The Role Of Capital Market On Privatization Process In Nigeria

Project and Seminar Material for Economics

The Role Of Capital Market On Privatization Process In Nigeria


Abstract


The study examines the roles of capital market in Privatization process on Nigeria. The research instrument used included questionnaire, participant observation and interview. In view of this, some research hypothesis were postulated for the collation of the data obtained. The study centers on the role of privatization process using the Nigeria experience. The study concludes with some basic recommendation to enhance the capital market and basic concepts were given to effect the human capital development.


Chapter One


1.0 Introduction

1.1 Background of the Body

Privatization Appeared on standard dictionaries only in the early 1980s [it appeared in Webster new collegiate Dictionary is one of the radical methods through for thinning the government owned enterprises [which failed to maximize greater goods, he did so at high cost and ran government into severe fiscal problems in the 1980s making loans difficult to raise both home and abroad].

Around the other method was to strengthen the methods by which government controlled their enterprises.

To achieve these goals, a viable capital market must be put in place.

In Nigeria context, the privatization process has been greatly criticized by the media and even by the civil society, it is the focus of this paper to enlighten the masses on how the current privatization process will help to redistribute income, create more employment for the people, channel funds from the surplus to the deposit group and increase the revenue of the government in the country.

The privatization process is one of the recommendation of the structural adjustment [SAP] for many years up to 1980, the Nigerian government made fairly extensive use of the public enterprise [PES] for resource mobilization and allocation, particularly within the social service and utilities sector with the windfall from the crude oil sales during the boom of the 1970s, the economic activities of PES in Nigeria expended significantly beyond the authoday domain of social services and utilities into agriculture, banking and finance, manufacturing, mining, commerce etc.

With this expansion by the 1980s, and increasingly dominant PES sector, accounting for about 50% of the Gross Domestic Product [GDP] and 60% of the modern sector employment had emerged in Nigeria [FRN 1986] by this time also, the number of PES at the federal level alone had reached about 600 enterprises and some 900 smaller one at the state and local government level, [Technical committee of privatization and commercialization [TCPC, 1993].

Also by the 1985 estimate, total investment in these PES at the federal level is about N36,756.00 billion which TCPC now Bureau for public enterprises [BPE] revaluated using the 1993 estimates being about N5000.00 billion of the investment estimates public utilities [PUS] public enterprises producing hard core infrastructure such as electricity, water telecommunications and transport, accounted for about 37.4% [TCPC, 1993] for the maintenance and sustenance of the economic activities sof this PES, the Nigeria government had usually expanded about 40& and 30% of its forced capital and recurrent expenditures respectively on them annually at the pre-structural adjustment programme [SAP] period [FRN 1986] from the foregoing, it has been ascertained that the oil boom of the 1970s made it possible for the government to dabble into starting from the doctrine that government should control the commanding height of the economy, the public sector went ahead to set up many manufacturing trading activities in direct competition with well established private enterprises. They also required majority shares in the oil companies.

Commercial bank, insurance companies and newspaper, some state government even went to the extent of investing in laundry and dry cleaning services yet, it must be stressed that even the most of the industries that have deliberately been chosen to reserve for government in Nigeria re either wholly or partly run by the private sector elsewhere e.g power generation and distribution [USA and UK] to mention but a few. These sectors have been found out to be performing in Nigeria.

This is why privatization is indispensable of the moment of the ailing nations economy. The achieve greater efficiency, the capital market has to be fully alive, one of the objectives of the privatization process is to ensure a more viable capital market within an economy and also the privatization process cannot be carried out successfully without the capital market.

The capital market, through the Nigerian stock exchange is saddled with the responsibility of ensuring a successful privatization.


1.2 Statement of Problem

All over the world the public services as a matter of experience has not been meant in their capacity to create wealth consequently public enterprises have usually been perceived as drain pipes for government budget this creating budgeting strains and avoidable burden on the economy it become imperative therefore to disengage the public sectors from those areas where the private sectors has the comparative advantages to perform while letting the state concern itself with the provision of infrastructure security and enabling environment for business to thrive through enhanced wealth creation this led the researcher to carry out this research on the role of capital market in the privatization process the Nigerian experience.


1.3 Objective of Study

The objective of this research is to harmonize the different beliefs by people of the privatization process evaluate the social and economic benefits of privatization and the evaluation of the role played by the Nigerian stock exchange [NSE] towards the development of the nation especially the privatization programme the success or failure of the first phase of the privatization process will be critically examined to be able to connect the mistakes made in the past if the programme is proved successful then the paper will be aimed at gearing people up in active participation in the current privatization process which is the second phase of privatization of the Nigerian government.

