Nigerian Economy – Effects Of Privatization And Commercialization Policies
Nigerian Economy – Effects Of Privatization And Commercialization Policies
Privatization, a method, of allocating assets and function from the public sector to the private sector, appears to be a factor that could play a serious role in the quest for growth. In recent history, privatization has been adopted by many different political systems and spread to every region of the world. 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.The process of privatization can be an effective way to bring about fundamental structural change by formalizing and establishing property rights, which directly create strong individual incentives. A free market economy largely depends on well-defined property rights in which people make individual decision in their own interest. Modern market economics generate growth because widespread, formal property rights permit massive, low-lost exchange, thus fostering specialization and greater productivity. Along with creating strong incentives that induce productivity, privatization may improve efficiency, provide fiscal relief, and encourage wider ownership and the availability or credit for private sector.
The issue of privatization has been a subject of intense global debate in recent years. In Africa, it has remained highly controversial and politically risky. Privatization in Nigeria over some time has not been a popular reform. It has received so much criticism from labour, academia, and individuals. There have been numerous strikes against proposed sell-offs by fearing loss of jobs, while proponents of privatization see that aspect of economic reform as an instrument of a efficient resource management for rapid economic development and poverty reduction. The critics argue that privatization inflicts damage on the poor through loss of employment, reduction in income, and reduced access to basic social services or increase in prices.
Commercialization on the other hand, has much influence on the economic growth and development of any country. It is in practice, because it deals on the re-organization of public enterprises in much a way as to operate as profit making commercial ventures, with subvention from government, though the government still retains its full or part ownership. It could also be whole or partial. Commercialized enterprises use private sector procedures in the day-to-day administration of business.
However, when a public enterprise is commercialized, it reduces the burden of the enterprise on government. The government. The government do not spend much resources on the enterprise because the enterprise can stand on its own as profit oriented ventures, which will in order ways make returns to the government.
There are many economic benefits that are connected to the process of pursue privatization and commercialization. One of the main reasons why countries pursue privatization and commercialization is in order to reduce the size of the existing government, based on the idea that many governments have become too large and over-extended, consisting of unnecessary layers of bureaucracy. Therefore, many countries require restructuring in order to improve efficiency, which can be achieved through privatization and commercialization.
The private sector responds to incentives in the market, while the public sector often has non-economic goals. In other words, the public sector is not highly motivated to maximize production and allocate resources effectively, causing the government to run high-cost, low-income enterprises. Privatization and commercialization directly shift the focus from political goals to economic goals, which leads to development of the market economy (Poole, 1996). By privatizing and commercializing, the role of the government in the economy is reduced, thus there is less chances for the government to negatively impact the economy.
1.2 STATEMENT OF RESEARCH PROBLEMS
The statement of the research problems arises from questions such as:
i. What are the benefits of privatization and commercialization to the Nigerian economy?
ii. What are the factors that hinder the privatization and commercialization to the exercise from achieving its goals.
iii. How has the privatization and commercialization exercise fared since its implementation in the economy?
iv. What must be done to ensure successful privatization and commercialization of the required public enterprises?
v. What are the difficulties encountered in the process of privatization and commercialization of enterprises? It is in this perspective that “the socio-economic effects of privatization and commercialization policies on the Nigerian economy will be analyzed.
1.3 OBJECTIVES OF THE STUDY
This research is being carried out primarily to analyze the effectiveness of privatization and commercialization on the Nigerian economy.
I would also seek to find out how privatization and commercialization and commercialization will strengthen the role of the private sector in the economy, which will guarantee employment and higher capacity utilization.
More specifically, this study will analyze:
1. To access how privatization and commercialization policies will increase productive efficiency.
2. To examine how privatization and commercialization will help in improving the financial health of public services with saving from suspended subsides.
3. To look into how privatization and commercialization will generate the free more resources for allocation to other needy areas of governmental activities.
4. To examine the institutional framework and regulatory agencies charge with the responsibility of implementing privatization and commercialization policies.
5. To analyze the impact of privatization and commercialization in the Nigerian economy.
6. The analyze the effects and the influence of privatization and commercialization on the rate of economy growth.
1.4 RESEARCH HYPOTHESIS
A hypothesis is a supposition put forward as a basis for reasoning or investigation, thus this research hypothesis.
Ho: Privatization and commercialization have no positive impact on the economic growth and development process of Nigerian economy.
H1: Privatization and commercialization have positive impact on the economic growth and development process of Nigerian economy.
