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PRIVATIZATION AND NIGERIA ECONOMY A CASE STUDY OF PHCN

Abstract

Privatization of State-owned enterprises has emerged globally as a public policy aimed at reversing the appalling trend of public and social services provisioning. This study therefore examines the justifications for privatization side by side the actual experiences sequel to the policy implementation in the electricity industry in Nigeria. The research was conducted using survey method. In-depth interviews were conducted with identified respondents in addition to data gathered from the questionnaire. Quantitative analyses of the data were done and the findings include the existence of a wide gap between theory and the experience. It was found out a woeful failure of the policy at the three levels of the unbundled electricity industry and especially with the PHCN that is our case study.

CHAPTER ONE

INTRODUCTION

1.1      Background of the Study

Among the major consequences of the world wars I and II was the weakness and near collapse of the market. The circumstances of market failure and the urgent need for the reconstruction of many devastated and badly damaged economics of the west made most capitalist countries embrace or resort to the maximalist public sector orientation of welfare state development administration paradigm (Odukoya, 2007). The capitalist development agenda was thus humanized by the welfare state leading to the reconstruction of the European economies on the very bases of Keynesian economic theory. This incontrovertible fact of economic history is a profound testimony to the utility of the public sector as important development engine and not a natural congenial development liability as it is being presently portrayed and there and then, state interventionist economic management theory became world dominant consequent upon which the establishment of public enterprises was given rare impetus (Laleye, 2002). Laleye comments further that: The weakness of the private sector, lack of infrastructure, low level of social and human development and the unfavourable social, economic, and financial environment have been evoked to explain the proliferation of public enterprises in all areas of economic and social development. Other explanations include, the urge of generate revenue, to limit foreign economic domination and to provide a substitute for private initiative where it was not forthcoming (Laleye, 2002:33). Flowing from the historical imperatives of the economic situation that precipitated state intervention is the bequeathing of this developmental strategy as a colonial legacy to most African countries that became independent in the late 1950s and 1960s and that sector continued to blossom till late 1970s. Consequent upon that, Nigeria had about fifty (50) state owned enterprises (SOEs) at independence; by 1970, the number had risen to 200 and by the time the country embarking on economic reforms in 1987, the number had risen to 1,500. Consequent upon the proliferation, SOEs had covered virtually all aspects of the Nigerian social and economic lives among which are health, education, housing and town-planning, information, power, transportation, communication, manufacturing, commerce and finance. As noted by Omoleke (2010) SOEs from early 1970s became the tools of government intervention in the development process. They played major roles in the country's quest for national economic independence and selfreliance and so, they mostly operated as “quasi” commercial organizations (Imhonopoi and Urion 2010). According to Oji, Nwachukwu and Eme (2014), the SOEs were actually performing creditably well and meeting the hopes and aspirations of the members of the public up to the early 1980s in Nigeria. In fact, their failure to meet the targeted developmental goals set for them was a matter of the late 1980s and early 1990s. In most of the developing countries of the third world, the involvement of governments in the planning and execution of social and economic policies is almost inevitable. Governments’ involvement in the economy in less developed countries of Africa has even become more relevant given the absence of viable indigenous entrepreneurial class especially shortly after independence and also the threat posed to their entire economic and political structures by neo-colonialism. Shortly after independence, it became clear to most African countries that neither the public service they inherited nor the few scattered private enterprises controlled by the alien investors could produce goods and services that would satisfy the aspiration of the then newly independent people. Besides, the desire of most African governments to control the strategic areas of their economy has made them to adopt policies that play down the orthodox laissez-faire economic doctrines which essentially restrict governments to their traditional role of maintaining law and order. Perhaps, this is why the Keynesian theoretical position was adopted by most of these African countries, Nigeria inclusive. In essence, the theory believes that Public Enterprises, otherwise known as State Owned Enterprises (SOEs), were needed to provide social services and to propel the vehicle of socio-economic development. Admittedly, the role of public enterprises in Nigeria has not yet been properly grasped. This, perhaps, is largely due to a mix-bag of paradoxes, illusions, misgivings and misrepresentation about them. The confusion culminating in the strong campaign for their privatisation create the strong impression that these bodies have not had any substantial positive impact on the Nigerian economy. The ambiguities and contradictions in the advocacy of government intervention in the economy, notwithstanding, SOEs are clearly meant to build and strengthen free enterprises. Until recently, the dominant view was that developing countries, regardless of their ideological disposition, need to make fairly extensive use of public enterprises at least to get things going (Hansen, 1958). This contention also lends credence to Ajakaiye (1988) when he said that regardless of their level of development, developing countries need to make extensive use of SOEs at least to get things done. In the same vein Hemming and Mansoor (1988) viewed it as the interventionist development policy of the 1960s when the public sector was seen as a major contributor to economic growth. In most countries whether developed or developing, the involvement of government in the planning and execution of economic policies is almost inevitable. Government‟ involvement in the economy in the less developed countries of Africa has become even more important given the absence of viable indigenous entrepreneurial class and the threat posed to their entire economic and political structures by neo-colonialism. Shortly after independence, it became clear to most African countries that neither the public service they inherited nor the few scattered private enterprises controlled by alien investors could produce goods and services that would satisfy the aspiration of the newly independent but impatient people. Besides, the desire of most African governments to control strategic areas of their economy has made them to adopt policies that play down the orthodox laissez-faire economic doctrines which essentially restrict governments to their traditional role of maintaining law and order (minimal government). According to Obadan (2000), the case for public ownership has often been made on many grounds among which are: 1. The persistence of monopoly power in many sectors, meaning that certain markets have the tendency to move towards monopoly power, especially when technological factors imply that only one producer, a natural monopoly, can fully exploit available economics of scale, particularly in services requiring heavy investment e.g. an electricity grid. In this special circumstance, direct government control may be required to ensure that prices are not set above the cost of producing the output (Todaro, 1989, 567). 2. Freedom of government to pursue objectives relating to social equity, which the competitive market would ignore, notable among which are employment and easy access to essential goods and services. 3. Capital formation was a condition at the early stages of development when private savings were very low. Investment in infrastructure at this stage was crucial to lay the ground work for further investment. Furthermore, lack of private incentives to engage in prospective economic ventures due to factors of uncertainty about the size of the local markets, unreliable sources of supply and inadequacy of technology and skilled labour. Governments of nations or states and leaders of organizations must seek to create enabling environments that will engage all scarce resources including available human, material supplies and capital inputs for the best possible results at all times so that nations and organizations will not only survive but thrive.   Without the conscious engagement of the available resources, nations and their organizations may suffer the disease of decline and eventually fall no matter how big they may be. Collins (2009:2) captures this succinctly, “History shows, repeatedly, that the mighty can fall. The Egyptian Old Kingdom, the Minoans of Crete, the Chou Dynasty, the Hittite Empire, the Mayan Civilization – all fell. Athens fell. Rome fell. Even Britain, which stood a century before as a global superpower, saw its position erode…”   In a world of scarce resources, there is nothing like institutional self‐perpetuation. Therefore, real leaders seek to prevent, detect, or reverse decline of their nations and organizations. Great leaders work hard to terminate institutional mediocrity or seek to transform mediocrity into excellence (Collins, 2009:111).

