CONCEPTUAL
FRAMEWORK
The
Concept of Privatization and Commercialization
Nwabuzor (1992:39) given a dearth
of capital and indigenous entrepreneurial capability and a distrust of foreign
capital most countries choose the path of stated industrialization building on
the colonial heritage, virtually every aspect of the economy was subject to
varying levels of state intervention. Government administered price controls
and increasingly regulated and intervened in labour markets,
mining agriculture, manufacturing and financial markets.
Onuoha (1999:101) states that
government ownership of business represents the ultimate in regulation of private
business. In Nigeria, government participation in business dates back to the
colonial days when those business were considered as vehicles for the
“maintenance of minimum civilized standards as well as facilitating the
maintenance of law and order in the territories.
On the other hand, the
performance of public enterprise is not encouraging, Nwabuzor
(1990:15) has this to say about public enterprise, the one point in which
virtually all Nigerians will agree is that state-owned enterprises over the
years have performed frustratingly poor.
It is necessary to attempt
a clear definition of the concept, “privatization” and “commercialization’
before we can go further. Public enterprises are business organizations
established to provide certain services and carry out specific activities. They
are state participation in production activities, which includes public owned
enterprises controlled by the federal government or state-owned enterprises. In
Nigeria, they are defined to comprise all organizations run by employees of any
of the government or in the equity holdings.
Commercialization
Commercialization can be defined as a
substitute policy meant to imply the adoption by public enterprises of strict
commercial objectives in all aspects of their operation including investment,
recruitment, board appointment, pricing, setting new projects.
Under the Decree No. 25 of 1988 on privatization and
commercialization, commercialization was defined as ‘the re-organization of
enterprises wholly or partly owned by the federal government such that these
enterprises operate as profit-making (commercial) ventures and without
subventions from the federal government.
Commercialization can be full or partial.
Commercialized enterprises have powers to:
a. Fix rates, prices, and
charge for goods and services rendered.
b. Capitalize assets
c. Barrow money and issue
debenture stock
d. Sue and be sued in their
corporate names
Privatization
Dike (2002:12) defined
privatization as the transfer of state-owned enterprises to the private sector.
He went further to say that in commercialization, only privatization of
management contracts, leases and concession may be involved. Under the Decree No. 25 of 1988, defined, privatization as the relinquishment
of all or parts of the equity and other interests held by the government or its
agents in the enterprise.
Privatization has served
the strategic role of transforming state controlled economies and hence,
changing the role of the state in economic development.
Privatization is the process of
transferring an enterprise or industry from the public sector to the private sector.
Privatization is the process of transferring an
enterprise or industry from the public sector to the private sector. The public
sector is the part of the economic system that is run by government agencies.
... The term has alternate meanings within business and finances.
The public sector is the part of the economic
system that is run by government agencies. Privatization may involve
either sale of government-held assets or removal of restrictions preventing
private individuals and businesses from participating in a given
industry.
Privatization is an ongoing trend in many
parts of the developed and developing world. Proponents of privatization
maintain that the competition in the private sector fosters more efficient
practices, which eventually yield better service and products, lower prices and
less corruption. On the other hand, critics of privatization argue that some
services -- such as health care, utilities, education and law enforcement --
should be in the public sector to enable greater control and ensure more
equitable access.
The term has alternate meanings within
business and finances. For example, if an individual or
organization purchases all the stock in a publicly-traded company, that
effectively makes it private, so that process is sometimes described as
privatization. However, in contrast to the primary understanding of
privatization, the company in question is in the private sector to begin with
and remains there.
In short Privatization can be defined as the act of transferring ownership of specified
property or business operations from a government organization to a privately owned entity, as well as the transition of ownership from a
publicly traded, or owned, company to a privately owned company. For a company
to be considered privately owned, it cannot secure funding through public trades on
a stock exchange.
Potential benefits of privatization
·
Improved efficiency.
·
Lack of political interference.
·
Short Term view.
·
Shareholders.
·
Increased competition.
·
Government will raise revenue from the sale.
·
Natural monopoly. A natural monopoly occurs
when the most efficient number of firms in an industry is one.
·
Public interest.
