An Evaluation Of Privatization Programme As An Effective Tools For Enhancing Productivity Public Enterprise In Nigeria

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AN EVALUATION OF PRIVATIZATION PROGRAMME AS AN EFFECTIVE TOOLS FOR ENHANCING PRODUCTIVITY PUBLIC ENTERPRISE IN NIGERIA

CHAPTER TWO

LITERATURE REVIEW

2.0 INTRODUCTION

Substantial experts and respectable scholars had put up some authoritive pieces of information on the subject, the Privatization concept. There have also been empirical studies both internationally and locally on the subject matter. This chapter will review literature on these privatization issues.

Anya (2007) defined privatization as the widespread sale of publicly owned assets to local owners. Umar (2005) also defined privatization as free economy from strong government control and particularly, from government intervention in direct production of goods and services for the market. Privatization can also be seen as a gradual divestment of government from the public enterprises and state owned corporations that are selling its shares in these corporations to the private sector operator (Hamza, 1992).

Privatization has become a major strategy adopted to improve the performance of public enterprises. This emanates principally from the inefficiency of the public enterprises and the global change in attitude towards the management of economic resources. In recent years there has been a resurgence of the economic philosophy of the market as a more effective mechanism in allocating development resources and accelerating economic growth. The private sector is increasingly being recognized as the motivating force that can foster, economic progress. This course of action (Privatization) has a very good theoretical background and many theories have been propounded on why private firms should out perform state owned Enterprises. (SOEs) also called Public Enterprises.

The major reason for privatization in Nigeria was to sanitize the public enterprises from its inefficiency. We shall therefore review the existence and performance of Public Enterprises.

Privatization is perceived as a key option to economic recovery in case of Nigeria privatization has been identified as an economic imperative for the recovery of our depressed economy which has been blamed on the non-performance of public sectors.

While in business point of view. It refers to as the conversion of part or all of the equity and other interest by the federal/state government or its agencies in enterprises wholly or partly owned.

Commercialization is the reorganization of enterprises in such a way that they shall operate as profit making commercial venture and without government support or subvention. It comes in two forms full commercialization and partial commercialization.

THEORETICAL FRAMEWORK

Shirley, (1999) opined that privatization and public sector reform marks what have been termed “second generation” adjustment policies, an attempt at distinguishing them from “‘first generation” policies, which focused almost exclusively on economic stabilization. The vast literature on privatization however, reveals a lack of clear-cut definition. Privatization has become a generic term often employed to describe a range of policy initiatives designed to alter the mix in ownership and management of enterprises away from government in favour of the private sector. It covers a continuum of possibilities, from decentralization to market discipline. Narrowly defined, privatization implies permanent transfer of control, as a consequence of transfer of ownership right, from the public to the private sector. This definition is perhaps the most common usage of the term.

A broader definition entails any measure that results in temporary transfer to the private sector of activities exercised hitherto by a public agency. This may be accompanied by a radical relocation of available productive resources, restructuring of the existing institutional setting in which production takes place, and the introduction of new forms of corporate governance devoid of political interference

Jerome, (1996), privatization can also entail a transfer of the provision of a good or service from public to private sector, with the government retaining the ultimate responsibility for providing the service. The prime examples of this type of privatization are subcontracting, management contracts, leases and concessions, as well as build, operate and transfer schemes. It is even possible to envisage privatization taking place without a transfer of ownership of assets. For example, liberalization or deregulation is regarded as the abolition of restriction on entry, prices, output, market, profits, etc. The public enterprise remains in existence, but is required to adopt a more commercial approach. The preoccupation of this study is the narrow definition.

Zayyad (1994) opined that commercialization was define to include re-organization of enterprises in such away that they shall operate as profit making commercial venture and without subvention from the federal government”.

The technical committee on privatization and commercialization (ICPC) set up by decree 25 of 1988 to implement the provision of decree define commercialization as follows:

Full commercialization means that enterprises so designated will be expected to operate profitably on commercial basis and be able to raise funds from the capital market without government guarantee. Such enterprises are expected to use private sector procedure in the running of their business”.
Partial Commercialization: - means that such enterprises so designated will be expected to generate enough revenue to cover their operating expenditures. The government may consider them for capital grant to finance their capital intensive project

Several theoretical and survey articles propose alternative reform measures other than privatization. They opine that competition and deregulation are more important than privatization, putting ownership at the lower rung of the hierarchy of policy prescriptions (Bishop and Kay, 1988; Vickers and Yarrow, 1988), while others are decisively in favour of privatization (Vining and Boardman, 1992; Boycko et al., 1996; World Bank, 1995; Shirley and Walsh, 2000). In a comprehensive survey of ownership

and firm efficiency, Vickers and Yarrow (1988), for example, conclude that private ownership was superior to public ownership only in firms where healthy competition existed. In markets without competitive forces, the introduction of competition through the elimination of statutory monopolies or regulatory measures that mimicked competitive forces provided higher efficiency gains than could be expected from the transfer of ownership to the private sector. Substitution of a private monopoly for a public one could the restriction of services to financially rewarding markets. Shleifer and Vishny (1994), however, argue against partial privatization using the political perspective as explanation. While partial privatization could solve the monitoring problem, it is incapable of solving the problem of political intervention through “side payments” – a situation through which government can achieve political objectives at the cost of efficiency. The failed privatization in some transition economies and the progress made in reforming SOEs in China have apparently added fillip to this argument for alternatives to privatization in recent times (Shirley and Walsh, 2000).

Although the theoretical debate is currently heavily tilted in favour of privatization, the true measure of SOEs’ effectiveness must be based on empirical research. The weight of empirical research is now decidedly in favour of the proposition that privately-owned firms are more efficient than state-owned firms. Shirley and Walsh (2000) conducted a comprehensive survey covering 52 major studies spanning the period from 1971 to 2000 and different market structures ranging from statutory monopoly to competitive firms. They concluded that the ambiguity about ownership is more in theory than in the empirical literature. The results of the survey are decisively in favour of private and privatized firms in both developed and developing countries. Of the 52 studies, 32 confirm the superiority of private and privatized firms, 15 are ambiguous or find no significant relationship between ownership and performance, and only 5 conclude that publicly owned firms perform better than private firms.

