An appraisal of the effect of Commercialization on Economic Liberalization of Public Enterprises.

CHAPTER 1- INTRODUCTION

1.1  BACKGROUND OF THE STUDY

Historically, the  concepts of  privatization and  commercialization were  first put to  practice during  the golden age of the Han Dynasty in China. In this era, the Mining Dynasty of China handover manufacturing industries  private  individuals in  the  society  to  managed.  Subsequently,  Winston  Churchill’s  government privatized the British  steel industry  in  the  1950s. This  was  followed by Western  Germany’s which  sold  its majority stake in Volkswagen to small investors in a public share offering in 1961. The success of these privatized enterprise and the perception that privatization would go a long way in addressing  market  deficits  and  capital  shortfalls,  promote  economic  development,  reduce  mass unemployment  made  leaderships  of  Margaret  Thatcher,  Ronald  Reagan,  World  Bank  and  International Monetary  Fund clamored  for large-scale  privatization in  the 1980s  through  the introduction  of structural adjustment  programme  (Oji,  Nwachukwu,  and  Eme,  2014).  Accordingly,  the  introduction  of  structural adjustment program propels  much government in different countries  to embark on  the massive transfer  of public owned companies to private individuals (Alabi, 2010). In Nigeria, structural adjustment program did kick start not until 1986 when the International Monetary Fund  (IMF)  insisted  that  one  of  the  conditions  the  foreign  loans  requested  by  the  then  Shagari’s Administration  can be  granted  was to  divest  ownership  in  the management  and control  of  some public enterprises (Adeyemo  & Adeleke, 2008).This debate resonated to Buhari/Idiagbon and General  Babangida government that finally announced an intention to divest its holdings in certain key sectors of the economy and  subsequently promulgated  the Privatization  and  Commercialization Act  No. 25  of  1988.Against  this backdrop, privatization has hitherto been described by some authors as neo-liberal policies and idea packaged and sold by the western metropolis through their agencies such as World Bank and International Monetary Fund (IMF)( Gberevbie, Oni,  Oyeyemi, Abasilim, 2015).  However, several other studies have noted that privatization of public enterprises would help to overcome the  misuse  of  monopoly  power,  defective  capital  structure,  mismanagement,  corruption  and  nepotism (Abdullahi, 2014; Dappa, & Omi, 2014). Indeed, a public enterprise in Nigeria tends to be characterized by incessant corruption, inefficiencies, ineffective to they’re bureaucratic in nature that is responsible for many government  failures.  These low  performances in  addition  to technological  shortcomings  of  many public enterprises appear  to have made many studies to suggest that privatization or  divesting inefficient public enterprises could save costs and generate more revenue to the government. Nwoye, 2011) specifically argued that privatization and commercialization of public enterprise will not only facilitate the provision of capital and technology  to strategic areas where  the private sector either  shy away from or  lacked the  capacity to invest, it  will also  increase capital formation, encourage  foreign direct investment, production of  essential goods  at  lower costs,  create  employment  and  generally contribute  to  the  economic development  of  the country. Several other evidence has revealed that because many of the public Enterprises in virtually all tiers of government in Nigeria were either equipped  with low or  second-grade machinery,  the performance  of these public enterprise has remained very dismal with no options but to privatized them (Obadan, 2000).  Statement of the Problem Some  of  the  problems  facing  public  owned  enterprise  were  high  corruption,  lack  of  transparency, inefficiency, ineffectiveness, inconsistency, and incredibility. The challenges appear to mark a caused drastic failure  of  some  public  enterprise  like  National  Electric  Power  Authority  (NEPA)  and  Nigerian Telecommunication (NITEL) and Nigeria Railway. In addition, the  low performance  of these enterprises, coupled  with  the  pressure  on  the  international  monetary  fund  to  fully  implement  structural  adjustment program saw massive deregulation or privatization of public owned enterprise.  Against this backdrop, this paper  looks at  whether  privatization and  commercialization  in  Nigeria  were desirable  through extensive theoretical review of the performance of privatized enterprises in Nigeria.

