PROBLEMS AND PROSPECTS OF PRIVATIZATION AND COMMERCIALIZATION OF GOVERNMENT PARASTATALS IN NIGERIA

ABSTACT

This topic, problems and prospect of privatization and commercialization of government parastatals in Nigeria is the attempt to help the general public to know about the privatization commercialization of government parastatals in Nigerian.  Moreover, to enable the public to contribute their own quota in the privatization issue and find out the problems and prospect associated with the porgammes. The chapter one deals with the introduction, the historical background of the programmes, and statement of problems objectives of study, significant of study, scope and limitation and lastly definition of terms. In this project writing the chapter’s one from chapter one to five which give the view of what privatization and commercialization of government parastatals are all about.

                     TABLE OF CONTENT

Title page                                                       i

Approval page                                                        ii

Dedication                                                             iii

Acknowledgement                                                  iv

Abstract                                                                vi

Table of contents                                                    vii

CHAPTER ONE: INTRODUCTION

1.1      Background of study                                        1

1.2      Statement of problem                                      17

1.3      Objectives of the stud                                      17

1.4      Statement of Hypotheses                                  18

1.5      Research questions                                   19

1.6      Significance of the study                            19

1.7      Scope of the study                                           20

1.8      Limitation of the study                                     21

1.9      Definition of terms                                           22

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1      The concept of privatization and

Commercialization                                           24

2.2      Reasons for privatization and commercialization   59

2.3      Types of privatization and commercialization65

2.4      Objectives of privatization and commercialization in Nigeria                                                        67

2.5      Functions of Technical common on privatization and commercialization                                                69

2.6      Benefits of privatization and commercialization    72

2.7      Advantages of privatization and commercialization in Nigeria                                                             76

2.8      Problems of privatization and commercialization   80

CHAPTER THREE: RESEARCH METHODOLOGY

3.1      Research Design                                              86

3.2      Area of the study                                             86

3.3      Population of the study                                     87

3.4      Sampling method                                            88

3.5      Research instrumentation                                 89

3.6      Validity and reliability of measuring instrument    90

3.7      Source of data                                          91

3.8      Method of investigation                                    94

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1      Data presentation and analysis of results            96

4.2      Test of hypothesis                                           114

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1      Findings                                                         116

5.2      Conclusions                                                    120

5.3      Recommendation                                             122

References                                                      127

Appendices

CHAPTER ONE: INTRODUCTION

1.1  BACKGROUND OF THE STUDY

The key component of the federal Government Adjustment programme is the drive towards higher efficiency in the public sector.  This necessitated the promulgation of privatization and commercialization Decree 25 in 1988 by the federal Government in which was reflected that government will divest it holdings in agricultural production, electrical appliances, hotels, foals and non strategic industries.  Government will also reduce its holdings in banks insurance companies and other financial enterprises without losing control.

       Privatization is thus, process of divesting government ownership control and management of enterprises and agencies to private individuals and or groups of individual or business firms that are seeking their profit.  This is transfer of government owned industries or parastatals to the private sector.

       Hemmings aptly, described privatization as a laudable policy to help moderate the quantity of securities available for dealing on the stock exchange the described further as the transfer of ownership and control of assets from the public to private sector.

       Commercialization on the other hand means that the signaled enterprise will be excepted to generate enough revenue to cover their operation expenditure while government gives them capital grant to finance their capital intensive projects.

       As a matter of feet, commercialization under the Decree 25 of 1988 on privatization and commercialization was defined as the re – organization of enterprises wholly or partly owned by the federal Military Government such that these enterprises shall operate as profit these making commercial ventures and without subvention from the federal Government.

       The Government involving itself in business enterprises came as a result of predominance of state owned enterprises reflected a desire to control the economy after the colonial rule in the country.

       The 1983 presidential commission on parastatals, examined the operating all the parastatals with  a view to determine the basis for new funding scheme appropriate capital structure as well as incentive measured to enhance their productivity and general efficiency. 

       Following the commissioning, the year 1989 was earmarked was earmarked, the first year of implementation of the privatization and commercialization programme of the federal government of Nigeria.

       It was firs announced in 1986 as part of the board efforts to reduce budgetary allocation to public sector efficiency and support the aim of fiscal balance.  Divest holding will be taken care of to avoid it being contra-concentrated in the hand of few individuals.

