Abstract
Despite an impressive level of privatization activity
across Africa and the upsurge in search of the operating performance of
privatized firms in both develop and developing economies, our empirical
knowledge of the privatization program in Africa is limited. The purpose of
this study is to appraise the post privatization cost and operating performance
as well as accountability of some privatized public enterprises in Nigeria. A
survey research design was adopted for the study, sixty five internal audit and
thirty five accounting. Totally one hundred was randomly sampled and stratified
among the staff of Oando plc Enugu state. Three research questions and
hypothesis tested at 0.05 percent level of significance guided the study.
Frequencies, percentages, mean and standard deviation were employed to answer
the research questions while Z-test statistics were used to test the
hypothesis. It was found that privatization of unipetrol has led to efficient
and improved cost performance, and
proper accountability to share holders. We conclude and recommend among others
that effective cost performance and proper accountability to share holders is
very necessary in privatized public enterprises and that government should
prive the entire necessary enabling environment for the privatized company to
carry out their activities without unnecessarily increasing their cost.
CHAPTER
ONE
INTRODUCTION
1.1 Background of the
Study
Privatization of state-owned enterprises has become an
important phenomenon in both developed and developing countries. Over the last
decade, state-owned enterprises (SOEs) have been privatized at an increasing
rate, particularly in developing countries (DCs). Privatization has become an
important phenomenon in both developed
and developing countries. Over the past decade, privatization attempts have
been occurring at an increasing rate, especially in developing countries. The
compound annual average growth rate was around 10% between 1990 and
2000, with global privatization revenues jumping from
$25 billion in 1990 to $200 billion in 2000. The number of countries that have
implemented privatization policies has exceeded 110, not to mention that
privatization has touched almost every aspect of economic activity (Shadeh,
2002).
Privatization of state-owned enterprises (SOEs) has
become a key component ofthe structural reform process and
globalization strategy in many economies.Several
developing and transition economies have embarked on extensiveprivatization
programmes in the last one and a half decades or so, as a means of fosteringeconomic
growth, attaining macroeconomic stability, and reducing public
sectorborrowing requirements arising from
corruption, subsidies and subventions tounprofitable
SOEs. By the end of 1996, all but five countries in Africa had divestedsome
public enterprises within the framework of
macroeconomic reform andliberalization (White and Bhatia, 1998).In
line with the trend worldwide, the spate of empirical works on privatization
hasalso increased, albeit with a microeconomic
orientation that emphasizes efficiency gains
(La Porta and López-de-Silanes, (1997);
Boubakri andCosset, (2001); Dewenter and Malatesta,
(2001) D’Souza and Megginson, (2007). Yet, despite the upsurge in research, ourempirical
knowledge of the privatization programme in Africa is limited. Aside fromtheoretical
predictions, not much is known about the process and outcome of
privatizationexercises
in Africa in spite of the impressive level of activism in its implementation.
Current
research is yet to provide useful insights into the peculiar circumstances ofAfrica,
such as the presence of embryonic financial markets and weak regulatoryinstitutionefforts.
Most objective observers agree, however, that the high expectations of the
1980sabout the “magical power” of
privatization bailing Africa out of its quagmire remainunrealized
(Adam et al., (1992); World Bank,(1995);
Ariyo and Jerome, (1999); Jerome, (2005).
As
in most developing countries, Nigeria until recently witnessed the growinginvolvement
of the state in economic activities. The expansion of SOEs into diverseeconomic
activities was viewed as an important strategy for fostering rapid economicgrowth
and development. This view was reinforced by massive foreign exchange earningsfrom
crude oil, which fuelled unbridled Federal Government of Nigeria (FGN)
investmentin public
enterprises. Unfortunately, most of the enterprises were poorly conceived andeconomically
inefficient. They accumulated huge financial losses and absorbed adisproportionate
share of domestic credit. By l985, they had become an unsustainableburden
on the budget.With the adoption of the structural
adjustment programme (SAP) in 1986, privatizationof
public enterprises came to the forefront as a major
component of Nigeria’s economicreform process at the behest of the
World Bank and other international organizations.
Consequently,
a Technical Committee on Privatization and Commercialization (TCPC)was
set up in 1988 to oversee the programme. In the course of its operations, the
TCPC privatized 55 enterprises.Sufficient
time has elapsed since the start of reforms to allow an initial assessment ofthe
extent to which privatization has realized its intended economic and financial
benefits,especially with the commencement of the
second phase of the programme. This isparticularly
important in view of the lessons of experience revealing interesting featuresthat
may alter earlier notions as to the most appropriate way to implement
privatizationprogrammes
(Nellis, 1999). Concerns about
globalization, in sometransition economies (notably the former
Soviet Union and Czech Republic) anddisappointment
with infrastructure privatization in developing countries are spawningnew
critiques of privatization (Shirley and Walsh, 2000). Among the pertinent
issues tobe addressed are: What is the extent and
pattern of cost performance and accountability of privatized firm? What have
been theresults of these performance? Has
privatization improved the cost and accountability of firm?
Finally, what policy lessons are to be learned from the privatization
experienceso far? These are the issues that come
into focus in the study.
