Privatisation Of Public Enterprises In Nigeria Economics Essay

This survey examines the unintended effects ( otherwise called the dark side ) of denationalization of Public Enterprises ( PEs ) in Nigeria. Nigeria ‘s PEs were faced with myriads of jobs which made authorities to ship on PEs sector-wide reforms via denationalization with the hope of giving more efficient construction to the Nigerian economic system with attendant benefits accrue to the generalization of the people. Exploratory method was used in the behavior of the survey. It was discovered that denationalization of PEs in Nigeria led to a figure of unintended societal effects such as unemployment due to mass retrenchment of staff, low criterion of populating ensuing from extortionate cost of merchandises and/or services from privatised endeavors, overconcentration of income and wealth in a few custodies, and corrupt patterns among others.

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Cardinal WORDS: Divestment, Economic Reform, Government,

Nigeria, Privatisation, Public Enterprises, Public Sector.

JEL Codes: L 31, L 32, L 33

Introduction

The assortment and deepness of Public Enterprises ( PEs ) jobs with their causal factors differs from one state to another, and besides differs from one sector of the economic system to another, particularly in the African part ( Obadan and Ayodele, 1998 ) . The jobs of PEs in Nigeria are by and large discussed by some analysts under hapless physical and fiscal public presentation ( Ajakaiye, 1990 ; Ayodele, 1995 ) . The unwanted physical and fiscal public presentation and other jobs of the PEs have made Nigeria to ship on the PEs sector-wide reforms via the denationalization policy. In the visible radiation of authorities ‘s unstable financial place, there has been a turning consensus among professionals, policy shapers, and economic development contrivers that denationalization of PEs, particularly in developing states, can give significant benefits associating to greater efficiency, renewed investing, budgetary nest eggs, and saving of scarce resources for the betterment of a state ‘s economic status ( World Bank, 1995 ) .

A figure of surveies have been conducted on the topic of denationalization of public endeavors both in the developed states and developing or developing states. Adegbite ( 1991 ) examines the principle for denationalization in Nigeria. Obadan and Ayodele ( 1998 ) expression at commercialization and denationalization policy in Nigeria. Jerome ‘s ( 1996 ) survey was based on general assessment of denationalization in Africa. Bortolotti, Fantini, and Siniscalco ( 1998 ) had a expression at denationalization around the universe. Boubakri and Cosset ( 1998 ) examine the fiscal and runing public presentation of newly-privatised houses, while Martin and Parker ( 1995 ) examine denationalization and economic public presentation throughout the UK concern rhythm. However, none of these surveies was devoted to the scrutiny of the side effects or the dark side of denationalization of public endeavors in Nigeria.

Over the old ages, a batch have been written on the topic of denationalization. In add-on, so many endeavors have been privatised by the authoritiess of many states. In this paper, we do non mean to analyze the whole gamut of denationalization in Nigeria. Such an exercising can non perchance come within the scope of a individual research paper. However, no individual piece has satisfactorily put frontward the political relations, machinations, worlds and practical inside informations of denationalization in Nigeria to heighten people ‘s apprehension of the dark side or unintended effects of denationalization on the authorities and people of Nigeria. This survey fills this spread. In other to accomplish this exalted aim, a figure of issues are discussed.

This survey is of extreme importance in the sense that it will throw visible radiation on the dark countries of denationalization. As such many people will profit from the consequence of this survey. These include professionals, policy shapers, economic development contrivers, practising directors, the populace, and faculty members who are interested in fostering their cognition of denationalization and its utility in pull offing concern administrations.

The methodological analysis employed by the research worker in the class of his survey is explorative research method. This method was deemed relevant given the contextual nature of the research job. In this instance the research worker conducts preliminary interviews with the direction and staff of indiscriminately selected privatised public endeavors in Nigeria to detect the dark side of denationalization of public endeavors in Nigeria.

This paper is organised as follows. We begin with a drumhead. This is followed by cardinal words, debut, research purpose, and methodological analysis in that order. We later provide the literature reappraisal on denationalization, denationalization in Nigeria, methods of denationalization, and the research consequence which is the dark side of denationalization on the people and authorities of Nigeria. The paper was bought to a stopping point with decisions and mentions.

