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THE IMPACTS
OF PRIVATIZATION OF THE PRODUCTIVITY OF FORMERLY OWNED STATE FIRMS/BUSINESSES
ABSTRACT
Despite an
impressive level of privatization activity across Africa and the upsurge in
research on the operating performance of privatized firms in both developed and
developing economies, our empirical knowledge of the privatization programme in
Africa is limited. This study appraises the post-privatization performance of
some privatized enterprises in Nigeria. The specific indicators examined are
profitability, productive efficiency, employment, capital investment, and
output. The study measures the change in any given indicator of performance by
comparing its average value some years before and some years after
privatization. Pearson’s rank correlation was deployed to assess the
relationship and level of technical efficiency in the selected enterprises. The
results show significant increases in these indicators. Privatization is also
associated with increase in technical efficiency in the affected enterprises.
Reduction of politically motivated resource allocation has unquestionably been
the principal benefit of privatization in Nigeria.
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.
1.3
OBJECTIVES OF THE STUDY
a) To
understand the extent and pattern of privatization
b) To
establish the results of privatization in Nigeria.
c) To
establish whether privatization has improved the performance of enterprises as
anticipated.
d) To
outline policy lessons that can be learned from the privatization exercise.
1.4 RESEARCH
QUESTIONS
To have an
in-depth knowledge of this study, the following research questions will be
considered:
a) What is
the extent and pattern of privatization in Nigeria?
b) What has
been the result of privatization over-time in Nigeria?
c) Has
privatization improved the performance of enterprises as anticipated?
d) What are
the policy lessons that can be learned from the privatization program?
1.5 RESEARCH
HYPOTHESIS(S)
H1: There is
a relationship between privatization and productivity of formerly state owned
companies
H0: There is
no relationship between privatization and productivity of formerly state owned
companies
H2: There is
a relationship between government management of companies and the performance
of such companies
H0: There is
no relationship between government management of companies and the performance
of such companies
1.6 DATA
SOURCES AND SCOPE OF WORK
For this
study, we will be taking a very close look as formerly public enterprises that
have been transferred to private individuals or corporations. The study will
engage the assessment of former employees as well as the public to evaluate the
performance of the firms now and before. Previous studies have shown that the
measure to understand the impact of privatization is to use the return on
shares, equity and asset approach. This method will also be implored, but more
to it will be the perception and profitability of these new organizations. The
study will also focus on the decrease in government expenditure in businesses
and how these funds have been redirected to providing basic amenities for the
populace. As a basis of scoping, we will be taking a look into organizations
like NITEL, PHCN, among others.
1.7 Research
Design
Data for
this thesis will be collected using a quantitative, survey-based methodology.
This approach is important when causal relationships among the underlying theoretical
constructs need to be examined. Self-administered questionnaires are considered
to be the most appropriate tool as well as interviews. Most importantly, this
method is quick, inexpensive, efficient, and can be administered to a large
sample (McCelland, 1994; Churchill, 1995, Sekaran, 2000; Zikmund, 2003). To
ensure that the questions are clearly understood and there is no ambiguity
among them, a pre-test will be conducted.
Respondents
will be selected to conduct the study. Descriptive analysis for the entire
sample will be performed using SPSS (Statistical Package for the Social
Sciences).
In this
study, where relationships are being established, two statistical methods will
be used to analyze, interpret, and test data related to the study. Sample
percentage (SP) arranged in tables will be used to analyze respondent’s
bio-data and hypothesis of the study will be tested by the use of Pearson’s
Coefficient of correlation. The analysis of data and testing of hypothesis will
be based on the responses obtained through interview and questionnaire
administered.
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