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THE IMPACT OF PRIVATIZATION ON A DEVELOPING ECONOMY

Business Administration & Management Project Topics

CHAPTER ONE

INTRODUCTION

 

  • BACKGROUND OF THE STUDY

Up till recently, there have been many years of exhaustive deliberations by stakeholders on how to put the Nigeria windingly economy on the path of sustainable growth and development.  Now a consensus has emerged on the imperative of the privatization and commercialization of the state owned enterprises.

However, the global economy is characterized by competition, rapid technological development as seen in the fast paced changes in information technology, regional market integration, social economic activities and political unrest.

The inauguration of the national council on privatization is, therefore, very significant in several important respects, it is a critical step in our administration’s social –economic agenda.  It is a demonstration of our commitment to institutional reforms.  Finally, the response of stakeholder in the month ahead will enable us determine, with a great measure of accuracy, the extent to which we have regained international faith and confidence in our country in general and the economy in particular.

It is important to observe t hat there was a time when it was considered sound economic policy for government to establish and invest in statutory corporations and state owned companies.  Though, it was argued that public owned companies were better for stimulating and accelerating national economic development than private capital.  The result was proliferation of such state owned enterprises covering a broad spectrum of economic activities. It is estimated that successive Nigeria government have invested up to 800 Billion Naira in public owned companies.  Annual returns on this huge investment have been well below 10%.  These inefficiencies and, in many cases huge losses, are charged against the public treasury.  With declining revenue and escalating demand for effective and affordable social services, the general public stepped up to its yearning for state owned enterprises to become more efficient.

State enterprise suffer from fundamental problems of defective capital structure, excessive bureaucratic control or intervention, inappropriate technology, gross incompetence and mismanagement, blatant corruption and crippling complacency which monopoly endanger.  Inevitably, these shortcomings take a heavy toll on the national economy.

The problem associated with state owned enterprises and monopolies are not peculiar to Nigeria. It is true, however, that many developing countries which Nigeria is one, have overcome the problems through a well designed and single minded pursuit of privatization programme, the rationale is that privatization permits government to concentrate on resources on the core functions and responsibilities while enforcing the rules of the game so that the markets can work efficiently, with provision of adequate security and basic infrastructure, as well as ensuring access to the key service like education, hearth and environmental protection.  The objective is to assist in restructuring the public sector in a manner that will affect the new synergy between learners and more efficient government and a revitalized, efficient and service oriented private sector.

There has been a lot of public debate and concern as to the impact of the implementation of privatization on the social economic status of the country, indeed a slot of public conferences have been held across the country to enlighten, inform the public and appraise the performances of the privatization on the economy of Nigeria.

Despite the extensive adoption of privatization, it has from onset been highly controversial and political scenario, first, these are those who claim that privatization does not produce financial and operational benefits, or at least not enough to offset the social dislocation it causes, secondly, there an acute and pervasive fear that privatization leads to ‘lay-offs, in short run in the firms divested and then economy at the long run.  Lastly, there is a wide spread belief that even if privatization enhances efficiency, the bulk of its benefits accrued to a privileged few shareholder, managers, domestic or foreign business interest, those connected to the political elite.  While the costs are by the masses, particularly workers and end users.  In addition, many are concern that lack of transparency  and corruption in the privatization process has minimized the intended gains and led to or deepened broader problem of governance.  [Kikeri and Nellis, 2001].  It is therefore, upon this background, that this study seeks to appraise the impact of the scheme on the economy of this country in other words this study seeks  to ascertain to what extent the aim and objectives of privatization scheme have been met as a economic reform strategy in Nigeria, with emphasis on Benue cement Company [B.C.C.] Gboko, Benue State.

From a historical point of view, Benue Cement Company [B.C.C.] was incorporated as Limited Liability Company n 1975.  However, the company started operations precisely on the 15th August 1984, the first bags of lion brand Portland cement was dispatched.  The plant was commissioned with a related capacity of 900,000 tones per annum with the capacity expansion 1.2 million bones per annum.  The highest production of 810,538 tones was recorded in 1985 by 1990, the federal government privatized some of it share holding with capital restructuring of the company, the share holding structure was as follows:

  1. Federal government                              30.00%
  2. Benue State government                     19.72%
  3. Nigeria Bank or commerce & Industry     6.57%
  4. Plateau State government                  5.09%
  5. Cementia holding of Ag of Zurich     4.00%

 

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