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.
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