Economic Growth Of Nigeria – Effect Of Privatization
Economic Growth Of Nigeria – Effect Of Privatization
Privatization is most commonly defined as the transfer of companies from the public sector to the private sector. To place an order for the Complete Project Material, pay N5,000 to Then text the name of the Project topic, email address and your names to 08060565721.
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Then text the name of the Project topic, email address and your names to 08060565721.It is also the transfer of the change of government owned industries to the private sector, implying that the predominant share in ownership of assets on transfer lies with private shareholders, viewed against the phenomenon of privatization is not a new concept in economic literature.
In most cases, such transfer are done through the stock exchange, so that every citizen is given an opportunity to buy into such companies.
After the world war II, Britain embarked on a deliberate policy of nationalization of its basic industries with a view to enhancing efficient planning of the British economy and to guarantees an uninterrupted flow of essential goods and services to the populace. Britain is today in the lend for the privatization of public enterprises.
The wane of privatization has cut across the globe. Countries like USA, Italy, Brazil, Spain, Kenya, Holland and Turkey are in the race for privatization. It has worked successfully in many countries at comparable stage of development with Nigeria. Spain privatized 30 banks and 195 companies between 1972 and 1975 respectively. In March 1987 the Mexican government decided to sell 305 government owned companies to private sector. Turkey has privatized more than 30 companies with more billed to go. In some countries like Kenya, Ivory coast, Liberia etc. privatization is at advanced stage.
The extent to which privatization measures are considered does vary from county to country. The advent of privatization in Nigeria, emanates from the introduction of SAP, which is one of its objective. The introduction of SAP in Nigeria has one important objective which is to enhance efficiency in the allocation of resources both in the public and private sector of the economy.
1.2 STATEMENT OF THE PROBLEM
Having understood the meaning of privatization by Shamsudden (1997) he defined privatization “as shift in activity from the public to private sector”.
This was necessitated because of the loopholes in the public sector. Privatization have spring up to reduce the burden on public expenditure by the government. This is as a result of large public enterprises and unwillingly become highly political, with a consequent heavy reliance on government subventions which led to the wide engagement of the government in entrepreneurial function that is understandable, the imperative of the changing circumstances called for a redefinition of the role in the direction of greater selectivity and efficiently in its engagement in such operations.
In comparing the performance of public and private enterprises, there also exists a general understanding that public enterprises, in both developed and developing countries have performed below expectation. It has been argued that excessive political interference and bureaucratic failure are responsible mainly for the inefficiency associated with public sector. The government has created a situation whereby financial indiscipline was rampant on public enterprise. The position was that since public enterprises acquired their capital either directly from the government budgetary allocations, or from the capital market under government guarantee, they were immune to bankruptcy of public enterprise to pay back the huge capital invested in them.
The problems that confronting privatization are numerous; we shall look into some of these problems as listed below:
Inefficiency of public enterprises
Excess of political intervention
Excess reliance in public subventions and grants
The unpredictability by the public sector
The government perform below expectation to do its traditional functions.
The management and under-utilization of capital.
Rigid bureaucratic structures and bottlenecks.
Lack of transparency and technical competence in the public sector.
Corruption and nepotism
Lack of adequate funding
Lack of competition
All these points mentioned above are the problems of privatization, but invariably this problem affects the study. If all the public enterprises can be handled by the private sector these problems will be eradicated – which will bring efficiency in those enterprises.
1.3 OBJECTIVE OF THE STUDY
The primary goal of the privatization programme is to make the private sector the leading engine of growth of the Nigeria economy. The government intends to use the privatization programme to reintegrate Nigeria back into the global economy, as a platform to attract foreign private investment in an open, fair and transparent manner.
We shall then look into the main objective of the study.
To inject efficiency and effectiveness in our public corporation and make them profit oriented.
To give the full effect of privatization.
To look at the reasons for the poor performance of public companies.
To restructure and rationalize the public sector in order to substantially reduce the dominance of unproductive government investment in the sector.
To set the tone for the establishment of proper legal and regulatory framework for the privatization exercise.
To improve on the operational efficiency and reliability of our public enterprises.
1.4 SIGNIFICANCE OF THE STUDY
This study have an intention to reduce unemployment in Nigeria and create efficiency in the public enterprise, through privatization programme. This will lead to economic growth in Nigeria by increasing the GDP per factor cost in the economy. This intention can be achieved through proper assessment and transparency in the private sectors.
Therefore, the study is important because of the following reasons:
1. To create efficiency in the private sector which will bring about economic growth in Nigeria.
2. To create an avenue to reduce unemployment in Nigeria.
3. By unearthing the distortions in the public enterprises and revealing most of their causes, this will help policy makers design appropriate policies that will reduce this know distortions.
4. To assess how the privatization have helped in bringing efficiency and profitability in the hither to public enterprises, since after being privatized and by extension of economic growth and stability in the economics of the adopting countries
5. The study will identify some of the contradictions inherent in privatization thereby affording the opportunity to avoiding their consequences. Also, the recommendation will endeavor to reduce the shortcomings that have arise through privatization.
1.5 SOURCE OF DATA
The data for the study is basically secondary data. The study shall rely more on data from the central bank of Nigeria (CBN) publications, seminars, Articles, News paper, magazines and other related textbooks and also from federal office of statistics (F.O.S).
