CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

Privatization of state-owned enterprises (SOEs) has become a key component of the structural reform process and globalization strategy in many economies. Several developing and transition economies have embarked on extensive privatization and commercialization programmes in the last one and a half decades or so, as a means of fostering economic growth, attaining macroeconomic stability, and reducing public sector borrowing requirements arising from corruption, subsidies and subventions to unprofitable SOEs. By the end of 1996, all but five countries in Africa had divested some public enterprises within the framework of macroeconomic reform and liberalization (White and Bhatia, 1998).

In line with the trend worldwide, the spate of empirical works on privatization has also increased, albeit with a microeconomic orientation that emphasizes efficiency gains (La Porta and López-de-Silanes, 1997; D’Souza and Megginson, 1999; Boubakri and Cosset, 1998; Dewenter and Malatesta, 2001). Yet despite the upsurge in research, our empirical knowledge of the privatization programme in Africa is limited. Aside from theoretical predictions, not much is known about the process and outcome of privatization exercises in Africa in spite of the impressive level of activism in its implementation.

Current research is yet to provide useful insights into the peculiar circumstances of Africa, such as the presence of embryonic financial markets and weak regulatory institutions and the manner in which they influence the pace and outcome of privatization efforts. Most objective observers agree, however, that the high expectations of the 1980s about the “magical power” of privatization bailing Africa out of its quagmire remain unrealized (Adam et al., 1992; World Bank, 1995; Ariyo and Jerome, 1999; Jerome, 2005).

As in most developing countries, Nigeria until recently witnessed the growing involvement of the state in economic activities. The expansion of SOEs into diverse economic activities was viewed as an important strategy for fostering rapid economic growth and development. This view was reinforced by massive foreign exchange earnings from crude oil, which fuelled unbridled Federal Government of Nigeria (FGN) investment in public enterprises. Unfortunately, most of the enterprises were poorly conceived and economically inefficient. They accumulated huge financial losses and absorbed a disproportionate share of domestic credit. By l985, they had become an unsustainable burden on the budget.

With the adoption of the structural adjustment programme (SAP) in 1986, privatization of public enterprises came to the forefront as a major component of Nigeria’s economic reform process at the behest of the World Bank and other international organizations

1.2     Statement of the Problem

The first problem recorded with the privatization programme in Nigeria was lack of relevant fundamental economic environment needed before taking off. Some public enterprises that were not ripe enough in terms of competitiveness were privatized. Consideration was not given to capable buyers but to political cronies who could not successfully manage their new enterprises. This led to closure of some of these privatized firms. Lack of transparency in the entire sales has shown up its negative repercaution.

It is reported that privatized firms in Nigeria are refusing monitoring by Bureau of Public Enterprises. In this wise there has been no substantial studies on the operational activities of the privatized firms. The expected difference in the perception of efficiency after privatization could not be proved. In all, it is therefore difficult to identify the performing and non-performing privatized firms.

Among the pertinent issues to be addressed are: What is the extent and pattern of privatization and commercialization? What have been the results of privatization in Nigeria? Has privatization and commercialization improved enterprise performance as anticipated? Finally, what policy lessons are to be learned from the privatization experience so far? These are the issues that come into focus in the study.

1.3     Objectives of the Study

          The objectives of the study are:

                         i.                  To assess the effort of privatization in Nigeria, by examining the antecedent, pattern, volume and status of privatization undertaken so far.

                       ii.                  Find out the problems and prospects of the implementation of the privatization programme on public enterprises.

                    iii.                  Find out to what extend the programme can be able to get rid of ineffectiveness and inefficiency of public enterprises.

                    iv.                  Find out its possibilities of fostering development on the Nigeria economy.

                       v.                  Find out if will improve the welfare and standard of public workers.

1.4            Research Questions

i.                   What are the antecedent, pattern, volume and status of privatization in Nigeria?

ii.                 What are the problems and prospects of implementation of privatization programmes in Nigeria?

iii.              To what extent can privatization programme help to get rid of ineffectiveness and inefficiency of public enterprises?

iv.              What are the possibilities of fostering development in Nigerian economy?

v.                 Can privatization improve the welfare and standard of public workers?

1.5            Research Hypothesis

The following hypotheses were made

Ho1:   Privatization of Public Enterprises has no significant effect on Nigeria economy.

Hi1:    Privatization of Public Enterprises has significant impact on Nigeria economy.

1.6            Significance of Study

Privatization has its expected benefits which prompted its emergence all over the world.  The success level of the programme or failure level depends on the procedure employed and sincerity of purpose attached from country to country.  Therefore the following are the reasons importance of this study.

When completed this study should be a good partner to the privatized enterprises that will be used for performance analysis. It will provide a mirror to the enterprises from where they can view themselves, the way we see them from outside.

The reports and recommendations in this study should serve as evidences of findings and suggestions to the government before privatizing and commercializing  other public enterprises that are yet to be privatized or those partly privatized that will soon be fully privatized.

It is expected that BPE will be interested in this study as it can provide some guidelines into a better way of handling the programme. BPE is expected to borrow a leaf from those countries that successfully implemented the programme and got candid positive results.

Finally the project will be of immense importance to the general public either for research work or just to increase their knowledge and create more awareness on the concept of privatization and commercialization programme as well as the problems and solution to the problems of Nigeria public Nigeria.

1.7     Scope and Limitation of the Study

This study intends to cover assess the effort of privatization and commercialization exercise on public enterprises in Nigeria. Also the work will be limited to Power Holding Company of Nigeria Plc. It will also measure the effect of the privatization on the national income, government fiscal condition and capital market.

To undertake a study of this nature is not easy because it is a wide field of study and thus has various limitation/problem.

The first limitation is for the success of any research work depends on availability of fund. The fund is needed for buying of materials, browsing etc.

In the case of primary data, the respondent may not be granted the audience for interview another limitation is high cost place or more current information on the net. A long the line, the administrative bottleneck of the organization may jeopardize the effort of the researcher in union case the management would refuse to disclose vital information as a matter of policy.

1.8     Definition of Terms

·                    Commercialization: Transferring of Government control of an enterprise to a new management for the purpose of cost effectiveness.

·                    Management Contract: Contracting of a government firm to private firm for management purpose.

·                    Globalization: Cross boarder operations of economic activities, production, investment, financing, technology utilization and marketing.    

·                    Deregulation: Elimination or substantially reducing the regulation/ control of price and entry into domestic business activities.

·                    Liberalization: Freeing the economic activities in order to provide a conducive economic and business climate necessary for continuous growth.

·                    Shares: Part as portion of target amount which is divided among general or among people or to which many people contribute.

·                    Share Holders: Owners of shares in Business Company.