IMPACT OF PRIVATIZATION ON THE PERFORMANCE OF PUBLIC ENTERPRISES


IMPACT OF PRIVATIZATION ON THE PERFORMANCE OF PUBLIC ENTERPRISES

CHAPTER ONE

1.0 GENERAL INTRODUCTION
This issue of privatization has been a subject of intense global debate in recent years. In Africa, it has remained highly controversial and politically risky. Privatization in Nigeria has not been a popular reform. It has received so many criticism from labour, academic and individuals.
There have been numerous strikes against proposed sell–offs by unions yearning loss of jobs. While proponents of privatization see that aspect of economic reform as an instrument of efficient resource management for rapid economic development and poverty reduction, the critics argue that privatization inflicts damage on the poor through loss of employment, reduction in income, and reduced access to basic social services or incomes in prices. Whatever are the views of the two parties, the only group that has no voice in the matter is the poor. The researcher is of the view that privatization is not inherently good or bad, but the poor performance of effectiveness depends on implementation (Nightingale and Pindus,)

The participation of government owned enterprise in Nigeria date back to the colonial era. The task of providing infrastructural facilities such as railways, roads, bridges, water, electricity and other fall on the colonial government due to absence of indigenous companies with the required capital, technical competence as well as inability of foreign trading companies to embark on this capital extensive project. The involvement was extended and consolidated by the colonial welfare development plan that was formulated when the labour party came into power in the United Kingdom. Privatization in Nigeria began in 1988 through a degree known as privatization and commercialization degree of July 1988. This is to enable government both at federal and state level sell off its corporation to the private sectors. Therefore, after its establishment in 1988 the Bureau of public enterprises, a state agency, invited local and international investors to flag their interest in more than two dozen state – owned companies slated for privatization.

Companies up for sales ranged from giant state telecommunications and power utilities to cement, Sugar and vehicle plant, as part of what government says is a comprehensive programme of privatization and commercialization of public enterprises. Government officials says the aim is to turn around poorly managed and cash trapped state enterprises whose inefficiency have hampered economic development in Africa’s most populous nation.

General Abdulsalami Abubakar, who came to power in June following the death of his predecessor, General Sani Abacha, aims to get the privatization programme on track before restoring Civilian democratic rule, now scheduled for May 29, 1999. His commitment to market oriented reform has won him praise from western creditors and international financial institutions. Resumption of a serious privatization effort has been one of the pre-conditions set by the International Monetary Fund (IMF) for negotiating an interim programme monitored by fund staff that would open the way for talks on a medium – term economic strategy agreement for Nigeria. Nigeria also needed an accord with the IMF and the World Bank to pave the way for debt relief talks with the pairs club.
Its members account for 70 percent of the country’s total foreign debt of roughly $31bn (in 1996).

During a visit to Nigeria in mid-September by world bank officials told Africa Jean- Louis Sarbib, Bank officials told reporters they where encourage by the reforms introduced by General Abubakar, including privatization. Under the new programme, the government plans to sell 40 percent of its equity in the enterprises to “strategic investors” usually understood to mean foreign companies which also will gain management control of the concerns. The shares will be sold through international open tender to investors with proven technical and financial capabilities. Another 20 percent will go to Nigeria investors through public share offers, leaving the government with a 40 percent stake.

The biggest companies to go on the auction block are the National Electric power Authority (NEPA) and Nigerian Telecommunication (NITEL) respectively. Nigeria’s second and third largest public corporations, after the giant Nigerian National petroleum Corporation (NNPC). NEPA is to be broken up and 8 off in separate units comprising eight generating companies, 15 distribution and sales companies and the national grid company. Also an after are the National fertilizer Company, two hotels, three steel rolling mills three paper companies, six vehicle assembly firms, a cement company and the companies mentioned in the advertisements inviting inquiries, the government has said it also plans to privatize the country’s four oil refineries owned perennial fuel shortages in this oil producing country. By handing over management control to public enterprises to strategize investors, the government hopes to repeat the success of its partnership with oil multinationals, which hold minority stakes in joint ventures that produce more than 95 percent of Nigeria’s crude oil output.

Besides enhancing efficiency, privatization is seen as a way of increasing foreign investment and drawing Nigeria more fully into global economy. “This administration invites the international community and Nigerians to come and participate in our privatization programme”. General Abubakar told a news conference in early September. “We also invites international investment Banks, commercial banks, export credit agencies and management consultants to work with us in our liberalization of markets, deregulation and privatization.”

Not all Nigerians are convinced of the wisdom of selling off state assets or giving foreigners control of crucial utilities. “The federal government is headed on a (path) of unprecedented national calamity with the foreign ownership of any part of NEPA, NITEL, the refineries or the railways,” wrote commentator Ken Ogbuogu in the Lagos based Guardian newspaper in late October. “There is an international conspiracy whose aims are to grab the central nervous system of Nigeria, hence Africa. The sale of strategic national assets is absolutely wrong, “many people share the writer’s concern that control of important public utilities by private companies whose prime objective is profit – making will half the spread of development to poor sectors of society, particularly in the rural areas. Privatization has been one of the most controversial aspects of economic liberation that Nigeria’s military rulers have wrestled with since embarking of free market reforms in 1986. From one side, the government has been under immense pressure from local private sector groups and foreign creditor institutions to off load inefficient, under-funded and corruption – ridden state enterprises. According to official figures, federal government investment in public enterprises was about 100bn naira ($ 4.6bn) in 1996, with an average rate of return of only about 2 percent.
From the other side, trade unionists and nationalist politicians have opposed the sale of government equity holdings, and pointed out the potentially negative social consequences of privatization, including job losses and increased charges for essential services. Sections of the ruling elite that rely on state enterprises for patronage also oppose the sell – offs. At the same time, there have been worries that privatization could lead to concentrated ownership of former state enterprises in the hands of members of certain ethnic groups in a country where historically ethnicity has been extremely sensitive.