1.6 SCOPE AND LIMITATIONS OF THE STUDY
The study will focus on the performance of the internal and external sector of these economics. We shall also limit our scope from the first phase of privatization to the second phase of privatization period. The study shall start with the pre-privatization period.
This study might be constrained with the problem of data collection. Most institutions lack necessary data for analysis. Tim constraint and financial limitation also hinders one from carrying out a comprehensive study.
However, the aforementioned problems was not allowed to adversely effects the quality of the study. This study contains relevant and sufficient information for anyone interested to make a research and reference in privatization as an instrument for effective economic growth.
2.1 LITERATURE REVIEW
What is privatization? There are various definitions of privatization, some of which do not recognize its diverse forms. Adam et al (1992:6) noted that the term has been used to describe on array of actions designed to broaden the scope of private sector activity, or the assimilation by the public sector efficiency – enhancing techniques generally employed by the private sector. The United Nations Development Programme (1991) (UNDP) defines it as the marketization of public sector activity, that is, the subjection of microeconomic decision-making to market forces, since this is a feature of profit-oriented private sector activity.
Privatization is defined as a deliberate government policy of stimulating economic growth and efficiency by reducing state interference and broadening the scope of private sector activity through one or all of the following strategies: transfer of state owned assets to private ownership through sale of shares; private control or management of state owned assets; encouraging private sector involvement in former public activity; and shifting decision making to agents operating in accordance with market indicators.
It is important to make a distinction between privatization and commercialization. Commercialization programme does not automatically entail divestment or the introduction or private management into public enterprises. Instead, it involves reorganization of public enterprises that are wholly or partly owned by government to become self-sustaining, profit making ventures which are either completely independent or slightly dependent on government or government subvention (Obadan, 2000:17). Commercialization, therefore, rightly fits into the wider concept of public enterprises reforms while privatization is not. It is related to privatization insofar as commercialized enterprises are expected to operate like private enterprises.
2.2 THE ORIGIN AND GROWTH OF PRIVATIZATION
The idea of privatization is therefore the outcome of efforts by the liberals to emphasize the “virtues” of private initiative and the superiority of its management principles (Ademolekun and layeye, 1986:13).
Privatization option either couldn’t have been adopted, or proceeded as fast as its had in many African countries, without external pressure. According to white and Bhatia (1998:29). “without donor pressure and support, it is doubtful that privatization would have progressed as fast as it has in Africa. Donors have put pressure on governments to divest”. It is important to mention here that privatization is a key component of the world bank / international monetary fund inspired structural adjustment programme (SAPS) currently being implemented in many African countries (Obadan, 2000:1). It is on record that the world bank in particular, has moved beyond merely making privatization a pre-condition for loans by setting goals and schedules for meeting divestitive targets (Commonwealth secretariat etal, 1994:24).
2.3 THEORETICAL LITERATURE
The key theoretical elements underpinning the argument for a change in ownership from public to private related, firstly, to the view that public ownership led to the pursuit of objectives that detracted from economic welfare maximization (Boyckop, Shileiger and visdhing, 1996). Secondly, an ownership change could improve economic performance by changing the mechanisms through which different institutional arrangements affects the incentives for managing enterprises. (Victers and Yarrow, 1988, Lsaffont and Tiroce 19991, cook and Fsabella, 2001).
These arguments are linked to presumptions concerning the condition of publicly owned enterprises before they are privatized. A typical view presented publicly-owned enterprises, as overextended and poor performance (Kien, Nells and Shlirely, 1994).
In this situation publicly-owned enterprises crowded out private enterprises in their access to credit and erected statutory barriers to preserve the monopoly status of publicly-owned enterprises. It was argued that the net effect of a change in ownership from public to private could improve economic efficiency, and our time and increase in investment.
If privatization was sufficiently extensive and had efficiency including effects, then the contribution of improved performance could be detected at the macroeconomics level. Privatization would reduce crowding out and provide more credit to the private sector. It would increase the opportunities for investment in newly privatized enterprises by releasing them from the capital constructions previously faced under public ownership. A change to the government, mechanism and structure of incentives facing employees.
2.4 EMPERICAL REVIEW
The idea of privatization within our economy dates backs to the year 1980, when the securities and exchange commission (1980) in its letter of then transmitted to the minister of finance did call upon the federal government to direct itself of some of its securities portfolio especially the economically and politically non-sensitive ones (Otiti, 1986: p 2). Later, the 1982, the Ono side commission and study group set up by the Buhari Administration (1984) independently recommended the privatization of certain parastatals. The matter did not evoke much public debate and comment with the head of state. President Ibrahim Babangida, in his 1986 budget speech, categorically declared a policy of privatization. Be that as it may, scholars and expert see the drive as a panic measure borne out of our present economic predicament in favour of some people and others are against it.
The proponents of privatization rest their arguments on the efficiency of demand and supply. Privatization has been universally accepted as in approach which recognizes that the regulations, which the market imposses on economic activities is superior to any regulation which is based upon law. The advocates also fell that it is an approach which also recognizes that market measures respond to the choices and preferences of people more accurately than the political process. (Shackleton 1984: 7).