1.2      STATEMENT OF THE PROBLEM

The Nigerian economic environment has been doubted for having the sufficient ground for privatization. Kalejaiye, et al (2013) reveals the continued skepticism of Nigerians about the privatization policy in Nigeria as spearheaded by the Nigerian Labour Congress (NLC). The NLC President, Comrade Abdulwaheed Omar is noted to have reiterated in his 2011 new year message to Nigerian Workers the opposition to further privatization of public establishments. The NLC President argued that privatization failed to improve the condition of Nigerian workers and the population at large and that due to persistent corruption, insecurity and lack of political will to do what is right, these economic ideas have been sinking the country into anomie – a normless state of detachment and perilous disorder.   Indeed, according to the World Bank (2003), most privatization success stories come from high income and middle income countries. Privatization is easier to launch and more likely to produce positive result when the company operates in a competitive market and when the country has a market‐friendly policy environment and a good capacity to regulate. The poorer the country, the longer the odds against privatization producing its anticipated benefits, and the more difficult the process of preparing the terrain for sale.”  It is in view of the above that the researcher intend to investigate the efficacy of privatization and Nigeria economy with emphasis on PHCN.

1.3      OBJECTIVES OF THE STUDY

The main objective of this study is to investigate the effectiveness of privatization on Nigeria economy. but for the successful completion of the study the researcher intends to achieve the following specific objective;

i)             To ascertain the impact of privatization on Nigeria economy.

ii)           To examine the relationship between privatization and economic growth.

iii)          To examine the effect of privatization on power sector in Nigeria.

iv)         To examine the role of government in ensuring effective power generation and distribution in Nigeria.

1.4      RESEARCH HYPOTHESES

To aid the completion of the study, the following research hypotheses were formulated by the researcher;

H0: privatization does not have any significant impact on Nigeria economy.

H1: privatization does have a significant impact on Nigeria economy.

H0: there is no significant relationship between privatization and economic growth.

H2: there is a significant relationship between privatization and economic growth.

1.5      SIGNIFICANCE OF THE STUDY

There are conflicting views, albeit emotionally expressed opinions about privatization of public enterprises in Nigeria rather than efforts to scientifically assess the impact of privatization on the economy of the country.  This study is significant for investigating the effects of privatization of public enterprises with the aim of identifying areas of strengths to which Nigeria will capitalize on or take corrective measures to ensure substantial and sustainable development. The study is significant for providing a data base for policy  makers, researchers and prospective investors in to the Nigerian economy.   This study will also clear the cloud surrounding the whole privatization programme embarked upon by Nigerian leaders with the aim of ascertaining the truest picture and enlightening the public who depend on unscientific propaganda and cause all kinds of social commotions.

1.6      SCOPE AND LIMITATIONS OF THE STUDY

The scope of the study covers privatization and Nigeria economy with emphasis on PHCN. In the cause of the study, there were some factors which limited the scope of the study;

a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study.

b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

1.7 OPERATIONAL DEFINITION OF TERMS

Privatization: Privatization is the purchase of all outstanding shares of a publicly traded company by private investors, or the sale of a state-owned enterprise to private investors.

STATE-OWNED ENTERPRISE (SOE): A state-owned enterprise (SOE) is a legal entity that is created by the government in order to partake in commercial activities on the government's behalf. It can be either wholly or partially owned by a government and is typically earmarked to participate in commercial activities.

Economic growth: Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows: Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding. Chapter five gives summary, conclusion, and recommendations made of the study.

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