EFFECT OF PRIVATIZATION AND COMMERCIALIZATION ON THE NIGERIAN ECONOMY (1980-2015)

ABSTRACT

This study examined the effect of privatization and commercialization of the Nigerian economy for a period of 35 years from 1980-2015 using simple regression analysis. The study also carried out its test using t–statistics in other to capture the pre and post effect of privatization and commercialization of the Nigerian economy. This work made use of secondary data sourced from the central bank of Nigeria statistical bulletin. The results of this t-statistics showed that GDP, labour force, telecommunication output and investment rate started increasing positively immediately after the policy was adopted while unemployment rate started increasing negatively after the policy was adopted which simply means that the policy worked highly in favour of the economy in general due to the switching of ownership of public enterprises from government to private. This the course of this work the researcher went on to conclude thatthis policy generally brings a drastic change positively to the economy as a whole though the privatization and commercialization of certain sectors of the economy where by recommending that this policy should be adopted by the government in other to boost economic growth.

 CHAPTER ONE

1.1 Background of the study

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. Public enterprises were established to propel socio-economic development and to guard against the control of the economy by foreign economies in line with the structural adjustment programme (SAP) in 1986. This accounts for why a large proportion of the national budget has been voted for the creation and sustenance of public enterprises. In spite of this, the performance of public enterprises has been replete with varying degree of inefficiency.

There appears to be no universally agreed definition among scholars regarding the conceptual meaning of public enterprises. For instance, Efange (1987) define public enterprises or parastatals as institutions or organizations which are owned by the state or in which the state holds a majority interest, whose activities which are of business in nature and which provide services or produce goods and have their own distinct management.Obadan (2000), Obadan&Ayodele (1998) defined public enterprises as organizations whose primary functions is the production and sale of goods and/or services and in which government or other government controlled agencies have no ownership stake that is sufficient to ensure their control over the enterprises regardless of how actively that control is exercised. Privatization is the shift of some or all responsibility from the government to the private sector. It commonly refers to the practice of scale or long term lease of government enterprise. Commercialization on the other handis the process by which a new product service is introduced into the general market.

Privatization policy was designed to bring positive change in these enterprises and also to remove government from business, and bring in proper business people to run them. There is a popular saying that government is not a good manager of business. Some enterprises are not even able to pay wages and allowances to their current workers, let alone the retired ones and the salary debts ran into several months of arrears. Other observable inefficiencies of these public enterprises and their negative consequences include : The quality of services from the public enterprises like NITEL, NEPA, STEEL MILLand Nigeria Airways were extremely poor and undesirable, These public enterprises operate below capacity and were among the most inefficient in the world, Rather than assisting the nation and the people in poverty alleviation, they were encouraging and stimulating poverty, Funds that the federal government would have invested in areas of important like social sector and other economic ventures were engulfed and wasted by these enterprises, well over ₦265 billion as at 1998, Similarly, public enterprises suffer from gross mismanagement and consequently resulted to inefficiency in the use of productive capital, corruption and nepotism, which in turn weaken the ability of government to carry out its functions efficiently (World Bank, 1991). Robin Hoods(1998) as cited in (Ogbueghi, S.N &Ugwu, O.C, 2016)            stated that privatization is the only way to remove these problems and promote efficiency, transparency, and corporate governance. The continued drain of public enterprises endangers Nigerian position in the global economy. This situation necessitated the adoption of the policy on privatization in 1999 to avoid where Nigeria will be left out of the moving train of liberalization and globalization. With privatization, government can now spend its time, energy and money taking care of Nigerians rather than few companies that constitute withdraw from the economy. It was assumed that when the real business people, take over these enterprises, they will revive them, for creation of jobs, increased competition, decreased inequality of outputs and low prices for their output too.

1.2 Statement of the problem

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 1^st 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(basil chijiokeonuoha, enoobongumoh and henry ufomba, 2017). 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 1980’s witnessed steady decline in the price of oil and with it there was deterioration in Nigeria’s economy which during the oil boom depended largely on crude oil export for bunk of its foreign exchange. During this period the country entered difficult times due to scarcity of foreign exchange and reality dawned on the nation’s economy. Retrenchment of workers was rampant in both private and public sectors, which was characterized by mass retrenchment of workers both skilled and unskilled, inflation, and low levels of production capacity utilization which forced the government to embark on an economic stabilization program. Thus, Nigeria’s precarious fiscal and monetary posture could no longer sustain the requirement of its public sector enterprises, particularly since they performed below expectation in terms of their returns on investments and quality of services. Toward the end of the 1980’s the public enterprises which had grown too large, began to suffer from fundamental problems of defective capital structures, excessive bureaucratic control and intervention, out- dated technologies, gross incompetence, and corruption with this situation of deep internal crises that included high rates of inflation, unemployment, external debt obligations and foreign exchange misalignment Nigeria like many other African countries was strongly advised the by the I M F and world Bank to divest public enterprises, intensify the push for economy liberalization and tighten public expenditure as a way of cutting public sector inefficiency and waste thereby providing greater scope for the private sector and attract foreign investment as a vehicle to revive its moribund economy(basil chijiokeonuoha, enoobongumoh and henry ufomba, 2017). Hence Nigeria was advised to embark on privatization and commercialization as a market –oriented reform to pull it out of its structural imbalances. This research work therefore seeks to ascertain the effects of privatization and commercialization on Nigerian economy so far.

1.3 Research questions

Given the above objectives, the following research questions will be asked. Thus we have;

1. Is there any significant difference between the labour force before and after privatization in Nigeria?
2. Is there any significant difference between the unemployment rate before and after privatization in Nigeria economy?
3. Is there any notable difference between telecommunication output before and after privatization in Nigerian economy?
4. Is there any meaningful difference between the level of investment before and after privatization in Nigeria economy?

How the privatization and commercialization of enterprises does affect the Nigerian economy so far­­­­­­­­­­­­­­­­?

1.4 Objectives of the study

The broad objective of this study is to compare the pre and post privatization and commercialization era in order to ascertain the effect while the specific objective is to:

1. To ascertain if there is significant difference between labour force before and after privatization in Nigeria.
2. To evaluate if there is a significant difference between unemployment rate before and after privatization in Nigeria.
3. To analyse if there is a significant difference between telecommunication output before and after privatization in Nigeria.
4. To find out if there is notable difference between the level of investment before and after privatization in Nigeria.

1.5 Statement of hypotheses

The hypotheses to be tested in this study are stated in null forms as follows:

H0₁: There is no significant difference between labour force before and after privatization in Nigerian economy.

H0₂: There is no significant difference between unemployment rate before and after privatization in Nigeria economy.

H0₃: There is no significant difference between telecommunication output before and after privatization in Nigeria economy.

H0₄: There is no significant difference between the level of investment before and after privatization in Nigeria economy.

1.6 Significance of the study

This research work will help the government and readers to understand those benefits that privatization and commercialization program embodies which we have neglected and politicized within the past. In understanding this on the side of the government, it will allow them to rethink and work towards real implementation of it and thereby creating a room for the rapid growth and development of this country.

At the other hand, it will go a long way to create an avenue for more academic research. The importance of any research is to finding out solutions that faces mankind and the environment or society. This study creates awareness to every citizen of this country and economic planners on the implication of these privatization and commercialization of public enterprises in Nigeriaeconomic development.

1.7 Scope of study

The scope of this research work focused strictly on the effect of privatization and commercialization programmes on the Nigerian economy 1981 to 2015.

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