LITERATURE REVIEW

There appears to be no universally accepted definition among bookmans sing the conceptual significance of public endeavors. One ground harmonizing to Sosna ( 1983 ) for the inability to hold a individual criterion definition of public endeavors was that public endeavors were established at different periods, and each era of course brought forth the types of public endeavors most clearly fiting its ain conditions. It is hence believed that the fluctuation in definition are informed by the ideological, values, involvements, temperaments and fortunes that brought public endeavors into being ( Adeyemo and Salami, 2008 ) .

Inspite of the above, we shall analyze and reexamine a figure of definitions as given by celebrated bookmans of public endeavors. Efange ( 1987 ) , for case, define public endeavors as establishments or administrations which are owned by the province or in which the province holds a bulk involvement, whose activities are of a concern in nature and which provide services or bring forth goods and have their ain distinguishable direction.

Obadan ( 2000 ) , Obadan & A ; Ayodele ( 1998 ) defined public endeavors as administrations whose primary maps is the production and sale of goods and/or services and in which authorities or other authorities controlled bureaus have no ownership interest that is sufficient to guarantee their control over the endeavors irrespective of how actively that control is exercised.

The basic ground for set uping public endeavors in all economic systems has been to impel development. Hanson ( 1972 ) reflecting on Turkey, Mexico, India and Nigeria noted that the constitution of public endeavors is premised on what he considered as obstructions to economic development in the station independency provinces. It is besides informative to observe that in Nigeria like many other developing states, public endeavors are used as employers of last resort. Harmonizing to Hemming and Mansor ( 1988a ) it is noted that province owned endeavors enable authoritiess to prosecute ends of societal equity that the market normally ignores. Similarly, Ugorji ( 1995 ) observes that public endeavors have besides been established for political grounds. Many authorities projects are used to supply occupations for components, political Alliess, and friends. The location of public endeavors and the distribution of authorities employment have farther been defended on the demand to keep “ federal character ” and promote national integrating.

In malice of the drift given to public endeavors particularly in Nigeria some unfavorable judgments are leveled against them. Their jobs are so tremendous that even left the Nigerian populace in a province of great disenchantment. These unfavorable judgments vary from deficiency of profitableness and trust on big authorities subsidies. Ogundipe ( 1986 ) one time argued that between 1975 and 1985, authorities capital investings in public endeavors totaled approximately 23 billion Naira. In add-on to equity investings, authorities gave subsidies of N11.5 billion to assorted province endeavors. All these outgos contributed in no little step to increased authorities outgos and shortages. Similarly, public endeavors suffer from gross misdirection and accordingly resulted to inefficiency in the usage of productive capital, corruptness and nepotism, administrative constriction, and ruddy tapism which in bend weaken the ability of authorities to transport out its maps expeditiously ( World Bank, 1991 ) . A figure of research workers have pointed to the jobs of public endeavors in Nigeria. These include Ajakaiye ( 1990 ) , Ayodele ( 1988 ) , Okigbo ( 1998 ) , Obadan ( 2000 ) , and Sanusi ( 2001 ) among others. All these bookmans have developed turning involvement for the demand for the reform of public endeavors in Nigeria. As said in the first paragraph, the unwanted physical and fiscal public presentation and other jobs of the PEs have made Nigeria to ship on the PEs sector-wide reforms via the denationalization policy.

Therefore, denationalization has become an of import instrument for streamlining the populace sector and advancing economic development in states all over universe. However, in trying to reexamine the literature on denationalization the first hurdle one tally across is that of nomenclature. Heald ( 1988 ) maintained that there is a really broad scope of enterprises normally discussed under the term denationalization. Such enterprises include: the permutation of user-charges for revenue enhancement finance, the lease of direction contracts while retaining ownership, and liberalisation for the publicity of competition in markets antecedently reserved for statutory monopolies. In discoursing denationalization policy in Britain, Pirie ( 1988 ) lists 21 enterprises under denationalization. Cook and Kirkpatrick ( 1988 ) had maintained that the thrust towards denationalization is simply a consequence of the confusion originating from the function of the monetary value mechanism and of the private sector in a assorted economic system. The displacement from the ‘more-government ‘ attitude of the 1940s to the ‘more-market ‘ attitude in the 1980s is simply a displacement in paradigm, instead than in political orientation. Therefore, all enterprises that emphasize more usage of the market or more usage of the ‘private-sector-culture ‘ are termed denationalization. Hence the entry of more houses into a antecedently monopolistic field is denationalization ; and exposure of endeavors to bankruptcy and take-over is denationalization. In short, Cook and Kirkpatrick ( 1988 ) define denationalization as the transportation of productive plus from public to private ownership and control. Boachie-Danquah ( 1988 ) defines denationalization as the transportation of ownership of public resources or assets to private single and houses through assorted options:

( a ) . “ aˆ¦ sale of state-owned endeavors to the private sector through private arrangement, public offerings or competitory command by strategic investors. ”

( B ) . leting private operators to vie in sectors that have been the sole sphere of PEs.

