THE EFFECT OF PRIVATIZATION AND COMMERCIALIZATION OF GOVERNMENT OWNED COMPANIES IN A DEPRESSED ECONOMY LIKE NIGERIA (A CASE STUDY AS CON OIL PLC. ENUGU)

ABSTRACT

            This research work was carried out in a bid to examine the effect of privatization and commercialization of Government owned companies with case study as Con oil Plc. Enugu, and with particular focus on the problems on a depressed economy like that of Nigeria.

            In an attempt to reach the nook and cranny of the said topic, this research work was done in five chapters (Subdivided into the chapters).

            With chapter one, dealing with the introduction, statement of the problem, significance of the study, hypothesis formulation, scope and limitations of the study, while chapter two deals with the review of related literatures and amongst. Other things treated on the historical objectives of privatization and commercialization with particular attention to Nigeria own case. It also trampled some arguments put forward by certain concerned citizens.   

            And chapter three touched the angles of the methodologies used in carrying out the research work. Data was collected through primary method, questionnaires and personnel interviews. Through secondary data which comprises the management, subordinate staffs of selected company which constitute the sample size etc.

            Whereas, chapter four deals with presentation of data and analyses, with use of tables, percentages and the use of chi-square test approach and decision taken on the basis of the data collected, analyzed and tested.

            Chapter five was basically talking about the whole research work in a nut shell, by way of summary, conclusion and recommendations.

            It suffers me to say that since privatization and commercialization programme was embarked upon there are pervading sense of committal and dedication amongst the workers of the company. This goes to indicated that the programme is necessarily helpful to corporate health of the company and the country at large towards revamping the bastardized economy.

TABLE OF CONTENT

CHAPTER ONE

1.1       INTRODUCTION

1.2       Background of the Study

1.3       Statement of the Problem

1.4       Significance of the Study

1.5       Researches Hypothesis

1.6       Scope and Limitations of the Study

1.7       Definitions of Terms

            References 

CHAPTER TWO

2.1       LITERATURE REVIEW

2.2       Meaning and Definition

2.3       Objective of Commercialization

2.4       Objective and Main Provisions of the Decree

2.5       Objectives of Privatization

2.6       Arguments on the Problems of Privatization and       Commercialization

            References

CHAPTER THREE

3.1       RESEARCH DESIGN AND METHODOLOGY

3.2       Population of the Study

3.3       Sampling Procedure

3.4       Instrument for Data Collection

3.5       Validation of the Instrument

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS OF DATA

4.1       Presentation and Analysis of Data

            Reference

CHAPTER FIVE

5.1       SUMMARY OF FINDINGS, CONCLUSION AND          RECOMMENDATIONS

5.2       Summary of findings

5.3       Conclusions

5.4       Recommendations

5.5       Suggestions for Further Research

            Bibliography

            Appendages /Appendices

CHAPTER ONE

1.1       INTRODUCTION

            In Nigeria, the Decree No 25 was enacted in July 1988 to set up the privatization and commercialization programmes, as at this year 2001. The origin of privatization started with Milton Friedman of the monetary economist theory. He was of the opinion that if public enterprise were given over to private individuals it would improve the economy of the country.

            This he argued would give room for proper accountability and generate revenue for the upliftment of the economy and country at large.

            Milton Friedman’s monetarist idea was put to test in 1978 when Margaret Thatcher, British Prime Minister, came to power. She adopted Friedman’s approach to economic analysis and tried the idea of privatization and like a harmattan bust fire the idea has engulfed the whole world.

            Though the British Prime Ministers, Mrs. Thatcher did not find it easy with her political opponents. At the beginning of her fiesta of privatization in Britain, a fellow conservative and former prime Minister with an impeccable Tory pedigree, Lord Stockton (better know as Harold Macmillan) turned out to be the sharpest and most devastating critics of the Thatcher’s Policy of Privatization. According to Lord Stockton, privatization is akin to selling off the family heirloom” in order to raise spending money a folly of calamitous proportions. Lord Stockton’s perceptions was confirmed by the present perilous state of the British economy which is racked by colossal trade and budgetary deficits, rising inflation, unemployment, homelessness etc a few years after squandering billions of pound and steering from the public companies such as British Airways, British Telecommunication, inland water resources etc. Thatcher after her experience in 1986 swept the argument by improving the British economy through privatization exercise.