Mrs. Irene Chigbue, director general of the Bureau of public enterprises (BPE) has again assured that government would deliver on its promise in the on going privatization programme. Mrs. Chigbue, since her last appointment March 2004, continued to pledge the preparedness of the privatization agency to deliver on the programme.
The BPE Director general assured that the agency would work tirelessly to ensure that only the best qualified companies acquire government enterprises stated for privatization. She stated that the privatization agency would not just sell because the bidders have money to pay but would ensure that whoever emerges as a core investor has the technical ability to turn the enterprises around in order to achieve the government desire if creating more employment opportunities.
Friedman (1982) in his conservative views does not see the essence of government participation in economic activities. His arguments center on the jeopardy of economic and political freedom under the government of too much of bureaucracy, different organisational ability especially in complex enterprises, multidimensional and conflicting goals which inhibit the effectiveness and efficiency of operational management.
Eze Ibe Nwosu, the Eze Igbo in the federal capital territory (FCT) has challenged the people of the South Eastern part of Nigeria to embrace the on going privatization programme of government. The people of the South Eastern Zone of the country have been singled out as the only Zone that have perform badly in terms of participating in the privatization programme.
Recently, Dr. Ndi Okereke-Onyiuke, director general of the Nigerian Stock Exchange (NSE) blamed the privatization apathy of the people from the South-East Zone on self independent of an average person from the region. Dr. Okereke Onyiake also blamed the apathy on the lack of central investment agency from the part of the country unlike what is obtainable in the South-West and Northern part of the country where Odua group and Northern Nigeria development company are still functional.
Stigler (1983) in his supportive arguments provides empirical evidence from industrialized countries to reinforce Friedmains thesis. Like Adam Smith, they advocate regional market forces in order to make government the best because it would govern the least.
Those who are against the programme supported their argument, however, with the liberal ideas, which are Skeptical about the efficiency without coercion. Galbraith (1987: 111) highights the limitations within the price mechanism which government intervention can overcome with regulatory agencies, subsidization policies and the provision of social services and utilities which the private sector produces little of group of consumers are always led by cut throat advertisement and other promotional efforts to purchase more and more of goods of marginal significance to them. Reinforcing this argument, Samueson (1983) saw the price system as a coersive mechanism which awards available goods and services only to those who can afford their equilibrium prices within a world economy whose income distribution is Skewed against the large under privileged class (the poor). To Samuelson, this is a form of coercion. Beside, within the process of award, people are awarded only a pittance by the price system and they will be coerced into discomfort and malnutrition. This situation, according to the liberals is socio-political injustice.
Adebago [1987: 21] in his support of privatization, cited the instance of prominent countries that have deregulated in order to maintain regional land and are doing better with it. The countries are USA and Britain with the best and cheapest telecommunication system which help it maintain its lead as the richest nation. Not only in the Americans industrial production and the health but to payment which leads to deregulation in order to maintain its leads in the Asia/ Pacific region/ UK which are positioned as the leading financial center in the world with France rapidly speeding up its deregulation process in order to catch up with the UK and put Paris in a competitive position with the city of London.
Information is of relevance in setting prices and providing incentives to managers. Privatization has helped companies to use stock market prices as a performance Yardstic. Competition encourages efficiency by allowing consumers to purchase from lowest cost and thus, it helps in achieving production efficiency by encouraging firms to minimize cost by lowering costs, they are able to increase profits and raise incomes of mengers and the remaining workers if their pay is related to corperate performance. The Authors found out that greater information transparency has been achieved due to privatization state-owned enterprises. Bishop, Kay and Mayer also argued that where price mechanisms alone are not adequate, control is of relevance. Changed in ownership are most directly associated with changes in control exerted by the state and a transfers of control of private investors. Privatization of state owned enterprises in the developing countries has transferred control of trade unions. Moreover, the day-to-day government involvement in operating firms has been significantly reduced, but periodic interventions to undertake restructuring of industries remain likely. Moreover, privatized, industries improved performance. However, the improvement originated from the imposition of hard budget constraints by the government, clear commercial goals, performance pay and decentralized and accountable management reforms introduced prior to privatization is essential. Martian and Parker (1997) examined whether 11 British Firms, Privatized during 1981-1988, improved profitability after being privatized and they found out mixed results. The authors found evidence of performance improvement relating to restructuring prior to being privatized. However, they could not determine whether performance could have been improved without the spur of incipient divestiture or subsequent privatization.
More recent analysis of performance before and after privatization in industrial and developing countries reaches stronger conclusions in favour of private ownership that privatization improves performance at sixty-one companies from eighteen countires (twelve developed economics and thirty-two industries that experienced full or partial privatization industries that experienced full or partial privatization between 1961 and 1990. financial indicators were used which includes profitability, sales levels operating efficiency, capital investment, leverage rations and divided pay out figures. They found that the following privatized, firms typically increased sales, become more profitable, increased investment and improved their operating efficiency (measured by sales per employee and net income per employee). They also found that average employment did not decrease after privatization as might have been expected, but it actually increased. They also found out that the best performance result were related to privatization when there were large change in the senior management or in the control structure, this places the emphasis on internal reorganization rather than on privatization. The privatization of the state owned enterprises is also justified on the basis that there are also factors that differentiate public and private firms.