( degree Celsius ) . interrupting up a monopoly into assorted subdivisions of activities to excite competition ; and

( vitamin D ) . Transportation of the direction of PEs from public to private through contracts, rentals or grants.

In a wide sense, denationalization involves non merely the sale or other signifier of transportation of province assets, but besides the transportation of the direction of province endeavors to the private sector ( Agada, 2002 ) . This is accompanied by a extremist reallocation of available productive resources, restructuring of bing institutional scene in which production takes topographic point, and the debut of new methods of corporate administration devoid of political intervention ( Jerome, 1996 ) .

Although, most people associate modern denationalization programme with Margaret Thatcher ‘s authorities, which came to power in Britain in 1979. The first large-scale denationalization programme so termed ‘denationalization ‘ programme was lunched in the Federal Republic of Germany by the authorities of Konrad Adenauer about half a century ago. As far back as 1961, the German authorities sold a bulk interest in Volkswagen in a public portion offering to a great extent weighted in favour of little investors. It was about two decennaries before another state chose to privatisation as nucleus economic programme ; it is without doubt the most of import historically. Denationalization was embraced by the British authorities and the term denationalization was coined by Peter Drucker and was adopted to replace the term denationalization ( Yergin and Stanislaw, 1998 ) .

It is of import to observe that the aims set for the British denationalization programme were virtually the same as those listed by every authorities that has adopted denationalization more than two decennaries ago. Waterhouse ( 1989a ) says these ends are to: ( 1 ) rise gross for the province, ( 2 ) advance economic efficiency, ( 3 ) cut down authorities intervention in the economic system, ( 4 ) promote wider portion ownership, ( 5 ) provide the chance to present composing, and ( 6 ) expose PEs to market subject. The other major aim is to develop the national capital market ( Menyah and Paudyal, 1996 ) .

Britain denationalization thrust started in 1979. Between 1979 and 1988, Britain developed more than 21 methods of denationalization ( Pirie, 1988 ) . Some of them are selling the whole endeavor by public portion issue, selling parts to private purchasers, selling the endeavor to the work force, utilizing verifiers, undertaking out the service to private concern, etc. This enables the British authorities to accomplish a important transportation of ownership of most PEs to its citizens. In that procedure, the authorities smartly shifted big countries of public concern to where they were subjected to economic subject, efficiency, answerability, and competition ( Idahosa and Mustapha, 2002 ) .

Other states of the universe follow the footfalls of Britain as respects denationalization. In the United States denationalization at the federal degree took a extremely cautious attack. France and other European states besides embrace denationalization. Besides taking portion in denationalization are the developing states including Nigeria.

Denationalization IN NIGERIA

Denationalization is the outgrown of the controversial Structural Adjustment Program ( SAP ) embraced by the authorities in 1986 which is a policy of International Monetary Fund ( IMF ) . The docket of the IMF is to force the Nigerian authorities to drastically cut down passing on public endeavors so that more money can be available for the service of the over $ 30 billion foreign debts and besides to be better placed for the procurance of more loans.

The justification given by authorities, harmonizing to National Council on Privatization ( NCP ) for its denationalization policy is that there is need to cut down the laterality of unproductive investings in the populace sector in the visible radiation of dwindling oil gross and mounting external debts. Second, that denationalization will assist re-orientate PEs towards a new skyline of public presentation betterment, viability and overall efficiency. Third, it is asserted by NPC that denationalization assures positive returns on public sector investings. Fourth, that denationalization will promote the usage of the capital market as a major beginning of financess for PEs instead than complete trust on the exchequer for support. Fifth, it is hoped that denationalization would make a better window in the planetary economic system and allow engagement in international trade. Besides, it is believed that denationalization would take to the repatriation of capital by investors who wish to take up some of the equity in the affected companies, particularly in the aftermath of a debt/equity transition policy of the authorities. These and many others are the aims of denationalization of the Nigerian authorities.

