Tuesday, 15 December 2015

ASSESS THE ISSUES OF PRIVATISATION AND COMMERCIALISATION IN NIGERIA



ASSESS THE ISSUES OF PRIVATISATION AND COMMERCIALISATION IN NIGERIA
INTRODUCTION
Today, we are witness to sweeping changes that are taking place in the economies of both developed and developing countries. These changes relate to efforts to move away from government ownership, control or participation in the economy towards free enterprise and increased operation of market forces. On the whole, the changes are making for a reduction in the role of government in the economy, with a corresponding expansion in private sector ownership, control and participation. We are thus observers of the evolution of a New World Economic Order which is characterised by the liberalisation or deregulation of economic activities, with the aim of achieving efficiency and effectiveness in resource allocation and utilisation. The economic reforms of the New World Economic Order are being implemented in more than 70 countries around the world, including the USSR, China, Vietnam and Eastern Europe countries where such reforms were virtually unthinkable less than a decade ago. The Development of the Public Sector and Public Enterprise Reform in Nigeria Since independence in 1960 (and especially during the 1970s), Nigeria, like most developing countries, developed a particularly large parastatal sector. The parastatal sector is composed of such economic activities as banking and insurance; oil prospecting, exploration, refining and marketing; cement, paper and steel mills; hotels and tourism; sugar estates; etc. A survey undertaken by the Technical Committee on Privatisation and Commercialisation (TCPC) shows that there are nearly 600 public enterprises at the federal (national) level alone, and an estimated 900 at the state (regional) and local government levels. The estimated 1,500 public enterprises in Nigeria account for between 30 and 40 per cent of fixed capital investments and the same proportion of formal sector employment. Table 1 gives the summary of the Federal Government's investments as of 30 November, 1990. These investments were valued at over N36 billion at their historical book values. The returns from these investments had never exceeded two per cent per annum, which is less than 25 per cent of the annual subventions from the government to the public enterprise sector.
While the boom in the world market for oil and petroleum products lasted, no one complained about the wastes and inefficiencies of the public enterprise sector in Nigeria. In fact, a lot more public enterprises of questionable commercial financial viability were established. It was the fall in the world market for oil, and the economic recessions which began in the early 1980s that seriously focused attention on the problems of public enterprises. The report of a Study Group on Public Enterprises revealed that they were infested with problems such as: misuse of monopoly powers; defective capital structure, resulting in heavy dependence on the Government Treasury; bureaucratic red tape in their relations with supervising ministries; mis-management, corruption and nepotism.



