IMPACT OF PRIVATIZATION AND COMMERCIALIZATION ON GROWTH OF NIGERIAN ECONOMY: A STUDY OF KADUNA ELECTRICITY DISTRIBUTION COMPANY

IMPACT OF PRIVATIZATION AND COMMERCIALIZATION ON GROWTH OF NIGERIAN ECONOMY: A STUDY OF KADUNA ELECTRICITY DISTRIBUTION COMPANY

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ABSTRACT

There have been many years of exhaustive deliberations by stakeholders on how to put Nigerian economy on the path of sustainable growth and development. Kaduna Electricity Distribution Company got it share couple with mismanagement of resources by those responsible to manage the day-to-day affairs of the organization. These led to their in ability to meet the aims and objectives of setting them up. The only way out seems to privatize and commercialized the sector to have enough funds to meet its service to the populace through selling of shares and foreign investment. The main objective is to assess the impact of privatization and commercialization on power sector in Nigeria, more importantly to determine whether privatization would lead to cost savings of public funds which would be more useful in other critical sectors. The study used both primary and secondary sources data and also used statistical tabulation and Augmented Dickey Fuller test stationery result for data analysis and presentation. The study found out that privatization and commercialization are inevitable because is a global phenomenon hence there is need to properly planned and coordinated in a sequence that would ensure equity, fairness, and transparency. It is therefore recommend that the Federal Government should create conductive and investment friendly environment to encourage investors who are desirous to invest in Nigeria. Bureau for Public Enterprises and Technical Committee on Privatization and Commercialization should adhere strictly to privatization procedures and ensure that successful bidders respect the terms of agreement. This programme will not only make funds available but also provide better management and managerial skill for effectiveness and efficiency of power generation and distribution.

CHAPTER ONE

INTRODUCTION

1.1       Background to the Study 

The world is moving toward more openness, political freedom and civil liberties. Economic reform in different forms and names become a worldwide phenomenon. When the IMF commits its financial support to a member country, the country is expected to implement policy adjustment and reform to correct the underlying problems that gave rise to its balance of payment difficulties and its needs for assistance. The high prominence given to privatization and the rehabilitation of allying public enterprises, in recent years has, in part, been attributed to the rising cost of the economy, in the form of subsidies to support loss-making enterprise (Cook, and Nairopie, 2009), According to Cook and Patrick (2009), public sector enterprises come at a time when not only is there a concern for their poor performance, but a perceived change in approach toward development policy and process. In most developing countries, privatization is seen as a key policy instrument in the move towards a more market oriented economy. In Nigeria, most government owned industries and establishments remain citadels of corruption, inefficiency and consequently a heavy drain in the economy. As a means of combating this menace, the IMF &World Bank (2007) have advocated the twin policies of privatization and commercialization, incidentally Nigeria has fully adopted this policy and is embarking on it with frenzy (United Nation Development Index, 2004). Privatization programme have been carried out in many countries with success and have now become an accepted part of reform policy. Between 1988 and 1993 alone, it was estimated that 2,279 Privatization transactions were carried out in 95 countries yielding about 96 billion US dollars, (TCPC Report, 2003)

In Nigeria, after the oil boom of the 1970s, the economy began to experience a downturn. The rise of inflation, unemployment, persistent budget deficit and the debt crisis started to manifest. The country has already been bedeviled with political instability, poor infrastructure, insecurity, and population explosion.

Several economic reforms were initiated and implemented by successive governments. These includes; operation feed the nation (O F N) green revolution, mass mobilization for socials and economic reforms (MAMSER), family support programme (FSP), and many more. However the implementation of structural adjustment programme (SAP) of 1986, which was aimed at deregulating the economic had negative consequences. Such as; the abolition of agricultural marketing boards, depreciation of Nigerian currency, dampened inflation, slipped in agricultural export from a previous healthy position to a dismal one in the 1980s.

Privatization programme in Nigeria was first initiated with the aim of raising new capital, reducing the state burden of supporting unproductive businesses and enhancing commercial activities. It was also expected to improve employment capacity, greater efficiency, renewed investment and allow for budgetary saving, and preservation of scarce resources, thereby improving the nation’s fiscal position. It was observed that public enterprises consume about half of all government revenue by way of grants, subsidies, import duties and tax exemption etc. In 1996 alone over 8 billion dollars was spent on foreign exchange, 1.4 billion dollars in 2000 and 4 billion dollars in 2001 (TCPC Report, 2003). These public enterprises became stumbling blocks to obtaining debt relief and aid (Abdullahi 2000). They also began to serve as political platform for political patronage serving short-term political objectives to the detriment of the nation’s long-term objectives (Tukur 2003). There was a belief traditionally that when government owns no one earned. In general these public enterprises could not perform. They became haven for corruption, mismanagement and lack of accountability. Nigerian Power Sector has been passing through a sort of reform which eventually may lead to outright divestiture. From power sector reform bill of 2003 to be blueprint for the unbundling of NEPA. Of course experience from the Commercialization of public utilities in Nigeria has clearly shown that the expected benefit of managerial and economic efficiency and increased productivity are still elusive. Where upon, is still an uphill task to receive the expected dividend of commercialization from this public sector enterprise. Though, the policy is yet to be fully implemented. Against this background, this research work assess the impact of privatization and commercialization on Power Sector in Nigeria.