Faced with strong pressure from both advocates and opponents of privatization, Nigerian government policy on reforming ailing public corporations has been marked by uncertainty and hesitation in recent years. The last administration of general Abacha made several promise to privatize, but never acted. In approaching privatization carefully, government officials have been mindful of the difficulties in striking the right equilibrium with a population that is sensitive about ethnic balance in access to national resources. Last May, Mr. Tom Ikimi, the Nigeria’s foreign minister, said that the government was deliberately taking its time in privatizing state assets to ensure the benefits were fairly shared. “One of the fundamental problems of Nigeria is the Reuters news agency; this is what has consistency caused instability in Nigeria, and in order to ensure that this does not occur again, these things have to be taken very careful and worked out very well,” he said.

Nigeria had already carried out one successful privatization programme, which to large degree accommodated the various concerns of different Ibrahim Babangida in 1988 as part of an IMF – backed structural adjustment programme, 73 enterprises where privatized by the end of 1992. Various methods were used to privatize the enterprises, mainly small and medium scale concerns in agro-processing, cement, petroleum marketing, Insurance and banking.

Thirty-five were sold through public share offers, using a scheme that sought to ensure the equitable spread of ownership among different social classes and ethnic and regional groupings. An elaborate formula restricted the amount of equity that any individual or region could purchase and allocated a proportion of shares to all states of the federation as well as to employees. By allocating the bulk of the shares to people and institutions purchasing between 100 and 5,000 shares, the government encourage small investors to participate in the scheme.

Outside of the oil sector, foreign investors have shown limited interest in Nigeria, a country tarnished by a reputation for corruption, inefficiency, decaying infrastructure and a generally difficult business environment. Besides assuring Nigerian of the wisdom of the privatization programme, the government also will have to convince investors that Nigeria is a sound bet.

1.2 STATEMENT OF THE PROBLEM
This research on the impact of privatization on public enterprise performance anticipated standard in the concern to the government as most of these enterprises are not sound when measures by acceptable economic criteria. More so, they have also failed to make any meaningful contribution to government but rather become a huge financial burden to the government who are the owner of the enterprises.

In an attempt to resolve these problems, it has become imperative for government to embark on the privatization of her enterprises. The basis for the privatization is creating job opportunities; generate positive returns on investment reposition, the country in the position to attract foreign direct investments. To what extent has our case study Champion Breweries able to fulfill these objectives; this and many more question is what the work will provide answer to.

1.3 THE OBJECTIVE OF THE STUDY
“Impact of privatization of performance of public enterprise” includes;
(i) To analysis and examine the performance of privatization of public enterprises.
(ii) To assess the performance of the privatized enterprises before and after privatization
(iii) To identify the problems confronting Champion Breweries in achieving privatization goals

1.4 SIGNIFICANCE OF THE STUDY
Significance attention has been given to the privatization based on the performance of the private enterprises in recent past. It is expected that this study will enhance Champion Breweries Plc, Uyo in their management of both human material resources as well as maximization of profit in the course of running the establishment. Furthermore, the research project will help in the understanding of privatization as a tool for effective management of public enterprises by private organizations.

This study will also serve significantly as a blue print for corporation set to be privatized and provide basis for policy evaluation help in the general growth and development. Recommendation from this study would help champion breweries Plc, Uyo in improving the method of planning, evaluation of human and material resources knowing fully well that the aim of privatization is to return values to the establishment in the term of increased productivity.

Finally, it would act as a source of literature to researchers who intend to study or carry out further research to update their knowledge about privatization.

1.5 RESEARCH QUESTIONS
i) Has privatization enhanced more performance and efficiency in Champion Breweries Plc activities?
ii) Is there any remarkable difference in productivity between the period of privatization and the era before privatization?
iii) Are there any factors that hinder the realization of objective and goals of privatization in Champion Breweries?

1.6 RESEARCH HYPOTHESES
i) Ho: There is no significance relationship between the privatization and efficient performance in Champion Breweries.
Hoi: There is significance relationship between the privatization and efficient performance in Champion Breweries.
ii) Ho There is no significance relationship between the privatized era and non-privatized era in the performance of Champion Breweries.
Hoi: There is significance relationship between the privatized era and non-privatized era in the performance of Champion Breweries
iii) Ho: There is no a strong relationship between factors hindering champion breweries in achieving the objectives and goals of privatization and its performance.
Hoi There is no a strong relationship between factors hindering champion breweries in achieving the objectives and goals of privatization and its performance.

1.7 SCOPE / LIMITATION OF THE STUDY
The scope of this research takes into consideration the privatization of government owned enterprises such as Champion Breweries Plc, Uyo. While working at that it becomes imperative to limit this project to the impact of privatization on the performance of public enterprise with particular reference to Champion Breweries Plc, Uyo.

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