DEFINITION OF CONCEPT
1.
Privatization: Privatization is the process of transferring an enterprise or industry from the
public sector to the private sector. The public sector is the part of the
economic system that is run by government agencies.
2. Commercialization: Ccommercialization is the process of introducing a new product or
production method into commerce—making it
available on the market.
3. Deregulation / Liberalization: Deregulation is the process of removing or reducing state regulations. While In
general, liberalization refers
to a relaxation of previous government restrictions, usually in such areas of
social, political and economic policy.
Effects Of Privatization and Commercialization on Nigerian Economy
Privatization, a method, of allocating assets and function from the
public sector to the private sector, appears to be a factor that could play a
serious role in the quest for growth. In recent history, privatization has been
adopted by many different political systems and spread to every region of the
world.
The process of privatization can be an effective way to bring about
fundamental structural change by formalizing and establishing property rights,
which directly create strong individual incentives. A free market economy
largely depends on well-defined property rights in which people make individual
decision in their own interest. Modern market economics generate growth because
widespread, formal property rights permit massive, low-lost exchange, thus
fostering specialization and greater productivity. Along with creating strong
incentives that induce productivity, privatization may improve efficiency,
provide fiscal relief, and encourage wider ownership and the availability or
credit for private sector.
The issue of privatization has been a subject of intense global
debate in recent years. In Africa, it has remained highly controversial and
politically risky. Privatization in Nigeria over some time has not been a
popular reform. It has received so much criticism from labour, academia, and
individuals. There have been numerous strikes against proposed sell-offs by
fearing loss of jobs, while proponents of privatization see that aspect of
economic reform as an instrument of a efficient resource management for rapid
economic development and poverty reduction. The critics argue that
privatization inflicts damage on the poor through loss of employment, reduction
in income, and reduced access to basic social services or increase in prices.
Commercialization on the other hand, has much influence on the
economic growth and development of any country. It is in practice, because it
deals on the re-organization of public enterprises in much a way as to operate
as profit making commercial ventures, with subvention from government, though
the government still retains its full or part ownership. It could also be whole
or partial. Commercialized enterprises use private sector procedures in the
day-to-day administration of business.
However, when a public enterprise is commercialized, it reduces the
burden of the enterprise on government. The government. The government do not
spend much resources on the enterprise because the enterprise can stand on its
own as profit oriented ventures, which will in order ways make returns to the
government.
There are many economic benefits that are connected to the process
of pursue privatization and commercialization. One of the main reasons why
countries pursue privatization and commercialization is in order to reduce the
size of the existing government, based on the idea that many governments have
become too large and over-extended, consisting of unnecessary layers of
bureaucracy. Therefore, many countries require restructuring in order to improve
efficiency, which can be achieved through privatization and commercialization.
The private sector responds to incentives in the market, while the
public sector often has non-economic goals. In other words, the public sector
is not highly motivated to maximize production and allocate resources
effectively, causing the government to run high-cost, low-income enterprises.
Privatization and commercialization directly shift the focus from political
goals to economic goals, which leads to development of the market economy
(Poole, 1996). By privatizing and commercializing, the role of the government
in the economy is reduced, thus there is less chances for the government to
negatively impact the economy.
The privatization and commercialization Act of 1988 and the Bureau
of public enterprises Act of 1993 defined privatization as the relinquishment
of part or all of the equity and other interests held by the Federal Government
or any of its agencies in enterprises whether wholly or partly owned be the
Federal Government. But however, privatization is defined, it transfers
ownership of production and control of enterprises from the public to the
private sector. It is an ideological concept.
From the definitions of privatization above, three things, are
clear:
i.
For privatization to take
place, there must be in existence of public enterprises, which need to be
converted into private enterprises.
ii.
There is the reasoning that
private ownership or control or management would be better than public
ownership and
iii.
There are problems with public
ownership of enterprises and privatization is parts an parcel of a reform
agenda to turn these enterprises so that can deliver goods and services more
efficiently and effectively.
In that case, privatization is about ensuring efficiency in the
operations of public enterprises. In Nigeria, Government enterprises are poorly
managed due to some certain negative factors. These factors make public
enterprises inefficient in operation. This inefficiency then called for
privatization, which removes their inhibitions and ensures their operational
efficiency and contribution to economic growth and development.
METHODS OF PRIVATIZATION
There are different types of privatization and commercialization
adopted by different countries around the world. The process of privatization
is often easy for small institutions, while the process becomes harder when it
comes to finding the appropriate buyers for larger enterprises. The methods of
privatization are broken down as follows:
1. Public-Private Sector Privatization: In this method, the state would
simply decode which institution should be privatized and through the use of
market mechanism, private investors are able to buy shares of each firm.
2. Voucher Privatization: In this method of privatization, the government
universally distributes vouches to this eligible citizens, which can be sold to
other investors or exchanged for shares in other institutions being privatized.
3. Internal Privatization: This method is also known as “employee or
management buy out”. in this method of privatization, state owned enterprises
are sold to the management of the enterprises for an extremely low price.
4. Restitution: This is a privatization method that has been employed
in some circumstances, but is not used nearly as often as the three methods
discussed above. Restriction is the privatization process in which the property
right of a company is given back to the original owner.
PRIVATIZATION AND COMMERCIALIZATION IN NIGERIA Economy
The governments have taken some
measures to make for effectiveness of the privatization exercise. They
includes:
1.Creation of Public Awareness.
Government have made the entire public aware of the privatization programme
through the media such as radio newspapers, televisions, seminars, conferences
and work shops.