The authorities was soundless about whether all these aims of denationalization will, if realised, finally lead to an betterment in the public assistance of members of the society, hence it cam merely be implied, that welfare betterment is the overall aim of denationalization as an component of economic reform plan is said to hold the ultimate aim of bettering the economic system as a whole.

In realizing the exalted aims of denationalization, authorities in 1986 gave definite indicants of its desire to deprive itself of all or portion of its investings in most PEs. Where authorities did non divest, it gave indicant of its purpose to to the full or partly withdraw transportation of grants from revenue enhancement gross to PEs. In 1988 authorities promulgated Decree No. 25 known as the Privatisation and Commercialization Decree, which gave legal backup to the execution of the denationalization policy. By March 1989, the first sets of endeavors were put up for sale under the recommendation of a authorities nominated Technical Committee on Privatisation and Commercialization ( TCPC ) . About 135 endeavors were listed to be privatised. In 1995, TCPC was renamed as Bureau of Public Enterprises ( BPE ) and every bit became a secretariat for the execution of all authorities determinations on denationalization in 1999. The BPE decided the endeavor that should be privatised.

By the terminal of 1993 divestment had been concluded in 34 companies through the stock market. In 2005 entirely, denationalization bureau had privatised eight endeavors. Some of these endeavors are Afribank Nigeria Plc, Apapa Port, Leyland Company, Bricks and Clay Companies, every bit good as oil companies.

METHODS OF PRIVATIZATION

Denationalization in Nigeria manifests in different signifiers. A figure of methods were adopted for the denationalization of PEs. These include:

( I ) Public offer for sale of portions of affected endeavors through the Nigerian Stock Exchange. To day of the month, The BPE privatised 35 PEs through this attack. More endeavors are expected to be privatised through this method every bit good.

( two ) Private arrangement of portions of affected endeavors. This method of denationalization was employed in instances where authorities retention is so little that it can non coerce public offer of portions even where the endeavors fulfill the listing demands of the Stock Exchange. To day of the month, merely one endeavor has been so treated.

( three ) The 3rd method is the sale of assets where the affected endeavor can non be sold either by public offer of portions or by private arrangement of portions. Such endeavors have a hapless path record and a hereafter mentality which is hopeless. To day of the month, a sum of 27 endeavors have been so privatised, including the 18 dealt with by the Ministry of Agriculture before the TCPC was established.

( four ) Management Buy Out ( MBO ) . Under this method, the full or significant portion, of the endeavor is sold to the workers. It is wholly up to them to organize and pull off it. To day of the month, merely one endeavor has been privatised through this manner.

( V ) Deferred Public Offer. This is the 5th method of denationalization developed. It occurs in endeavors which are feasible, but if sold by portions the value to be realised will be out of melody with the value of the implicit in assets of the endeavor. To day of the month, approximately five endeavors have been privatised this manner and another three are likely to be so treated.

UNINTENDED CONSEQUENCES OF PRIVATISATION

Harmonizing to Mkpuma ( 2005 ) , the Federal Government had privatised 89 PEs between 1988 and 1993 in her first stage of the three phased denationalization plan. In the 2nd stage which runs from 1999 to 2005, Federal Government had privatised more than 32 endeavors. The kernel of denationalization plan harmonizing to the authorities was to vouch rapid and irreversible advancement to the Nigerian economic system while the attendant benefits will accrue to the Nigerian public.

However, Nigerians hold divergent positions on the part of denationalization in its three decennaries of being in Nigeria and it is pertinent that this be reviewed critically. Quite normally major roads are posted with hoardings and many jangles are aired on the wireless and telecasting sponsored by the National Council on Privatisation deceivingly stating

that “ the people benefit as the state privatises. ” The large inquiry nevertheless is: who are the people that really benefit from the denationalization programme? Surely, they are non the ordinary people and workers of the sold companies who have later lost their occupations, and left their legion dependants with a black hereafter.

No uncertainty, friends of the people at corridor of power and their ally are the premier donees of the denationalization exercising. Guess is plentiful as per persons looking for cardinal Government forces in the sell-off returns.

To many Nigerians denationalization creates unpleasant and unhealthy clime to the economic system and should be discontinued since it does non convey betterment to the economic system. These people dismissed denationalization as being of no economic benefit to the common citizens but making an economic state of affairs which favours merely a few persons in authorities and their buddies. It has besides been criticized as impoverishing the state and her citizens, conveying unsurmountable adversity and other economic sufferings within its three decennaries of being.

