CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
All over the world the public service as a matter of experience has been know for it’s capacity to create wealth. Consequently, public enterprises have usually been perceived as drain pipes for government budget. Thus creating budgetary strains and avoidable burden on economy. It become a national policy, imperative therefore to disengage the public sector from those area where the private sector has the comparative advantage to perform, while letting the state concern. Security and the enabling environment for business to thrive though enhanced wealth creation.
It is important to observe that for many developing countries like Nigeria, it was perhaps unavoidable for the government in an earlier epoch to promote the initial investments in the early phase of national development of the private sector.
Unfortunately, the government got herself so involved in business that could best be tackled by the private sector that government could no longer perform it’s traditional functions.
Meanwhile, government involvement in national development and wealth creation resulted in the creation and establishment of about 600 federally owned public enterprises (Anya 2001) (over the year till date) which to day have taken generally assessed as inefficient, corrupt unproductive and wasteful. These factors along with that impairing on government efficiency in performance of it’s traditional functions provoked several movements in national consciousness as to the imperative of privatization and commercialization.
Privatization, which in a narrow perspective entails the sale of public assets or enterprises to the private sector, is seen as an instrument for productive and allocative efficiency and higher economic growth. It also has the objective of pubic deficit reduction and improvement of public finance, encouragement of competition and wide private sector participation in economic development, development of local capital markets, etc. it’s ultimate objective is to liberalize the economies through increasing private sector involvement and capacity utilization.
In March 1988, the then Head of State, Ibrahim Babangida, promulgated a decree establishing the Technical Committee on Privatization and Commercialization (TCPC). The Committee, formerly inaugurated in July 1988 was to undertake the task of reforming the public enterprises scheduled for privatization, this move was an integral and critical component of the Structural Adjustment Programme (SAP) which started in 1986. The Committee, later replaced by the Bureau for Public Enterprises has been at this task since then though a different phase. In order to ensure transparency, credibility and the widespread ownership of the shares of privatized enterprises, the popular trend mostly among developing countries has been to divest through the capital market.
Privatization and Commercialization has provided opportunities for individuals and organizations both within and outside Nigeria to buy and sell of securities. This significant development has posed challenges and provided opportunities for the growth of the securities market in Nigeria and for greater public participation in the market. At end of the first phase of the exercise, it was stated that “it had crated a large body of shareholders and deepened and broadened the Nigerian Capital Market to position of being the most developed in black Africa” (Anya 2001). It has stimulated investment and improved capital market awareness both at local and international fronts.
This research work undertakes a critical review and examination of the impart of privatization on the capital market, considering the degree of innovation and awareness engendered into the capital market by the privatization policy in relation to the Nigerian Stock Exchange.