Given this ambiguity in the literature especially theoretical studies, it seems logical to appraise the performance of African privatization programmes and their contribution to the success of market-based reforms.

Theories of Privatization

Privatization is capitalist ideology typified by neo-liberalism which insists that a self regulated system of market will bring about spontaneous process of development (Igbuzor, 2003).

Some call it “denationalization”, the sale of a Public Owned Enterprises POE’S assets or shares to the private sector. However privatization is quite wider. Denationalization is just one of the methods of privatization. Other methods or policies are deregulation, liberalization, flexibilization etc. The meaning of privatization encompasses all these methods or policies which aim at strengthening free market economy and to reduce the role of the government in the national economy (Aktan, 2007).

Some theoretical arguments for private ownership of enterprises for better efficiency and productivity is based on property agents, transaction costs, contract theory and public choice traditions among other advantage (Galal, 1994). It is the issue of efficiency that supports the clamour for significant private participation and leadership in productive activities.

Efficiency is often measured by the percentage of resources used in achieving a unit of production. That is comparing the actual achievement of workers with the cost of that achievement during a given period. This is the cardinal objective of privatization since the expectation of privatization is cost consciousness, effective resources management and optimal input utilization (Awopegba, 2001).

We have allocative efficiency and technical or productive efficiency. In allocative efficiency an organization is able to produce at levels mix and quality where output levels can be rearranged to make one consumer better off without affecting the satisfaction of another consumer. Technical or productive efficiency means producing at least cost of production to produce output is the expansion of Jackson and Price, (1994) as cited in (Awopegba, 2001).

Privatization is also theoretically inclined on increase productivity. Human beings constitute the driving force in any productivity improvement effort. Productivity involves the technical and management skill and knowledge, motivation to perform, and workers attitude to work.. the ability to increase output units when input remains constant is an increase in productivity.

In order to achieve this it is managerial skill and policy that can allocate resources so efficiently. This is why privatization can also be done through management Contract i.e. when private management is contracted to change the fortune of a public enterprise.

Upper Echelon theory was propounded by (Kelvin D. et al 1986).The theory says that “Top management Team (TMT) of an organization is associated with value creation of the organization”. The result of their research on seventy two technology firms proved that TMT’s aggregate education level, social integration, internal and external networks are associated with increased organization’s level of innovations.Hambrick, (1988) added that TMT’s organization success depends on their personality, background, experience and former job performances. These are the quality points considered before appointing the Management Team of private or privatized companies. The higher these reference qualities the higher the team’s quality of decision making, the higher the impetus for innovations that can yield fruits of development. Usually, the management team of Public Enterprises referred to as Board of Directors or Board Members are made on federal quota system and political patronage rather than competent qualified personnel.

However, Toyo (2000) analyzed a limitation dimension to the advocated theories in favour of Privatization. He argued that the alleged managerial efficiency, capital utilization efficiency, flexibility, consumer satisfaction and freedoms advocated for privatization could be a mirage.

According to Toyo, the so called managerial efficiency is always measured by profitability as an indicator, which explains that the higher the profits the more efficient the management has been. But a high profit may be due to monopolistic position of the enterprises, inflation, poor consumer knowledge or favoured market position like patent protection or professional protection. This is in line with Zakari (1998) in his empirical study on Cement Company of Northern Nigeria (CCNN) in which he found that high turnover and profit of the firm was due to high rise on the price of its products rather than efficiency of the management after its partial privatization.

Toyo added that private sector’ consciousness in minimizing its capital expenditure does not always favour the workers, that it is a counter effect on welfarism. He also does not agree with flexibility theory because those capitalist countries like USA have not achieved reasonable growth on those sector of privatization. Also consumers may not actually benefit from privatized products because all private sector operators will always pass the created convenience cost of their products into the prices thereby causing inflation.

The performance of privatized firms therefore should be measured not only on their profits after privatization but on productivity, growth through expansion, employment and on benefits to all stakeholders.

Schmidt and Schnitzer (1993) as cited by Schindele, (2003) expressed the two main approaches to the establishment of new corporate governance structures called privatization. The ‘Market Approach’ and ‘Government Approach’. The first approach refers to immediate and fast privatization at the transition process leaving the entire restructuring of involved companies to new owners and excluding government active participation. This approach favours mass privatizations for free share distribution and the setting up of holdings as first owners of the new private companies in order to achieve the goods of fairness and efficiency in the privatization process.

The other, ‘Government Approach” aims at restructuring and establishing competitive market structure before any ownership change. This method requires the government’s active participation (through a government agency at the firm) which will allow for relocation of revenues up to some degree in order to reduce the social costs of restructuring. Both governance structures result in socially sub-optimal allocations.

Trade-off exists between the two ways, government control allows more reallocation of profits and therefore lowers the social costs of restructuring, but induces managers to spend less effort and therefore has detrimental effects on incentives. The market approach favours incentives but increases welfare loss to citizens.

There are also proposal by some scholars calling for intermediate governance structures during transition. Lipton and Sachs, (1990) suggest that initially, government agencies should aim a small fraction of shares in privatization companies, which in the long run should be sold to core investors. This would restrain cross-subsidization by the government, and provide firm harder budget constraints.

Participating large restructuring costs several authors propose a gradual transition to new market type of corporate governance structures. By Nigeria style both fast privatization called market type and gradual transitions were used. Market system was used on Cement and Banking Companies during the IPO process of phase one. The government immediately relinquished its control over the organization and so the companies had benefits of enjoying the self, control, the self restructure of the entire business and the expected efficient business but with an increase in social cost to the citizenry.

The gradual style was used on NITEL as an example. Communication sector was first of all deregulated. The government received part of the shareholding while inviting a co-investor the Transcorp abroad to manage the business. This reduced the social costs but efficiency was not paramount.

The third approach that is intermediate system is a way of moving a bit to privatization or a bit to socialism. In this we have various intermediate methods of privatizing, we have privatization by management contract, by contracting out, New private investment in SOE, sale of assets, break up to components, the BOT system, the Franchising etc. as discussed earlier. It is a way of applying privatization to a degree while government shall retain some control on the system.