Pirie (1988) summarized the following main characteristics differences which are: Labour cost, Consumer inputs, decision-making conditions of equipment and responsiveness to cost control. According to Pirie (1988), labour costs are often the key to difference in efficiency between the private and public sector. Public enterprises are usually overstaffed. Moreover, he argues that the consumer is able to exercise a degree of control on private firms thereby deciding whether to shop with them or to seek satisfaction elsewhere.
The goods and services have to be oriented towards consumer satisfaction in order to attract customers and to m ake profit. They have to be the goods and services which customers choose to buy and they have to offer the variety and the quality sought. In addition, price stated that decision making in the private side of the economy is heavily based on economic factors. The choices of when to expand and where of the level of production to achieve; and the determination of a price- all of these decision are made on the basis of economic considerations. Firms have to gear their decision making to the market. They have a deal with the level of demand and with the price and availability of capital. On the other hand, in the public sector, many of the important decision are made on political grounds. For instance, voter response to a price increase is an important factor in the management of state owned industries. Therefore, public sector companies do not follow the law of demand and supply. Political objectives are pursued at the expense of economic ones.
2.5 AN OVERVIEW OF PRIVATIZATION IN NIGERIA
The Nigeria public enterprises have not done too well on the various facets of managements either in form of personnel, financial control, general administration or even accountability when compared with the private sector for many obvious reasons.
In the first place, Management of public assets and enterprises in this country are plagued by polical and budgetary constraints, insecurity of tenure of office, unsatisfactory reward system leading to job dis-satisfaction and lack of commitment under payment compared to the private sector, leading to bribery and corruption as well as numerous problems characterizing the public sector everywhere.
Privatization is also one of the reforms we have to undertake to integrate our economy into the mainstream of world economic order. There are too integrations. In the first place, we need the technology, the managerial competence and the capital from the developed world to enhance the performance of our utilities.
Secondly, there are very serious linkages between the efficient functioning of our utilities and our ability to attract foreign investments. We cannot be taking about creating a conducive environment for foreign investment if the performance of our transport, telecommunication and energy sectors remain dismal and epileptic.
Let us now look into how privatization emanates in Nigeria. The privatization programme can be traced in Nigeria from 1986, through the introduction of structural adjustment programme (SAP) in Nigeria, It starts its existence in 1986, but it was officially legalized in March 1988, when the Nigerian Heads of state, Ibrahim Badamous Babaginda Promugated a dedgree establishing the technical committee on privatization and commercialization (TCPC). The committee was formally in inaugurated in July 1988 to Undertake the task of reform of public enterprises, as an integral and critical component of the structural adjustment programme as conceived has two interrelated components- privatization and commercialization. [SAP], which was started in . The reform
The Technical committee on privatization and commercialization rounded up her activities and submitted a report to the president on June 5 1993, the TCPC also transformed to Bureau of public enterprises (BPE). It was the Head of state General Abdulasalm Abubakar that promulgated the public enterprises (privatization and commercialization). Degree No 28 in early 1999 (before the hand-over to a democratically elected government). The decree kidded off the phase of the privatization exercise under the bureau for public enterprises (BPE). The decree allows BPE to alter, add, delete, or amend the provision in the document in the best interest of the economy or country.
Initially sixty-one (61) enterprises were stated for privatization, that is (36 partial and 25 full privatization) but because of the new power granted to BPE, it has increased the list by 37 extra enterprises (some of which were originally meant for commercialization), some of the government companies being privatized now include National Insurance Corporation of Nigeria (NICON), Nigeria Insurance Corporation, Niger dock Plc, National Aviation Handling company (NAHCO), Nigeria railways Corporation (NRC), Nigeria Ports Authority (NPA), Nigeria Postal Services (NIPOST) and Savannah Sugar company.
In December 1999, the democratically elected government of President Olusegun Obasanjo picked interest in the privatization exercise and gave it a boost by establishing the National count on privatization (NCP) with the vice president, Alhaji Atiku abubakar, as its chairman. The council is empowered among other things to determine the political, economic and social objectives of the privatization and commercialization programme, approved guidelines and criteria for valuation of public enterprises marked out for privatization- including choice of strategic investor-identification of enterprises to be privatized or commercialized and approved the prices for shares or assets of the public enterprises to be offered for sale.
The privatization exercise is seemingly slow as a result of the government to ensure maximum transparency in the process as well as introduce. Measures that will sensitizes the people to participate massively.
It is quite interesting that since December 1991, about 9 enterprises have been privatized, adding 2.5 billion shares to the capital market while the federal government realized a revenue of #35.6 billion from the sales. Privatization is geared to relative transparency and technical competence that has characterized the on-going programme, the attractions of the Nigeria economy of foreign investors could proved irresistible.
For the medium term, it is possible to envision the emergence of Nigeria as one of the attractive depots for foreign investment given the present government’s determination programme, the direct fight against corruption and the other sources of hidden costs for operators in the economy, and the stated commitment to make the private sector the engine of growth as a strategic option. As we are still looking into the over-view of privatization in Nigeria, we still highlight more on the three phased of the exercise. During the first phase of the exercise which spanned from July 1988 and June 1993, the following programmes were executed their various methods.