1. Improved efficiency
The main argument for privatisation
is that private companies have a profit incentive to cut costs and be more
efficient. If you work for a government run industry, managers do not usually share
in any profits. However, a private firm is interested in making profit and so
it is more likely to cut costs and be efficient. Since privatisation,
companies such as BT, and British Airways have shown
degrees of improved efficiency and higher profitability.
2. Lack of political
interference
It is argued governments make poor economic
managers. They are motivated by political pressures rather than sound economic
and business sense. For example a state enterprise may employ surplus workers
which are inefficient. The government may be reluctant to get rid of the
workers because of the negative publicity involved in job losses. Therefore,
state owned enterprises often employ too many workers increasing inefficiency.
3. Short Term view
A government many think only in terms of the
next election. Therefore, they may be unwilling to invest in infrastructure
improvements which will benefit the firm in the long term because they are more
concerned about projects that give a benefit before the election.
4. Shareholders
It is argued that a private firm has pressure
from shareholders to perform efficiently. If the firm is inefficient then the
firm could be subject to a takeover. A state owned firm doesn’t have this
pressure and so it is easier for them to be inefficient.
5. Increased competition
Often privatisation
of state owned monopolies occurs alongside deregulation – i.e. policies to
allow more firms to enter the industry and increase the competitiveness of the
market. It is this increase in competition that can be the greatest spur to
improvements in efficiency. For example, there is now more competition in
telecoms and distribution of gas and electricity.
However, privatisation
doesn’t necessarily increase competition, it depends
on the nature of the market. E.g. there is no competition in tap water because
it is a natural monopoly. There is
also very little competition within the rail industry.
6. Government will raise
revenue from the sale
Selling state owned assets to the private
sector raised significant sums for the UK government in the 1980s. However,
this is a one off benefit. It also means we lose out on future dividends from
the profits of public companies.
Disadvantages of privatisation
1. Natural monopoly
A natural monopoly occurs when the most
efficient number of firms in an industry is one. For example tap water has very
significant a fixed cost, therefore there is no scope for having competition
amongst several firms. Therefore, in this case, privatisation
would just create a private monopoly which might seek to set higher prices
which exploit consumers. Therefore it is better to have a public monopoly
rather than a private monopoly which can exploit the consumer.
2. Public interest
There are many industries which perform an
important public service, e.g health care, education
and public transport. In these industries, the profit motive shouldn’t be the
primary objective of firms and the industry. For example, in the case of health
care, it is feared privatising health care would mean
a greater priority is given to profit rather than patient care. Also, in an
industry like health care, arguably we don’t need a profit motive to improve
standards. When doctors treat patients they are unlikely to try harder if they
get a bonus.
3. Government loses out on
potential dividends.
Many of the privatised
companies in the UK are quite profitable. This means the government misses out
on their dividends, instead going to wealthy shareholders.
4. Problem of regulating
private monopolies.
Privatisation creates private
monopolies, such as the water companies and rail companies. These need
regulating to prevent abuse of monopoly power. Therefore, there is still need
for government regulation, similar to under state ownership.
5. Fragmentation of
industries
In the UK, rail privatisation
led to breaking up the rail network into infrastructure and train operating
companies. This led to areas where it was unclear who had responsibility. For
example, the Hatfield rail crash was blamed on no one taking responsibility for
safety. Different rail companies have increased the complexity of rail tickets.
6. Short-termism of firms.
As well as the government being motivated by
short term pressures, this is something private firms may do as well. To please
shareholders they may seek to increase short term profits and avoid investing
in long term projects. For example, the UK is suffering from a lack of
investment in new energy sources; the privatised
companies are trying to make use of existing plants rather than invest in new
ones.
Evaluation of Privatisation
·
It depends on the industry in question. An
industry like telecoms is a typical industry where the incentive of profit can
help increase efficiency. However, if you apply it to industries like health
care or public transport the profit motive is less important.
·
It depends on the quality of regulation. Do
regulators make the privatised firms meet certain
standards of service and keep prices low?
·
Is the market contestable and competitive?
Creating a private monopoly may harm consumer interests, but if the market is
highly competitive, there is greater scope for efficiency savings.
Reasons for Privatization
and Commercialization in Nigeria
Government participation in business
enterprises in most colonial African and the predominance of state-owned
enterprises reflected a desire to control the economy after wrestling political
control from the colonialists.
