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PUBLIC SECTOR REFORMS AND ITS IMPACT OR ORGANIZATIONAL PRODUCTIVITY

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

In recent years, many developing countries have embarked on the reform of public enterprises, including privatization, within the framework of macroeconomic reform and liberalization. More than 100 countries across the continent, most of them developing have privatized some of their state-owned enterprises (SOEs). Equally striking is the volume of transactions. Between 1988 and 1993, over 26,000 privatization transactions with sales values exceeding US$50,000 each were recorded world-wide, generating a gross receipt of US$271 billion. Of these transactions, about 900 were conducted in 1993 alone, against only about 60 in 1988. Developing and transition economies accounted for much of this tremendous growth (Sader, 1995). Between 1988 and 1994, developing countries around the world sold about 3,300 SOEs, with sales revenue rising from only US$2.6 billion at the beginning of the period to a peak of US$29 billion in 1992 (Megyery and Sader, 1997).

The resort to privatization/commercialization was informed by several considerations. First, by 1985, the quantum of resources required to sustain the SOEs had become an unbearable burden on the affected nations. Second, it was envisaged that a carefully planned privatization program would be an effective strategy for improving operational efficiency, broadening share ownership, attracting foreign investment and reducing the role of the state where the private sector has the capabilities to operate more efficiently. Finally, since the beginning of the 1980s, privatization of public enterprises has become a major policy tool in both developed and developing countries following the apparently successful privatization program in Britain. Privatization gained considerable momentum in developing countries given its endorsement by the multilateral financial institutions as a major plank of adjustment policies. The urge for privatization was further reinforced by the need to reduce government expenditure in the face of burgeoning fiscal deficits, and was also in conformity with the resurgence of "economic liberalism” in the development literature.

Yet despite widespread privatization efforts, empirical evidence indicates that its anticipated benefits are yet to be felt in African countries. Most studies have documented the relatively pear performance of SOE reform efforts in Africa compared with other areas of the world in both relative and absolute terms (World Bank 1996; Kikeri et al., 1992; Adam et al., 1995). However, only limited efforts have been made to identify the causes and determinants of the uniquely unsatisfactory performance of SOE reform in Africa relative to other environments. As in most developing countries, the Nigerian economy until recently witnessed a growing involvement of the state in economic activities. The expansion of state-owned enterprises (SOEs) into diverse economic activities was viewed as an important strategy for fostering rapid economic growth and development. Massive foreign exchange earnings from crude oil, which exacerbated unbridled federal government investment in public enterprises, reinforced this view. Thus, by 1990, there were over 1,500 public sector enterprises in Nigeria, 600 of which were owned by the federal government and the rest by state and local governments (Jerome, 1995). The public enterprise sector excluding Petroleum accounted for about 15% of Nigeria's gross domestic product in 1990.

Unfortunately, most of the enterprises were poorly conceived and economically inefficient. They accumulated huge financial losses and absorbed a disproportionate share of domestic credit. By 1985, they had become an intolerable burden on the budget, as they were being sustained through budgetary allocations from the treasury. In the wake of the economic recession that began in 1981, following the collapse of oil prices, the activities of public enterprises attracted more attention and underwent closer scrutiny, much of it centering on their poor performance and the burden they imposed on government finance. The poor financial returns from these enterprises against the background of severe macroeconomic imbalance and public sector crisis precipitated the concern of government towards privatization.

With the adoption of the structural adjustment program (SAP) in 1986, SOEs came into the forefront as a major component of Nigeria's economic reform process. Consequently, the Technical Committee on Privatization and Commercialization was established in 1988 to implement the SOE reform component of SAP. In what appears to be a uniquely comprehensive initiative, 101 enterprises in virtually all sectors were slated for total or partial privatization and another 35 for commercialization. Subsequently, public utilities such as Nigerian Telecommunications Limited (NITEL), the Nigerian Postal Services, Nigerian Airways and the Nigerian Electric Power Authority, among others, were restructured and reoriented towards higher efficiency. Nigeria is probably the only country in the world that carried out a hybrid program of privatization and commercialization simultaneously. The decree defined commercialization as the reorganization of enterprises, wholly or partly owned by the government, into profit making commercial ventures without subvention from the government. The process entails explicit performance-based contracts with managers of SOEs. In return for managers' expanded power over pricing, procurement, production and personnel, the enterprise is subjected to a hard budget, which entails cutting subsidies and transfers.

The telecommunications industry in Nigeria also witnessed the deregulation of telecommunications services in 1992 through the promulgation of Nigerian Communications Commission (NCC) Decree, No. 75 of 1992, introducing private participation in the provision of telecommunications services in Nigeria, thus ending the state-owned NITEL's monopoly of the sector and ushering in competition. Deregulation is expected to enhance efficiency in two ways. First is through the curtailment of the inefficiency that arises as a result of regulation and isolation of firms from actual and potential competition. Second, rents accruing to rent-seeking groups benefiting from regulation would be dissipated by a more competitive market environment.

