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