Besides, the mass of workers and the ordinary people stand to lose out from the denationalization programme. This is because the driving force of private ownership is maximization of net incomes. With this in head, the immediate concern of the purchasers of the freshly privatised companies will be to cut down overhead costs. The first casualties will be workers of the affected companies, who will lose their occupations in droves, and their legion dependants who stand to endure thenceforth.

Some Nigerians do non see denationalization populating up to the outlooks of revamping the economic system, judging from the skyrocketing rising prices, high and unsteady exchange rate, corruptness and nepotism, peculation, undiscipline, among other anomalousnesss. Indeed, the Nigerian economic system has been held confined by private enterprisers who own public establishments for undue profiteering at the disbursal of the people, deficiency of public answerability, decrease in indispensable services, creative activity of natural monopolies and mass unemployment as a consequence of mass lay off of workers in an effort to maximise net income. The state of affairs is acquiring worse even with the coming of 4th democracy and the anti-corruption campaign of the present disposal.

Furthermore, the hapless people in the society besides stand to be the concluding also-rans. This is because the production and distribution policies of private ownership are to be geared towards maximal net income devising, and non needfully towards the demands of the people. This implies that handiness of merchandises and bing societal services soon been produced and offered by the concerned public-owned endeavors will now be offered at really high cost to the populace. And of class to the want of the ordinary people in the society, who seemingly will non be able to afford such extremely extortionate costs. This means that these merchandises may be ‘available ‘ but will non be ‘affordable ‘ .

Surely, the consequence of denationalization on the economic system of Nigeria is unreassuring and the multitudes are at the having terminal of denationalization programme in Nigeria. In other words, denationalization has non been effectual in transforming the economic system of Nigeria as postulated by denationalization initiates.

Decision

Though we should be careful non to pull excessively many decisions from this research on denationalization of public endeavors in Nigeria, we would be remise if we fail to at least try a few concluding comments. The denationalization programmes of the last three decennaries have significantly reduced the function of public endeavors in the economic life of Nigeria. Despite the defence of denationalization exercising by the Board of Bureau of Public Enterprises, it is hard to acquit the authorities from the allegation of being the designer of the state ‘s economic sufferings and adversities, hapless resource direction, corruptness and inefficiency in our public constitutions.

It is surprising and incomprehensible that the authorities, through its bureaus, privatised companies that have no direct bearing on bettering the life criterions of the people. Emphasis should be on privatizing public public-service corporations, which will go more efficient in the manus of private investors. If denationalization is to accomplish the declared aims, the executing should be in the best involvement of the state and public assistance of the people. Denationalization should non be left with few persons in power turning it to personal or household matter and dispose of valuable investings either to themselves, their associates or buddies.

The authorities should look beyond the immediate additions of denationalization and sell public-service corporations that would in the close hereafter make the economic system to thrive and convey relief to the multitudes of Nigeria. This is because the kernel of administration is traditionally the proviso of societal services for the public, this can non be rationalised otherwise.

Finally, we can infer that denationalization is a really complex and complicated issue necessitating a comprehensive and intensive survey of its effects before execution. Besides, denationalization of public endeavors is non a Panacea for Nigeria ‘s many economic sufferings because the private sector on which denationalization success depends has its ain failings. The research worker is of the sentiment that the logic of the present Nigerian state of affairs calls for a limited but selective denationalization to be pursued merely when conditions are favorable and where the involvements of the general populace will non be jeopardized.

Recommendation

In the visible radiation of the above, the research workers would wish to do the undermentioned policy recommendations aimed at understating the recoil effects of denationalization of public endeavors in Nigeria.

First, the portions of privatised endeavors should be equitably distributed among the prospective purchasers and that there should be bound to the figure of portions any single, group, or organisation can buy.

Second, in order to suit the hapless member of the society to take part in the purchase of the portions of privatised endeavors, the payment for acquired portions can be spread over a period of clip, say five old ages, and that purchasers should be required to do a down payment of non more than 40 % of the entire sum of the portions bought.

Third, the executing of denationalization policy should be made unfastened to everybody to see. Nigerians are entitled to cognize how companies built, managed and maintained with their revenue enhancement money are being sold. All facets of the exercising should be made public.

Finally, the regulative function of the province in privatised endeavors must of class be flexible plenty to promote efficiency, competition and fiscal subject ( Federal Ministry of Industries, 1987 ) .

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