       In order to enable all interested citizen own shares in the private enterprises commercial banks were directed to grant credit facilities for the purchase of shares under the programme central bank of Nigeria programme 1989.

       In the recent years, 2003 another step into privatization and commercialization has been taken by His excellency, Chief Olusegun Obasanjo, the president of the Federal Republic of Nigeria, as this has been a dream in the mind of Nigeria government for the post years, to invest profile an denounced political, social and economic development on a sustained basis.  It is with this goals in minds, that it is realinging its policies and programmes to create the enabling environment for efficient government and put in place a viable private sectors.  These public sectors include:  NNPC, NITEL etc.

       Consequently, there are reasons why government embarks on privatization and commercialization of parastatals such as:  government desires to bring optimum efficiency into the industrial sector of the economy.  This shows  that government can work effectively achieve its social and development goals by reducing the widespread administration over commitment of the public sector and development relying on the managerial capacities of private individuals and firms which can respond to local needs, particularly in small scale industries.

       Privatization is imperative for ramping over economy that has been characterized by typical problems of a state or country dominance over their economy which can be outlined as follows.

1.          Decline in real gross Domestic product.

2.          Deep seated corruption and political instability fueled by the concentration of wealth and power of the centre.

3.          Unfair shift of resources from the massive public to the government causing widespread of poverty etc.

These problems which are connected in one – way or the other showed that a grant proportion of economic activity is controlled by inefficient government owned enterprises therefore accounting for the decline in GDP and slow rate of growth in the economy.

Government involvement in business enterprises in Nigeria and the predominance of state owned enterprises, reflected a desire to control the economy after wrestling political control from the colonialists enterprises and viable indigenous private sectors, the government had to move into the large empty spare left by society to take over the budding economy.

       Government played a very important role in many areas of economic and industrial development.  Moreover, provision of services is such areas of business like, insurance, petroleum manufacturing, shipping and banking where government acquired equity interests in twelve commercial and merchant banks.  In all these, Nigeria had a rather bloated public sector with well over 1500 public enterprises at the federal and state levels enterprises at the federal and state levels with a regulated private enterprise.  These enterprises accounted for between 30 – 40% of fixed capital investments as stated in the final report of the (TCPC) Technical committee on privatisation and commercialisation.  As the chase may be wake of the economic recession which started in 1981 made it possible for attention to be focused on the activities of these parastatals.

The 1983 presidential commission on parastatals with a view to determining the basis for a new funding scheme, appropriate capital structure, as well as incentive measures to enhance their productivity and general efficiency.  The report of the commission showed the following:

(1)      MISUSE of monopoly power

(2)      Defective capital structures, resulting in heavy dependence loan the treasury for funding

(3)      Bureaucratic bottlenecks in their relation with supervising ministries.

(4)      Mismanagement, corruption and nepotism

The federal Government could not fund the monumental wastes and inefficiencies of the enterprises with problems such as ill conscious investments, political interference in making decision etc.

The Federal Government Of Nigeria in the year 1985 for example, had invested a total sum of N23 billion in the public sector.  In addition to this, a total of N11.5 billion was recorded as subventions to various parastatals and companies.

The government revealed that the total dividends received from this investment, during the period of 1980 to October, 1985 was N933.7 million, averaging approximately N155million per year.

The structural adjustment programme was first announced in 1986 as part of the bread efforts to reduce budgetary allocation to public sector efficiency and support the aim of fixed balance.  Divested holding will be taken care of avoid it being concentrated in the hands of a  few individual.

In order to enable all interested citizens own shares in the private enterprises, commercial banks were directed to grant credit facilities for the purchase of shares under the programme (CBN 1989) i.e the Central Bank of Nigeria Programme.  Another programme was introduced and it was then, that bank was first privatised in Nigeria in 1992.

The federal government structural adjusted programme is the drive towards higher efficiency in the promulgation of the privatization and commercialization Decree No. 25 in 1988 by the Federal Government which reflected that government will divest its holdings in agricultural production.  Electrical appliances and non- strategic industries and reduction of its holdings in banks, insurance companies and other financial enterprises without losing control.

The year 1989 was ear marked the first year of implementation of the privatization and commercialization programme of the Federal government.

Privatization as Ibie opined, it is a process by which the size of an inefficient and ineffective public sector is reduced by transferring some of its function to a relatively more efficient private sector.  The introduction of privatization in Nigerian brought in the opinion of many intellectuals such as professor Adebayo who was of the opinion that, privatization and commercialization to succeed, there must be a resuffling in the economic policies.  He said that it was only as a result of this, that public enterprise would be able to perform better.