PRIVATISATION AND COMMERCIALISATION IN NIGERIA
As government could no longer continue to support the monumental waste and inefficiency of the public enterprise sector, the programme of privatisation and commercialisation was developed to address the peculiar socio-economic and political conditions in Nigeria, being part of the Structural Adjustment Programme. The legal framework for the Nigerian programme is the Privatisation and Commercialisation Decree No. 25 of 1988, and the implementation agency is the Technical Committee on Privatisation and Commercialisation – an eleven-member body drawn from both the public and private sectors. It was vested with wide powers to monitor and supervise the implementation of the programme. The full functions of the Technical Committee are to: advise on the capital restructuring needs of enterprises to be privatised or commercialised under this Decree in order to ensure a good reception in the Stock Exchange Market for those to be privatised, as well as to facilitate good management and independent access to the capital market; carry out all activities required for the successful public issues of shares of the enterprises to be privatised including the appointment of issuing houses, stockbrokers, solicitors, trustees, accountants and other experts to the issues; approach, through the appointed issuing houses, the Securities and Exchange Commission for a fair price for each issue; advise the Federal Military Government, after consultation with the Securities and Exchange Commission and the Nigeria Stock Exchange, on the allotment pattern for the sale of the shares of the enterprises concerned in accordance with Section 7 of this Decree; oversee the actual sale of shares of the enterprises concerned by the issuing houses in accordance with the guidelines approved by the Federal Military Government; submit to the Federal Military Government from time to time, for the purpose of approval, proposals on sale of government shares in such designated enterprises, with a view to ensuring a fair price and even spread in the ownership of the shares; ensure the success of the privatisation and commercialisation exercise taking into account the need for balanced and meaningful participation by Nigerians and foreign interests in accordance with the relevant laws of Nigeria; ensure the updating of the accounts of all commercialised enterprises with a view to assuring financial discipline; perform such other functions as may be assigned to it from time to time, by the President, Commander-in-Chief of the Armed Forces; advise the mode of disposal of an enterprise viewed by the Technical Committee as being unsuitable for disposal by the public issue of shares; seek and obtain the prior approval of the Federal Military Government for the price of any share issue in respect of any designated enterprise and the pattern of its allotment.
Objectives of the Privatisation and Commercialisation Programme
The objectives of the privatisation and commercialisation programme are:
i.                   To restructure and rationalise the public sector in order to lessen the dominance of unproductive investments in that sector.
ii.                 To encourage share ownership by Nigerians in productive investment hitherto owned wholly or partially by the Government, and in the process to broaden the Nigeria Capital Market.
iii.              To re-orientate the enterprises for privatisation and commercialisation towards a new horizon of performance improvement, viability and overall efficiency.
iv.              To ensure positive returns on public sector investments in commercialized enterprises.
v.                 To check the present absolute dependence of commercially oriented parastatals on the Treasury for funding and to encourage their approach to the Nigerian Capital Market.
PRIVATISATION IN NIGERIA
Two types of privatisation are implemented by TCPC; full and partial privitisation. Enterprises to be fully privatised are those which are already incorporated and which produce goods, and those which are more "private" (consumptive) than "public" (essential) in nature. Such enterprises must show strong evidence of historical or future profits. Enterprises to be fully privatised would be owned 100 per cent by the private sector, i.e. by institutional, individual or core group investors, or a combination of such. Management decisions affecting the enterprises would derive from policy decisions reached by the boards constituted by the new owners. Government, having divested its entire equity holding, would have no hand in the running of the enterprises or in the decision-making affecting the enterprises, except in the provision of the general infrastructural and legal framework and the maintenance of a political and economic
environment conducive to the operation of business. The fully privatised enterprises would be expected to source their funds from the capital market, from additional equity contributions or from reserves. Above all, they would be expected to pay reasonable dividends to the shareholders. Enterprises to be partially privatised are those which the government consider strategic because of the greater "public" nature of their goods. Government would still exercise some influence over those industries to the extent of its representation on the board. It is hoped that under the new regime of privatisation, managers would be made accountable to the Board, even where government had substantial interest. Ministerial control, as was the case in the past, would be chased out, as boards would be expected to operate autonomously. Partially privatised enterprises would be expected to operate like the fully privatised enterprises in terms of accountability, management, profit motivation, expansion, and diversification of production.
COMMERCIALISATION IN NIGERIA
Enterprises to be commercialised would also be expected to be better managed and to make profit. However, unlike those to be privatised, no divestiture is involved, although it is hoped that commercialisation, except perhaps in the case of utilities. It is important to distinguish between fully commercialised enterprises from those to be partially commercialised. A fully commercialised enterprise would be expected to be self-sufficient in both its recurrent as well as its capital expenditure needs. All the eleven enterprises slate for full commercialisation under the Decree (with the possible exception of the Nigerian Coal Corporation) are capable of independent existence. Where their normal operations could not generate the level of resources needed for capital development, they should be capable of raising such funds from the Capital Market on the basis of the quality of their balance sheets.
Enterprises to be partially commercialised would be expected to operate like the fully commercialised ones in terms of better management and profit orientation, but because of the "public" nature of the goods or services provided by those enterprises, and in order to keep the prices of their products or services as low as possible for the public goods, government would still provide financial grants for the capital projects of the partially commercialised enterprise.
The enterprise would, however, be expected to earn enough revenue to cover their operating costs. In some cases, subventions could be allowed on a time-bound programme of withdrawal. In both full and partial commercialisation, affected enterprises will enjoy considerable operational autonomy and, in accordance with the Decree, will have the power to operate on a strict commercial basis and, subject to the regulatory powers of government, be able to: fix rates, prices, and charges for the goods and services provided; capitalise assets; borrow money and issue debenture stocks; and sue and be sued in their corporate name.

No comments:

Post a Comment