CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY
Public enterprises were established, to enhance Nigeria’s socio economic development, especially after independence in 1960. The major concern in this regard had been to accelerate development and economic self-reliance through ‘’economic nationalism.’’ Public enterprises thus reflect one of those instruments by which government intervenes in economic development rather than allow market forces to dictate the pace of development. According to Ayodele (2004), Nigeria relied heavily upon public enterprises, up to the mid-1980s, for the development, management and allocation of utilities and social services. They were seen as major instruments not only for the mobilization and allocation of public investment resources, employment generation and income redistribution, but also for determining government finances and the acceleration of overall economic development.
Adeyemo (2005), reflecting on Turkey, Mexico, India and Nigeria, noted that the establishment of public enterprises was premised on what he considered as obstacles to economic development in the post-independence states. It is also instructive to note that in Nigeria like many developing countries, public enterprises are used as employers of last resort. According to Hemming and Mansor (1988), state owned enterprises enable governments to pursue goals of social equity that the market ordinarily ignores. Similarly, Ugorji (1995) observed that public enterprises had been established for political reasons. Many government undertakings were used to provide jobs for constituents, political allies, and friends. The location of public enterprises and the distribution of government employment have further been defended on the need to maintain .federal character and promote national integration.
Other factors that accelerated the growth of Nigeria’s public sector were the indigenization policy of 1972 as enacted by the Nigerian Enterprises Promotion Decree. It was designed to control the commanding heights of the economy. The policy further provided the much needed legal basis for extensive government participation in the ownership and control of significant sectors of the economy. According to Adeyemo (2005), Nigerian public enterprises have come under gross criticism in spite of the impetus given to them. Their problems were so enormous that many Nigerians became greatly disillusioned. These criticisms vary from the lack of productivity/profitability to reliance on large government subsidies. Ogundipe (1986) once argued that between 1975 and 1985, government capital investments in public enterprises totalled about 23billion Naira. In addition to equity investments, government gave subsidies of N11.5 billion to various government enterprises. All these expenditures contributed in no small measure to increase government expenditures and deficits.
Generally, public expectations from these enterprises were largely unmet, despite the sizable proportion of public budgetary investible funds which were being allocated to them. In addition, public enterprises suffered from gross mismanagement and consequently resulted to inefficiency in the use of productive capital, corruption and nepotism, which in turn weakened the ability of government to carry out its functions efficiently. (World Bank 1991). However, given the financial impacts of the global economic crisis on the Nigerian economy, the public sector- led development strategy became unsustainable. This in turn propelled radical economic adjustments and reforms, one of which is the emphasis on less of government in the production, management and the allocation of resources in Nigeria. Consequently, Nwoye (2010) stated that Privatization in Nigeria was formally introduced by the Privatization and Commercialization Act of 1988, which later set up the Technical Committee on Privatization and Commercialization (TCPC), chaired by Dr. Hamza Zayyad, with a mandate to privatize 111 public enterprises and commercialize 34 others. The Federal Military Government promulgated the Bureau for Public Enterprises Act of 1993, which repealed the 1988 Act and set up the Bureau for Public Enterprises (BPE) to implement the privatization program in Nigeria. In 1999, the Federal Government enacted the Public Enterprise (Privatization and Commercialization) Act, which created the National Council on Privatization (NCP) chaired by the Vice President.
1.2 STATEMENT OF PROBLEMS
The concept of privatization poses its own challenges. In this context, it is apposite to examine the objectives of privatization. In the words of Guislain, defining privatization objectives is an important exercise that should be undertaken as early as possible. Many privatization programs have foundered when clear objectives were lacking or where conflicting objectives were simultaneously pursued. The definition of objectives is not an easy task, however, and it is made no easier by the multiplicity of possible objectives and actors with different, often conflicting interests.
According to Adesanmi (2011), the government, set up the Bureau of Public Enterprise (BPE) to privatise and commercialise, as the case may be, public enterprises with the objective of reducing or eliminate the drain on public treasury. It also seek to reducing corruption, modernise technology, strengthen domestic capital markets, promote efficiency and better management, reduce debt burden and fiscal deficit, resolve massive pension funding problems, broaden the base of ownership of business. Others include generating funds for the treasury, promoting governance, attracting foreign involvement and attract back flight capital. Whether the BPE has met and realised these objectives is a matter that is open for debate. This paper attempted to assess the operation of the privatization scheme in Nigeria, determined its level of performance/productivity. It also proffered objective solutions for the amelioration of gaps.
Microeconomic theory predicts that incentive and contracting problems create inefficiencies stemming from public ownership, given that managers of state-owned enterprises pursue objectives that differ from those of private firms and face less monitoring. Not only are the managers’ objectives distorted, but the budget constraints they face are also softened. Empirical evidence shows a robust corroboration of this theoretical implication in several countries. How true is this for Africa? The study will also appraise the nature of the contracts between these firms and government in the pre and post-reform period and show how the contracts address three interrelated problems: information asymmetry, incentives and commitment.