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PROJECT TOPIC- PRIVATIZATION IN THE RESTRUCTURING OF NIGERIAN ECONOMY

PROJECT TOPIC- PRIVATIZATION IN THE RESTRUCTURING OF NIGERIAN ECONOMY

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

For the major part of the twentieth century there are two opposing ideologies on how the society should be governed and developed: Capitalism vs Socialism ideologies or ideologies of the right vs the ideologies of the left. The capitalist ideologies typified by neo-liberalism insist that a self-regulated system of market would bring about spontaneous process of development. On the other hand, socialists and many other variants such as the interventionist argued that unregulated capitalism would bring about poverty, unemployment and human misery hence the need to regulate such market. At the end of the 20th century, with the end of the cold war, there is ascendancy of capitalism and neo-liberalism hence, the renewed drive for privatization.

The renewed drive for privatization was consolidated with the discovery of oil in some part of the developing nations of the world including Nigeria. The discovery of oil in Nigeria caused a shift from a purely agarian economy to an oil determined economy. The shift within the sector lead to the government involvement in the oil sector as the mainstay and the engine of growth of the economy hence the indigenization of most of the oil companies in Nigeria.

The inability of the government to manage efficiently and effectively the oil subsector, which contributed about 90 % to it revenue generation lead, to balance of payment problems among others. The reversion of government policy on indigenization brought about the incidence of privatization and deregulation of the oil sector hence the need to consider the performance of Oando Plc as an integral part of the oil sector on profitability, turnover, employment generation, productivity of the privatized oil company compared to when it was under government monopoly as Unipetrol Plc.

In view of this, Privatization is moving forward quickly and becoming a global phenomenon. This is absolutely in contrast to several years ago, where the issues and rationale behind privatization is not widely recognized and accepted. What were generally predominant are the activities of the government in the provision of goods and services through public sector enterprises.

Presently in the world, over 8,500 State owned enterprises have been privatized; also not less than 80 countries have embraced the new civilization in the past 12 years. Infact over 2,000 State owned enterprises were privatized by countries that borrow from the World Bank and International Monetary Fund. (IMF). Privatization has not only brought about efficiency, it also brought about increase in output, coupled with these is the increase in size and value of divested firms.

Estimates shows that close to 30 very large State owned enterprises with a gross value over $US19 billion have been sold in developing countries and that thousands of smaller enterprises are also in the sales block around the world. Presently, it is hard to find a country without privatization or a set of activities not susceptible to private management, if not ownership. (www.urban.org.2003)

1.1.1 DEFINITION OF PRIVATIZATION

There is no single definition of privatization, it covers a broad range of methods and models, including contracting out of services, voucher programmes among others.

Iheme (2002) defines privatization as any of the variety of measures adopted by government to expose a public enterprise to competition or bring in private ownership or management into a public enterprise and accordingly to reduce the usual weight of public ownership or management. However, in a strict sense privatization means the transfer of ownership (and all incidence of ownership, including management) of a public enterprise to private investors. The later meaning has the advantage of help as one can draw a line between privatization and other varieties of public enterprise reform. It is also in this sense that the term privatization has been statutorily defined in Nigeria.

In similar vein, stair (1999) defines privatization as a shift from the public to the private sector, not shift within sectors. According to him, the conversion of the state agency into an autonomous public authority or state owned enterprises is not privatization neither is conversion of a private non-making organization into a profit making form.

The Privatization and Commercialization Act of (1988) and the Bureau of Public Enterprise Act of (1993) defined privatization as the relinquishment of part or all the equity or interests held by the federal government. Although privatization is not defined in Public Enterprises, (Privatization and Commercialization) Act (1999), we can assume that it is deemed to have the same meaning. From the definition above, three things are clear. First, for privatization to take place, there must be in existence public enterprises, there is reasoning that private ownership or control or management would be better than public ownership. Finally, privatization is premised on the fact that there are problems with public ownership of enterprises and privatization is parcel of a reform agenda to turn around these enterprises so that they can deliver goods and services more efficiently and effectively. Based on these definition privatization could also be said to normally imply liberalization, this is because once an enterprise is sold to members of the public, the social objective of such an enterprise gives way to profit motives.

It should be noted that privatization is fundamentally a political process as well as a commercial and economic process. It changes the distribution of power within a society, as it reduces or eliminates government managers and replaces them with private individuals and investors. Despite oppositions often associated with privatization by workers, in the long run, they often benefit more. It is pertinent to note that public support is a major consideration in any privatization programme.