-36 enterprises were privatized through public offer of their shares.
– 4 enterprises were privatized on difference public offer method.
– 8 enterprises were privatized via public private placement method.
– 8 enterprises were privatized via sales assets method.
– 1 enterprises was privatized through management buy out method (MBO) River Basin Development Authorities. Under the phase 1 programme, about 88 public enterprises were either fully or partially privatized. These were enterprises in which the Nigerian government invested jointly with foreign or private Nigerian investors. With the exception of the cement and the oil Marketing companies the capitalization most of them was small. The huge capital- intensive and basic industries like the fertilizer companies, sugar companies, vehicle assembly plants, paper and the steel mills which hold vital position in the economy could not be privatized for various reasons ranging from financial insolvency to negative net worth. Finally, there was lack of government’s policy on some critical issue associated with the implementation of the programme. The issues include:
Whether to private as “is” or rehabilitate before privatization.
To relieve the enterprises managers of their duties before or after privatization.
The types of regulatory frame work that will be in place.
Whether the sales should be given to both foreigners and Nigerians.
The valuation method to be used.
The role of foreign core investors in the ownership and management of the national economy.
Loss of jobs resulting from the privatization
Income inequality arising from the ownership of privatized assets.
Whether to deregulate before or after privatization.
Utilization of the privatization proceeds.
Whether government should go ahead and own golden shares.
The level of transparency programme.
We should understand that the privatization exercise in Nigeria was done by Nigerians Nigerians without any foreign technical assistance. The programme succeeded in relieving of financing public enterprises, minimized the overstretching of government managerial capacity through a redefinition of the role of the supervising ministries, created a large body of shareholders and depend and broadened the Nigerian capital market to the position of being the most developed in black Africa.
The Market capitalization of the Nigerian stock exchange (NSE) through which the shares were sold has grown from #8.9billion in 1987(before privatization) to #65.5 billion in (After the phase -1) and currently stands at #428.9 billion as at the end of August 2000, the catalytic effect of the volume of shares released into the market via the privatization exercise cannot be over emphasized.
Base on the first-phase of privatization, the head of state commander in Chief of the Armed forces of the federal Republic of Nigeria, His Excellency General Abdusalam, Abubakar announced in his National broadcast on July 20, 1998 that government would privatize its investment in telecommunications, electricity, petroleum refineries, petrol-chemicals, gold and bitumen production and tourism in addition to spill over from the firs phase of privatization. Under the programme, government will retain 4% of the equities of the affected enterprises while 4% will be alienated to strategic investors with the right technical, financial and management capabilities. The remaining 20% will be sold to the Nigerian public through the stock exchange.
In the Executive order dated 6th July, 1999, his Excellency president Olusegun directed that the three phases implementation of the second privatization programme of the federal government of Nigeria start immediately.
The phases were:
PHASE 1: Full divestiture of federal government shares in oil Marketing companies, banks and cement plants- A total of 14 companies, most of which are already quoted on the Lagos stock exchange.
PHASE 11: Full divestiture of federal government ownership in Hotels, vehicle Assembly plant and other industrial enterprises operating in competitive market.
PHASE 111: Partial divestiture of federal government interest in major public enterprises currently operating in Non-competitive sector like electric power, telecommunications, oil and gas and the like.
It is quiet interesting to note that, the national council of privatization (NPC) under the chairmanship of vice president Atiku Abubakar was inaugurated and tasked with timely supervision of the programme in a transparent manners.
The bureau of public enterprises (BPE) is acceptable to the council for implementation of the programme under the general policy oversight and other directions of the council.
2.6 OBJECTIVE OF PRIVATIZATION IN AFRICA
What is the motivation of the government when it decides to privatize? It reduces the size of its ownership and curtail the degree of its control on state properly?
The objective for African privatizations are conceived, designed and programme in the national policy frame works, or as democracy and structural adjustment programme. They are inspired if not imposed by external force. The political will of African government to privatize appears in the objectives officially stated. Those objectives are usually to:
Raise addition revenue for the state.
Promote economic efficiency, but maintain or increase the level of employment.
Reduce government involvement in economic management, and broaden ownership to the private sector.
Introduce competition through economic liberalization, and develop the nation’s capital markets and attract national and foreign capital flows.
Generating new investment, including foreign investment.
Let us briefly highlight some of the objectives.
(1) Raise additional revenue for the state. From my observation and research, and according to Oliver Campbell White and Anita Bhatia in their study that the impact of privatization on government financial flows up to the end of 1996 was not substantial. In terms of sales volue in percentage of government revenue, in percentage of GDP or in per capital GDP, the qualitative measurement of the objective to raise the government revenue did not seem very positive. Government central budget revenue benefited about 7 percent increase in privatization proceeds, with only an average one percent increase for all Africa. In percentage of GDP sales value were below 13% for all the privatization period up to the end of 1996, with an average of 2% for the Region. The per capital measurement in US $ showed a maximum of about $60 and average of 5 for all sub-saharan Africa. These quantitative performance criteria led to the conclusion that up to 1997, privatization has no significant impact on government financial flows in Africa. Therefore the objective to raise government revenue has not been met. In fact, the expected impact of privatization on government financial flows should be measured against the improvement in the economic growth, in job creation and in political and social stability, this is because without economic growth, there will be no economic development.