1.2  OBJECTIVES OF THE STUDY

1. To examine the concept, theories, rationale and challenges in privatization and commercialization of   Public Enterprises in Nigeria 

2. To determine  whether privatization  and commercialization in Nigeria were  desirable      through the performance of some enterprises that were privatized and commercialized in Nigeria. Review of Related Literature In this  sections, the  study reviews  relevant literature  related to  privatization and commercialization of public enterprise. It specifically reviews the concept, theories, rationale, performance and challenges facing privatization and commercial of public enterprises

CHAPTER 2 LITERATURE REVIEW

2.1 Conceptual Framework

The  terms  commercialization  and privatization  cannot  be  defined  without first  of  all  having  a  clear understanding of Public Enterprise. According to Nwoye (2011), public enterprise is a corporate body created by the  legislature with  defined powers  and functions  in which public authorities hold the majority of the

shares and/or can exercise control over management decisions. It is a corporate body owned and controlled by the central or regional government. It is established with no privately exchangeable rights to the profits. The government has the legal right to appoint and dismiss directors. Ayodele (2011) opined that the absence

of private rights to  profits and the power of the government to appoint directors  are conditions which  are compatible with a  wide range of public institutional forms. Public Enterprises may cover any commercial, financial, industrial, agricultural or promotional undertaking – owned by the public authority, either wholly

or through majority shareholding – which is engaged in the sale of goods and services and whose affairs are capable  of  being recorded  in balance  sheets  and profit  and  loss  accounts. Such  undertakings  may have diverse legal and corporate forms, such as departmental undertakings, public corporations, statutory agencies,

established by Acts of Parliament of Joint Stock Companies  registered  under  the  Company Law” (Dimgba, 2011).  Drawing  from  the  above  definition,  public  enterprises  appear  to  take  three  distinct  forms;

• Departmental undertaking; 
• (ii) Statutory Corporation and
• (iii) Joint Stock Company  with shares owned by

State. This means that there are public enterprise established for privately remunerative – provided by market through Directly Productive Investments (DPI); socially profitable but not privately remunerative – provided by State, like road building, irrigation, through Social Overhead Capital (SOC); privately remunerative but

not capable of private execution, like heavy industry, high technology involving capital-intensive investments like power, transportation, etc – also provided by the State with/without the help of the market; and natural monopolies.  The  privately  remunerative  but  not  capable  of  private  execution  provided  by  the  State with/without the help of the market can be transferred to the private sector when the capitalist development in these countries attain sufficient maturity to  enable them to handle the capital intensive investment. Thus, privatization  and  commercialization  of  public  enterprise  usually  take  place  along  with  fundamental restructuring, planning, and policy by the government.

2.2 A Brief Historical Perspective on Development of Public Enterprises in Nigeria

The public sector emerged in Nigeria as a result of the need to harness rationally the scarce resources to produce goods and services for economic improvement, as well as for the promotion of the welfare of the citizens.  The  involvement  of  the  public  sector  in  Nigeria  became  significant  during  the  period  after independence.  The railways were probably the first major examples of public sector enterprises in Nigeria.  At first, conceived mainly in terms of colonial strategic and administrative needs, they quickly acquired the dimension of a welcomed economic utility for transporting the goods of international commerce, like cocoa,

groundnut, and palm kernels. Given the structural nature of the colonial private ownership and control of the railways in the metropolitan countries, it would hardly be expected that the Nigerian Railways Corporation could have been started as any other project than as a public sector enterprise for such mass transportation. (Abubakar, 2011) The colonial administration  was the nucleus of  necessary economic and social infrastructural  facilities that private enterprise could not provide.  Facilities included  railways, road,  bridges, electricity,  ports and harbors, waterworks and telecommunication. Social services like education and health were still substantially left in the related hands of the Christian Missions. But at this initial stage government itself moved positively into some of the directly productive sectors of the economy; the stone quarry at Aro, the colliery at Udi, and the sawmill and furniture factory at Ijora. Those were the early stages (Dimgba, 2011). The emergence of the crude oil industry into the Nigerian economy, after the civil war in  the 1970s,  with the  associated boom intensified governmental involvement in production and control of the Nigeria economy. One major aim of

government at that time was to convert as much as possible of the growing oil revenue into social, physical and economic infrastructural investments. The Nigerian Enterprises Promotion Decree of 1972, which took effect on 1 April 1974, with its subsequent amendment in 1976, provided  a concrete basis for government’s extensive participation in the ownership and management of enterprises. Given these developments, Public

Enterprise at the federal level had exceeded 100 in number by 1985; and these had spread over agriculture, energy,  mining,  banking,  insurance,  manufacturing,  transport,  commerce,  and  other  service  activities (Obadan, 2000). Before long, the range of Nigerian Public Enterprise had stretched from farm organizations

to manufacturing, from municipal transport to mining, from housing to multipurpose power, and from trading to banking and insurance. At the state and local governmental levels, the range of activities that had attracted public sector investment also had become quite large. Thus, a variety of enterprises – with the public interest in terms of majority equity participation or  fully-owned by states  and local governments,  as well  as other