An assessment of cost performance and accountability in privatized public enterprises in nigeria

Thesis Overview

<p> </p><p>INTRODUCTION</p><p>1.1 Background of the Study<br>Privatization of state-owned enterprises has become an important<br>phenomenon in both developed and developing countries. Over the last<br>decade, state-owned enterprises (SOEs) have been privatized at an<br>increasing rate, particularly in developing countries (DCs).<br>Privatization has become an important phenomenon in both developed and<br>developing countries. Over the past decade, privatization attempts have<br>been occurring at an increasing rate, especially in developing<br>countries. The compound annual average growth rate was around 10%<br>between 1990 and 2000, with global privatization revenues jumping from<br>$25 billion in 1990 to $200 billion in 2000. The number of countries<br>that have implemented privatization policies has exceeded 110, not to<br>mention that privatization has touched almost every aspect of economic<br>activity (Shadeh, 2002).<br>Privatization of state-owned enterprises (SOEs) has become a key<br>component of the structural reform process and globalization strategy in<br>many economies. Several developing and transition economies have<br>embarked on extensive privatization programmes in the last one and a<br>half decades or so, as a means of fostering economic growth, attaining<br>macroeconomic stability, and reducing public sector borrowing<br>requirements arising from corruption, subsidies and subventions to<br>unprofitable SOEs. By the end of 1996, all but five countries in Africa<br>had divested some public enterprises within the framework of<br>macroeconomic reform and liberalization (White and Bhatia, 1998). In<br>line with the trend worldwide, the spate of empirical works on<br>privatization has also increased, albeit with a microeconomic<br>orientation that emphasizes efficiency gains (La Porta and<br>López-de-Silanes, (1997); Boubakri and Cosset, (2001); Dewenter and<br>Malatesta, (2001) D’Souza and Megginson, (2007). Yet, despite the<br>upsurge in research, our empirical knowledge of the privatization<br>programme in Africa is limited. Aside from theoretical predictions, not<br>much is known about the process and outcome of privatization exercises<br>in Africa in spite of the impressive level of activism in its<br>implementation.</p><p>Current research is yet to provide useful insights into the peculiar<br>circumstances of Africa, such as the presence of embryonic financial<br>markets and weak regulatory institution efforts. Most objective<br>observers agree, however, that the high expectations of the 1980s about<br>the “magical power” of privatization bailing Africa out of its quagmire<br>remain unrealized (Adam et al., (1992); World Bank,(1995); Ariyo and<br>Jerome, (1999); Jerome, (2005). As in most developing countries, Nigeria<br>until recently witnessed the growing involvement of the state in<br>economic activities. The expansion of SOEs into diverse economic<br>activities was viewed as an important strategy for fostering rapid<br>economic growth and development. This view was reinforced by massive<br>foreign exchange earnings from crude oil, which fuelled unbridled<br>Federal Government of Nigeria (FGN) investment in public enterprises.<br>Unfortunately, most of the enterprises were poorly conceived and<br>economically inefficient. They accumulated huge financial losses and<br>absorbed a disproportionate share of domestic credit. By l985, they had<br>become an unsustainable burden on the budget. With the adoption of the<br>structural adjustment programme (SAP) in 1986, privatization of public<br>enterprises came to the forefront as a major component of Nigeria’s<br>economic reform process at the behest of the World Bank and other<br>international organizations. Consequently, a Technical Committee on<br>Privatization and Commercialization (TCPC) was set up in 1988 to oversee<br>the programme. In the course of its operations, the TCPC privatized 55<br>enterprises. Sufficient time has elapsed since the start of reforms to<br>allow an initial assessment of the extent to which privatization has<br>realized its intended economic and financial benefits, especially with<br>the commencement of the second phase of the programme. This is<br>particularly important in view of the lessons of experience revealing<br>interesting features that may alter earlier notions as to the most<br>appropriate way to implement privatization programmes (Nellis, 1999).<br>Concerns about globalization, in some transition economies (notably the<br>former Soviet Union and Czech Republic) and disappointment with<br>infrastructure privatization in developing countries are spawning new<br>critiques of privatization (Shirley and Walsh, 2000). Among the<br>pertinent issues to be addressed are: What is the extent and pattern of<br>cost performance and accountability of privatized firm? What have been<br>the results of these performance? Has privatization improved the cost<br>and accountability of firm? Finally, what policy lessons are to be<br>learned from the privatization experience so far? These are the issues<br>that come into focus in the study.</p><p>1.2 Statement of Problem</p><p>The issue of cost performance and accountability of privatized public<br>enterprise have been a serious subject of the debate and different<br>interest group that is the “stakeholders”. The post privatization effect<br>this enterprise have been the subject of public scrutiny and criticism<br>by the public and others alike. Majority are of the view that their<br>performance is not different from the way it was when they were under<br>public enterprise. In response to this in recent national assembly<br>committee, that was set up to look into this enterprise partially<br>supported public concern on their performance. It is against these<br>background that this research is carried out to determine or find out if<br>these view are true as the research is intended to look at this<br>research is intended to look at this privatized firms cost performance<br>and accountability.