1.2 Statement of Problem
The issue of cost performance and
accountability of privatized public enterprise have been a serious subject of
the debate and different interest group that is the “stakeholders”. The post
privatization effect this enterprise have been the subject of public scrutiny
and criticism by the public and others alike. Majority are of the view that
their performance is not different from the way it was when they were under
public enterprise.
In response to this in recent national
assembly committee, that was set up to look into this enterprise partially
supported public concern on their performance.
It is against these background that this research is carried out to
determine or find out if these view are true as the research is intended to
look at this research is intended to look at this privatized firms cost
performance and accountability.
Public enterprise before their recent
privatization where perceived to be bedeviled by numerous challenges ranging
from political interference, inefficiency in the management of resources,
conflict of objectives, overdependence on subvention for survival etc. these
over the years have been the main source of criticism of public enterprises and
the reason why they are poorly managed . is this issue the same after the
privatization o these enterprises? This study is intended to establish it.
1.3Research
question:
Based on the problem statement and the
objective of the study stated above the study will answer the following
questions;
i)
Has privatization
improved the cost
performance and
accountability of this firm as anticipated?
ii)
To what extent are privatized firms
accountable to shareholders and other relevant stake holders? iii)To
what level has there been effective checks and balances in privatized
enterprises in Nigeria.
1.4 Objectives of
the Study.
The
overriding objective of this study is to evaluate the second wave of the
Nigerianprivatization programme spanning
2008-2012. The specific objectives are as follows:
(i)
To examine whether privatization has
improved the cost
performance and accountability of privatized
firm.
(ii)
To assess the extent to which privatized
firms are accountable to shareholders and other relevant stakeholders.
(iii)
To determine if there are effective
checks and balances in privatized enterprises in Nigeria.
1.5 Statement of Hypothesis
Ho:
Privatization has not led to efficient and improved cost Performance.
Hi: Privatization has led to efficient
and improved cost
Performance.
Ho: There have been no effective
accountability to share holders and other
relevant stake holders.
HI: There have been effective
accountability to shareholders and other relevant stakeholders.
Ho: privatization
has not led to effective checks and balances in privatized enterprises in
Nigeria.
Hi: privatization
has led to effective checks and balances in privatized enterprises in Nigeria.
1.6 Significance of the study
Giving
the substantialnumber of enterprises that are yet to be
privatized, the study would
provide insights intothe desirability, feasibility and
sustainability of future reforms. It is envisaged that thepolicy
recommendations from the study would assist the National Council on
Privatizationin correcting the pitfalls embedded in
the previous endeavor.
The study will assist students and
fellow researchers generate information on cost performance and accountability
of firm particularly if it is relevant to their studies.
In the overall,
it is envisaged that the outcome of the study will assist international,multilateral
and donor agencies to identify the felt needs, thereby facilitating the designof
demand-driven policies and programmes to ensure the success of privatization inNigeria
in particular and sub-
Saharan Africa in general.
1.7 Scope of the study
The scope of the study has been narrowed
in order to look at the impact of cost performance and accountability in the
petroleum industry, particularly in UNIPETROL (now called OANDO plc after
privatization). The study will cover a period of five(5) years ranging from
(2008-2012).
1.8 Limitation of study
Like many other research study, this
research is confronted with the following limitations:
1. Finance
– The cost of running any research project is quite expensive. It ranges from
producing questionnaires to be distributed to respondents, the cost of
transporting to the areas where information concerning the project is to be
obtained etc, and this research is not an exception.
2. Time-
The time required to complete a research project is often limited judging from
the information required to complete a comprehensive research work. This
research is also affected by time.
3. Problem
of confidentiality- The challenge of getting respondents to fill the necessary
research questionnaires is tasking despite the confidence giving to keep all
information obtained from them in utmost confidence.
1.9
Definition of key Terms.
A. Accountability: It
is rendering stewardship. It is also the act of being
able to
Shoulder responsibilities and carry
the correlative burden of performance.
In other words it means
answerability, blameworthiness, liability and the
Expectation of account-giving.
B. Asset sale: is the transfer of ownership of
government assets, commercial-type enterprises, or functions to the private
sector. In general, the government has no role in the financial support,
management, or oversight of a sold asset. However, if the asset is sold to a
company in an industry with monopolistic characteristics, the government may
regulate certain aspects of the business, such as
utility rates.
C. Competition: occurs when two or more parties
independently attempt to secure the business of a customer by offering the most
favorable terms or highest quality service or product. Competition in relation
to government activities is usually categorized in three ways: (1) public
versus private, in which private-sector to conduct public business; (2) public
versus public, in which public-sector organizations compete among themselves to
conduct public-sector business; and (3) private versus private, in which
private-sector organizations compete among themselves to conduct public-sector
business.
D. Cost: this is the sacrifice rendered for
benefit derived. It is seen in terms of opportunity cost that is the one
associated with alternative forgone.
E. Divestiture: involves the sale of
government-owned assets. After divestiture, the government generally has no
role in the financial support, management, regulation, or oversight of the
divested
activity
F. Privatization:
privatization impliespermanent transfer of control, as a consequence
of transfer of ownership of right, from the public
to the private sector. This definition is perhaps the most common usage of theterm.
G. Public enterprise:
any corporation or parastatal established by or any enactment in which the
government of the federation or it agencies has ownership or equity interest.
H. Public sector:
that portion of an economy whose activities (economic or non economic) are
under the control and direction of the state.