THE PROBLEMS OF FINANCING GOVERNMENT CORPORATIONS (A CASE STUDY OF ENTRACO)

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Directorial improprieties in public corporations is expressed most frequently in terms of misrepresentations in financial statements of such corporations, manipulation in the stock exchange, commercial bribery, bribery of public officials directly or indirectly, in order to secure favourable contracts, embezzlement and misapplication of funds etc. These varied types of directorial criminality consist principally of violation of delegated or implied trust which can be reduced into two categories: misrepresentation of asset values and duplicity in the manipulation of power. The financial loss from directorial criminality high as it is, does not match the damage to social relations, resulting from misgovernance to social relations. Directorial criminality and mismanagement, thus violate trust and creates distrust.

Directorial improprieties, though has civil implications is crime in real sense since it is a violation of criminal law. And again, because "corporate law is widely believed to be tilted against shareholders of corporations" and because, "it is no more anomalous that shareholders do not manage or control "their" corporations and because directorial improprieties leads to bankruptcy criminal law has responded by providing appropriate machinery for control of the income of the public corporations. This paper seeks to assess the effectiveness of the machinery put in place by law to ensure control of directors. Public corporations on enterprises involve state ownership and control of certain utilities. Usually, the form and characteristics of public enterprises are regulated by the appropriate legal and institutional system of the particular country.

Public corporation are enterprises, which are partly or wholly owned by the government, which private enterprises have been unable to take care of due to lack of adequate capital.

Government have generally started playing a major role in economic development and in starting large enterprises in public sector.  Many parastatals come into being when it was believed that rapid economic development required the state to take on the role of an entrepreneur/should also be know that government involvement in running public sector help in shaping its economy.  Government ownership of these enterprises is to help improve its social and economic well being of her people and those amenities that the entrepreneurs cannot provide.

In any organization, there are so many components put together that make for an effective performance.  One of the se components is fund.  The problem that arises is the adequacy of the fund for effective oiling of the operations of an organisation, throughout its lifetime.  Many organisations which started well at the initial stage have failed by the wayside die to shortage of available funds.

Public enterprises could be classified into four categories, according to the degree of government participation in ownership and intervention in management.  We have the governmental departments or ministries and agencies like INEC, NBTE.  Government invested enterprises where the government held at least 50% of the equity and appoint management.  Subsidiary company of government invested enterprises which allow the government to invest indirectly through government invested enterprises and others.  And also government back enterprises where the government hold less than 50% of the stock.  In developing nation there is a general believe that government should own and control enterprises; and government gave majority control of them appoint top management.

Over the past decades, the number and variety for public enterprises in developing country like Nigeria, the overall performance of these enterprises have been rather disappointing.  They have suffered staggering loss thereby becoming a major drain on national budgets and the principal sources of heavy external borrowing.  They have equally failed to generate the expected job opportunities.  The public enterprises have been pioneers in strategic and technology intensive field and through the price of public sector product such as coal or electricity have also had a significant impact on overall price levels.

However, the following have contributed to the poor performance and poor efficiency in these enterprises:

a.           Obscure and sometimes conflicting managerial goals.

b.          Inadequate management accountability and autonomy.

c.           Excessive government accountability and autonomy.

d.          Excessive government interference in day to day management

e.           Poor personnel and incentive system

f.            Inappropriate pricing and credit policies

g.           Poor financing

The have contributed to poor performance of public enterprises.  The financing and management of these parastatals caused a serious problem in our economy. Its only very few government enterprises that are independent in the issue of financing, other solely depend on government.  The fate is yearly tied on the national budgets because they are financed by way of grants, subsidies or loan from government, if budget is delayed or cut down proposed expenditure, the funds of these enterprises will also be affected.  This will determine their performance for that very year whether surplus or deficit is to be made.

1.2      STATEMENT OF THE PROBLEM

The problem facing government parastatals are of difference factors.  The major of which is the lack of adequate financing.  Due to inadequate fund, government parastatal tends to operate at a low capacity or inefficiency thus making services being rendered to the general public poor.

