Thursday, 18 August 2016

ASSESSMENT OF COST PERFORMANCE AND ACCOUNTABILITY IN PRIVATIZED PUBLIC ENTERPRISES IN NIGERIA

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.

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