1.5 SIGNIFICANCE OF THE STUDY
The importance of viable privatization and commercialization policies in economic growth and development of Nigerian cannot be over emphasized. This study is very important, as it would examine to what extent privatization and commercialization have contributed to economic growth and development in Nigeria.
In fact, this work would add to the ready-made shelf of well-structured publicly research projects which will be a very important tool for prospective investors in the area of privatized and commercialization enterprises in the country. Also, students and those who may require valuable information for further studies will find this study very relevant.
The government and policy makers would also find this research important, especially in area of policy formulation and implementation of further privatization and commercialization of other government enterprises in the economy.
1.6 SCOPE OF THE STUDY
This research work will cover privatization and commercialization policies in the Nigerian economy and other developing economies of the world. It will include the processes of privatization and commercialization all regulatory framework and agencies involved in the privatization and commercialization exercise and the enterprises that have been or about to be privatized or commercialized in the economy.
1.7 LIMITATIONS OF THE STUDY
The paucity of relevant information and statistics on privatization and commercialization of enterprises will place a heavy limitation on this study. Recourse will be made to seminar papers, workshop papers and journals in the course of this work. Also the dearth of relevant and related materials in school library may also limit this study. Lastly, the time frame to complete this work is relatively short for a wholesome and thorough research in this area of privatization and commercialization in Nigeria. Despite these shortcomings, the researcher intends to work assiduously to carry out and present a solid and empirical work.
In this work references of all books, seminar papers, workshop papers, statistical bulletins and other relevant materials used in the course of this research will be at the end of this work as the bibliography.
2.0 LITERATURE REVIEW
The concept of privatization in recent times evokes sharp political reactions from many angles. Privatization can simply be defined as the transfer of ownership and control of enterprises from the state to the private sector. Various groups and persons have also defined privatization differently.
The privatization and commercialization Act of 1988 and the Bureau of public enterprises Act of 1993 defined privatization as the relinquishment of part or all of the equity and other interests held by the Federal Government or any of its agencies in enterprises whether wholly or partly owned be the Federal Government. But however, privatization is defined, it transfers ownership of production and control of enterprises from the public to the private sector. It is an ideological concept.
In the second, Nigeria Economic Summit (1995), defined privatization as a term used to describe a variety of policies, which are designed to transfers fully or partially, ownership and control of public enterprises to the private sector to encourage competition and emphasis the role of market forces in place of statutory restrictions and monopoly powers. On the other hand, the summit defined commercialization as the or-organization of enterprise wholly or partially owned by Government to ensure that such enterprises operate as profit making commercial ventures without subvention from government.
Theme (1997) defines privatization as any of a variety of measures adopted by government to expose a public enterprise to competition or to bring in private ownership or control or management into a public enterprise and according to reduce the usual weight of public ownership or control or management. However, in a strict sense, privatization means the transfer of the ownership (and all the incidence of ownership, including management) of a public enterprise to private investors. The latter meaning has the advantage of helping one to draw a line between privatization and other varieties of public enterprise reform. It is also the sense in which the term has been statutorily defined in Nigeria.
In a similar vein, Starr (1998) Defines privatization, as a shift from the public to the private sector, not shifts from within sectors.
According to him, the conversion of a state agency into an autonomous public authority or state owned enterprise is not privatization, neither is conversion of a private non-profit organization into profit-making form.
Ogunde (2002) defines privatization as the state policy whereby state owned companies are sold out to private individuals. Critically, he added, “it is a process whereby collectively owned properties are auctioned out to “money bags”. Who naturally are the ones that can afford effectively the cost of such ventures.
From the definitions of privatization above, three things, are clear:
i. For privatization to take place, there must be in existence of public enterprises, which need to be converted into private enterprises.
ii. There is the reasoning that private ownership or control or management would be better than public ownership and
iii. There are problems with public ownership of enterprises and privatization is parts an parcel of a reform agenda to turn these enterprises so that can deliver goods and services more efficiently and effectively.
In that case, privatization is about ensuring efficiency in the operations of public enterprises. In Nigeria, Government enterprises are poorly managed due to some certain negative factors. These factors make public enterprises inefficient in operation. This inefficiency then called for privatization, which removes their inhibitions and ensures their operational efficiency and contribution to economic growth and development.