</p><p>Public enterprise before their recent privatization where perceived<br>to be bedeviled by numerous challenges ranging from political<br>interference, inefficiency in the management of resources, conflict of<br>objectives, overdependence on subvention for survival etc. these over<br>the years have been the main source of criticism of public enterprises<br>and the reason why they are poorly managed . is this issue the same<br>after the privatization o these enterprises? This study is intended to<br>establish it. 1.3 Research question:<br>Based on the problem statement and the objective of the study stated above the study will answer the following questions;<br>i) Has privatization improved the cost performance and accountability of this firm as anticipated?<br>ii) To what extent are privatized firms accountable to shareholders and other relevant stake holders?<br>iii) To what level has there been effective checks and balances in privatized enterprises in Nigeria.</p><p>1.4 Objectives of the Study. The overriding objective of this study<br>is to evaluate the second wave of the Nigerian privatization programme<br>spanning 2008-2012. The specific objectives are as follows: (i) To<br>examine whether privatization has improved the cost performance and<br>accountability of privatized firm. (ii) To assess the extent to which<br>privatized firms are accountable to shareholders and other relevant<br>stakeholders. (iii) To determine if there are effective checks and<br>balances in privatized enterprises in Nigeria.</p><p>1.5 Statement of Hypothesis<br>Ho: Privatization has not led to efficient and improved cost<br>Performance.<br>Hi: Privatization has led to efficient and improved cost<br>Performance.</p><p>Ho: There have been no effective accountability to share holders and other relevant stake holders.<br>HI: There have been effective accountability to shareholders and other relevant stakeholders.<br>Ho: privatization has not led to effective checks and balances in privatized enterprises in Nigeria.<br>Hi: privatization has led to effective checks and balances in privatized enterprises in Nigeria.</p><p>1.6 Significance of the study</p><p>Giving the substantial number of enterprises that are yet to be<br>privatized, the study would provide insights into the desirability,<br>feasibility and sustainability of future reforms. It is envisaged that<br>the policy recommendations from the study would assist the National<br>Council on Privatization in correcting the pitfalls embedded in the<br>previous endeavor.</p><p>The study will assist students and fellow researchers generate<br>information on cost performance and accountability of firm particularly<br>if it is relevant to their studies. In the overall, it is envisaged that<br>the outcome of the study will assist international, multilateral and<br>donor agencies to identify the felt needs, thereby facilitating the<br>design of demand-driven policies and programmes to ensure the success of<br>privatization in Nigeria in particular and sub-Saharan Africa in<br>general.</p><p>1.7 Scope of the study</p><p>The scope of the study has been narrowed in order to look at the<br>impact of cost performance and accountability in the petroleum industry,<br>particularly in UNIPETROL (now called OANDO plc after privatization).<br>The study will cover a period of five(5) years ranging from (2008-2012).</p><p>1.8 Limitation of study</p><p>Like many other research study, this research is confronted with the following limitations:</p><p>1. Finance – The cost of running any research project is quite<br>expensive. It ranges from producing questionnaires to be distributed to<br>respondents, the cost of transporting to the areas where information<br>concerning the project is to be obtained etc, and this research is not<br>an exception.</p><p>2. Time- The time required to complete a research project is often<br>limited judging from the information required to complete a<br>comprehensive research work. This research is also affected by time.</p><p>3. Problem of confidentiality- The challenge of getting respondents<br>to fill the necessary research questionnaires is tasking despite the<br>confidence giving to keep all information obtained from them in utmost<br>confidence.</p><p>1.9 Definition of key Terms.</p><p>A. Accountability: It is rendering stewardship. It is also the act of<br>being able to Shoulder responsibilities and carry the correlative<br>burden of performance. In other words it means answerability,<br>blameworthiness, liability and the<br>Expectation of account-giving.<br>B. Asset sale: is the transfer of ownership of government assets,<br>commercial-type enterprises, or functions to the private sector. In<br>general, the government has no role in the financial support,<br>management, or oversight of a sold asset. However, if the asset is sold<br>to a company in an industry with monopolistic characteristics, the<br>government may regulate certain aspects of the business, such as utility<br>rates.<br>C. Competition: occurs when two or more parties independently attempt to<br>secure the business of a customer by offering the most favorable terms<br>or highest quality service or product. Competition in relation to<br>government activities is usually categorized in three ways: (1) public<br>versus private, in which private-sector to conduct public business; (2)<br>public versus public, in which public-sector organizations compete among<br>themselves to conduct public-sector business; and (3) private versus<br>private, in which private-sector organizations compete among themselves<br>to conduct public-sector business.</p><p>D. Cost: this is the sacrifice rendered for benefit derived. It is<br>seen in terms of opportunity cost that is the one associated with<br>alternative forgone. E. Divestiture: involves the sale of<br>government-owned assets. After divestiture, the government generally has<br>no role in the financial support, management, regulation, or oversight<br>of the divested activity F. Privatization: privatization implies<br>permanent transfer of control, as a consequence of transfer of ownership<br>of right, from the public to the private sector. This definition is<br>perhaps the most common usage of the term. G. Public enterprise: any<br>corporation or parastatal established by or any enactment in which the<br>government of the federation or it agencies has ownership or equity<br>interest. H. Public sector: that portion of an economy whose activities<br>(economic or non economic) are under the control and direction of the<br>state.</p><br> <br><p></p>