CHAPTER ONE

INTRODUCTION

1.1 Background of The Study

Privatization has become a major strategy adopted world over

to improve the performance of public enterprises. It is a known fact

that one feature of public enterprises all over the world but more

importantly in developing countries of Africa especially Nigeria is

inefficiency bureaucracy of public enterprises and uncared attitude

of most public servants or most people to public work and property.

This leads to waste slow growth and inordinate dependence on

government support (in the form of annual subventions) even when

the activity is apparently a profitable line.

As a way of improving the fortunes and performance of these

enterprises through which profit orientation will be the motive of

the enterprises privatization is being canvassed such that

government will divest itself of all its ownership interest and allow

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private sector to buy over these companies. In Nigeria today the

private sector is increasingly being recognized as the motivating

force that fosters economic progress.

In Nigeria the oil boom of the1970s among other factors gave

impetus to a public sector-led government strategy. Public sector

dominance was also prevalent in order to give government an

increasing measure of control over its own resources (obadan 2000)

the dwindling revenue of government as a result of the economic

crisis of the 1980s coupled with the dissatisfaction with the

performance of the public compelled Nigeria to adopt the

privatization and commercialization in 1988.

Today in Nigeria privatization of key government business is

no longer a household talk but it has become a major issue in the

mind of every meaningful Nigerian.

The participation of the State in enterprises in Nigeria dates

back to the colonial era. The task of providing basic infrastructure

such as railway road bridges water electricity and port facilities

fell on the colonial government due to the absences of indigenous

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companies with the required capital as well as the inability or

unwillingness of foreign trading companies to embark on capital

intensive project (Iheme 1997). The involvement was expended and

consolidated by the colonial welfare development plan (1946-1956)

that was formulated when labor party came to power in the United

Kingdom. This trend continued after independence such that by

1999 it was estimated that successive Nigerian government had

invested up to N800 billion in public owned enterprises (Igbuzor

2003 as citing Obasanjo 1999). Throughout much of the twentieth

century there were three dominant strategies for infrastructure

investment. In some countries most notably those in the Eastern

Bloc State ownership of the means of production was promoted

while others (Western Bloc) promoted private ownership of

production. A large number of countries also predicted what was

termed a mixed economy a combination of public and private

ownership of the means of production. However by the end of the

twentieth century with the end of cold war between the eastern and

western bloc private ownership of the means of production gained

ascendancy. Today what is applicable is that the State should

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recede from this role and that private ownership of the means of

production is the only viable approach to the efficient production of

goods and services as well as economic growth and development.

Consequently there is a strong move all over the world to privatize

erstwhile public enterprises (Igbuzor 2003). Thus privatization

could be looked upon as the reduction of public sector intervention

in economic activity. It involves the divesture of government

economic activities (Anyanwu 1993). It occupies a unique position

in a global economic liberation and provides an avenue for raising

productivity thus enhancing overall economic growth and

development (Salako 1999). This is however achieved through

increased involvement of the private sector in productive economic

activities through the sale of public enterprises to the private sector

with the ultimate aim of infusing improved economic efficiency in

the businesses. With privatization the role of government in direct

productive activities diminishes as the private sector takes over

such responsibilities with profit motive as its major objective. In

such a situation the government is only expected to provide

essential infrastructure and an enabling environment through

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which private enterprises could flourish. Privatization is predicated

on the assumptions of State inefficiency and absolute efficiency of

the market (Salako 1999). It would be recalled that several Nigerian

public enterprises have on several occasions been under severe

criticism by international media agents for their operational and

pricing inefficiencies. Nigeria like many other developing economies

witnessed increasing cost and poor performance of State-owned

enterprises (SOEs) resulting in heavy financial losses. In it there

has been proliferation of SOEs in all facets of economic endeavours

as a means of fostering rapid economic growth and development

(Eke 2000).

Unfortunately most of them were structurally ill-conceived

economically inefficient with accumulated huge financial losses and

thus absorbing disproportionate share of domestic credit. They were

also sustained through heavy budgetary allocations of the country

(Jerome 1996 as cited in Eke 2000). For instance the state-

owned enterprises (SOEs) are adjudged to have contributed

substantially to public sector deficit and have financed less than

one fifth of their investments through Internally Generated

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Resources (IGR) (Nair and Filippides 1988). As some governments

ran into severe fiscal problems such that loans became increasingly

difficult to rise at home and abroad they were forced to consider

some radical methods of reviving the SOEs. Such reforms embarked

upon by developing countries included privatization. Kikeri (1994)

has noted that the high costs and poor performance of SOEs and

the modest and fleeting results of reform efforts have turned many

governments towards privatization.

1.2 STATEMENT OF THE PROBLEM

It is the inefficiency of government-run public enterprises

today that calls for the privatization of these enterprises. However

one may note that privatization may not likely be the only solution

of getting government-run enterprises on the ideal path of

efficiency deregulation and market oriented economy. The study

therefore believes that there should be some silent initiatives that if

properly harnessed could be the shining light to lead the nation’s

ship to the desired harbor.

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1.3 Research Questions

1. Is privatization the engine of economic growth in Nigeria?

2. Is there any relationship between privatization and economic

growth?

1.4 Objectives Of The Study

1. To determine the relationship between private sector spending

and GDP.

2. To ascertain the relationship between public sector spending

and GDP.

3. To find out whether there is any relationship between public

and private sector spending and GDP.

1.5 Research Hypothesis

Privatization does not have impact on economic growth in

Nigeria.

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1.6 Significance Of The Study

1. To provide information on the privatization of the Nigerian

privatization exercise.

2. To determine whether privatization has contributed positively

or negatively to the growth and development of the Nigerian

economy.

3. To educate students about the nature of the Nigerian private

sector.

1.7 Scope Of The Study

The study covers the impact of the private sector from 1980-

2010.

1.8 Definition Of Basic Concept

PRIVATISATION: This is the process of transferring ownership

interest and control in a government-owned enterprise to the

private sector.

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FULL PRIVATISATION: The government sells the enterprise in full

to private individuals or groups.

PARTIAL PRIVATISATION: The government sells some of its

shares or holdings to the private sector.

PUBLIC SECTOR: They are organizations that are owned and

managed by the government.

PRIVATE SECTOR: This consists of private business ownership.

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