Two major reasons account for why privatization programmes and transactions needs to reflect public supports:

  • Choices of approaches are sometimes altered due to “political” consideration, meaning that equity must be promoted in the privatization strategy.
  • Programme implementation must be objective and fair to avoid adverse publicity.

PROJECT TOPIC- PRIVATIZATION IN THE RESTRUCTURING OF NIGERIAN ECONOMY

 1.2 OBJECTIVE OF THE STUDY

The purpose of the study is to discuss the reasons, importance and viability of privatization of Oando PLC as an integral part of the oil sector. It further aims to critically examine the relationship between privatization and profitability, turnover, productivity/efficiency and employment generation. The study extends to find out the place of privatization in the restructuring of Nigerian economy, and how it reduces government financial burden.

 1.3 JUSTIFICATION OF THE STUDY

Coupled with general level of poverty, low standard of living among majority of Nigerians, the prevalence of corruption, which is endemic at all levels, high illiteracy, hence, the need to review the activities and financial resources put into public enterprises by government. The resultant of the above problems laid the foundation to the following questions:

  • What is happening to poverty in Nigeria?
  • What is happening to unemployment in Nigeria?
  • What is happening to efficiency in public enterprises?
  • What is happening to profitability in public enterprises?

It is important to access if the ongoing privatization and commercialisation (P&C) exercise of the government is achieving its primary objectives, which are profitability, employment generation and high level of productivity/efficiency at the various state owned enterprises (SOEs) to improve the economy.

1.4 PROBLEM STATEMENT

Despite of the amount of time and national resources that have been put into addressing the problem of employment generation and efficiency level of various state owned enterprises, there seems to be constantly increasing level of unprofitability, unemployment and increasing level of inefficiency/productivity of these state owned enterprise (SOEs).

 1.5 SCOPE AND LIMITATION OF THE STUDY

The scope of this study is going to encompass the role which privatization would play in ensuring profitability, productivity, and employment generation of public enterprises if they are privatised. The major limitations that I am likely to face in the study are lack of adequate and reliable data, non-accessibilty to relevant data, financial constraints from typing and re-typing each chapter as corrections are made.

1.6 SIGNIFICANCE OF THE STUDY

The study is of great significant as it helps to update and fill an academic gap in the knowledge of privatizing the public enterprises (PEs). It shows the need to embrace privatization in line with international efforts geared toward the globalisation of the world economy.

Other significance of the study is as follows

  • To show that privatization of public enterprises is synonymous with efficiency/productivity.
  • To show that privatization of public enterprises is synonymous with profitability/high turnover.
  • To reveal the role of government in economic development.
  • To show that privatization as an economic reform tools is needed to correct obnoxious and persistent macro economic imbalance reflected in Nigeria’s external current account details.
  • To show that there must be a stop to endless demand for subventions, subsidies, and grant given by government to apparently inefficient public enterprises that can considered a drainpipe to the nations’ hard earned resources.

 1.7 GENERAL RESEARCH QUESTION.

The general question the research seeks to ask in the study includes:

  • Has the privatization of Oando Plc cause increase in its productivity/efficiency?
  • Has the privatization of Oando plc cause increase in profitability/turnover?
  • Has the privatization of Oando plc cause increase in employment or employment generation?
  • Has the privatization of oando plc lead to the creation of more department?

1.8 DEFINITION OF SOME TERMS USED

  • Grants: Financial aid from public finds disbursed by government to parastatal.
  • Parastatals: This is a general name for government owned enterprises or where government holds majority shares.
  • Full commercialization: Means that enterprises so designed and expected to operate profitably on a commercial basic and still be able to raise funds from the capital market without government guarantee. Such enterprises are expected to use private sector procedure in running the business.
  • Partial Commercialization: Means those enterprises so designed and expected to guarantee enough revenue to cover their operating expenditure. The government may consider giving them capital grants to finance their capital projects.
  • Public Sector: These are the government sector: Consisting mainly of the government and government owned enterprises whether local, state or federal. (Layi Afolabi 1991)
  • Subventions: This is referring to as subsidy given certain services oriented parastatal.
  • Private sector: These are individual owned businesses especially for profit motive.

1.9 ABBREVIATIONS:

P &C:         Privatization and Commercialization

SOEs:         State Owned Enterprises

IMF:           International Monetary Fund

PE:             Public Enterprises

BOP:          Balance Of Payment

PROJECT TOPIC- PRIVATIZATION IN THE RESTRUCTURING OF NIGERIAN ECONOMY

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