PROBLEM AND PROSPECT OF PRIVATIZATION IN NIGERIAN ECONOMY

PROBLEM AND PROSPECT OF PRIVATIZATION IN NIGERIAN ECONOMY

THE NATURE OF PRIVATIZATION IN NIGERIA

Privatization involves the divestiture of public enterprises presented within the structure of macroeconomic reform. Privatization entails transferring the ownership and control of  share from public to private sector. Privatisation involves the sale of state owned assets to the private sector which can be achieved through listing of the new private company on the stock market.

The basis of privatisation in Nigeria was the fact that public enterprises experienced gross mismanagement which consequently resulted to inefficiency in the application of capital, gross corruption and favoritism, which also affected government efficiency (World Bank, 1991).

Therefore the  objectives of privatization was to  promote economic efficiency; raise revenue for the state; lessen government influence on public enterprise in the economy; encourage wider share ownership; foster competition; enhance market discipline; and promote the  national capital markets.

In July 1988 the Federal Government promulgated the Privatization and commercialization Decree (now Act) No. 25 (CPD) which outlined  the fundamental objectives of the commercialization and privatization policy in Nigeria to include : To restructure the Public Enterprises for Improved performancet;viability, efficiency; discard unproductive investments in the PE sector; regulate the  dependence of the Public Enterprises on government for funding; and sale out Public Enterprises which provide goods and services that the private sector can comparatively provide better.

Nigeria’s public enterprises reform consisted of partial commercialization, full commercialization, partial privatization and full privatization. Full commercialization shall convert the public enterprises to be managed as a fully commercialized enterprise for profit making. Such enterprise shall not receive government subventions and could raise funds through the capital market, but will still remain 100% government owned.

Partial commercialization firm shall be managed to   cover at least its operating costs from its own sources. But could receive capital grants but on a justified basis. Full privatization is the divestiture of all government equity interests. But partial privatization involves           the government selling only a proportion of its equity share. As a result The Technical Committee on Privatization and Commercialization (TCPC) was established and charged with the responsibility of implementing the programme.

The implementation of the program has improved government revenue. Also, divestiture has lessened government outlays on the PE sector, and provided funds for developmental projects. It has also deepened the capital market operations. Volume of stocks on the Stock Exchange traded in 1998 rose from 2.1 million to 4.997 million in 2000 and by 2002 rose to 6.614 million.

PROBLEM

1Natural monopoly
Privatisation can lead to private monopoly in situation where there is no competition which will result to a natural monopoly. This can lead to consumer exploitation through excessive price increase.

2. Public interest

Privatisation also leads to loss of public interest in the provision of basic essential services such as water, health care, education. For example hospitals could be managed on the basis of profit rather than the interest of the public.

 

3. Government loses out on potential dividends.

Privatising means that the government loses out on dividends, instead such dividends goes to wealthy shareholders.

4. Problem of regulating private monopolies.

Privatising means provision must be made to regulates the activities of private investors. This as a result leads to increase in government expenditures

5. Fragmentation of industries

Privatisation leads to multiplication of industries due to huge infrastructural outlays .many other firms’ springs up to cater for different aspect of a particular service.

6. Focus on the Short term

Many private firms focus more on the short-term of profit maximisation rather than on the long term of making sacrifice through services for future profit.

 

PROSPECT

 

1. Improved efficiency

Privatisation leads to improved efficiency of the operations of the firm as result of the profit motive Objective of the private firm. They focus on cost minimisation, effective use of resources and profit maximisation.

 

2. Lack of political interference

Privatisation of firms gives the investors control over the management of the firm and therefore lessened government and political interference in decision making and the operation of the firm..

 

 

3. Short Term view

Privatisation leads to the long-term development of the firm as many politicians may be only interested in the short-term affairs of the firms to promote their political ambition.

 

4. Shareholders

The shareholders constitute a major source of motivation as they exact great influence on the management of the firm for effective management and profit making.

5. Increased competition

Deregulation of the private sector industries leads to active competition and greater efficiency .They focus on cost minimisation, efficient operation and profit maximisation

 

6. Government will raise revenue from the sale

Privatisation leads to increase in government revenue as a result of the sale of assets and transfers of Equity shares