Our Blog

List of recently published project topics and materials

Evaluate the success of Nigeria privatization policy

Evaluate the success of Nigeria privatization policy

Abstract

Privatization policy in Nigeria have become an issue of concerned to the scholars and practitioner in various field in Nigeria economy. The main argument in favour of privatization in Nigeria is that it will facilitate efficiency and effectiveness of such enterprise to be privatized, since these public sectors have been seen as bedrock for government budget and also causing heavy burden on Nigeria economy. They objective of this work is to critically evaluate the success of Nigeria privatization policy and also to convince a well reasonable Nigeria that privatization program is indeed taking place in most Nigeria public enterprise thus, it is a fallacy if someone can weak up and anger that privatization in Nigeria is a myth rather than reality. Nigeria is commuted to following the footsteps of several countries that have embarked upon the privatization of the national economy the scope of nation privatization program cover several sectors including banking and finance, oil and gas, telecommunication, manufacturing among others. Privatization of public sector enterprise is not new in Nigeria Indeed privatization was a key element of structural adjustment program (SAP) adopted by the government of Ibralim Babagida in (1986) to stabilize the economy and position it for sustainable growth.

 

INTRODUCTION

THE IMPACT OF PRIVATIZATION IN NIGERIA Privatization Is Indeed a Reality in Nigeria

       Privatization is a key component of the reform process of structures and economies in the globalizes world today. Developing countries have embarked on extensive development programme, some recorded as successful and some a failure. Despite the impressive level of privatization in Africa cum Nigeria, the empirical knowledge of the program is limited. Aside from theoretical prediction, not much is known about the process and outcome of privatization exercise in Africa in spite of the impressive level of activism and implementation. As in most Africa developing countries, Nigeria witnessed the growing involvement of state in economic activities until when the country adopted the structural adjustment program (SAP) in (1986) and the privatization and commercialization Decree. The privatization and commercialization Alt of (1986) and the Bureau of public enterprise act of 1993 defined privatization as the relinquishment of part or all of the equity and other interest held by the federal government or any of it’s agencies in enterprise whether wholly or partly owned by the federal government to the private sector.

       Privatization became the fore front as a major component of Nigeria’s economic reform process. The government investing over N36 billion in form of loan, equity and grant in over 500 companies between the periods of 1973-1990. There was not much growth in the economy, this lead to fiscal deficit and this also lead to the inefficient public sectors investment to be questioned.

       In the both developed and developing countries, privatizations have grown in popularity and acceptability. It has also become an important instrument that government can use to promote economic development, improve the product and distribution of goods and services, steem-line government structure, and reinvigorate industries controlled or manage by the state (Rondinelli and Iacono 1996)

       The articulation of government policy on privatization in Nigeria was concretized in structural adjustment programme (SAP) embank upon in July (1986) during the Ibrahim Badamosi Babagida administration (1985-1993). As McGraw has argued, SAP is a neo-ubral development strategy devised by international financial institute to incorporate national economics into the global market. The vision of a “global market civilization” has been reinforced by the polices of the major institution of global economic government namely up to the mid 1990’s. Underlying them as structural adjustment program has been a new liberal development strategy – referred to as the washing on consensus which prioritizes the opening up of national economic to global market force and the requirement of limited government intervention in the management of the economy.

       One of the objectives of structural adjustment program (SAP) therefore, was to pursue deregulation and privatization leading to removal of subsidies, reduction in wage bills and the retrenchment of the public sector extensibility to trim the state down.

To actualize the objective, in July 1987, the government set up a technical committee on privatization and commercialization (TCPC) which was backed up by the privatization and commercialization Decree 5; which categorized all state-owned enterprise and parastatals into four man group Namely

  • Those to be partially privatized
  • Those to be fully privatized
  • Those to be partially commercialized
  • Those to be fully commercialized

Those to be fully privatized include 13 insurance companies in which the federal government had between 25 percent and 49 percent shareholding; 10 medium- to large scale manufacturing firms; 2 hostel; 4 companies in the transportation sub-sect and 15 agricultural and agro-allied firm, the total value of share which the government expected to sell in these firm was estimated at about N150 million enterprise billed. For partial privatization were made up of 27 commercial banks and merchant banks, 23 major manufacturing firms spann cement production, truck and car assembly plants, fertilizer factories, newsprint and paper mills, engineering and electricity component plant. They also include three steel rolling mills, newspaper; oil companies shoping and airline companies, and so on. The total value of government holding in these firms was put at over 2.1 billion naira. Towards the end of 1989, the four commercial vehicle assembly plants in the country were added to the list of firms to be privatization. About 10 major state-owned enterprise (SOE) were to be fully commercialized, and 14 others to be partially commercialized.