It is expected that partly privatized companies done through the intermediate system may become fully privatized by time. Economic reform therefore always moves from right to the left.

Emprical study showed that Privatization has over all benefits on economic growth but it must go with some social costs. The less the social costs suffered the better the efficiency of economic re-construction called the privatization process.

Allocative, productive, or Smithian efficiency Focusing primarily on the microeconomic dimension, a growing number of studies of the impacts of privatization make a convincing case that predicted gains in enterprise performance in fact materialize. 8 Typing, financial performance -profitability, value -serves as proxy for productive efficiency in these comparisons of pre-and post-privatization performance of the enterprises involved, although some studies use other measures, distinguishing for example between profitability and operating efficiency. For example, Lopez-de-Silanes (1997) used the ratio of the net sales price to assets as a key measure to assess the impacts of different government actions in the value "expressed" by investors. Based on company-specific data for four countries (UK, Chile, Malaysia, Mexico), Galal et al (1994) find that total welfare improved, for the most part significantly, for 11 out of 12 enterprises. Other studies, including Megginson et al (1994), Jones et al. (1996), Frydman et al. (1997), and Claessens and Ojankov (1998), have used cross-sectional or cross-country data (including OECO countries, transition economies and developing countries) for share-issue privatization to assess the impacts on financial performance. Other studies, including Lopez-de-Silanes (1997) and Laporta and Lopez-de-Silanes (1998) for Mexico, Smith et al. (1996) for Slovenia, or Barberries et al. (1994) for Russia have used single-country data sets for the same purpose. Ernest et al (1999) used financial data for publicly traded privatized companies to carry out pre and post-privatization valuations in Morocco.

Together, these studies have produced "robust evidence/l 9 of significant gains in terms of financial performance indicators. The studies found that profitability increased significantly on averages. However, the evidence, especially from the studies the studies using cross-country data. Also suggests that improved efficiency accounts for only some part of these gains:

Profitability increases more in regulated (or noncompetitive) industries whereas operating efficiency increases less in those cases. It is dear then that higher profitability does not necessarily imply higher efficiency and the link between the two comes from the market structure. The evidence supports that there is a certain degree of market power being exploited by those firms. For the case of Mexico, Laporta and Lopez-de-Silanes (1998) analyze the performance of 218 enterprises in some 26 sectors privatized between 1983 and 1991. They find that average increased y 24 percent; productivity increases accounted for 57 percent of the total gain, reductions in employment for 33 percent, and price increases for 10 percent. Overall, the evidence seems to indicate that efficiency gains are greater and faster in competitive industries. In series of impact studies of privatization in six countries in sub-Saharan Africa, Campbell White and Bhatia (1991) found, on average, post-scale increases or improvements in:

a. .Sales

b. Investment;

c. Financial flows to governments; wages and working conditions;

d. Capital market development; and

e. Innovation and new market penetration. While the evidence is robust, it does apply primarily to a subset of all privatization's share.

Issue privatizations, which may color the findings. Data on privately held enterprises (both pre and post) are often effectively. Impossible (or obtain). There does not appear to be any general requirement anywhere for all privatized companies to report on their financial performance. As a result, post- privatization financial information is regularly available only on privatized companies listed and traded on stock exchanges. Focusing on these companies may affect the conclusions, since companies selected for share issues generally tend to be the better performers to start out with.

2. Keynesian Efficiency

There has been little systematic effort to study the impacts 9f privatization on the level and intensity of resource utilization, except for the important case of labour. For the broader issue of capacity utilization, the evidence tends to be more anecdotal. For example, the IFC reports that the privatization of Tanzania Breweries transformed the company from a loss-making, under-utilized state enterprise into one of the most profitable blue chip companies. In Ghana, a project to rehabilitate and expand a formerly government owned coffee plantation, planning to increase production from the current level of 28 metric tons per year to 650 tons by the year 2000. Other examples include Sri Lanka, Guyana, Argentina, or Honduras. In fact, the observed employment impacts, as discussed below, suggest that privatization on the whole improves the degree to which available capacity and resources are being used. Privatization therefore would appear to enhance Keynesian efficiency. However, the ultimate impacts are complex and evolve over time. Much of the empirical work on the ways in which privatization affects the employment of resources has revolved around impacts on labour. The incidence and severity of employment effect depend on the situation of the enterprise, its market power, conditions in the immediate environment sector and region and in the economy as a whole. The research suggests that employment related effects need to be viewed in a dynamic context. Net employment impacts tend to follow a J-curve pattern, often cited as characterizing the impacts of policy reform more generally. Following, and sometimes preceding, privatization, redundancies may be cut, or special privileges may be revoked. Consequently, initial employment related impacts are likely to be negative. As the enterprise or operation improves its competitiveness, it may be able to raise salaries and offer additional benefits, and to hire new workers. These subsequent gains may offset initial losses, putting the enterprise on the upward slope of the J-curve. Depending on the time interval, empirical assessments are likely to produce different findings. In fact, the available evidence on the employment impacts of privatization presents a mixed picture.

As a rule, the workforce of many state owned enterprises is bloated, necessitating often significant retrenchments if they are to compete under commercial conditions. Closing non-viable enterprises and restructuring others translate into job losses. The extent of redundancies reflects both the degree of protection the state-owned enterprise enjoyed, and the level of subsidies it received. Excess employment tends to be highest in environments that offer few job opportunities in the formal sector, which complicates restructuring and may delay implementation.

Massive job losses have accompanied privatization in many of the former socialist countries of central and Eastern Europe and central Asia. In the former German Democratic Republic, six out of ten employees in the enterprises privatized by the Treuhandanstalt lost their jobs (corresponding to a total of 2.4 million workers). Other countries had similar or worse experiences, although employment levels have recovered in some of them. Of course, privatization did not trigger the downfall of the socialist economic system and the collapse of markets. In fact, de factor job losses have often been more severe in enterprises that have yet to be privatized, with many of them operating way below capacity or having ceased operations completely. Although there may not have been any official layoffs, jobs have been lost. The workforce is engaged in other activities, typically in the informal sector or the underground economy estimated to account for half of the GDP in many of these countries.