(Winston, 1993). W1nle much has been written about the experience of developed economies with deregulation and privatization of public utilities (Oniki et al, 1992; Imai, 1994; Wellenius and Stem, 1994), there have been few studies on the experience of developing countries especially those in Africa, Yet, these economies are more vulnerable to disruptions associated with grossly inadequate provision of infrastructure services. What is the quantitative and qualitative evidence concerning allocative and productive efficiency? To what extent have ex ante expectations and results been realized? Have reforms induced more rational and profitable investment? What lessons are to be learned?

1.2    STATEMENT OF RESEARCH PROBLEMS

At the inception of the Obasanjo administration in 1999, the morale of Nigerians was at the lowest ebb as a result of problems encountered by the public sector ranging from:

Ø Total decay of infrastructure

Ø Malfunctioning public utilities

Ø High level of corruption

Ø General waste

Ø Public pension collapse

Ø Inefficient State enterprises

Ø Soaring inflation

Ø Unemployment and a dissatisfied citizenry

Nigerians had almost lost confidence in the government and faith in their country. Mr. President, recognizing this basic fact, embarked on fundamental changes otherwise tagged reforms, in the socio-economic and political spheres of our national life, in order to give Nigerians a better future. After all, a chronic ailment must require a drastic cure or surgery, to restore a patient to good health.

The Federal Government has therefore, identified and prioritized major areas requiring reforms, such areas include:

Ø Privatization of public enterprises;

Ø Liberalization of key sectors of the economy;

Ø Restructuring of the Public Service;

Ø Review of government budgeting and taxation laws;

Ø Governance and institutional strengthening;

Ø Debt Management;

Ø Service Delivery;

Ø Economic empowerment programs; and

Ø Entrenchment of fiscal discipline in public budgeting and expenditure;

Ø Due Process.

1.3    OBJECTIVE OF THE STUDY.

In the main, this study examines the impetus for reform, what happened in the wake of commercialization and deregulation, and the changes in the regulatory framework. The study also looks at the institutional details of the economic environment. Our choice of the telecommunications sector arises because the industry presents some of the most difficult issues currently confronting microeconomic policy makers. Furthermore, it is the most rapidly growing and technologically dynamic sector and the pressure to move the sector out of its traditional public utility, monopoly status is being exerted allover the world and is ultimately irresistible.

However, the main objective of the study is to ascertain the quantitative and qualitative evidence concerning the efficiency and welfare improving effects of deregulation of the telecommunications sector in Nigeria. The specific objectives of the study are:

Ø To analyze the production structure of Nigerian telecommunications and estimate the total factor productivity growth.

Ø To decompose total factor productivity growth into scale economies and deregulation effects with a view to estimating efficiency gains due to deregulation.

Ø To assess the regulatory changes m the sector m the wake of commercialization.

Ø To analyze the options for evolving a viable telecommunications sector in Nigeria. The study will also look into the structure of the Nigerian telecommunications industry the essence and effectiveness of NITEL and finally the impact of deregulation on NITEL.

1.4    RESEARCH QUESTIONS

In carrying out this study, the following questions are necessary:

1. Would privatization of the public enterprise help in the Reinvigoration of the economy?

2. Would liberalization faster development of infrastructure;

3. How well have public reforms programs helped in Poverty reduction?

4. Is there any relationship between Jobs creation and wealth creation?

5. Can public sector reform help in the Motivation of private sector to achieve greater performance and growth?

6. How can the restructuring of the Public Service assist in greater efficiency and effectiveness?

7. How can the public confidence among the citizenry be restored towards their government, its policies, programs and activities?

8. Would public sector reforms help in the Restoration of confidence within the international comity of nations in Nigeria's commitment to good governance and sound economic programs?

9. Can Greater stability and better understanding within the polity be achieved through such reforms?

10. Would Privatization of NTIEL help to achieve Efficient and effective service delivery?

1.5    STATEMENT OF RESEARCH HYPOTHESES

Hi1: Public Sector Reform would significantly help in the Motivation of private sector to achieve greater performance and growth

Ho1: Public Sector Reform would not significantly help in the Motivation of private sector to achieve greater performance and growth

Hi2: Restructuring of the Public Service would significantly assist in greater efficiency and effectiveness

Ho2: Restructuring of the Public Service would not significantly assist in greater efficiency and effectiveness?

Hi3: Public Reforms programs have significant effect towards Poverty reduction

Ho3: Public Reforms programs have no significant effect towards Poverty reduction

Hi4: There is a significant relationship between Jobs creation and wealth creation?

Ho4: There is no significant relationship between Jobs creation and wealth creation?.

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