THE LEGAL AND INSTITUTIONAL FRAMEWORK OF PRIVATIZATION IN NIGERIA

This paper is aimed at studying the impact of privatization in Nigeria with regards to the case of utilities especially the electricity supply company and the Telecomm company. The paper has major parts, the ideology of privatization, privatization in Nigeria, the electricity company in Nigeria, the telecommunication company and fiscal impact of the whole privatization process on the Nigeria economy and labour market; while the paper is concluded with remarks on the privatization of the specific utility companies; what are the conclusion as to the efficacy of the privatization activities in the country. Ezeani, E.O (2004)

THE IDEOLOGY OF PRIVATIZATION

       Privatization has become an acceptable paradigm in political economy of state. It is a strategy for reducing the size of government and transferring assets and services functions from public to private ownership and control. Privatization is base on the principle that:

  • Government is intruding into private enterprise and live more than it should be
  • Government is unable to provide efferent and effective services to the public
  • Government officials and government agencies are not responsible to the public.
  • Government consumes too many resources and thereby threatens economic growth.

Early economist such as Adam smith suggest that the government in developing countries giving ownership of it’s enterprises to the private sector would lead to economic benefits to the society. Developing countries also need a competitive market that is effective and such can only be attended by private entrepreneurs. The classical economist believes that economic development is a process attained through profit accrued from positive productive activities that is beneficial to all sectors in the economy. The Keynesian school on the other hard have the belief that government plays crucial role in controlling economic crises and prevent economic depression. Keyness proposes that the problem in developing countries are based in investment behaviors of capitalist firm under condition of insufficient aggregate demands for goods and services (Davino 1995) privatization is a phenomenon concept which become increasingly important in the 20th century especially the 80’s when it began to rise. Privatization has different meaning to different people; To some it is the competition of public enterprise in a competitive market while some just think of it as a monopoly situation which can be subdivided into natural monopolies by limiting the ability of the other enterprise to enter the market. However privatization is defined, it is intimately bound with the social, political and economic agender of the government, the concept of privatization is inherently ideological Cowari, L.G (1990)

PRINCIPLES AND PRIORITIES

Privatization in Nigeria

Since the Margaret Thatcher era when privatization was introduce in the UK, many other countries adopted the ideology of privatization including developing countries which have launched privatization programs in pursuit of it’s mandate of further economic development by encouraging the growth of productive enterprise, Nigeria was not left behind in this new ideology of fostering economic performance. Nigeria’s political economy after independence from Britan in 1960 was an adopted form colonial capitalism alongside the British model of parlmentary system of government. The private sector was at its first phase. By the first military coup in 1966, a new form of political economy emerged in the state in the form of hybrid of state capitalism and socialism. All government function and responsibilities were delegated to government ministries, department, and agencies. The federal government also became a major player in the economy by establishing statutory corporation and private investment companies. It also invested considerably in other private companies. By the 70’s the indigenization Decree of 1973 was promulgated. It ensured the conversion of private controlled international corporations in Nigeria into state own corporation. The consequence was the creation of over 1000 state owned corporation in virtually all sectors of the economy operating as monopolies without competition from the thin private sector. These corporations were funded by Nigeria’s new found oil wealth. Their scope of operation covered oil and gas, agriculture, banks mass transit, housing, power, security, education and manufacturing etc.

By the early eighties, the oil price crashed and the usual billions of Naira funded into this corporation annually could no longer be sustained by the federal government. At the same time, annual profit of these corporations fumbled down due largely to state corruption and inefficiency. Their were also the operational problem of gross incompetence in management, complacency excessive bureaucracy, defective ownership structure, defensive capital structure, lack of effective control and supervision by the government, out- dated technology, international competition etc. By the late eighties, these factors worsened the already stinted and stretched Nigeria private sector market. It became vital to encourage private participation in the national economy and expand the Nigeria economy by direct deregulation. The alternative option was the collapsed of the entire Nigeria economy. The establishment of a private sector driven market became imperative to ensure the provision of efficient and quality services, improve infrastructure, and improve local manpower development while reducing the amount of revenue the government spends for pubic services such as defence and security. As at that time privatization of public corporations, firms, companies and services became the most viable economic solution.

In 1988, the federal government of Nigeria duly responded to the recommendation of the international monetary fund (IMF) and the world bank; that loss making enterprise have for many years been draining the government resources in developing countries and such enterprise burden the government into borrowing to aid their finance operating losses. This lead to IMF to refuse subsequent loan applied by Nigeria hence, led to the adoption of the structural adjustment program SAP was aimed at reforming the economy and making it more efficient.

The principle of privatization in Nigeria commence in 1999 with the aim to diversify totally or partially the share owned by the federal government, it agencies and parastatals in public enterprise active or dormant.

The primary goal of the privatization in Nigeria is to reduce the dominance of the public sector in the economy and allow there private sector to play it’s prosper role as the leading engine of growth.

Nigeria established the technical committee on privatization of public companies. Its obligations and goal were the disposal of government equities in the Nigeria capital market, the privatization of commercial and merchant banks, etc this movement had drastic yet successful consequences the immediate impact was the expansion of the Nigeria economy buoyed by private sectors involvement.

Public services improved in the selected corporations as well as their financial bases by the injection of private sector capital. To build on these economic landmarks, the bureau of public enterprise (BPE) was established in 1999 a successor to the TCP. The national council privatization NCP was also established as the supervising body to BPE these two regulatory agencies on Nigeria’s privatization were established through the promulgation of the public enterprise privatization and commercialization act 1999.

