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PRIVATIZATION OF GOVERNMENT PARASTATALS AS A PANACEA FOR ECONOMIC GROWTH

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

Government establishment from the inception was meant to give its service to Nigerian’s at a subsidized rate with the impact of our oil revenue. Privatization was at very low ebb because of the developing nature of our economy. In recent time, the mismanagement of government parastatals has been a subject of debate. This is unconnected with the level of corrupt practices, which has permeated into the veins of wide range of Nigerian populaces. Lack of full utilization of resources, financial and administrative Mismanagement of most public sectors over the year has resulted into weak and stagnant economy, capital flight excessive debts incurring and under- development.

The indolent performance of the state in the administration of public business establishments create a situation in which national funds that could have been used or better spent be generate new economic activities and employment opportunities are been used to subsidize dead wood that will never grow nor changes” as analogy for the public enterprise It is against the background of re-organizing and making public enterprise more efficient profit making that the government of general Ibrahim  Babangida in his budget speech in 1986. Categorically declared to purse a policy of privatization of government parastatals since the introduction of SAP (structural adjustment programme) in 1986 the debate on the issue of privatization has gradually assumed the status of a national controversy.  As is common with all controversies the emotions generated the controversy often over shadow the issues itself. More so president Olusegun Obasanjo in one of his broad cast made it clearer to Nigerians the essence of privatization in his government, which will bring development in all ramifications.

Privatization is mostly commonly defined as the “Transfer of government owned industries to public sector implying that the predominate share in ownership of assets on transfer lies with private shareholders” Taking a survey of privatizations, it will discover that it is not a new subject in the economics’ literature.   Since the end of Second World War, rapid indeed spectacular development in technology especially in the fields of communication and information management has facilitated increasing contact and interaction amongst people of the world.  Technology has also helped to unlock an unprecedented capacity for the creation of wealth and has promoted massive increase on trade between nations.

Communication information and trade have facilitated the rapid breaking down of all great barriers that have separated people and nation geography, language and culture. The last great barrier, ideology came crushing down the collapse of the solvent union and the system of centrally planning economy that it had promoted and championed since the Russian Revolution of 1917. Also after the second world war, Britain embarked on a deliberate policy of nationalization of it’s basic industries with a view to enhancing efficient planning of British economy and to ensure an uninterrupted flow of essential service and goods to the generality of the populace.  But the transfer of fourteen (14) large companies and many smaller ones employing a total of about 600,000 people from public to private hands over the first eight years. Britain is today a leader in the course of privatization of public enterprises with over 90% of the economy in the private sector in the same vein is the united sates of America (USA), which seems to be the most privatized economy in the world. It is suffice to recognize the facts of today’s realities that “ those countries that operates liberal market economic closely aligned to global economic system within the frame work of a free and open democratic political system and s supportive enabling socio-cultural environment are the winners.  These are the countries that are able to provide for the majority of their citizens

Various strategies are therefore applied to implement and achieve sustainable economic development.  But from the experience of many countries over the past two decades it is now widely accepted that three major forces drive the process in successful countries.  These are; technology: the effective harnessing of science and technological skill and capacities for national development. Liberation:  The opening up of the national economy to market forces freeing prices trade and entry to market force from state control. Globalization:Aligning domestic economics to the global economics system and opening up domestic market to external competition while encouraging domestic producer of goods and service to compete in external market.

The debate on privatization has been on the presumed efficiency of the private sector visa-visa the public enterprise and how the latter can be made more responsive to the market forces.  It is an undutiful fact in developing countries like Nigeria in particular it has been realized that inefficient companies are typical drain on national treasures that the contribute greatly to the enormous current debt problems. This if efficiency can be elevated in relation to profitability cost saving and consumer satisfaction and the like do we consider privatization as the only panacea?  And to what proportion should the state and private individual hold factor of production and distribution. The aim of this project is to address the issue of privatization in details and show it’s effects

1.2     STATEMENT OF PROBLEM

The role of government enterprise in the economic development of modern nation cannot be ignored. The unique historical conditions of the developing countries had urged government participation or extensive intervention in most sector of economy a vital necessity. In the capitalist economies parastatals came into being as part of general economics policy to correct market failure. The market may lead to no-optional resources allocation for several reasons. For instance private, and social rationality may diverge externalities and indivisibility may be weak or there may be which pigeons has called a “defective telescope faculty” in the part of private enterprise.

Regarding this background the consideration involved in the establishment of state parastatals may be ground under three basis. The considerations are of political issues when the ruling directorate is interested in changing radically the structure of property right within the economy. Economic consideration lay emphasis on the issues as the nature of the production functions for example (is a particular industry characterized by the constraint decreasing or increasing returns to scale?). The quality of the commodity produced for example (is a commodity such that every one has equal use). Pragmatic looks are involved when the coming into being of parastatals in the result of a desire to fulfill a specific, social, economic or political objective or solve specific problem at a particular time stated and actual motives behind the establishment of parastatals in developing countries are to:

 Provide entrepreneurship support

Control monopolies

Control commanding heights

Provide public services

Profit for investment

Prevent business failure etc.