It is also the objective of this paper to suggest techniques to government on how best to supplement her privatization policy. This paper will also focus on ways of further developing the capital market through the privatization process. Furthermore, how income will be redistributed, cost, minimized and efficiency in production will be substantiated with more facts.


1.4 Hypothesis

The following hypothesis shall direct the thrust of this study by looking at the NUI and alternative hypothesis HD, the capital market has not played any role in the privatization HI – the capital marked has played a role on privatization.


1.5 Significance of Study

The study is important because it will help correct erroneous belief by some people that the privatization process will make life extremely difficult for Nigerians. Though privatization is not the almighty solver of all economic problems but if it is well implemented not in writing above but in policies.

The advantages will be seen in the nations economy, it will inform and educate the readers on investment decisions give a man fish and he will live forever. If the investment decisions are cautiously taken many Nigerians will see themselves living forever, furthermore the paper will correct the belief that the sales of these enterprises shares is for a particular set of people and encourage all to invest in the sector.


1.6 Scope of the Study

This study will be mainly concerned with various factors that affect privatization especially the capital market and Nigeria stock exchange [NSE] this study will focus on privatization and the role of the capital market in actualizing the privatization process by using the Nigeria situation.

This study will also focus on the function of the capital market as it affects the privatization process in Nigeria.

It will focus on likely problems and benefits and the impact of the capital market in the privatization of public enterprises in Nigeria.


1.7 Definition of Terms

Privatization:

This is the process of turning the government owned establishment into the private hand.

Capital Market:

This is the market for medium and long term funds for business activities.

Asset:

A person or properties that is valuable or useful to somebody.

Shares:

Any of the units of equal value into which a company is divided and sold to raise money.

Placement:

The act of finding a suitable place for something.


Chapter Five


Summary, Conclusion and Recommendations

5.1 Summary

The capital market is responsible for the successful conduct of a privatization process in any country apart from disseminating information, the market also as the center fro the transaction of the shares offered for sale to generate funds for the enterprises to be privatized.

Since the capital market deals in medium and long-term capital it is the only resort through which capital project can be financed.

This is why the capital market is indispensable in a successful privatization programme. The Nigerian capita market is not new in the privatization of some enterprises earlier than now and the result contributed positively to the development of the economy.

Presently, the capital market is fully prepared for the current privatization programme especially through the computerized nature of operations of the floor of the capital market.


5.2 Conclusion

The role of the capital market in privatization so far has been to serve as a platform for the participation of large number of small and big investors in the distribution of shares of the enterprises being revitalized, if the authorities of the Nigeria capital market are given the chance and the autonomy the impacts of the privatization process will be felt in the economy. For example, the public enterprises and public utilities decree of 1999 stipulate that no individual should obtain more than 10% of the total shares available.

This will help in preventing a group of people or the rich concerning the shares to be sold. Other measure should be taken to encourage the capital market in achieving the goals in the present privatization.


5.3 Recommendation

  1. The government should as a matter of urgency work hard to break the monopolistic power of the firms to be privatized. Government should ensure that there are other firms, which can favourably compete with the PES to be privatized. This will enable production of more quality goods at affordable prices. If firms cannot be set up to compete with some other firms to be privatized, monopolies must be regulated where required to avoid such enterprises charging extortionate rates for their services like NEPA should be allowed to negotiate with the consumer representatives on the price to charge per unit of her product.
  2. Provision of alternative job should be taken into consideration, as there will also be the problem of some individuals loosing their jobs in the course of the privatization process. The government should try to create alternative jobs so that unemployment and crime rate is drastically reduced in the economy. The idle labour in the public sector will disposed when taken by the privatize sector, instead of the lackadaisical attitude of the people in the public enterprises, the private sector will maximize their output and matching their wages or salaries with their output.
  3. The current privatization is a method of re-enslaving the populace. The programme is expected to be privatized through the capital market and be a source of investment and revenue to the entire populace.
  4. Everybody in the country, even students should subscribe for the shares of these enterprises because it is profitable investment. For instance, if we buy share today and inflation sets in, the returns becomes fatter and we become richer. Many had become millionaires through investment in shares.
  5. At this juncture, I will like to suggest to state government to give special loans to her workforce to be able to invest in the current privatization process.

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