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EFFECT OF PRIVATIZATION POLICY ON THE NIGERIAN ECONOMY

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

Privatization is the transfer of a business, industry, or service from public to private ownership and control. The Nigerian-managed industries have suffered several managerial problems from time to time. This has greatly affected both the economy, employment level and livelihood of the nation. Initially, industries managed by the Nigerian government have always been the best among other industries managed by private sectors. But a turnaround occurred in Nigeria leading to a drastic fall in the standard and strength of government industries.

Nigerian public enterprises have long been criticized for their inefficiency, politicization, corruption and absence of productivity. This is because, past and current political leaders have used these enterprises to favor their supporters through excessive employment, regionally targeted investments and deliberate underpricing of products or overpricing of inputs from politically connected suppliers. In the quest to proffer a solution to this economic problem, the Nigerian government, with the influence of international agencies such as the World Bank and International Monetary Fund (IMF) decided to engage in the privatization of its public enterprises with the hope of eliminating government interference in business enterprises and ensure increased efficiency of the utilities. However, in spite of the privatization of most public utilities in the country, the cases of inefficiency and political interference still persist. (Barnabas 2014).

Privatization and regulatory reform have been adopted by governments as the solution to the predicament of poor performance of formerly state-owned enterprises, and as the means to achieve improved economy (Pagoulatos, 2005). Also, to increase productive efficiency, competition has been introduced to activities where the idea of “natural monopoly‟ has been rejected. Hence, private sector involvement in the economic and business activities of developing nations/economies plays an increasingly strong role that may be considered stronger than that of the development agencies (Hodge, 2004).  

One of the most debated economic policies in the developing world today is the privatization and commercialization of public enterprises in Sub-Saharan Africa, and its positive and negative implications both in the short and long run. Much attention has been drawn to the observation that although privatization and commercialization was a popular policy in the liberalization process in developing economies in post-cold war era, it has in many instances failed to translate to improved productivity and simulate the domestic economy (Obadan and Ayodele, 1988; Okanachi and Obutte, 2015).

The emergence of the crude oil industry in the Nigerian economy in the decade following the civic war with the associated oil-boom provided the financial motivation to government’s involvement and participation in the process of production, distribution and exchange as a pivotal part of the economy. The Nigerian Enterprises Promotion Decree of 1972 which came into effect on 1st of April 1974 with its subsequent amendment in 1976, provided a concrete basis for government’s extensive participation in the ownership and management of enterprises, as a result of this public enterprises both at the Federal, State and Local Government level’s exceeded 100 by 1985 and spread to every sector of the economy from agriculture , energy , mining, banking , insurance, manufacturing ,transport, commerce, oil and gas , telecommunication to service activities . Thus, a variety of enterprises with public interest in terms of majority equity participation or fully –owned by state and local government as well as other government entities became visible in various parts of Nigeria. In fact, between 1975 and 1993, it was estimated that the Federal Government of Nigeria had invested more than $100 billion in public enterprises (Federal Government of Nigeria, 1993).

The first legal framework that established the implementing agency of the privatization policy of the Federal Government of Nigeria was based on the promulgation of Decree No. 25 of 1988 by the General Ibrahim Babandiga’s military government (1985-93). The decree established a structure known as Technical Committee on Privatization and Commercialization of Public Enterprises (TCPC) with the sole responsibility to handle privatization of PEs in the country. The TCPC was renamed as Bureau of Public Enterprises (BPE) in 1999 by the democratically elected government of Chief Olusegun Obasanjo (Nwokoma, 2005).

The Nigerian government should actually do a feasibility study on which industry to private, because not all companies privatized will yield a good economic effect. Some government industries that has been privatized after independence include Aluminums Smelter Company (ALSCON), Nigeria Telecommunication Limited (NITEL), and National Electric Power Authority (NEPA) etc.

1.2       STATEMENT OF RESEARCH PROBLEM

Some of the problems facing public owned enterprise were high corruption, lack of transparency, inefficiency, ineffectiveness, inconsistency, and incredibility. The challenges appear to mark a caused drastic failure of some public enterprise like National Electric Power Authority (NEPA) and Nigerian Telecommunication (NITEL) and Nigeria Railway. In addition, the low performance of these enterprises, coupled with the pressure on the international monetary fund to fully implement structural adjustment program saw massive deregulation or privatization of public owned enterprise. Against this backdrop, this paper looks at whether privatization and commercialization in Nigeria were desirable through extensive theoretical review of the performance of privatized enterprises in Nigeria.

1.3   OBJECTIVE OF THE STUDY

The main objective of these study is to find out the effect of privatization policy on Nigeria economy specifically, the study intends to:

1.     Find out the causes of privatization policy in Nigeria

2.     Discover the effect of privatization policy on the growth and development of Nigeria economy

3.     Find out if there is any significance relationship of privatization policy on Nigeria economy

4.     To find out if the different between the privatized sector and not privatized sector

1.4   RESEARCH QUESTIIONS

1.     What are the causes of privatization policy in Nigeria

2.     What is the effect of privatization policy on the growth and development of Nigeria economy

3.     Is there any significance relationship of privatization policy on Nigeria economy

4.     What is the different between the privatized sector and not privatized sector

1.5   SCOPE OF THE STUDY

The researcher shall focus on the privatized sector in Nigeria most especially the power sector, the research shall focus more on the development of the sector, the problem and the effect the sector has on the growth and development of Nigeria

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