2.2 EVOLUTION OF PRIVATIZATION AND COMMERCIALIZATION
The evolution of privatization and commercialization will be broadly discussed in two categories namely,
1. Philosophical basis of privatization
2. Historical process of privatization and commercialization
PHILOSOPHICAL BASIS OF PRIVATIZATION
The participation of the state in enterprises in various countries of the world has been date back before the colonial era. The task of providing infrastructure facilities such as railways, roads, bridges, water, electricity and port facilities fell on the state. Throughout much of the twentieth century, there were two opposing ideologies on how society should be governed and developed; capitalism and socialism. Capitalist ideology typified by neo-liberalism insists that that a self regulated system of market will always bring about spontaneous process of development. On the other hand, the socialist and many other varieties such as the interventionists argued that unregulated capitalism will always bring about poverty, unemployment and human misery and that there is the need to intervene and to regulate the market. At the end of the 20th century with the end of the cold war, there is an ascendancy of capitalism and neo-liberalism hence the renewed drive for privatization.
HISTORICAL PROCESS OF PRIVATIZATION AND COMMERCIALIZATION
A world-wide era of privatization and commercialization has been picking up momentum in recent decades, making it a fairly new trend in the area of economic policy. The modern idea of privatization and commercialization as an economy policy was pursued for the first time by the Federal Republic of Germany in 1957, when the government eventually sold majority stake of Volkswagen to private investors. Chile introduced privatization programme in 1974. The next big move in privatization came in the 1980’s with, Margaret Thatcher’s privatization of Britain telecom and Chirac’s privatization of large bank in France. Privatization spread to other continents as Japan and Mexico privatized government owned communication companies. Another major contribution to the worldwide process of privatization and commercialization has been the fall of the communist regime in Eastern Europe and the former Soviet Union. In recent times, countries like China Cube, as well as many developing countries have begun to implement privatization in the hope of stimulating economic growth. Over the period of 10years between 1984 and 1994, there has been a world-wide shift of $468 billion in assets from the public sector to the private sector.
2.3 METHODS OF PRIVATIZATION
Countries around the world have pursued different methods of privatizing state assets depending on the initial conditions of the country’s economy and the economic ideologies of the government in that country. The process of privatization is often easy for small institutions, while the process becomes harder when it comes to finding the appropriate buyers for larger enterprises. The methods of privatization are broken down as follows:
1. Public-Private Sector Privatization: In this method, the state would simply decode which institution should be privatized and through the use of market mechanism, private investors are able to buy shares of each firm. The benefits from this method of privatization are that it creates needed revenues for the state while putting privatized firms in the hands of investors who have the incentives and the means of investing and restructuring. On the other hand, finding domestic investors in underdeveloped countries, is often a difficult task (Stribock, 2001)
2. Voucher Privatization: In this method of privatization, the government universally distributes vouches to this eligible citizens, which can be sold to other investors or exchanged for shares in other institutions being privatized. Although this method does not create revenues for the state; it does privatize state-owned firms in a short period of time (Sirbock, 2001). Many countries such as Canada and Russia have employed this method, but the most notable voucher privatization program was the one designated by the Czech Republic. Due to the fear of the return of the communist party, the government felt that it was necessary to pursue a rapid privatization process.
3. Internal Privatization: This method is also known as “employee or management buy out”. in this method of privatization, state owned enterprises are sold to the management of the enterprises for an extremely low price. This management are already familiar with the particular firm and its structure, but there are minimal revenues generated to the state. This method creates some incentive but the incentives are much stronger. When firms are sold to strategic investors Slovenia has been known for their internal privatization process in which majority of the state assets were districted to state-owned institutional investors (such as pension funds) while the rest were sold to employees. This process led to lack of strategic investors, which may have played a role in the limited success in Slovenia’s privatization (World Bank, 2002)
4. Restitution: This is a privatization method that has been employed in some circumstances, but is not used nearly as often as the three methods discussed above. Restriction is the privatization process in which the property right of a company is given back to the original owner. Along with the difficulty of finding the original owner, there are many draw-backs to this method of privatization since the value of the changes over time, (Stirbock, 2001),
2.4 PRIVATIZATION AND COMMERCIALIZATION IN NIGERIA
Privatization in Nigeria was formally introduced by the privatization and commercialization Act of 1988, which later set up the Technical Committee on privatization and commercialization (TCPC) Chaired by Dr. Hamza Zayyad with a mandate to privatize 111 public enterprise and commercialize 34 others in 1993, having privatization 88 out of 111 enterprises listed in the decree, the recommendation of the TCPC, concluded its assignment and submitted a final report. Based on the recommendation of the TCPC, the Federal Military Government promulgated the Bureau for public Enterprises Act of 19943. Which replealed the 1988 Act and set up the Bureau for public Enterprises (BPE) to implement the privatization program in Nigeria. In 1999, the Federal Government enacted the public Enterprise (privatization and commercialization) Act, which created the national Council on privatization chaired by the Vice President, Alhaji Atiku Abubakar.