(2) Promoting economic efficiency and employment in privatized enterprises.
Here, we are in the heart of the objective of privatization, what is at state, in the African opinion in general, is less the transfer of ownership from the state for the private sector than the hope through privatization to attain efficient management. That means higher output, more investment, higher profits, higher employment, lower leverage and higher dividends:
To achieve these goals, two major questions need to be answered.
Do privatized enterprises improve their performance in terms of profitability, efficiency and investment?
What is the social impact for consumers and employees?
So far, experts have examined their investigations base on these two questions asked above.
The first group of expert in 1994 by Galal and others study that 17 assessing the welfare gains and losses resulting from the privatization of twelve companies operating in non-competitive market, which was limited to only four countries. Chile, Malaysia, Mexico, and the United kingdom.
It was observed that, they try to determine whether privatized enterprises increase their profitability, their efficiency, their capital expenditures and their output. They also examined the impact of privatization on employment, capital structure, dividends distribution policies. Therefore, privatization brings in private owners to place a greater emphasis on profit goals and carry out new investment that increase output and employment.
2.7 IMPACT OF PRIVATIZATION ON EMPLOYMENT: Facts have demonstrated that privatization in some cases has improved the levels of production and profits, after additional investment, and changes in management and labour practices. Nevertheless, the fear of job loses is the stumbling block to privatization. We should note that, the trade unions make employment the number one issue in the privatization deal. They imposed collective bargaining and set the levels of end of services benefits and most countries in Africa. We should note that the official estimate of unemployment in Nigeria was 4.4% in 1980, 10% in 1986, 12.2% in 1987, and 15% in 1993. The rising official unemployment levels suggest that privatization in the short-run created massive wave of job loses and its actualization. The Nigeria Airways reduce its workforce by 60% in 1998, while the Nigeria Railway Corporation out its workforce of more than 10,000 by 84%. The statistics shows that those retrenched workers are now self employed in the private sector.
Perhaps in the medium and long term job creation and its quality will become more palatable, with increased capital flows, through foreign private investment FPI.
The World Bank development Report 1998/1999 shows that the flows of foreign private investment to sub-Saharan African has increased to $3.27 million in 1996, from $834 million in 1990.However, there is no breakdown to show that the share resulting from privatization in the increase. But, previous data from the world bank indicate that, on the basis of a study in ten countries Benin, Burkina Faso, Ghana, Kenya, Madagascar, Mozambique, Nigeria, Togo, Uganda, Zambia the value if FPI from privatization as in 1995, $834.5 million in FPI or 6 percent of a total of 9,881.2 million value in those countries.
2.8 IMPACT OF PRIVATIZATION ON THE ECONOMIC GROWTH IN NIGERIA
A long period of monitoring of the performance of the public enterprises in Nigeria in terms of their contributions to the economic growth revealed that of an unnecessary high burden to our economic growth and development. Some of the reasons identified for their poor performance were as follows.
a Excessive government control
b Lack of adequate finding
c Political interference
d Lack of adequate and qualified manpower.
In privatization some of these public enterprises, the government envisaged that the following scenario shall be achieved.
1 Injection of efficiency into these companies
2 Reduction of the burden from these enterprises on the economy through the withdrawal of government subvention.
3 Generation of revenue to the government through the sale of their equity which could b used to services the nations debt and the provision of infrastructure.
4 The increase the competitive nature of the economy which in turn will translate into higher GDP and employment opportunity.
It is on the basis of the above mentioned factors that we are going to measure the impact of privatization on our economy. Impact of privatization on income within the period, the federal government income has gone up as a result of earnings from the equity dividends from the commercialized enterprises and stoppage of subventions to the hitherto public enterprises. The retained revenue of government in 1980 was about #24 billion, but has gone up to #73.4 billion in 1993. However, the burden of the privatization and commercialization fell heavily on these fixed incomes. The exercise created an inflationary situation affecting the real earnings per income earners and their standard of living.
2.9 IMPACT OF PRIVATIZATION ON CAPITAL MARKET DEVELOPMENT
It is a common belief that privatization goes hand in hand with capital market development. Nigeria cannot escape that universal condition of mobilization of national and international savings. We are all aware of that need, Development of providing a strong impacts to the state enterprises through sales of shares by public offers has been one cause of increase in the number of quoted companies on Existing stock exchanges market. So far, statistics from the international finance corporation and the World Bank shows that market capitalization in 1995 was $1,350 million in Nigeria. But out of the total amount raised from privatization it still remains low at $112 million in Nigeria.
2.10 IMPACT OF PRIVATIZATION ON OUTPUT
Since the inceptioin of privatization, the GDP has been fluctuating between 1986 – 1993 as a result of the macro-economic variables that formed part of the overall structural adjustment programme. The trend has been as follows as 1986, it was 3.2%, 1991 4.4%, 1992 4%, 1993 2.9%. In the manufacturing sector, the rate of growth between 1988 – 1992 was 12.9%, 1.6%, 7.6%, 9.3% and 2.6% as against 29.2% in 1983 and 1984.