The directive of the BPE and NCP was to formulate policies on privatization and commercialization approve guideline and criteria for valuation of public enterprise stated for the exercise, approve choice of strategic investors, approve share prices and assets of state owned enterprise, designate and approve privatization advisers and consultants, approve enterprises for commercialization etc the BPE is the secretariat of the NCP designated to execute all the above functions of the NCP.

The statutory mandate of the BPE and NPC are specifically spelt out in the public enterprises privatization and commercialization act of 1999. the specific mode, structure and   timable of privatization of Nigerian public enterprise were also spelt out in the 1999 act all designated Nigerian state enterprise were categorized into broad sector group with the name of the enterprise, shareholding structure, expected level of ownership to be sold out, privatization policy outline and time schedules. Some of the cardinal groups are the financial enterprise group comprising NICON insurance, Nigeria reinsurance, Nigeria bank for commerce and industry, assurance bank, RSB Bank, Afribank, BIAO share state owned industries group contained NAFCON, federal super phosphate fertilizer company, Nigeria machine tool, Nigeria paper manufacturing company limited, Nigeria sugar company, Bachita Ashaka cement, sunti sugar company, Benue cement company, valaber cement Leyland, Peugeot automobile Nigeria limited, Volkswagen Nigeria limited, oshogbo steel, Ajokuta steel rolling mill, Aluminum smelter company limited, national iron ire mining company limited etc solid minerals comprised Nigeria mining corporation, Nigeria local corporation, Nigeria uranium company limited etc, the information sector group contained daily times of Nigeria, federal radio corporation of Nigeria, new Nigeria newspaper, new agencies of Nigeria and Nigeria television authority etc. in the transport sector, several state enterprise were slated for privatization. They are Nigeria ports authority, Nigeria railway, Nigeria dock, NAHCO, etc the petroleum sector group comprised Nigeria national petroleum corporation eleme, petrochemical Kaduna, port Harcourt, Warri refineries, Nigerian gas company, petroleum and pipelines marketing company, African petroleum, unipetrol, national oil, dresser Nigeria limited. Baker Nigeria limited etc in the housing sector we had federal mortgage bank federal mortgage finance limited federal housing authority etc. In natural resources, all 12 water river basin development authorities were slated for privatization. In agriculture we had national park board, ore oil palm, and Ihechiowa oil palm etc hotels were grouped to include Nigeria hotels limited and festac 77 Hostels. Telecoms and postal services group comprised NITEL, MTEL and NIPOST. State power agencies group contained NEPA and its subsidiaries. Airline and airports were grouped into Nigeria airways, FAAN, NEMA etc.

As at May 1999, the federal government investment in these public enterprise was in the region of US $100 billion. In spite of these massive investment, however, public enterprise have failed to perform the functions and attain the objective for which they were set up.

The gross failure of these enterprise to live up to expectation is partly responsible for the current more toward economic liberalization, competition and privatization, the philosophy behind privatization therefore is to restructure and rationalize the public sector not only to lessen the dominance of unproductive investments in the sector but also to initiate the process of gradual cession   to the private sector of public enterprises which are better operated by the private sector. It also expected that the privatization programme will provide the channel for reintegrating Nigeria back into the global economy as a platform to attract foreign direct investment in an open, fair and transparent manner.

CONCLUSION

       The ultimate goal of any credible and legitimate government is to ensure sustained improvement in the standard of living of the citizenry, Arising from this fact, Nigeria under the administration of Ibrahim Babengida see privatization as a measure through which government can achieve this goal. Looking at public enterprise before the introduction or adoption of privatization policy in Nigeria, one will known that public enterprise have been regarded as drain pipes for government budgets, creating budgeting constraints and avoidable burden on Nigeria economy. The deregulation of the telecommunication sector through privatization policy have really broken NITEL’S monopoly of the sector and given opportunities to private investors to come in. Consequently operation of GSM such as ECONET, MTN, zain, Globacom. Etc emerged in Nigeria communication thus, adding value to people’s life providing employment, reducing cost of traveling as people easily communicate on phone.

       Nigeria power sector have recorded a tremendous success through privatization policy the changed the national electric power authority (NEPA) to power holding company of Nigeria (PHCN). Base on these informations above, I argued strongly that privatization of public enterprise in Nigeria is really a reality not a myth.

Recommendation

I recommend Nigerians to weak up and embrace privatization policy by going for Nigeria made goods and services because this is the only way through which our gross domestic product can improve thereby ensure high standard of living. Secondly, Nigeria government should restrict excessiveness in importation in the country and create an avenue by which entrepreneurs will have asses to loan and grant so as to ensure efficiency and effectiveness in most Nigeria private enterprise.

 

REFERENCES

Cowan; L. G (1990) privatization in the developing work. New York: praeger publishers

Ezeani; E. O (2004) privatization/ labour in Africa. African journal political and administrative studies Vol I No 1.

Contemporary management research

PP 401-418 Vol 4 No 4 2008.

Review of privatization and public reform in Nigeria.

Hits: 50

Was the material helpful? Comment below. Need the material? Call 08060755653.

This site uses Akismet to reduce spam. Learn how your comment data is processed.