready to finance, but the technical hands, they have on the floor of the organization may able to meet the requirement

(iii) Management Consistency:

This also may pull back the hand of the organization clock as in accounting data on the determination of business efficiency

(iv) Excessive Urge for Profit:

This means the organization interest in making more of profit them it’s reasonable, there by having an adverse effect on the quality of it’s form the global perspective, the growth in the popularity of privatization them, especially in industrial nations like Britain e.t.c can partly be traced to the economic development of the mid 70’s because it was used as a very vibrant tool to salvage the economy from the repercussion of the failure of the widely expanded public sector activities (Ekpentony 1992) then, privatization brought a kind of relief by providing to achieve some necessary macro economic adjustments. Counties that fund them selves in this situation include Pakistan and brazil.

1.3 Significance of the Study

The essence of this study is to reveal the Nigeria program of privatization on which was thus developed

  1. Improve the efficiency of public enterprises
  2. To minimize their dependence on the nation
  3. To encourage share –ownership by Nigeria capital market
  4. Also, it will limit the scope of political interference in decision making in order to increase managerial incentive by making mangers responsible to shareholders who monitor their performance letter than government and to impose the financial discipline into private capital market (including the market for corporate control)

1.4 Aims and Objective of the Study

The main objective of the study is to investigate whether privatization has affected the financial performance of the privatized company. It is also to establish the degree of relationship between privatization of Nigeria companies and their positive post privatization performance.

The specific objective are to:

  1. Examine the performance of privatized companies financially before and after privatization
  2. Assess the cost and benefit of privatization to these companies and the nation at large
  3. Determine the major constraint (5) to privatization

1.5 Scope and Limitation of the Study

The study is strictly focused of the effects of privatization on the performance of privatized companies in Nigeria. The selected companies which is divided into a 5 year post privatization and 5 year. This study is prone to certain constraint which includes:

  1. Inaccessibility to first hand primary data which would have reflected a precise state of the affairs of the selected companies
  2. Also that of data accuracy because the main source of data is the financial statement of these companies over the years haven been subjected to various adjustment and fine turning for corporate interest e.g taxation

The most suitable type of data for this type of study is that which reflects specific market values of the performance of the company in question. This is very expedient for an economic based study of this nature. Other limitation are the presence of qualitative factors, management composition and other externalities data whereas some of these qualitative aspect have serious impacts on performance e.g Trade dispute in the organization.

1.6 Research Methodology

In designing a reliable and ideal methodological work, it is of all things necessary to discuss on the statistical terms used in the making of this research work. The study examine the economic financial performance of 2 selected privatized companies in analyzing its operational performance before and after privatization.

I shall be making use of frequency table and graphs in describing the operational. The major source of this information for this study are through journals, textbooks, research work etc.

1.7 Organization of the Study

The study is divided into six chapters.

  • Chapter one: It is the introductory chapter which provide an insight and over review as to what the study is all about and how the study was conducted.
  • Chapter two: It deals with the literature review and the theoretical framework which covers the views and opinions of experts in the field of privatization on issues such as: economic theory. Legal (provision guidelines constraints and environment) it focuses on the historical background and the regulatory framework which briefly but adequately touches on the past history of privatization in Nigeria this far and also the regulatory bodies that have been in-charge of the process up to data and also existing relevant information pertaining to the study.
  • Chapter three: deal with research methodology i.e the data presentation of the study. The sources through which data is being collected.
  • Chapter four: Deals with the actual empirical analyses of the study, where the generated data in intricately manipulated via statistical and allied techniques to arrive at the result of the whole study.
  • Chapter five: Round up of the whole essay with the summary conclusion and recommendation.

Chapter Five

Summary Conclusion and Recommendation

5.1 Summary

In this study the researcher set off by reviewing what privatization is all about and examined privatization in terms of its definition from various perspective and also some conceptual issue relating to privatization and the general trend and the efforts made by the Nigeria government from the indigenization era to date

General privatization in Nigeria is aimed at enhancing the management and operational efficiently of government parastatals,, raising public sector revenue deregulating the economy revitalization of the capital market, encouraging share ownership by members of the public investments. This study has examined how some selected privatized companies have performed economically/financially since privatization and cost/benefit of privatization to Nigeria. Apart from the benefit accruing to the populace for owing share in the privatized companies the government has made substantial gain from the exercise (as at November 1990 net proceeds from the exercise total N234,55m, which increased to N3b by may 1993).

5.2 Conclusion

Today, the wide spread calls for privatization and equally progressive reason are why the privatization process has taken an increasing dimension. However, privatization is unlikely over come the kinds of economic. Its psychological impact is conceivably more important as a way of preparing the fundamental liberalization measure, but in many cases, we see that government undertake privatization to prevent further reforms large-scale privatization may have an effect on an intangible balance of power between the private and public section. As such, it can arouse much popular oppositions.

In certain circumstances, privatization may turn out to be the prerequisite for other reforms in others liberalization measures have been implemented. In the absence of other policy reforms which increase competition in the economy. The impact of privatization on economic efficiency in the economic is like to be modest. The first phase of Nigeria privatization programme has been adjudged as success because as many as eighty Nine (89) enterprises were privatized during the period 1988-93. The factors responsible for the outcome include a strong executing agency composed of high level personnel, whose committee were chaired mainly by operators in the private sector, high commitment to the programme of the highest level of government execution of privatization and commercialization programme by the same agency which promoted a better coordinator of the programme on small and medium enterprises (initially) which require less complexity. The outcome of the exercise revealed among others that contrary to the fear held initially about the capacity of the Nigeria capital market, offer for most enterprises which are heavily over-subscribed this is an indication that the system can absorb the next phase of the progrtamme without much difficulty. Secondly, contrary to fear that the programme will be constrained by the popular participation. Applicants for the range of 200-1000 shares predominated and received between 7%-8% of the total shares sold. Finally and most importantly, the privatized firm have performed better after privatization and this happen better after privatization and this happen to be the core focus of the study

5.3 Recommendation

Since it has been discovered that privatization improve the financial performance of privatized company, this could be done through various measure like the government further divesting its equity in other companies. The government should also take for reaching micro economic decisions relating to the creation of sound and virite environment for the privatization process. This could be done through liberalization policies like allowing prices and foreign exchange rates to be independently determined by market forces.

The government should peruse international trade policies that will encourage foreign investors to come and participate in the on-going privatization process. An example of this is the widening of the expatriate quota.
The government should introduce qualitative reforms to the supervisory agencies in charge of the privatization process, so as to accelerate the process and add credence to their operation and enhance transparency.

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