THE FUNCTIONS OF THE COUNCIL INCLUDES:
Making policies on privatization and commercialization.
Determining the modalities for privatization and advising the government accordingly.
Determining the timing of privatization for particular enterprises.
Approving the prices for shares and the appointment of privatization advisers.
Ensuring that commercialization public enterprises are managed in accordance with sound commercial principles and prudent final practices and
Interfacing between the public enterprises and the supervising ministries in order to ensure effective monitoring and safeguarding of the managerial autonomy of the public enterprises.
The 1999 Act also established the Bureau of public enterprises (BPE) as the secretariat of the National Council on privatization. The functions of the bureau include among others to do the following:
Implementing the councils polices on privatization and commercialization.
Preparing public enterprises approved by the council for privatization and commercialization.
Advising the council on capital restructuring needs of enterprises to be privatized.
Ensuring financial discipline and accountability of commercialized enterprises.
Making recommendation to the council in the appointment of consultants, advisers, investment bankers, issuing houses stockbrokers, solicitors, trustees, accountants, and other professionals required for the purpose of either privatization or commercialization; and
Ensuring the success of privatization and commercialization implementation through monitoring and evaluation.
2.5 AGENDA FOR AS SUCCESSFUL PRIVATIZATION AND COMMERCIALIZATION EXERCISE IN NIGERIA
For privatization and commercialization exercise to success in any country like Nigeria, some certain conditions should be met.
These conditions are as follows:
i. A strong committee executive leadership
ii. A competitive environment
iii. A growing strength and sophistication in the regulatory framework to create and maintain competition.
iv. Variety of instruments employed-leasing, joint ventures, negotiated sales, auctions, sales of assets, sales of share on the stock exchange.
v. A wholly transparent process watched over the a skeptical press.
2.6 OBJECTIVES OF PRIVATIZATION AND COMMERCIALIZATION
It is possible that some of these popular and critical perceptions and assertions about privatization and commercialization are accurate. A synopsis of the various policies on privatization and commercialization adopted in several countries around the globe reveal some basic macro-economic objectives. The following objectives were identifies by Ananwu etal (1997) and Tesse (2002)
2.6.1 TO IMPROVE THE EFFICIENCY AND PROFITABILITY OF PUBIC ENTERPRISES
The operations of public enterprises is inefficient. The cost of production is high, the quality of production and services is low the management is corrupt, and since the enterprises is not profit oriented there would seem to be lack of motivation on the part of the management and workers since profit is an incentive to handwork privatization and communalization will lead to competition, and competition brings out the best in entrepreneurship. There will be constants supply of materials, since investors will fight for market share. Al these will bring out efficiency and profitability of public enterprises.
2.6.2 TO REDUCE THE DEPENDENCY OF PUBLIC ENTERPRISES ON THE TREASURY
Government has spent billion of Naira in the public sector without returns. This money could be uses by government to develop the economy and provide infrastructures. Privatization and commercialization involves the sales of shares to individuals and corporations. This will serve as a source of found of these enterprises, since these enterprises will operate to make profit, which will cover their cost, funding will be problem like when government was in charge of funding. Government will be free of this burden and will now direct its funds to the production of infrastructure and other productive sectors in the economy.
2.6.3 TO INCREASE THE PARTICIPATION OF NIGERIA CITIZENS
One of the objectives of privatization and commercialization programme is giving the opportunity to every Nigerians home and abroad the buy shares in these corporations, which will enable them, participate in the development of the economy. The shares should be sold to people of all classes, not just the elites in the society. Everybody will have an equal opportunity to participate in this programme since the shares are owned by private individuals own the shares, stakeholders will want to work for the good of the enterprise.
2.6.4 TO AVOID SENSELESS DUPLICATION
Privatization and commercialization programme is also adopted in order to avoid senseless duplication, which results in additional costs. According to Tesse Colin (2002), it makes no series to duplicate, for purpose of competition, such competition would be wasteful in economic and social terms.
Privatization will reduce this phenomenon of senseless duplication, quality services will be provided to consumers. Innovations and creativity would be adopted, since new ideas will be pumped in to operations from different areas.
2.6.5 TO ENCOURAGE CHEAPER BORROWING
Federal Government borrows at high interest rate to keep these public corporations working. IMF gives out loans to the government at their own stated interest rate. Since government needs the money, it has no option than to collect the loan. Sometimes, Government cannot even cover the cost of the loan (IMF interest plus principal) thereby accumulating debts. Private investors can borrow at cheaper rate since they have to select the least interest rate from a range of alternatives. Therefore, with privatization and commercialization, investors will borrow at a cheaper rate all things being equal, provides cheaper services to the public.