In Argentina, the privatization of large public enterprises in telecommunications, steel, railways, energy,water and sanitation required massive retrenchments. The work force of seven enterprises in these sectors declined by 50 percent in the process of privatization. Cook and Kirkpatrick (1995) report losses of 40 to 50 percent of total employment in privatized enterprises in Bangladesh and Pakistan. Benerji and Sabot (1994) present a summary table with estimates from a number of studies for several countries (Chile, Egypt, Ghana, India and Turkey) with estimates of excess staffing ranging from 17 to 91 percent, with a median in the 40-50 percent range.

2.2 HISTORICAL BACKGROUND OF PRIVATIZATION

Philosophically Privatization is heavily loaded with ideology. According to Rodee (1983) ideology refers to ideas that are logically related and identify those principles or values that lend legitimacy to political institutions or behaviour. Ideology may be used to justify the status quo or to justify attempts (violent or non-violent) to change it. For major part of the 20th century there were two opposing ideologies on how society should be governed and developed. Capitalism versus socialism or ideologies of the right versus ideologies of the left. Capitalist ideology typified by neo-liberalism insists that a self – regulated system of market will bring about spontaneous process of development. On the other hand, the socialists and many other variants such as the interventionists argue thatunregulated capitalism will always bring about poverty, unemployment and human misery and there is the need to intervene to regulate the market. At the end of the 20th century with the end of the cold war, there was an ascendancy of capitalism and neo-liberalism hence the renewed drive for privatization (Igbuzor, 2003).

Privatization plays a central role in most Structural Adjustment Programme under IMF or World Bank control as their economists seem to think privatization has some economic merit (Randall, 2004). These World bodies had believed that the only way countries (developed and undeveloped) can be prune in managing their economies is by privatizing. They promised incentives like World Bank loans. Some countries especially the developing countries were sceptical about this so-called tantalizing carrot of the world bodies hence the fierce objection to the programme.

First, we should take note that for privatization to take place there must be in existence public enterprises, which need to convert into private enterprises. Secondly, there is the reasoning that private ownership or control or management would be better than public ownership. Thirdly, it is premised on the fact that there are problems with most ownership of enterprises and that privatization is part and parcel of a reform agenda that can turn around these enterprises so that they can deliver goods and services more effectively and efficiently. This last premise has spurred up many countries to embrace the privatization programme.

2.2.1 Global (International) Dimension

Many countries of the world have embarked on privatization programmes at different times. Chile introduced privatization programme in 1974. The United Kingdom implemented a rigorous privatization programme during the regime of Margaret Thatcher in the 1980’s. Iheme, (1997) informed us that the decision to embark on privatization programme in U.K. was largely informed by the need to cut back on public spendingrather than need to promote efficiency and competition. 1990’s witnessed the implementation of privatization programmein many countries of the former eastern block like Russia, Romani, Czechoslovakia etc. more than 8, 500 state owned enterprises in over 80 countries have been privatized in the past 12 years (Igbuzo, 2003). Throughout these 1990’s a wave of privatization some led by IMF programme and some not, swept the world like hurricane fire. Says Nellis, (2002) “More than one hundred countries, on every continent, have privatized some or all of their state – owned companies in every conceivable sector of infrastructure manufacturing and services., with total generated proceeds estimated at more than $735 billion. Every country including India, Russia, China, Vietnam, Cambodian and Laos that still retains a significant number of publicly owned firms, has privatized some or most of them. Other countries are Cuba and Republic of Korea”.

According to Dyck, (2001)$1 trillion in assets have been transferred from government control to private control over the 15 years by privatizing countries. Japan also participated in the programme in 1987. She offered her Telegraph and Telephone for sale in 1988 at $1 billion. Brazilian opted for the programme between 1997 and 1998 (Saulawa, 2003).

2.2.2 African Dimension

Africa initially did not embrace Privatization enthusiastically as the other world regions did. This is because the programmes are feared to be imposed by external forces. The labour bodies also stood firmly against it for the fear of job losses.

Further, foreign investors also were not keen in investing in Africa because the region’s economies were not worthy of their time and capital. The foreign and local investors were not attracted early because of lack of enabling environment. Infrastructure like roads and energy were not attractive and most importantly the dwindling political stability in the region.

However some countries would be quickly attracted by privatization programme than the others. Privatization will likely occur in developing countries with high budget deficit, high foreign debt, high dependence on interventional agencies such as World Bank and IMF.

Thus according to White (2000) privatization came to Africa by 1979. By 1981, 10 transactions were recorded and this involved $1m. In 1989 it rose to 200 transactions which was valued at $68.5m. In 1995, 485 transactions were recorded, $2,248m was reported as transaction value. Among the first African countries that were attracted by privatization was Cote D’Ivore in 1989. Other countries that followed were Ghana, Guinea, Mozambique, Tanzania and Zambia where majority of their parastatals had been privatized.

White (2000) also pointed out that African’s Privatized programme was classified into 3 phases. The first phase i.e. 1984, 1985 was the Launch and learning phase, the main phase years 2000 and 2001 as the main phase and years beyond come as maturity phase of the programme.

2.2.3 Emergence of Privatization in Nigeria

Naturally, Public Enterprises the major providers of goods and services were inherited from the colonial master after independence. The oil boom of 1970 gave government more strength to purchase (invest) largely in banking, insurance, oil prospecting ventures, cements, hotels and tourism, fertilizer plants, motor assembly plants, rail, sea and air transportation and others. The indigenization programmes of 1972 – 74 and 1977 – 80 further provided opportunities to invest in construction and mining, flour milling, road haulage and some other manufacturing establishment (Ojo, 1998)

However at the wake of economic recession in 1981 attention was focused on the activities of the parastatals. They were seen as government funds wasters. Result of the committee set to investigate parastatals recommended that the government should take off its hands from the public firms. Many Nigerian high elites had also called for privatization of these public enterprises (Obadan, 1998).