1.3     NEED FOR THE STUDY

A. TYPES OF STATE PARASTATALS

It is perhaps pertinent to show various types of parastatals as one of the relevance addressed by this dissertation. Basically, the history of state participation in business exist today not by accident but by patrimony.  It was part of the colonial legacy bequeathed to us in the country during the period of colonization.  In keeping with the practice in the mother country the British colonial administrators kept public sectors certain types of activities that were traditional held by the British government. This category of activities include the utility service industries health education housing, water electricity supply port, ports, rails air and sea transportation including the marketing of agricultural produce through marketing boards there state owned services were automatically passed and retained by the indigenous public sector the government.

Furthermore, past-independence government, buttressed by the oil wealth wanted to yelt propel the tempo of economic development by playing a catalytic roles in the strategic sector where the indigenous private sector was too naïve and weal to take the public sector to make significant in roads petrochemical industries and others.  It is view of some influential public officer that certain types of business were easy money printer in the hands of private sector. They felt that a throat into that area of business activity could expand the revenue sources and generating base of the expectation of operating and managing them as effectively and profitably as private sector was doing.

The role, which a parastatls plays, depends on the type of economic system. Its particular role in an economy and various forms of its organization depends on several factors existential and historical. It is difficult there for to classify prostates in a mat and systematic manner.  A certain analytical constituency can be achieved by adopting a multicriterial empirical perspective. Adopting such approach underlying considerations regarding the creation of parastatals must be considered the adult circumstances of their coming into being the various forms of the organization an extent to which they manifest certain characteristics of publicity are also relevant.

B.  CAUSE OF FAILURE OR PROBLEMS OF STATE ENTERPRISE

A survey in Nigeria into over 150 public companies and corporation as at the end of 1985 showed that the return on government is N 20. 05-billon investment was only 15%. This comprises of dividend bonus issues loan repayment and interest payments. This 15% return was discovered then to have been contributed only handful of the companies likes NNPC and some banks. The failure of state enterprises can be attributed to the following: Firstly there is the problem of subjective criteria in appointment of executives. This means that chief executives and principal functionaries of parastatals were appointed not because of their proven integrity and capability to deliver goods and service but their appointment had been made for the reason of the nepotism dressed up in disguise of federal character.  This makes sense accountability to be of no space with the executive and the result is always that the managers of parastatals become complacent and inert. Secondly, there is the problem of over supervision by supervising ministries. The irritability of government owned establishment could improve their performance

DEMERITS:

Sectional economic domination

Market concerning by the rich- indicates that the company will be owned by wealth people of the country and this can be at the expense of the whole populace

It will be difficult to get appropriate basis of valuing various companies to be privatized this will invariability lead to over/ under valuation of these companies with adverse effect

Exploitation of consumers by privatized companies this means that when the privatized companies are mostly purchased by few citizens this will lead to exploitation.

It can also contribute to price like a case in point being the removal of subsidy from petroleum and it’s consequence impacts on the general level prices.  All   told privatization entails cost to society in terms of widening income gap loss of job increasing inflation and limited ability of public to influence supplies

1.4     RESEARCH QUESTION

It is the objective of the study to know

Can privatization be the government last resort towards efficiency?

Does the on going privatization of parastatals revive the inefficiency in government owned corporation?

What is the cause of inefficient management of government parastatals?

Can privatization increase the cost of living of the people?

Would privatization improve the service of government parastatals?

Do you think that privatization of public cooperation could be a means of solving our economic problem?

1.5     SCOPE OF THE STUDY

Since it is the aim of this project to bring out in details is the various problems of parastatals and suggesting privatization as a means of solving these economic problems the scopes will cover the following area considered relevant to the subject matters: An examination of how some or types of parastatals are formed. Considering the various problems characterizing these parastatals. Interviewing and making analysis on the company to be privatized. Framing the prospects and various problems of parastatals and other relevance to the project. Commenting on the decree 25 enacted for the implementation of privatization in Nigeria. Suggesting of strategies for successful implementation of privatization List of companies to be fully or partially privatized  

1.6   LIMITATION OF THE STUDY

The research work is limited to national electric power authority (NEPA) Enugu.  This study is limited based on the fact the there is no time and material resources to see to the whole nation.  The researcher found it very difficulty to combine both the class work lectures, assignment, quize and term paper with the research study.  For that it is not possible for the researcher to interview every staff of NEPA.  Rather the researcher did a convenience sampling with which he interviewed some of the staff of NEPA. Money is also a serious impediment. This is a result of numerious trips that has been embraced upon for the purpose of the work.  Another constraint is the inability of the parastatals that is NEPA to provide relevant materials which are important for this project and some of the materials needed are not readily available 

1.7  DEFINITION OF TERMS

The following terms are defined in relation to the above topics:

1. Privatization: This is the sale of formerly public enterprise to private individuals and groups

2. Efficiency:   This is the state and quality of being efficient.

3. Bureaucracy:    This states that legal power and authority result with the institution not with  the individual workers.

4. Productivity is the ability to produce

5. Panacea:     Remedy for all troubles.

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