1.0 Introduction
1.1 Background of the 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 the Problem
Investigation revealed that privatization often involves restructuring and downsizing, which can lead to job losses, especially if the new owners prioritize cost-cutting measures over labor retention (Brown & Earle, 2000). 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, 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 Aim and Objectives of the Study
The aim of this research is to comprehensively examine the impacts of privatization of the productivity of formerly owned state firms. In achieving this aim, the following specific objectives were laid out as follows:
- To analyze the role of corporate governance structures, management practices, and strategic decision-making in shaping post-privatization productivity outcomes;
- To investigate how privatized firms respond to market competition compared to their state-owned counterparts, and regulatory environment;
- To explore the distributional effects of privatization on stakeholders, including employees, consumers, and broader society;
- To investigate sector-specific challenges and opportunities associated with privatization; and
- To provide evidence-based recommendations for policymakers, regulators, and stakeholders involved in privatization initiatives to maximize productivity gains while addressing potential challenges and risks.
1.4 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Has privatization improved the performance of enterprises as anticipated?
- What role do corporate governance structures and management practices play in shaping the productivity outcomes of privatized firms?
- What are the sector-specific implications of privatization, particularly in natural monopolies and essential services?
- How does privatization influence competition dynamics within industries previously dominated by state-owned enterprises?
- What are the measurable changes in productivity metrics following the privatization of formerly state-owned firms?
- What are the policy implications and recommendations for optimizing productivity gains while mitigating potential adverse effects of privatization?
- What are the socioeconomic impacts of privatization on stakeholders, including employees, consumers, and broader society?
1.5 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: There is no significant relationship between privatization and productivity of formerly state owned companies
- H1: There is a significant relationship between privatization and productivity of formerly state owned companies
Hypothesis Two
- H0: Privatization of formerly owned state firms does not lead to improvements in productivity, as evidenced by increased profitability, efficiency gains, and enhanced output per worker
- H1: Privatization of formerly owned state firms leads to improvements in productivity, as evidenced by increased profitability, efficiency gains, and enhanced output per worker
1.6 Significance of Study
The study on the privatization of formerly owned state firms holds significant implications across multiple dimensions:
- Economic Efficiency: Understanding how privatization affects productivity can shed light on its role in improving resource allocation, reducing costs, and fostering economic growth. This knowledge is crucial for policymakers aiming to enhance overall economic efficiency.
- Market Dynamics: Examining the impact of privatization on competition within industries can provide insights into market structure changes, market entry barriers, and competitive behaviors of privatized firms.
- Corporate Governance: Analyzing the influence of privatization on corporate governance practices helps in assessing accountability, transparency, and management effectiveness in newly privatized entities.
- Sector-Specific Insights: Different sectors may experience varied outcomes from privatization. Studying these sector-specific implications can inform tailored privatization strategies and regulatory frameworks.
- Social and Political Implications: Privatization often intersects with social welfare considerations, such as employment effects and income distribution. Understanding these impacts is essential for evaluating the broader socioeconomic consequences of privatization.
Finally, the findings of this research study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.
1.7 Scope of Study
The scope of the research is focused on the impacts of privatization of the productivity of formerly owned state firms / businesses.
1.8 Limitations of the Study
During the course of this study, there were some problems encountered which stood as limitations to the research work. Some of the limitations include:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Establishment Policies: Establishment policies posed a serious limitation as most staffs are not ready to release information needed for this research work. There were lots of information needed from the staffs of this establishment to enhance the study which took them time to release or they did not release at all for security purposes, hence the scope was reduced.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
- Initial Cooperation Delay from Respondents: A particular limitation of this work came as a result of the respondent refusal to offer their cooperation at the initial time they were contacted. This contributed in making the success of this research study difficult.
1.9 Definition of Terms
Privatization: The transfer of ownership and control of state-owned enterprises (SOEs) to private entities, which may include individuals, corporations, or other non-state actors. Privatization aims to introduce market discipline, improve efficiency, and stimulate economic growth (Vickers & Yarrow, 1988).
Productivity: A measure of efficiency that compares the amount of output produced to the amount of input used. Productivity metrics commonly include output per worker, output per unit of capital, and total factor productivity, which reflects the overall efficiency of production processes (Jorgenson, 1963).
State-Owned Enterprises (SOEs): Companies or organizations that are owned and operated by national or local governments. SOEs are typically established to provide essential services, manage strategic industries, or pursue broader socioeconomic objectives (Bortolotti & Faccio, 2009).