Mallam sulleiman D. Umar was of the opinion that the issue of the absorptive of the capital markets could be solved by the following the procedure accepted during the indigeneization exercise of 1972.   He observed that Nigerian capital market now has more experienced financial experts than before and that they could be put to work.  He suggested that, for the policy to achieve orderly implementation, this process should be phased over a period of 2-3 years to enable a proper structuring of the company that were to be privatized first and the subsequent ones of follow:

Expression of fears were raised by individual and workers, in the sense that, it will bring unemployment as a result of massive retrenchment of workers in the public enterprises.

Chief of General Staff, Commander Ebitu Ukiwe gave a dismal picture of federal government investment in parastatals and companies as at october 31, 1995.  Total dividends receipts by government amounted to N93.7 million on investment of N11 billion i.e 1.39% returns.  This reflected the more reason why the government felt the need to reduce the financial burden with the belief that the private sector would be able to record higher profits.

Given the inadequate accounting records of the parastatals, they may never qualify for quotation.  This fear was allayed by the recommendation of the Second Tier Securities Market (SSM) with less stringent listing requirements as a starting point for such parastatals to quote their shares.

In the light of these issues raised as regards the privatization programme, the Federal Government of Nigeria, set up a technical committee on privatization and commercialization implement the porgramme.  The technical committee (TCPC) was inaugurated on July 1988 and its secretariat in Ikoyi, Lagos.

Commercialization under the Decree No 25 of 1988 on privatization and commercialization was defined as. The re-organization of enterprises wholly or partly owned by the Federal Military Government such that these enterprises shall operate as profit-making commercial ventures and without subvention from Federal Military Government.

Privatization and commercialization of public sectors has been a dream in the mind of Nigerian Government in the past years.  Now that its needs arise further growing economy of Nation Nigeria His excellency, Chief Olusegun Obasenjo the president of the Federal Republic of Nigeria has brought to focus in this recent year 2003 the programme again to privatize and commercialize public sectors to invest profile and enhance political, social and economic development on a sustained basis.

The parastatals to be private commercialize include:  NNPC, NITEL, Nigeria Railway Corporation, NEPA to mention but few.  It is with this goals in mind that, it is realigning its policies and programmes to create the enabling environment for efficient governance and put in place a viable private sectors.

In the above mentioned parastatals like Nigeria Airwaus is going to be privatize and  commercialize because of its inefficiency caused by bureaucracy and political considerations.  Passengers were not some of any flight Schedule as flights could be concelled any moment without prior information.  In addition, there were few air routes because the Airways could not cope with demands of covering the whole country.

Federal government moving toward privatization of the oil sectors, has determined to shone up its 51 percent equity in each of the four refineries in the country while the balance will be retained with the NNPC.  The realise its objective, the federal government has raised a four man presidential panel to oversee the sale of the refineries.  The panel is headed by Dr. Edmund Olukoru with other five (5) members including Engr. Funso Kuplokun, Group Managing Director of NNPC and Dr. Julius Bala Director General of the Bureau for public enterprises (BPE).

The Government has dissolved the board of directors of the Port Harcourt and Kaduna refineries and management placed in the hands of stearing committee which would be in office until the plants are privatized.  The four refineries have been slated for partial privatization in the second garters of this year 2004 and to ensure optimum production from the refineries.

1.2  STATEMENT OF PROBLEM

       The purpose of this study is to find out why government parastatals are not performing creditably to correct the anomalies within them. Some of the problems faced by government in the privatization and commercialization of government owned parastatals are:

-     Inability to run the administration of the parastatals effectively.

-     Poor financing of these parastatals

-     Inefficiency of the officials charged with the responsibility of managing the organization.

1.3  OBJECTIVES OF THE STUDY

In view of the identified problems militating against public enterprise this study intends:

(a)       To determine the problems faced by the management of these public enterprises.

(b)      To determine how privatization and commercialization of government parastatals will aid profit maximization in a growing economy like ours.

(c)       To determine ways of improving the management of public sector organizations.

1.4  STATEMENT OF HYPOTHESIS

HO:  privatization of public enterprise will not change public sector dependents to market driven end private sector oriented.

H1:  Privatization of p public enterprise will not change public sector dependents to market driven end private sector oriented.