Enugu State Transport Company for instance has been having problem of financing: is it because government does not finance them the way they should? Does the poor financing effect their earning for transportation and other source of revenue? Is it because of poor state of economy that government earning from both domestic and foreign sources were affected, and government subvention to corporation were fell drastically?

1.3      OBJECTIVE OF THE STUDY

The purpose of this study is to know the financing problem of Government Corporation, which actually have hindered their efficiency and profitability and ways it can be solved. The objectives are

1.          To highlight the importance of adequate funding of Enugu State Transport Company to the improvement of services offered to its customers

2.          To determine the extent to which the high interest rates charged by commercial bank affect the loan seeking habit of Enugu State Transport Company.

3.          To ascertain the affect of inability of Enugu State Transport Company to provide adequate security on the obtaining of finance.

4.          To ascertain the effect of inadequate funding of Enugu State Transport Company on its activities and performance.

5.          To determine the extent to which commercial bank finance the activities of Enugu State Transport Company.

1.4      RESEARCH QUESTIONS

From the foregoing, this study will provide the answers to the following question:

a.           What effect does funding of Enugu State Transport Company to provide and adequate security affects the obtaining of loan?

b.          To what extent does commercial bank finance the activities of Enugu State Transport Company?

c.           Does the high interest rate charged by commercial banks affect the loan seeking habit of ENTRACO?

d.          Does adequate financing of ENTRACO have any significant importance on the improvement of its services to customers?

1.5      RESEARCH HYPOTHESIS

H0:   Insufficient finance from commercial bank does not significantly affect the activities of Enugu State Transport Company.

H1:   Insufficient finance from commercial bank has significantly affected the activities of Enugu State Transport Company.

H0: Inadequate funding of ENTRACO has no significant effect on its activities and performance.

H1: Inadequate funding of ENTRACO has significant effect on its activities and performance.

H0:   The inability of ENTRACO to provide adequate security does not significantly affect its ability to obtain loan from financial houses.

H1: The inability of ENTRACO to provide adequate security affects its ability to obtain loan from financial houses.

1.6      SIGNIFICANCE OF THE STUDY

The significance of this research study tends to enrich the researcher with unravelling the funding problems of the corporation (ENTRACO) in particular and other corporations in general.  It is significant to study the aspect of commercial funding of ENTRACO since lack of funding will militate against the operations of the corporation and hence the general public who are the beneficiaries of ENTRACO will be left unsatisfied.

It is also of significant to study this aspect of research because lack of funding will ground operations in Transport Company of a Anambra State.  This will make members of the staff redundant. ENTRACO as we all know play an important function in providing means of transportation for the corporation, to go out of operation due to lack of adequate funding will be a big blow to the state government.

1.7      SCOPE AND LIMITATION OF THE STUDY

The study covers the various sources of financing ENTRACO and other public corporation in Enugu State, like Enugu state Broadcasting Service (ESBS).  The study will examine the corporations invested turnover, profitability and viability. It will determine if the funding of these corporations has been adequate or not. Suggestion is to be made on means of improving on the corporation financing.

However, in the work of this nature, there are bound to be limitation to the extent of work and information contained herein.  Even though some of these problems appear simple, they reduced the speed of carrying out the research as well as reduce the accuracy of the work.  These limitations are as follows:

a.     Time Constraint:    Owing to the fact that all human activities are subject to some limited factors like time, which cannot be overemphasised.  I cannot obtain all the information needed to carryout these study due to the time allocated to the research work is very short.

b.     Unavailability of Data:     Lack of adequate data will also affect this study. Some of the data are neither easily released or not released atall by those who have them.  The answers to the interviews might either be biased or neglected wholly.

c.     Financial Problem:Financial problem and economic hardship has effect on the citizen of Nigeria so much that parents cannot afford to support their children financially.  Due to this problem, I will not be able to travel as I intended.

1.8 DEFINITION OF TERMS

Corporations: a group of people having authority to operate as a single unit with separate legal existent.  

ENTRACO: Enugu state transport company Ltd.

Finance: this is the money used or needed to support an activity of project.