2.11 IMPACT OF PRIVATIZATION ON FOREIGN RESERVE
Since the inception of privatization and commercialization, the Nigeria foreign reserve which has been dealing rapidly from about No 8B in 1982 has gradually been rising. It rose from #5.63 in 1986 to about #44.26 in 1991 and declined to #146 in 1992.
So far, we have been able to study the historical background and overview of privatization, the impact of privatization, its theories and the general objective of privatization in Africa and Nigeria in particular.
SUMMARY, CONCLUSION AND RECOMMENDATIONS
The study reviewed that privatization programme designed to boost efficiency economics and to use the private sector to buy a solid base for privatization and for future economic growth and development. The cause of the efficiency and poor performance of the public enterprises were highlighted in the study. The privatization programme have geared towards injecting efficiency into the public enterprises, to reduce the persistent demand for government subvention, to generate revenue to the government and others. The study have examine the problem(s) of privatization and its objectives on the time frame of 21 years. The privatization programme is very important to the Nigeria economy, to boost economic growth and development. It is significant efficiency in the private sector, and by unearthing the distortions in the public enterprises. The scope of the privatization programme was also highlighted and we discovered the Nigeria scheme is one of the most comprehensive in the world as it covered almost all span of public enterprises either fully or partially.
The privatization programme has been reviewed by some experts, and there is a justification between privatization and economic growth by using the macro-economic theories. The theoretical liberation have been highlighted showing the change in ownership from public to private related firstly to the review that public ownership led to the pursuit of objectives that detached from economic welfare maximization. It was examined that theoretically modern growth s characterized by rise in the rate of per capital product due primarily to the growth and development of the private sector which led to greater efficiency or rise in productivity per unit of input.
The empirical literature have also been reviewed which shows that the experience of privatization in the developing countries have justify three factors; finance, information and control.
It is also quiet understandable that Nigeria public enterprises have never done too well on the various factors of management either in terms of personnel, financial control, general administration or even accountability when compared with the private sector for many obvious reasons. The privatization programme have been highlighted for its origination in Nigeria and the three phases of privatization have also been stated earlier on. Also, the objectives of privatization in Africa, the impact of privatization on the economic growth in Nigeria have been discussed, which brought increase in output, positive impact on employment and foreign reserved.
This research study the model specification, method of estimation, formulation of hypothesis and data collection method. The functional relationship is also stated, with its indicators as domestic private investment (DPI) and foreign private investment (FPI) against the Gross Domestic Product (GDP) at 1984 factor cost; that will head to economic growth and development in Nigeria.
Moreover, this study have tested the hypothesis and found a positive linear relationship between the dependent variables (GDP) and the explanatory variables DPI and FPI. This corresponds with the economic prior expectation, as it is expected that domestic private investment (DPI) and foreign private investment (FPI) should have a positive impact on the economic growth and development of any country.
Privatization though did not fulfill all its objectives; the programme placed the economy on the path of positive and sustainable growth and development. There is prospect that the programme will launch our economic on the same scale of higher productivity like that of other free market economic of the developed world. This was based on our findings that privatization has a positive impact on the economic growth and development of the country. As such, based on a prior ground, the main objective of the study, is to find out whether privatization has a positive relationship with private sector in Nigeria. The study has proved that there is a positive relationship between privatization and the growth of private sector in Nigeria.
5.3 POLICY RECOMMEDATION
The study has been able to highlight the impact of privatization in Nigeria. It discovered that certain measures need to be adopted to improve on the level and prospect of the privatization in Nigeria.
The following recommendations are here by stated:
(1) Policy implementation in the country should be adhered to strictly and consistently. Decision should be implemented with firmness without fear or Favour to avoid lack of co-ordination and detainment midway.
(2) Adequate publicity and awareness campaign should be carried so as to mobilize and sanitize the interest of the entire citizenry towards the programme.
(3) Access to credit facilities the financial industry should be ready to offer credit facilities to investors wanting to buy shares in privatized enterprise a fashion similar to what was done during the indignation exercise.
(4) Allocation of shares: Allocation of shares should be geographically spread among all states in the country to encourage investment diversification.
(5) Infrastructure: The state of infrastructure in Nigeria is in pitiable state; so as a matter of necessity, the infrastructure state of the country has be improved within the shortest possible period through the programme, so as to facilitate private and foreign invitations and investment.
(6) Political stability: Privatization and other Economic Reforms is assumed to strive best in a stable political and democratic set up in order to attract confidence from foreign investors and continuity in policy implementations. Therefore, effort should be geared towards truly returning the country to a democratic government.
(7) The programme needs periodical review so that those aspect that requires serious intensifications could be encouraged and those that requires change of strategy should be treated accordingly.
(8) A room should be created for free and fair in the buying of shares to this public enterprise other than the people in the corridor of power.
(9) For the programme to strive well the government should checkmated and bribery and corruption, bucreautic and nepotism in the country etc.