Privatization started as Structural Adjustment Programme (SAP) in 1985 during Badamosi Babangida administration of (1985 – 93). One of the main objectives of SAP according to Igbuzor (2003) was to pursue deregulation and privatization leading to removal of subsidies, reduction in wage bills and the retrenchment of the public sector which was meant to trim the state down to size. He further, argued that SAP was a neo-libera development strategy devised by international financial institutions to incorporate national economic into the global market.

After SAP then came the higher decree called privatization and commercialization Decree of 1988, which set up (Technical Committee on Privatization and Commercialization (TCPC) under the chairmanship of Dr. Hamza Zayyad. The committee was given a mandate to privatize 111 Public enterprises and commercialize 34 others. In 1993 the committee privatized 88 out of the 111 stated. The TCPC concluded its assignment and submitted a final report. Based on the recommendations of the TCPC the FMG repealed the 1985 Act and promulgated Bureau of Public Enterprises (BPE) with Act of 1993 to implement the privatization programme in Nigeria., Further in 1999 the Democratic Federal Government enacted privatization and commercialization Act, which created the National Council on privatization chaired by the Vice – President, Alhaji Atiku Abubaka. The functions of the Council among others were;

Making Policies on Privatization and commercialization.
Determining the modalities for privatizations and advising the government accordingly.
Determining the timing of privatization of particular enterprises
Approving the prices for shares and the appointment of privatization advisers.
Ensuring that commercialized public enterprises are managed with sound commercial principle and prudent financial practice (NCP, 2000)

It was the same Act that established the Bureau of Public Enterprises (BPE) as the secretariat of the National Council on Privatization. BPE functions include;

Implementing the councils policy on privatization.
Advising council on further public enterprises s that may be privatized or commercialized.
Advising council on capital restructuring needs of the public enterprises to be privatized.
Ensuring the update of accounts of all commercialized enterprises for financial discipline.
Ensuring the success of the privatization and commercialization exercises through effective past transaction performance monitoring and evaluation (National Council on Privatization, 2000).

2.2.4 Objectives of Privatization in Nigeria

The objectives of privatization in Nigeria can be found in the Privatization/commercialization Decree No. 28 of 1988. the objectives were to:

Reduce the size and scope of government. This is to be done through the restructuring and rationalization of government to lessen the dominance of unproductive investments in the sector.
Refocus the enterprises due to privatization and commercialization for improved performance, viability and overall efficiency.
Free government funds for use in other sectors of the economy.
Check the current trend of near absolute dependence of commercial parastatals on the treasury for funding, and encourage them to patronize the Nigeria capital market for funds.
Initiate the process of gradual cession, to the private sector, of such public enterprises that by the nature of their operations and other socio- economic factors are best performed by the private sector;
Promote a favourable climate for domestic investment and create a positive attitude towards private investment for both local and foreign entrepreneurs.
Benefit the economy through higher returns on capital in privatized businesses and ensure that such gains are sustained in the future.
Reduce budget deficit.
Broaden domestic equity ownership in order to promote more equitable distribution of wealth.
Promote equity ownership among employees of privatized businesses in order to motivate them towards higher productivity.
Provide consumers with improved services, better product quality, more choices, new products and lower prices.
Improve consumer’s profitability of the privatized firms through competition.
Generate revenue from the sale and taxing of the privatized enterprises and
Reduce internal and external debts.

The objective of this thesis is to assess whether the above privatization objectives have been achieved in the phase 1 programme or not.

2.3 POLICIES OF PRIVATIZATION AND COMMERCIALIZATION IN NIGERIA

The federal government response to the continued problems of public enterprises (as mentioned earlier) resulted to the adoption of privatization and commercialization of public enterprises in Nigeria. This became pronounced after the introduction of SAP in 1986. Privatization and commercialization simply means the transfer of ownership of enterprises from public to the private sector and commercial running of the private enterprises.

The federal government in 1988 promulgated decree No. 25 which further established the Technical Committee on privatization and commercialization (TCPC) and hence the legal from work empowering the implementation of the programme in Nigeria as component of the on going restructuring the nations recked economy. Some of the function of the technical committee on privatization and commercialization (TCPC) include:

(a) To monitor the privatization and commercialization programme.

(b) To ensure proper and credible implementation of the programme.

(d) To approve guideline of valuation of the companies/enterprises to be affected.

(e) To choose strategic investor and

(f) To approve the price of shares on asset, for enterprises stated for privatization and commercialization.

According to Nigeria economic policy (1999) when this administration took office in (May) 1999, it inherited an economy with the following characteristics: Declining Capacity, Utilization in the Real Sector, poor performance of major infrastructural facilities. Large budget Deficit, Rising level of unemployment and Inflation. In addition, the economy had greate problems of import dependence, reliance on a single commodity (Oil), weak Industrial Base, low level of agricultural production a weak private sector, high external debt over hang, inefficient public utilities low quality of social service and an unacceptable rate of unemployment. Since it’s inauguration, the administration of President Olusegun Obasanjo has been Pursuing an economic policy inspired by the following guiding principle: -

(a) The economy exist for and belong to the people and at all times the general well being of all the people shall be the over riding objective of the government and the proper measure performance.

(b) Given the state of the economy which is equivalent to national emergency, economic management shall involve total commitment of leadership at all tiers of government, and the mobilization of the populace without creating a bloated government.

(c) Government shall be lean efficient, Honest, Transparent, Cooperative and Friendly, operate on basis at extensive deudertion of power and shall function mainly as a facilitator.

(d) Government primary roles shall be to ensure incorporation with the private sector, the urgent creation of adequate and efficient infrastructure, particularly of energy, telecommunication, water and financial services to being about positives and internationally competitive environment for economic activities.

(e) Private enterprises, private effort and non governmental organizations shall play the major role in achieving the goals of the society and the directive target of the government

(f) Every thing shall be done to foster a strong work ethic to drive productivity

Based on those guiding principle, the administration shall operate on economy which is:

Market Orientation
Private Sector Led
Highly competitive, internally and globally
Technology Driven
Broad Board
Humans
Open and
Internationally Significant.

