AN EMPIRICAL ANALYSIS OF THE IMPACT OF PRIVATE SECTOR ON THE ECONOMIC GROWTH AND DEVELOPMENT OF NIGERIA (1980–2018)

CHAPTER ONE
INTRODUCTION
1.1 Background of The Study
Privatization has become a major strategy adopted world over
to improve the performance of public enterprises. It is a known fact
that one feature of public enterprises all over the world but more
importantly in developing countries of Africa especially Nigeria is
inefficiency, bureaucracy of public enterprises and uncared attitude
of most public servants or most people to public work and property.
This leads to waste, slow growth and inordinate dependence on
government support (in the form of annual subventions) even when
the activity is apparently a profitable line.
As a way of improving the fortunes and performance of these
enterprises through which profit orientation will be the motive of
the enterprises, privatization is being canvassed such that
government will divest itself of all its ownership interest and allow

private sector to buy over these companies. In Nigeria today, the
private sector is increasingly being recognized as the motivating
force that fosters economic progress.
In Nigeria, the oil boom of the1970s among other factors gave
impetus to a public sector-led government strategy. Public sector
dominance was also prevalent in order to give government an
increasing measure of control over its own resources (obadan 2000),
the dwindling revenue of government as a result of the economic
crisis of the 1980s coupled with the dissatisfaction with the
performance of the public compelled Nigeria to adopt the
privatization and commercialization in 1988.
Today, in Nigeria, privatization of key government business is
no longer a household talk but it has become a major issue in the
mind of every meaningful Nigerian.
The participation of the State in enterprises in Nigeria dates
back to the colonial era. The task of providing basic infrastructure
such as railway, road, bridges, water, electricity and port facilities
fell on the colonial government due to the absences of indigenous

companies with the required capital as well as the inability or
unwillingness of foreign trading companies to embark on capital
intensive project (Iheme, 1997). The involvement was expended and
consolidated by the colonial welfare development plan (1946-1956)
that was formulated when labor party came to power in the United
Kingdom. This trend continued after independence such that by
1999, it was estimated that successive Nigerian government had
invested up to N800 billion in public owned enterprises (Igbuzor,
2003 as citing Obasanjo, 1999). Throughout much of the twentieth
century, there were three dominant strategies for infrastructure
investment. In some countries, most notably those in the Eastern
Bloc, State ownership of the means of production was promoted,
while others (Western Bloc) promoted private ownership of
production. A large number of countries also predicted what was
termed a mixed economy, a combination of public and private
ownership of the means of production. However, by the end of the
twentieth century with the end of cold war between the eastern and
western bloc, private ownership of the means of production gained
ascendancy. Today, what is applicable is that the State should

recede from this role, and that private ownership of the means of
production is the only viable approach to the efficient production of
goods and services, as well as economic growth and development.
Consequently, there is a strong move all over the world to privatize
erstwhile public enterprises (Igbuzor, 2003). Thus, privatization
could be looked upon as the reduction of public sector intervention
in economic activity. It involves the divesture of government
economic activities (Anyanwu, 1993). It occupies a unique position
in a global economic liberation and provides an avenue for raising
productivity, thus, enhancing overall economic growth and
development (Salako, 1999). This is however, achieved through
increased involvement of the private sector in productive economic
activities through the sale of public enterprises to the private sector
with the ultimate aim of infusing improved economic efficiency in
the businesses. With privatization, the role of government in direct
productive activities diminishes as the private sector takes over
such responsibilities with profit motive as its major objective. In
such a situation, the government is only expected to provide
essential infrastructure and an enabling environment through

which private enterprises could flourish. Privatization is predicated
on the assumptions of State inefficiency and absolute efficiency of
the market (Salako, 1999). It would be recalled that several Nigerian
public enterprises have on several occasions been under severe
criticism by international media agents for their operational and
pricing inefficiencies. Nigeria like many other developing economies
witnessed increasing cost and poor performance of State-owned
enterprises (SOEs), resulting in heavy financial losses. In it, there
has been proliferation of SOEs in all facets of economic endeavours,
as a means of fostering rapid economic growth and development
(Eke, 2000).
Unfortunately, most of them were structurally ill-conceived,
economically inefficient with accumulated huge financial losses and
thus absorbing disproportionate share of domestic credit. They were
also sustained through heavy budgetary allocations of the country
(Jerome, 1996, as cited in Eke, 2000). For instance, the state-
owned enterprises (SOEs) are adjudged to have contributed
substantially to public sector deficit and have financed less than
one fifth of their investments through Internally Generated

16
Resources (IGR) (Nair and Filippides, 1988). As some governments
ran into severe fiscal problems such that loans became increasingly
difficult to rise at home and abroad, they were forced to consider
some radical methods of reviving the SOEs. Such reforms embarked
upon by developing countries included privatization. Kikeri (1994)
has noted that the high costs and poor performance of SOEs and
the modest and fleeting results of reform efforts have turned many
governments towards privatization.
1.2 STATEMENT OF THE PROBLEM
It is the inefficiency of government-run public enterprises
today that calls for the privatization of these enterprises. However
one may note that privatization may not likely be the only solution
of getting government-run enterprises on the ideal path of
efficiency, deregulation and market oriented economy. The study
therefore believes that there should be some silent initiatives that if
properly harnessed could be the shining light to lead the nation’s
ship to the desired harbor.

1.3 Research Questions
1. Is privatization the engine of economic growth in Nigeria?
2. Is there any relationship between privatization and economic
growth?
1.4 Objectives Of The Study
1. To determine the relationship between private sector spending
and GDP.
2. To ascertain the relationship between public sector spending
and GDP.
3. To find out whether there is any relationship between public
and private sector spending and GDP.
1.5 Research Hypothesis
Privatization does not have impact on economic growth in
Nigeria.

1.6 Significance Of The Study
1. To provide information on the privatization of the Nigerian
privatization exercise.
2. To determine whether privatization has contributed positively
or negatively to the growth and development of the Nigerian
economy.
3. To educate students about the nature of the Nigerian private
sector.
1.7 Scope Of The Study
The study covers the impact of the private sector from 1980-
2010.
1.8 Definition Of Basic Concept
PRIVATISATION: This is the process of transferring ownership
interest and control in a government-owned enterprise to the
private sector.

FULL PRIVATISATION: The government sells the enterprise in full
to private individuals or groups.
PARTIAL PRIVATISATION: The government sells some of its
shares or holdings to the private sector.
PUBLIC SECTOR: They are organizations that are owned and
managed by the government.
PRIVATE SECTOR: This consists of private business ownership.