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1.1 COMPANIES THAT ARE TO BE FULLY PRIVATIZED
1. Aba Textile Mills
2. American International Insurance Corporation
3. British American Insurance
4. Central Water Transport Corporation Limited
5. Crusader Insurance
6. Durbar Hotel Limited
7. Grains Production Company Limited
8. Guinea Insurance
9. Impressist Bakolori Nigeria Limited
10. Law Union and Rock
11. Madara Dairy Company
12. Mercury Assurance
13. National Animal Feed Company Pany
14. National Cargo Handling LTd
15. National Firm Distribution Company Limited
16. National freight Company
17. National fruit Company
18. National Live-stock Production Limited
19. National Root Crops Company Limited
20. National salt Company limited
21. NEM Insurance
22. New Nigeria salt company limited
23. Niger Insurance
24. Nigeria Ranches
25. Nigerian Beverages Company Limited
26. Nigeria Dairies Company Ltd
27. Nigeria Film Corporation
28. Nigerian Food Company Ltd
29. Nigeria National Fish Company
30. Nigeria National Shimps Company Limited
31. Nigeria National Supply Company- To sell all assets and
let the bulk purchase unit of the Ministry of trade be re-
32. Nigerian Poultry Production Company Limited
33. Nigeria Transport Limited
34. Nigerian Rumania Wood Industry Limited
35. Nigeria Yeast and Alcohol Company Limited
36. North Breweries Limited
37. Ode-Irele Oil Palm Company
38. Okomu Oil Palm Company
39. Opobo Boat Yard
40. Prestige Assurance
41. Road Construction Company of Nigeria
42. Royal Exchange Assurance
43. South-East Rumania Wood Industry Limited
44. Special Nigeria Limited
45. Sun Insurance
46. United Nigerian Insurance
47. West African Distilleries Limited
48. West African Prudential Insurance
1.2 COMPANIES THAT ARE TO BE PARTIALLY PRAVITIZED
1. All Commercial and Merchant Banks
2. All the oil Marketing Companies to be converted to public quoted companies
3. All the steel Rolling Mills outside the Iron complex
4. All the paper Mills
5. All the Truck Assembly Companies
6. All the Vehicle Assembly Companies
7. Becita Sugar Company
8. Daily Times of Nigeria
9. Electricity Metre Company of Nigeria Limited
10. New Nigeria Newspaper
11. News Agency of Nigeria
12. Nigeria Airways
13. Nigeria Agricultural C-operative Bank Plus other
development Bank for Commerce and Industry, Federal
14. Nigerian Engineering Construction Company Limited
15. Nigeria Fertilizer Company Limited
16. Nigeria National Shipping Company
17. Nigeria Sugar Phosphate Fertilizer Company
18. Savannah Sugar Company Limited
19. The Cement Companies
20. Tourist Company of Nigeria Limited
1.3 COMPANIES THAR WILL BE FULLY COMMERCIALIZED
1. Associate ones Mining Corporation of Nigeria
2. National of Nigeria
3. National Properties Limited
4. Nigeria Mining Corporation
5. Nigeria Re-Insurance Corporation
6. Nigeria Coal Corporation
7. Nigeria National Petroleum Corporation [NNPC]
8. Nigeria Telecommunication Limited [NITEL]
9. Tafawa Balewa Square Management Committee
1.4 COMPANIES TO BE PARTIALLY COMMERCIALIZED
1. All the River Basins Authorities
2. Delta Steel Company
3. Federal Hospitals
4. Federal Housing Authority
5. Federal Radio Corporation
6. Kamji Lake National Park
7. National Electric Power Authority [NEPA]
Session started 13:46:56 on March 22, 2005.
INSTRUCTION: Modeling GDP by OLS
No: of case processing summaries: 1 to 21
No: of Observation Excluded ———Nil ——–
Fitted Terms: Constant, DPI, FPI
Summary of analysis
R R2 Adjusted R2 DW
0.9336 0.87116 0.81235 1.835
Source of variation DF Sum of squares Mean square F-Value
Regression 2 2611.8412 1305.9206 5.9306
Residual 18 3963.6113 220.2006
Total 20 6575.4525
Estimates of Regression coefficient
Variable Estimates Std Error t- value
Constant – 128.6443 48.9961 – 2.6256
DPI 0.8357 0.4603 1.8156
FPI 0.8209 0.2162 3.7969
YEARS GDP[NM] DPI [NM] FPI [NM]
1980 96187 3,035.4 3620.1
1981 70395 5,897.1 3757.9
1982 70157 1,783.7 5382.8
1983 66390 1610.5 5949.5
1984 63006 – 1154.0 6418.3
1985 68916 – 2487.3 6804.0
1986 71076 – 3412.8 9313.6
1987 70741 3232.5 9993.6
1988 77753 1051.9 11339.2
1989 83495 3389.9 10899.6
1990 90342 7088.4 10436.1
1991 94614 7279.1 12243.5
1992 97431 19176.7 20512.7
1993 100015 40265.6 66787.0
1994 101330 34,222.1 70714.6
1995 103570 37391.3 119391.6
1996 107020 39116.8 122600.9
1997 110400 42683.5 148982.9
1998 112950 46335.6 221952.0
1999 116400 49116.7 209136.2
2000 120600 53418.2 666271.2
Source: CBN, statistical Bulletin, various years
GDP = GROSS DOMESTIC INVESTMENT AT 1984
DPI = DOMESTIC PRIVATE INVESTMENT
FPI = FOREIGN PRIVATE INVESTMENT.
Economic Growth Of Nigeria – Effect Of Privatization
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