CHAPTER ONE
INTRODUCTION
1.1
Background of the Study
Privatization of
state-owned enterprises has become an important phenomenon in both developed
and developing countries. Over the last decade, state-owned enterprises (SOEs)
have been privatized at an increasing rate, particularly in developing
countries (DCs). Privatization has become an important phenomenon in both
developed and developing countries. Over the past decade, privatization
attempts have been occurring at an increasing rate, especially in developing
countries. The compound annual average growth rate was around 10% between 1990
and 2000, with global privatization revenues jumping from $25 billion in 1990
to $200 billion in 2000. The number of countries that have implemented
privatization policies has exceeded 110, not to mention that privatization has
touched almost every aspect of economic activity (Shadeh, 2002).
Privatization of state-owned enterprises (SOEs) has become a key
component of the structural reform process and
globalization strategy in many economies. Several developing
and transition economies have embarked on extensive privatization programmes in
the last one and a half decades or so, as a means of fostering economic growth,
attaining macroeconomic stability, and reducing public sector borrowing requirements arising from corruption,
subsidies and subventions to unprofitable SOEs.
By
the end of 1996, all but five countries in Africa had divested some public enterprises within the framework of macroeconomic reform
and liberalization (White and Bhatia, 1998). In line with the trend worldwide,
the spate of empirical works on privatization has also increased, albeit with a
microeconomic orientation that emphasizes efficiency gains (La Porta and
López-de-Silanes, (1997); Boubakri and Cosset, (2001); Dewenter and Malatesta,
(2001) D'Souza and Megginson, (2007). Yet, despite the upsurge in research, our
empirical knowledge of the privatization programme in Africa is limited. Aside
from theoretical predictions, not much is known about the process and outcome
of privatization exercises in Africa in spite of the impressive level of
activism in its implementation.
Current research is yet to provide useful insights into the
peculiar circumstances of Africa, such as the presence of embryonic financial
markets and weak regulatory institution efforts. Most objective observers
agree, however, that the high expectations of the 1980s about the "magical
power" of privatization bailing Africa out of its quagmire remain
unrealized (Adam et al., (1992); World Bank,(1995); Ariyo and Jerome, (1999);
Jerome, (2005).
As
in most developing countries, Nigeria until recently witnessed the growing
involvement of the state in economic activities. The expansion of SOEs into
diverse economic activities was viewed as an important strategy for fostering
rapid economic growth and development. This view was reinforced by massive
foreign exchange earnings from crude oil, which fuelled unbridled Federal
Government of Nigeria (FGN) investment in public enterprises. 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 l985, they had become an unsustainable burden on the
budget. With the adoption of the structural adjustment programme (SAP) in 1986,
privatization of public enterprises came to the forefront as a major component of
Nigeria's economic reform process at the behest of the World Bank and other
international organizations.
Consequently,
a Technical Committee on Privatization and Commercialization (TCPC) was set up
in 1988 to oversee the programme. In the course of its operations, the TCPC privatized 55 enterprises. Sufficient time has elapsed since the
start of reforms to allow an initial assessment of the extent to which
privatization has realized its intended economic and financial benefits,
especially with the commencement of the second phase of the programme. This is
particularly important in view of the lessons of experience revealing
interesting features that may alter earlier notions as to the most appropriate
way to implement privatization programmes (Nellis, 1999). Concerns about
globalization, in some transition economies (notably the former Soviet Union
and Czech Republic) and disappointment with infrastructure privatization in
developing countries are spawning new critiques of privatization (Shirley and
Walsh, 2000). Among the pertinent issues to be addressed are: What is the
extent and pattern of cost performance and accountability of privatized firm?
What have been the results of these performance? Has
privatization improved the cost and
accountability of firm? Finally, what policy lessons are to be learned from the
privatization experience so far? These are the issues that come into focus in
the study.
1.2
Statement of Problem
The
issue of cost performance and accountability of privatized public enterprise
have been a serious subject of the debate and different interest group that is
the “stakeholders”. enterprise have been the subject of public scrutiny and criticism
by the public and others alike. Majority are of the view that their performance
is not different from the way it was when they were under public enterprise.
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