THE IMPACTS OF PRIVATIZATION OF THE PRODUCTIVITY OF FORMERLY OWNED STATE FIRMS/BUSINESSES
Despite an impressive level of privatization activity across Africa and an increase in research on the operating performance of privatized firms in both developed and developing economies, our empirical understanding of Africa’s privatization program is limited.
This study evaluates the post-privatization performance of some Nigerian privatized enterprises. Profitability, productive efficiency, employment, capital investment, and output are the specific indicators examined. The study compares the average value of any given performance indicator some years before and some years after privatization to determine the change.
Pearson’s rank correlation was used to evaluate the relationship and level of technical efficiency in the chosen enterprises. These indicators have increased significantly as a result of the findings. Privatization is also linked to an increase in technical efficiency in the affected firms. The primary benefit of privatization in Nigeria has unquestionably been the reduction of politically motivated resource allocation.
1.1 THE STUDY’S BACKGROUND
Public enterprises were established to help Nigeria’s socioeconomic development, particularly after the country’s independence in 1960. The primary concern in this regard had been to speed up development and economic self-sufficiency through “economic nationalism.”
Thus, public enterprises are one of the tools through which the government intervenes in economic development rather than allowing market forces to dictate the pace of development.
According to Ayodele (2004), up until the mid-1980s, Nigeria relied heavily on public enterprises for the development, management, and allocation of utilities and social services. They were viewed as important instruments not only for mobilizing and allocating public investment resources, creating jobs, and redistributing income, but also for determining government finances and accelerating overall economic development.
Adeyemo (2005) observed, in his reflections on Turkey, Mexico, India, and Nigeria, that the establishment of public enterprises was based on what he perceived to be barriers to economic development in post-independence states. It is also worth noting that in Nigeria, as in many other developing countries, public enterprises are used as last-resort employers.
According to Hemming and Mansor (1988), state-owned enterprises enable governments to pursue social equity goals that the market would otherwise overlook. Similarly, Ugorji (1995) observed that public enterprises were set up for political reasons.
Many government projects were used to employ constituents, political allies, and friends. The location of public enterprises and the distribution of government employment have also been defended on the basis of the need to preserve the federal character of the country and promote national integration.
The indigenization policy of 1972, as enacted by the Nigerian Enterprises Promotion Decree, was another factor that accelerated the growth of Nigeria’s public sector. It was created with the intention of commanding the economic apex.
Furthermore, the policy provided a much-needed legal foundation for extensive government participation in the ownership and control of significant sectors of the economy. According to Adeyemo (2005), despite the impetus given to them, Nigerian public enterprises have received harsh criticism. Many Nigerians became disillusioned as a result of their enormous problems.
These criticisms range from a lack of productivity/profitability to an over-reliance on government subsidies. According to Ogundipe (1986), government capital investments in public enterprises totaled approximately 23 billion Naira between 1975 and 1985.
In addition to equity investments, the government provided N11.5 billion in subsidies to various government enterprises. All of these expenditures contributed significantly to the increase in government spending and deficits.
In general, despite receiving a sizable proportion of public budgetary investible funds, public expectations from these enterprises were largely unmet. Furthermore, public enterprises suffered from gross mismanagement, which resulted in inefficiency in the use of productive capital, corruption, and nepotism, all of which weakened the government’s ability to carry out its functions efficiently. (1991, World Bank).
However, due to the financial consequences of the global economic crisis on the Nigerian economy, the public-sector-led development strategy has proven unsustainable. This, in turn, prompted radical economic adjustments and reforms, one of which is the emphasis in Nigeria on less government involvement in production, management, and resource allocation.
According to Nwoye (2010), the Privatization and Commercialization Act of 1988 formally introduced privatization in Nigeria, which later established 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 passed the Bureau for Public Enterprises Act of 1993, which repealed the 1988 Act and established the Bureau for Public Enterprises (BPE) to carry out Nigeria’s privatization program. The Federal Government enacted the Public Enterprise (Privatization and Commercialization) Act in 1999, which established the Vice President-chaired National Council on Privatization (NCP).