Nigeria found that, in the
absence of local enterprises and viable indigenous private sector, the
government had to move into the large empty space left by society to take over
the building economy.
Harvey and Henig (1997:77) See privatization exercise to include any
initiative that increases the role of the market in areas previously considered
the province of the state; this include not only the sale of the state assets,
but deregulation and contracting out of public services to private providers.
However, privatization
simply means the divestment of government shares in enterprises there by
allowing the ownership management and control to be in private hands.
Reasons why government
wants to divest some of its companies are:
i.
Economic recession
ii.
Structural adjustment
iii.
Inefficiency of government enterprises.
iv.
Restructuring the economy
i.
Economic recession: The Nigeria economic has
been in a very poor state for quite sometime now. The
level of unemployment is simply unacceptable. Apparently, the economic can no
longer sustain the level of wastages associated with public enterprise. Also,
as a step to get out of this malaise, a solution has to be found on how to
reduce wastages. Privatization and commercialization are one of such solutions.
ii. Structural adjustment: Following the
down turn in the Nigeria economy in the early eighties, the government of Allaji Shehu Shagari
started the Austerity measures which were aimed at bring about a reduction in
government expenditure and imports.
iii. Inefficiency of government enterprises:
Over the years, government enterprises have become so
inefficient as epitomized by the services they render to the public. Despite
the fact that the government has and still continues to pump in a lot of money
into the enterprise.
v.
Restructuring the economy: Anyanwu
(1993:10) argues that privatization will help public fund to efficient users,
create a self-sustaining culture, attract foreign investors, and services will
reflect real values.
CONCLUSION
AND RECOMMENDATIONS
From the discussions above it is crystal
clear that Privatization and
Commercialization in Nigeria have achieved the purpose it is theoretically
meant for by the proponents. This is because, Privatization and
Commercialization as a policy( ies)
is/are meant for effective and efficient delivery of services to improve the
lots and betterment of the citizenry but which it has not been so in Nigeria.
The reason for this is not far fetched, because Privatization
and Commercialization process are not patriotically followed, in the sense that
these corporations and parastatals were sold to
political cronies, friends, associates, etc. at the expense of eligible that
will be able to manage the affairs of these investments, the result of which
citizens are at the receiving end of suffering, e.g. epileptic/erratic
power supply, poor telecommunication network, plane crashes, etc all because
sincerity of purpose, transparency and patriotism was not involved in
the process. And therefore, it is too much to conclude here that Privatization
and Commercialization in Nigeria is more of if not all political decision than
economic decision and thereby a woe and not a blessing, because despite the
fact that people are paying through their nose to enjoy these services yet
reverse is the case.
To avoid or correct the aforestated situations
the followings are recommended
ü
Review the current privatized companies:- This is pointing to the fact that the rule and
procedures for privatization on the privatized companies were not properly
followed if followed at all. This is because it is crystal clear that majority
if not all the privatized companies were sold to families and cronies against
the laid down procedures of the public that should be the real beneficiary of
privatization.
ü
Government must stop funding the
privatized companies:- Meaning that all the
privatized companies should be allow to fund themselves without wasting
public/tax payers money on them again in as much as they’ve been sold to the
interested buyers, and this means that they are now privately owned by the
buyers, why funding them with public/tax payers money again, if something is
not fishing or not belonging to the people in the corridor of power or their
cronies?
ü
Openness and transparency must be employed while
privatizing:-What this is explaining is that another aspect
and part of
accountability in administration is Openness and transparency.
Therefore, government and all stake holders involving in
privatization must be Open and transparent in the future and subsequent
privatization process in the country so as to cement the trust of the masses
in them.
ü
Government official(s)/ should not be allowed to bid for
any company(ies) to be privatized:- To corroborate the principle of openness, transparency
and accountability, it should be enshrined in the
constitution and privatization law and process that any government officials be
it elected, selected or appointed must not and should not be allowed to bid for
any public enterprise(s) to be privatized, or in the alternative if such a
person(s) must do so because of their fundamental human rights as a citizen,
they can resign from such a public office in order not to use the influence and
paraphernalia of office to illegally acquire the public property(ies).
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