1.2       Statement of the Problem

State own enterprises suffer from fundamental problems of defective capital structure, excessive bureaucratic control, inappropriate technology, gross incompetence and mismanagement, blatant corruption and crippling complacency which monopoly engenders. Inevitably, these shortcomings take a heavy toll on the national economy. The problems associated with state owned enterprises and monopolies are not peculiar to Nigeria, however many developing countries has overcome this problems through a well-designed and single-minded pursuit of commercialization and privatization programmes. Therefore, this study seeks to assess the impact of privatization in Nigeria.  The rationale is that privatization permits government to concentrate resource on their core functions and responsibilities, while enforcing the “rule of the game” so that the market can work efficiently, with provision of adequate security and basic infrastructure, as well as ensuring access to key services like education, health care, and environmental protection. On the contrary, some school of thought considered nationalization as sound economic policy for government to establish and invest in statutory corporation and state owned companies. It was their argument that public owned enterprise were better for stimulating and accelerating national and economic development than private enterprises. In the light of the controversy, this research investigates the power sector in order to ascertain the impact of privatization and commercialization in Nigeria.    

1.3       Objectives of the Study

The main objective of this study is to assess the impact of privatization and commercialization on power sector in Nigeria. Other specific objectives are to:

                       i.             Assess the impact of privatization and commercialization on power sector in Nigeria.

                     ii.             Examine the efficiency of privatized power sector

                   iii.             Determine whether privatization would lead to cost savings of public funds

1.4     Research Questions

          The following research questions are formulated and answered:

                       i.            What are the impact of privatization and commercialization on power sector in Nigeria?

                     ii.            What are the factors that hinder the Privatization and Commercialization exercise from achieving its goals?

                   iii.            Can these corporations function more efficiently if privatized?

1.4     Hypotheses

The following hypotheses were formulated and tested in line with the objectives and research questions.

HOi:    Privatization and Commercialization have no positive impact on the power sector in Nigeria.

HAi:    Privatization and Commercialization have positive impact on the power sector in Nigeria.

HOii:   Privatization would not make the power sector more efficient.

HAii:   Privatization would make the power sector more efficient.

HOiii:  Privatization would not lead to cost savings of public funds

HAiii:  Privatization would lead to cost savings of public funds

1.5     Significance of the Study

The choice of this topic is no doubt based on the importance the researcher attaches to it in the socio-economic development of Nigerian economy. This research work will broaden the researcher’s practical knowledge of the topic and will equally serve as a platform for his future development in this area of study.  This research work will help the government and researchers to understand those benefits that privatization and commercialization program embodies which we have neglected and politicized. In understanding this on the side of the government, it will allow them to rethink and work towards real implementation of it 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.

Having known this, it is worthy to note that the main beneficiaries of this study lies on the government and other reader respectively. Finally, it will help in further research investigation in the subject matter.

1.6       Scope of the Study/ Delimitation of the Study

In our quest to research on issues surrounding privatization and commercialization in Nigerian public enterprise using power sector as a case study, the basis and primary focus of this research work is on the impact of the exercise on the economy. This study will essentially cover the period 1999 to 2016, this is to enable us have a thorough analysis of this work.

1.7       Limitation of the Study

Limitation set man on adjusting path. The limitation of the study is seen by the fact that privatization and commercialization are new phenomenon in Nigeria as such, much has not been said or written on it. In writing research project, a researcher is bound to contend with the available material/information at his disposal, as such, this research is faced with inadequate relevant studies for indebt analysis. However, the above constraint would not affect the quality and the validity of the finding of the study.

1.8       Definition of Terms

Public Corporations: public corporation or enterprise as defined by adamolekun (1983), are organizations that emerged as a result of government acting in the capacity of an entrepreneur. They can be seen as those corporations or enterprise built, owned and managed by the government. They are being financed with public fund, especially through taxation and also operate on monopoly.

Privatization: privatization can be defined as the transfer of ownership and control of enterprises from the state to the private sector.

Commercialization: commercialization is the act of making government owned enterprises profits oriented.

Capitalism: capitalism means the economic system in which property is privately owned and goods are privately produced.

Public: of or pertaining to the people; belonging to the people; relating to or affecting a nation, state, or community as opposed to private.

Private: belonging to some particular persons; pertaining to or affecting a particular person or a small group of persons, as opposed to public.

Public Enterprise: is a business organization wholly or partly owned by the state and controlled through a public authority.

Private Enterprise: is a business operation or a firm that is owned and operated by private individuals rather than government agencies.

Corporation: a business form legally separate from its owners. It distinguishing features include limited liability, easy transfer of ownership, unlimited life, and an ability to raise large sums of capital.

Divestiture: the divestment of a portion of the enterprise or the firm as a whole.

Dividends: earnings and profits of a corporation appropriated for distribution among shareholders, usually paid quarterly.

Interest: money paid (earned) for the use of money.

Takeover: the acquisition of another company that may from the view points of the acquire firm’s management take the form of a friendly of unfriendly merger.





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