Given the poor state of the economy which it inherited, the administration objective is to:

Revive and grow Nigeria’s Comatose economy
Significantly raise the standard of living people.
Put Nigerians back to gainful work and create new employment opportunities.
Repositioning the economy to participate beneficially in the global economy.
Make Nigeria the hub of the west African economy.

The instruments which the administration shall use will include the following: -

Stabilized market responsive exchange rate (within) narrow bard and will sufficient predictability.
Reduced interest rate to reach single digit as soon as possible
Produced total tax burden to a maximum of 30% of corporate and personal incomes as possible.
Low customs tariffs, especially for production input (atless than 10% with built -in - incentives for local government)
Shift in government expenditure structure in favour of productive, economic and social sectors.
Ensuring steady and adequate fuel supply.
Rehabilitation and reconstruction of infrastructure such as electricity, road, water supply. Railway etc.
Enhanced income fore workers. Particularly in the public sectors.
Significant poverty reduction.
Special focus on education and human capital development.
Hugh priority to Agriculture, manufacturing, small/medium enterprises and the informal sector.
Institutional rationalization of government.
Privatization
Co-operation with the national assembly
Generous meeting for local and foreign direct investment
Reduction of Nigeria’s external debt burden through negotiation.
Promotion of the depending and increase efficiency of the financial system.
Operation of co-operative federalism to ensure inters tier policy consistency and effectiveness.

Government will continue to implement sectoral and structural policy measures geared toward attaining short, medium and long term goal of improved economic growth, complementarily external sector competitiveness and poverty reduction.

However, special emphasis will be given to the following areas

(1) Agriculture (2) Health (3) Science and Technology

(4) Employment (5) Education (6) Information and Communication (ICT) (7) Transport

(8) Oil and Gas (9) Manufacturing (10) Solid Mineral

(11) Attracting Financial Resources for Development (12) Infrastructure.

Under infrastructure the government will make available resources for the refurbishment and improvement of the facilities and management of Nigeria Telecommunication Plc (NITEL) Mobile Telecommunications Plc (MTEL) and the National Electric Power Authority (NEPA).

Government will pursue the privatization and commercialization exercise will be accomplished within the life span of the administration. The privatization and commercialization of these parastatals is not an end it self but a way to achieve faster increase in service provided and greater efficiency. The governments will no longer permit monopolies in these sectors. It will create the enabling environment to attract massive private investment in order to meet projected additional requirements of a rapidly expanding economy, Nigeria Economic Policy (1999).

The Vice President of Nigeria, Alh. Abubakar Atiku who is also the chairman of TCPC gave reasons why the programme was reviewed to include: -

1. To ensure maximum transparency of it implementation.

2. To ensure Adequate Mobilization of Nigerians to participate in the programme and

3. To ensure that the price of enterprise are not bought by only few fortunate Nigerians.

The programme is to be carried in two phase. It means to wholly or partially privatized or completely commercialize government owned enterprises. This allow the programme to be implemented in a flexible manner to avoid pit falls. A minor restructuring of some of these enterprises is to be done before privatizing or commercializing them. Also the floating of financial/technical advisers and communication consultant have been opted for to facilitate and accelerate the implementation process.

From a paper presented by Toyo (1994) the enterprises later privatized in Nigeria were not taken from any private person.

They were created to be national property belonging wholly or partially to all Nigerians, because the private sector could not start them. When they are privatized. Those of them that are sold outright dare passed permanently into the hands of private predator’s. How many people will want to commit suicide to cure a sore? How many people want to sell their father’s house, just because it is leaking, to a carpenter so that they became labourers of the carpenter toiling to mend the house for the new owner? How many intelligent people will not seek a way having the house mended while they retain the ownership?

Another fact that must be known for a start is the state economic initiative in Nigeria was the intelligent response of Nigerian patriotic leaders to Nigeria’s economic and political situation. By contrast privatization drummed up: but was also imposed by imperialism we can all remember how long Nigerians leader and patriotic intellectuals resisted the so-called SAP of which privatization was an element. The resistance went until Ibrahim Babangida staged a coup detach to effect a capitulation. We can recall that the Monarch of imperialist, the president of United State of America offered to award Babangida a price for managing the Nigerian economy to the satisfaction of the USA, that is, in accordance with global Hegemonic interest of US capitalism. Privatization is one of the cardinal requirements of the IMF/World Bank imposed structure adjustment programme which takes its proper shape during the regime of Ibrahim Babangida. Since then Nigeria and Nigerians have been seriously adjusted the argument of Washington via their local agent, is that the dislocation of the Nigerian economy is as a result of too much government control. Hence, the Nigerian government was directed to deregulate. Kurfi (1992)

From this day news paper 17th 2002 an article titled “will deregulators learn from Enron?” by Komolafe .k. from the pronouncements of President Olusegun Obasanjo and Vice President Atiku Abubakar, Who is the chairman of the National Council on Privatization, the resolve top make the economy “private sector driven ” is unmistakable. What is however, sorely lacking in this strategy is that in the economic regime being envisaged from the Nigeria, regulatory mechanisms have to be strengthened if the economy would not be left at the mercy of “private greed” .

And this is why one wonders whether the zeal of our deregulation is in any way tempered by the of “corruption”, incompetence and fraud “that is ravaging the citadel of capitalism, the united State. Ironically it is not “even Ideologue “ of the left who are gloating over i.e. the denunciation has been more trenchant from those who believe that capitalism is the only path to development their fear how ever is that corporate greed is given their system a load name.

In our context, this should interest the El-Rufais of the World (Mallam Nasiru El-Rufai the former Director General of BPE). Infact, a discussion of this development should be encouraged and promoted by BPE and other enthusiast of privatization.

At least what is happening in the united state has shown that their model is not as fool-proof as they have vociferously advertised to us in the privatization campaign those who are more experienced in the game are now saying that the problem is not solved by just privatization without putting in place the ethical infrastructure of business, corporate America is proving glaringly that it not only the much derided public sector that suffer from the disease of incompetence, corruption and book-cooking instead of book-keeping. Just as public officer holder loot the treasury, corporate, executive also cheat the investor through sharp practical, corporate Whizkids declare false profit. They claim fat bonuses for “meritorious performance” at the eve of liquidation of their companies they mess up investors funds and employees pension it is all reminiscent of primitive accumulation so far, what is euphemistically called the financial scandal “by western press has swept through commercial America in a manner the that has stupefied many analyst”.