2.7 SCHOOLS OF THOUGHT ON PRIVATIZATION AND COMMERCIALIZATION
There are three basics schools of though on privatization and commercialization, which are as follows;
i. The public sectors school of though
ii. The privatization school of though
iii. The commercialization of though
2.7.1. THE PUBLIC SECTOR SCHOOL OF THOUGH
The supporters of the public sector school of though feels that privatization of public enterprises will further widen the gap between the rich and the poor; reinforce male dominance and gender inequality; unencourage provision of affordable services to the populace; leads to job losses and increased unemployment. They argue that ailing enterprises should be properly funded/revived and their management placed under the democratic control of the workers.
2.7.2. THE PRIVATIZATION SCHOOL FOR THOUGH
The supporters of privatization argue that through privatization funds are raised for efficient operation of public enterprises; political interference is completely eliminated, when public enterprises are fully privatized; and collaboration with government and private individuals are enhanced when public enterprises are partially privatized.
2.7.3. THE COMMERCIALIZATION SCHOOL OF THOUGH
Those who support commercialization are in the middle way between the first and the second group. They see commercialization as a lesser “evil” which could lead to:
1. Enterprises making profit or at least recovering costs; the profit being a motivating tool instead of satisfy the exploitative desires of the rich.
2. Profit making by hitherto to public enterprises, ensures efficiency.
3. Full commercialization will lead to the enterprises setting its own prices that can lead to profit making.
4. No government subsidies would be required while partial commercialization group feels that it will help government recover its operating costs.
2.8 PRIVATIZATION, ECONOMIC GROWTH AND DEVELOPMENT
Thingan (2002) define economic growth as a quantitative sustained increase in the country’s per-capita output or income accompanied by expansion in its labour force, consumption, capital and volume of trade. Development in this sense thus include economic growth plus quantitative change in economic wants, goods, incentive, institutions, productivity ad knowledge or the upward movement of the entire social system.
Privatization has impact on the economic growth and development process of any nation. Also, privatization a method of reallocating assets and functions from the public sector to the private sector, appears to be a factor that could play a serious role in the quest for growth. The process of privatization can be an effective way to bring fundamental structural changes by formalizing the establishing property rights, which directly create strong individual incentives.
A direct benefit of privatization would be budgetary saving from allocation of government funds to such corporation. Such budgetary savings could be invested into more productive areas to develop and improve per-capita income of individuals through the creation if more job opportunities, promotion of private investment on consumable and export goods etc.
Furthermore, another visible benefit of privatization is that it leads to reduced public debt and the cost of capital maintenance. With reduction in the “debt burden” developing countries like Nigeria could allocate their scare funds to ore productive areas instead of applying them to the servicing of debts which does not in anyway contribute to capacity utilization, capital accumulation or encourage any definitive reform.
It was argued by the BPE, and quite correctly that through privatization successful investors would bring in new ideas into the organization. At this micro level the innovative would transform the methods of production, competition and creation of capital by proprietary investors. At a consequence of the wide spectrum of investment opportunities, foreign capital could move in through multinational and trans national corporations.
Privatization could generate revenues to the government for the development of the economy. Available record from BPE publication about 85 enterprises have been privatized and N36.12 billion and $449.06 million raised from sale (table 2.1).
So far, privatization has much positive impact to every economy in as much as privatization programme is well implemented.
Years GDP (NM) DPI (NM) FPT (NM)
1980 96187 3,035.4 3620.1
1981 70395 5,8971.1 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 3232.5 993.6
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 14892.9
1998 112950 46335.6 221952.0
1999 116400 49116.7 209136.2
2000 121590 56127.3 682673.6
2001 121590 56127.3 68267.6
2002 125314 57231.5 679364.2
2003 128239 59456.3 679364.2
2004 131040 60361.5 691275.7
2005 135620 62115.7 664716.2
SOURCE: CBN, Statistical Bulletin, Various Years
GDP= GROSS DOMESTIC INVESTMENT AT 1984
DPI= DOMESTIC PRIVATE INVESTMENT
DPI= FOREIGN PRIVATE INVESTMENT.
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Nigerian Economy – Effects Of Privatization And Commercialization Policies
To place an order for the Complete Project Material, pay N5,000 to
Account Name – Chudi-Oji Chukwuka
Account No – 0044157183
Then text the name of the Project topic, email address and your names to 08060565721.