            In Nigeria, starting from 1987 when there was a crash in the crude oil prices nationalized industries in this country became the animous of trauma. Today, people actually expected the National Electric Power Authority (NEPA or NEP. PLC) to breed darkness rather than light. The Nigeria Airways still grapples with things like schedules … with little success. The rail ways has been one long experience in how national institutions can thrive on merit ravaged by abuses of all types and descriptions, consistent not in services delving but in malignancy, Nigerian public enterprise fell in their fall long ago. The general feeling is that nothing short of a miracle can save their health. Is privatization this miracle? The Babangida administration thinks it is, plans were concluded and it was put in place into action.

            The fact is that where privatization can mean hope, it can also represent a source of concern because it might concentrate wealth in the hands of a few. Furthermore, it might give multinational corporations an access to our strategic industries or rather mean a retrenchment of millions of Nigeria in other words; privatization should be carried out and done with utmost care.

1.2       BACKGROUND OF THE STUDY

            Privatization was one of the preconditions kid down by the international monetary, fund (IMT), to assist financially the development countries of which Nigeria is one. This was to enable their economics to open up to market forces. The collapse of oil prices and the consequent Contraction in foreign exchange earnings, coupled with the surge in imports resulting mainly from an over valued naira led to serious balance of payment problems debt crises and by budget deficits

            Prior to the oil price collapse, the huge wind for all revenue occurring from oil exports prompted the government to assume a greater role in the economic life of the nation. By embracing the concept of an entrepreneurial state as the engine of growth, the government owned and maintained several industries which spread over agriculture, mining, manufacturing, transport, commercial and other services activities.

            With the coming into power of new military administration in 1985, the level of subsides to parastatals and government. Companies as part of the overall public expenditure policy assured a new dimension.

            In his broadest to nation, on the occasion of the silver jubilee independence anniversary in October, 1985, the then president, General Babangida made an important policy pronouncement on the future of parastals and government companies; he announced that, as parts of the process of mopping up liquidity in the Nigeria financial system, the government would direst equity holdings in the several potentially viable parastatals, and state owned company such as hotels, breweries and distilleries.

            In addition, the president declared that parastatals would be generally, encouraged to submit themselves to the discipline of the capital market. A few months later, the federal government statement of intent crystallized into a coherent and clear cut policy which was announced in the public Budget speech of 1985. On the occasion the president said:

            “Government has now decided that as from 1986, the volume of non statutory transfers to all economic and quasi economic parastatals would constitute no more than 50 percent of their present levels. They are to find the balance from increase in their price changes, tariffs and rates.

            A detailed articulation for the government’s policy on privatization emerged in the structural adjustment programme which was embarked upon in July 1986 as a comprehensive as a comprehensive attempt to tackle the economic crisis from its roots.

Two Main Features It Possesses Are:

1.     Adoption of appropriate pricing especially for petroleum products and public enterprises. 

2.     Encouragement of rationalization and privatization for public sector enterprises.

            The programme document in stating the objectives and strategy highlighted the need to lessen the dominance of unproductive investment in the public sector, improve the sector’s efficiency intensity the growth potential of the private sector. In enunciating the case for reform, the document-disclosed that government investment in the public enterprises sector was over N23 billion but that the returns has been less that N500 million annually, it concluded that the government was clearly not receiving a far return on it’s investment outlay while it continued to pay interest charges and principal on the huge loan. It also revealed that as much as 40 percents of the federal government non salary recurrent expenditure and 30 percent of its capital investment budget had gone to support public enterprises, and went on to declares that the state of affairs would no longer be allowed to continue. Furthermore, all the affected public enterprises were classified into five broad categories on the basis of which they would either be: -

            Those to be fully privatized, according to the SAP document are the public enterprises which function in a fully commercial manner.

            The two groups of enterprises to be full privatized or partially privatized would no longer receive any operating subvention and their future financial needs would have to be met from the capital markets.

            The groups of the enterprises to be fully commercialized will continued to be owned by eh government but will have a financial structure that will enable then raise capital.