Before now, the discussion of corruption in Nigeria has been virtually limited to the public sector. And western power and their neo-liberal enforces in the international monetary fund (IMF) have always been quick in pushing the cases for rapid privatization on the premise that corruption and in efficiency are second nature to public officers. It does not matter to them that the same officers retire to the private sector to make huge profits from their business these advocate of privatization make so much fetish of the magic of competition in the private sector among other abilities ignoring the fact that greed often drive action of some executives.

It is not enough to sell off public companies and share the proceeds among tiers of government. The job of the BPE should not only be to promote private enterprises. The bureau should also take more seriously the development of regulation institutions that would ensure that laws are obeyed. In our circumstances, rules about audition and transparency should be well enforces it has been suggested for instance, that accountancy function should be separated from consultancy jobs and that appointment of auditors should be made more independent of those to be scrutinized for a government to allow investors to be fleeced by greedy corporate executives simply because some injunctions of market forces forbid government form intervening.

We can further learn from the experience of others. The conflict of interest of those in government but also have strong business interest should be address in Nigerian context. It may be timely for us to start putting in place some regulatory mechanisms as the train of deregulation inexorably moves on. This is simply because corporate corruption cannot be tackled by more sanctimonious appeal to the conscience of executives or exhortations about ethic of business. They way out is strict enforcement of the rule and punishment of these who break the laws.

REASONS FOR PRIVATIZATION AND COMMERCIALIZATION

It became necessary to privatized and commercialized government or public enterprises in Nigeria because their establishment and management were board on political consideration with little or no regard for the need for efficiency, effectiveness or economic/financial returns. The result is that majority of these enterprises accumulate huge losses there by requiring funding by government year in year out without commensurate results government can not continue with this situation as the meager resources available at her disposal can not longer meet up with all the demands for such resource.

The need to reduce the burden on government treasury by doing away with the investments she has in this public enterprises through privatization become necessary for the Nigerian government were a particular institution could not be privatized because of the social or strategic nature of its service. It will be commercialized or better method or a combination of methods will have to be used. In Nigeria, the need to reduce the drain of importable enterprises on public finances was the main reason for the privatization and commercialization of government enterprises as well as the need to utilized resources more efficiently.

Other popular reasons for the programme include: -

1. To Improve the Performance of Public Enterprises Through:

Increased efficiency by some economic management.
Responsiveness to consumers using quality and diversification of service and
Relief from public sector fund and access to private sector funding.
To Improve the Government Financial Position by:
Raising fund from the sale of the enterprises
Facing enterprises to meet commercial performance objectives.
To reduce the size of the public sector and the burden of public sector
To strengthen market forces and competition within the economy.
Promote self reliance and reduce dependence on the government
To promote wide share ownership among the public at large and among the employee of the privatized enterprises in particular.
To develop the domestic capital market.
To reduce the cost of good and service in the long run.
To improve the standard of living of Nigerian citizen.
To create more jobs.
To create more exportable s and earn foreign exchange.
To ensure that Nigerian economy, and enhance competition in the entire economy.
To re-invigorate the Nigeria economy, And enhance competition in the entire economy.

2.5 PROBLEMS OF PRIVATIZATION AND COMMERCIALIZATION IN NIGERIA

The first problem recorded with the programme was lack of relevant fundamental economic environment needed before taking off.The other major problem was the lack of sincerity of purpose on the part of the government that led to the rampant corruption that bedeviled the implementation of the programme.

Critical Implementation Issues
Sequential framework: First, BPE did not make enough trade offs that is consideration for interest of all stake holders. It favoured government in many aspects at the expense of labours, customers and the consumers. Before embarking on privatization there is need for liberalization of the sectors to be privatized. The gains and losses due to privatization depend on the process adopted and the framework of the programme. Chile a Latin America country turned to Import Substitution Industrialization (ISI) through it’s Corporation National de Fomento (CORFO) an agency designed to forment national development. The agency successfully became involved in electricity, steel, petroleum, sugar, forestry and even fishing products. Randall (2004) expressed that before privatizing the units the agency had to deregulate each unit sequently. Today Chile is one of the most successful countries in privatization achievement.
Sales of the enterprises:Lack of transparency was prevalent in the entire sales transaction. Apart from selling to government political stalwarts rather than capable private owners the selling prices were ridiculous. For example sale of NITEL to Transcorp at 750 million dollars is not business oriented. Out of the money, only 500 million dollars was paid leaving balance of 250 million dollars (Adebayo, 2007). Two years after sale Transcorp has not taking Network news sold to Transcorp Company. Network News of 14th January, 2008 reported that the new government has warned Transcop to respect the agreements of the transaction within six months or get the Nitel returned back to its former owner – the government.. Another example given was that of NICON which was sold for N8.3 bn while value of its landed property alone was put at N7.3 bn (Saulawa, 2003). Halla, (2007) wrote “Delta Steel mill, the most modern of its kind in Nigeria was sold to Global Steel at $30m, which was less than the $31m allegedly offered by BUA the preferred bidder by NCP on June 18, 2004. BPE had asked BUA to pay $25m and on 3rd August, 2004 through a United Bank cheque with receipt number 0118474, it paid N322m to BPE as part payment for the steel mill. However, the company was said to have been sold at a lesser price to Global Infrastructure Holding Nigeria Limited (GIHL) which did not participate in the bidding exercise. Halla, (2008) also reported in Daily Trust of 16th January, 2008 that the House of Representatives revoked the sale of Delta steel Company and directed the Federal government to handover the company to BUA International. EFCC was also instructed to investigate the sale made by BPE and the loan (GHIL) allegedly took from Nigeria Banks to buy the firm.
Lack of Government Assistance: First the government did not give enough awareness to the people. Again the government did not assist the populace (especially the low class) that were affected with the social costs of privatization to be part of the private ownership. The Chilean government was criticized on the first round of privatization because of the faulty redistribution of wealth. As a result in the second round of privatization it included stipulation that permitted the workers to draw advances against their future severance package to buy shares of the firms (Randalls, 2004)

Enforcing the Rules: Where there are rules or regulations, the regulatory body has not enforced the regulations. The National Commission on Communications (NCC) as an example is not enforcing the laid down rules hence the GSM operators provide shoddy services at the expense of the consumers. Nigeria consumers lose many millions of Naira daily on the GSM operators’ poor services tagged “Network Problem”.
Lack of Peoples Welfare: The welfare of the people was not looked into before and during privatization, hence the various strikes and people’s cry against privatization. The proceeds on sold enterprises was supposed to be used on cushioning the expected inflation trends on some important services like, transportation, communication, water etc. Argentina did this in her privatization programme and it worked.