1.2 STATEMENT OF PROBLEMS
The concept of privatization presents its own set of difficulties. In this context, it is appropriate to investigate the goals of privatization. According to Guislain, defining privatization objectives is a critical step that should be taken as soon as possible.
Many privatization programs have failed because clear objectives were lacking or conflicting objectives were pursued at the same time. However, defining objectives is a difficult task made more difficult by the multiplicity of possible objectives and actors with diverse, often conflicting interests.
According to Adesanmi (2011), the government established the Bureau of Public Enterprise (BPE) to privatize and commercialize public enterprises, as appropriate, with the goal of reducing or eliminating the drain on the public treasury.
It also aims to reduce corruption, modernize technology, strengthen domestic capital markets, promote efficiency and better management, reduce debt and fiscal deficit, solve massive pension funding problems, and broaden the base of business ownership.
Others include generating treasury funds, promoting governance, attracting foreign involvement, and attracting back flight capital. The question of whether the BPE met and realized these goals is debatable. This paper attempted to evaluate the operation of Nigeria’s privatization scheme and determine its level of performance/productivity. It also provided objective solutions for closing gaps.
Microeconomic theory predicts that inefficiencies caused by public ownership are caused by incentive and contracting issues, because 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 so are the budget constraints they face. Empirical evidence shows that this theoretical implication is robustly supported in a number of countries. How true is this in terms of Africa?
The study will also assess the nature of the contracts between these firms and the government prior to and after the reform period, demonstrating how the contracts address three interrelated problems: information asymmetry, incentives, and commitment.
1.3 THE STUDY’S OBJECTIVES
a) To comprehend the scope and pattern of privatization
b) To ascertain the outcomes of privatization in Nigeria.
c) Determine whether privatization has improved enterprise performance as expected.
d) Outline policy lessons that can be drawn from the privatization process.
1.4 QUESTIONS FOR RESEARCH
The following research questions will be considered in order to gain a thorough understanding of this study:
a) How extensive and widespread is privatization in Nigeria?
b) What has been the long-term impact of privatization in Nigeria?
c) Has privatization improved enterprise performance as anticipated?
d) What are the policy lessons that the privatization program can teach us?
1.5 HYPOTHESIS OF RESEARCH (S)
H1: There is a link between privatization and the productivity of formerly state-owned enterprises.
H0: There is no link between privatization and productivity in previously state-owned firms.
H2: There is a link between government management of companies and their performance.
H0: There is no relationship between government management of businesses and their performance.
1.6 SOURCES OF DATA AND SCOPE OF WORK
We will be looking closely at formerly public enterprises that have been transferred to private individuals or corporations for this study. The study will solicit feedback from former employees as well as the general public in order to assess the firms’ performance both now and in the past.
Previous research has shown that the return on shares, equity, and assets approach is the best way to understand the impact of privatization. This method will also be considered, but the perception and profitability of these new organizations will be more important.
The study will also look at the reduction in government spending on businesses and how these funds have been redirected to provide basic services to the public. As a starting point for scoping, we will investigate organizations such as NITEL and PHCN, among others.
1.7 Research Methodology
A quantitative, survey-based methodology will be used to collect data for this thesis. This method is useful when investigating causal relationships between underlying theoretical constructs. Self-administered questionnaires, as well as interviews, are regarded as the most appropriate tools.
Most importantly, this method is quick, cheap, and efficient, and it can be applied to a large sample size (McCelland, 1994; Churchill, 1995, Sekaran, 2000; Zikmund, 2003). A pre-test will be administered to ensure that the questions are clearly understood and that there are no ambiguities among them.
Two statistical methods will be used to analyze, interpret, and test data related to the study in this study where relationships are being established. The sample percentage (SP) will be arranged in tables to analyze respondent bio-data, and the study’s hypothesis will be tested using Pearson’s Coefficient of Correlation. The data analysis and hypothesis testing will be based on the responses obtained from the interviews and questionnaires administered.
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