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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