            The fully commercialized ones will be expected to operate without any government operating subventions and without treasury support for future capital development. The partially commercialized ones will necessarily have to generate a fair proportion of the financial require for their operations but might continue to need some government support towards the operating costs of future capital programmes.  

            The public institutions comprises of parastatals such as educational and cultural institutions, research institutes, universities, teaching hospitals and other specialist hospitals and allied bodies.

            They are to continue to be funded from treasury sources while at the same time trying to raise some revenues through user charges.   

            Privatization in Nigeria will be referred as a success if if turns out to be a process of reducing the size of an inefficient and inefficient public sector by transferring some of its functions to a relatively more efficient private sector.

1.3       STATEMENT OF THE PROBLEM

            In a bid to build the economic development in Nigeria T. Kellick maintained that many people strongly advocate more public ownership as essential to further economic progress. But at least, as many others see public ownership as synonymous with inefficiency and waste of public resources. This belief is often translated into presumptive institutional hypothesis that enterprises are inefficient and inferior to private enterprises. 

1.     Privatization will make it harder to plan adequately or to cover areas that go beyond purely commercial ones (As in education, health care, sports and security services) where productivity or profitability may be hard to measure.

2.     The problem of poor management of these privatized companies may lead eventually to the failure of the privatization and commercialization programme.

3.     The privatized companies may found it difficult to operate in the prevailing economic situations due to shortage of raw materials and high competition among companies.

            The study objectively tries to find out the effect of this exercise on the management of affected company. To achieve this, the following questions need to be answered.

1.     Is denationalization the best option that can be used to enhance management efficiency in the company? 

2.     How do we go about not only getting the best from privatization but also controlling it to yield expected output?

3.     What categories of public enterprises should be privatized, should the viable ones be privatized?

1.4       SIGNIFICANCE OF THE STUDY

            As an academic study it will be of great value to management; employees and owners of business organizations because of it’s revelations on the need to:

1.     Re-orientate the enterprises for privatization and commercialization towards a new horizon of performance improvement, viability and overall efficiency.

2.     Know the problems of the privatization and commercialization programme.

3.     Consider the commercialization and privatization programme as a necessary stimulus to economic growth.

4.     Rationalize and restructure the public sector in order to lesson the dominance of unproductive investment in that sector.

1.5       RESEARCH HYPOTHESIS   

            The modern work scientific observation and investigations help us to eliminate greater risks of uncertainties in the research work. The following questions constitute the research hypothesis

H0:      Privatization and commercialization will stop the drawn       on public revenues and increase the number of             shareholders.

HI:       Privatization and commercialization will not stop the            drain on public revenues and increase the number of         shareholders.

H0:      privatization brews management inefficiency

HI:       Privatization enhances management efficiency in terms        of appropriate labour recruitment, total output and      increased profit.

HI:       Privatization and commercialization encourages        monopoly.

HI:       Privatization and commercialization de-emphasizes   monopoly and enhances competition.

1.7       DEFINITION OF TERMS

            Privatization:

            Privatization is the sale of formerly public enterprises to private individuals and groups. Also this is a process whereby the government or its agency’s relinquishes port or whole of its equity and other interests in enterprises whether wholly or partially.

Full privatization:

            This would imply that the government ownership and control would be renowned to permit such public enterprises to operate like their private sector counterparts.

Partial privatization:

            This means that the part of the government’s equity holdings and interest will be sold out and following that, they would be expected to operate as private companies.

Commercialization:

            This means that the enterprises will continue to be owned by the government that will have a financial structure that will enable the raise capital. They are expected to operate without any government operating subventions and without treasury support for future capital development.

Partial commercialization:

            It means that the enterprises will continue to be owned by the government but will necessarily have to generate a fair proportion of the financial requirements for their operations but right continue to need some government support towards the operating costs of future capital programme.

Enterprises:

            This means any corporation, board, company or parastatals established by or under any enactment in which the government or any of its departments, ministries or agencies has ownership or equity interest and shall include a partnership, joint venture or any other form of business arrangement or organization.

Divesture:

            This means the outright sale of state owned enterprises or industries to the private sector.