The Social Costs of Privatization

Given the fact that initial impetus for privatization in Africa came from creditor institutions especially IMF and the World Bank, as part of the push for structure adjustment, many believed that there may be hidden agenda in the form of economic exploitation. It is principally the conditionality that was attached to privatization vis-à-vis debt relief and finance assistance that provoked resentment from the public especially labour, which views privatization as creditor’s initiative. As in some of the other African countries resentment is further intensified because a good number of the large enterprises are being purchased by the foreigners (Ullah, 2005).

Government withdrawal of subsidies on the products of privatized enterprises and secondly the private sector will always exploit consumers where there is no competition by raising the prices of goods for high profit.These products could not be obtained enough or at all by the poor in the society. This cut the welfare of the people, while the few rich that bought the firms become richer.

At the heart of the criticism of privatization is the perception that it is not fair, it hurts the poor and the vulnerable workforce, while benefiting the rich, the powerful, few privileged, thereby perpetrating poverty. (Igbuzor, 2003) claimed that about one million jobs were lost during the first phase of privatization.

Workers dismissed as a result of privatization has great difficulty finding work, the large number of people out of jobs are forced to accept jobs with lower pay, less security, fewer benefits. They, therefore, believe that the aims of privatization are to reduce labour numbers, and to break union power (Nwoye, 2003).

It is widely alleged that few rich top politicians purchased most of the sold public firms. The firms were sold at ridiculous prices. The private sector especially in service business depends almost exclusively on government patronage and manipulation of government policies for survival.

Obadan, (1998) argued on the issue of pension, gravity resettlement and so on. These are glossed – over in an economy where there is no Social Safety Nets (SSN) even in the so-called private sector Obadan, stressed that Nigerian private sector is one of the most inhumane, callous and exploitative to be found anywhere in the world. Many of the private sector employers neither provide insurance nor social security for their employees. They do not obey labour laws and they sack workers arbitrarily for good or bad reasons. Government is neither enforcing the laws nor evaluating effect of privatized enterprises policies on their employees. Workers in the country almost becoming economic slaves in their country

2.6 THE GAINS OF PRIVATIZATION AND COMMERCIALIZATION IN NIGERIA

Bureau of Public Enterprises tag Privatization as “a fast track into Economy”. In concluding his book on privatization (Odife, 1998) wrote, “I would like to state that I firmly believed that, with suitable checks and balances privatization can be achieved to the benefit of the entire nation. It has been done elsewhere, it is being done elsewhere, even now, it can be done here. Therein lies the challenge. Privatization affords us the opportunity to mobilize resources which are not profitably deployed thus, giving us a second chance to redeploy such sources profitably.

Finally, it enables us to put our eggs in various baskets so that we may jointly watch over them more closely. As government property they were nobody’s business but as our property they became everybody’s business”.

The first argument in favour of privatization according to the above assertion is that privatization will help restructure the Nigerian economy in reallocating public fund to efficient user create a self sustaining culture foreign investors, while goods and services will reflect real values.

It also means that privatization will help restructure the Nigerian economy reallocate public fund to efficient use, create a self sustaining culture, attracts foreign investors, while goods and services will reflect real values. Other arguments include a shift in emphasis from consumptionist to productionist objectivities, motivations of the work force, and instilling of work ethics and greater discipline.

It shows that economic efficiency will always be attained from privatization. Public enterprises are said to be inefficient because their services are offered at minimum cost, and operate without a profit motive and accountability. Privatization will therefore result in higher profit maximization.

Another gain is that of equity, that is the private market system will create a better distribution of private income and wealth. The more shares are purchased by strata of Nigeria the more income from privately created wealth will be spread.

Privatization also increase liberty and increase private initiatives in privatized industries thus enhancing competition. Competition leads to more supply of goods and better quality and this must result to low prices of goods.

The other argument borders on ideology. To its proponents, public provision interferences with the individual’s freedom to choose while the taxation necessary to fund public pro vision is also seen as coercive hence a support for the capitalist mode of production.

On the other gain of privatization in Nigeria is the revenue argument, that is that privatization will reduce the burden on the dwindling resources of the government (Anyanwu, 1993).

It is also argued that privatization will result in better rewarding system, organization and management – through incentives, communication, consultation, collective bargaining and creativity.

It will help reduce government regulation of the economy making room for greater deregulation and operation of market forces.

It is believed that effective privatization should be seen as a necessary step and precondition for rapid industrial growth and economic development process. It could be seen as an avenue for tapping the entrepreneurial skills and ability of the private sector for stimulating economic growth and wealth creation. As privatized firms grow it will stimulate employment which will lead to high GDP and extending higher perception (Odife, 1998).

2.7 CONCLUSION

The programme is not an end itself. It is not a panacea for the various difficulties by the public sector in many economics because a mere change in ownership or the introduction of private management will not automatically pave way to financial and economic efficiency.

So therefore, this question is asked with the speed the privatization is taking place does the government honesty think that Nigeria will get a better deal out of all these? One of these public enterprises is management.

But it is also true that the federal government appoint the management; in fact the government directly or indirectly influence the appointment of even Junior Cadre through “Royal Notes” so now to tell the Nigeria public that these public enterprises should be privatized because they don’t perform, it is also like telling the Nigerian people that the federal government should also be privatized, since as far as we Nigerians are concerned they are performing below expectation. The condition of the people of Nigeria of Nigerian speaks for it self Kurfi, Bu (1992)

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