2. Printing and Distribution
of Application Forms: The federal government also employed channels and
non-traditional outlets for the distribution of share application forms.
3. Provision of Guidelines
The government also provides guidelines on how shares are to be allocated. The
minimum application for general allotment of shares was fixed at 100 shares for
50k each.
4. Finding of Share Purchase:
The federal government have devised means to provide funding of share
purchase. This is through the privatization share purchase loan scheme (PSPLS)
forms that were recently made available so that individuals who are unable to
save to purchase shares can do so through banks.
5. Issuing Directive: There
was also issued directive from the government to commercial banks in the
country to extend credit to their adjudged customers to prospective share
holders to purchase shares of the privatized enterprises.
ADVANTAGES OF PRIVATIZATION
Privatization really has numerous
advantages to the government as well as the economic development of the nation.
The gains are as follows:
1.
Revenue Generation: The privatization exercise will raise revenue for the government. The
sales revenue from the, 55 privatized enterprises in the first phase was N3.6
billion with the original value of the investment being N652 million. This
means that the exercise yielded more than N2.6 billion as capital gains to the
government.
2.
Relief on Federation Account: Government will be relieved of the heavy financial burden
it has been subjected to when the enterprises are privatization. It makes for
lesser responsibility on the part of the government since attention will be
directed to other social programme which can generate greater social benefits
(Odike, 2001).
3.
Improve Performance: Privatization will reduce wastage and make for efficiency in management
and employment will be based on goals and objectives. This will reduce the over
statting and mismanagement of funds that is being experienced in the public
sector. (Odoh, 2003).
4.
Management Capability: The privatization programme has greatly minimized the scope of
political patronage in the board appointment. Under the first phase of the
programme, the federal government have relinquished about 280 directorship
positions in the privatized enterprises.
5.
Ownership Expansion: Privatization has massively change and expanded share ownership in
Nigeria. Over hundred thousand (100,000) shareholders have been created which
is bout twice what was obtainable in 1988. (Anyanwu, 1999).
6.
Enhances Debt Re-schedulment: Privatization is one of the conditionalities for the
international community to assist the ration in its debt burden. Privatization
will help reduce cost on the port of the government and therefore create room
for successful negotiations on external debt rescheduling, refinancing and
restructuring.
7.
Efficient Allocation of Resources: Privatization will help in the restructuring of the
economy by re-allocation of public funds to efficient user, attract foreign
investors and make goods and services available to the people.
8.
Encourages Price Market Economy: The programme encourages free market economy price it
reduces government regulation of the economy making room for greater
deregulation and operation of market forces.
DISADVANTAGES OF PRIVATIZATION
Privatization of public enterprises
will as well result to certain fears and sacrifice which must be encountered in
the course of the exercise, such disadvantages includes
1.
Unemployment
2.
Increase in Prices
3.
Threats to the Economy
4.
Inequality / Inequitable Wealth Distribution.
The effects of Deregulation and liberalization on Nigeria economy
Financial liberalization
has become an emerging trend in both developed and developing
countries. In developing
countries, the structural imbalance and economic
malaise were severe owing to distortions of regulation coupled with oil price
shocks and escalating real interest rate for external debt servicing of the
1970 and 1980s. The only fly in the ointment was to adopt a mix of economic
measures under the IMF World Bank supported Structural Adjustment Programmes
(SAP) prescribed as comprehensive reform measures designed to achieve both
internal and external balance with a minimum cost to the economy. Incidentally
the basic thrust of the economic reform embodied in SAP is deregulation,
particularly financial deregulation. In the light of this, over thirty developing
countries adopted these programmes. Such developing
countries include Nigeria, Ghana, Carneroun, Malawi, Botswana,
Tanzania, Rwanda, Senegal, Madagascar, Sudan, Zambia, Kenya and Cote Devoir to
mention a few. The liberalization of interest rate was a prominent feature of
the financial reforms implemented by nearly all these countries. Interest rates
were fully deregulated in Indonesia, Philippines and Srilanka in the early
1980. While Nepal freed most key interest rates in 1986, Korea, Malaysia and
Thailand relaxed control by more frequent advertisement in rates
While
the liberalisation and deregulation of the some sector was very successful, the
privatisation of NITEL and its mobile arm MTEL did not achieve the same
success, and at various times met with widespread public criticism and
controversy. There were four attempts to privatize NITEL. The first attempt (in
2001) failed because the winning bidder, Investors International London
Limited, a joint Nigerian foreign venture, famously failed to pay the balance
of 90 percent of its bid price of US$1.3 billion, and the transaction was
accordingly terminated.
The effect of financial liberalization has remained
controversial world wide. Particularly, its impact on savings rates has
attracted a good deal of attention. This study has attempted to probe deeper
into the impact of financial liberalization on some macroeconomic variables. On
the basis of my theoretical and empirical findings, financial liberalization in
Nigeria has led to bank crises and significant negative changes in savings and foreign direct
investment. While having a significant positive effect on
the growth of gross domestic product, it however, does not make any significant
change to financial deepening (measured by the ratio of broad money supply to
gross domestic product) and inflation. Though financial liberalization tends to
significantly reduce savings and foreign direct
investment in Nigeria, increasing savings may not
necessarily be the ultimate aim of the policy.
If
liberalization should be combined with adequate prudential guidelines and
strong supervision of banking and capital markets, improved financial
intermediation capable of raising the level of other relevant causal factors
will be achieved. This scenario will invariably spur the growth of the economy.
Thus,
government embarking on financial liberalization should set in order a sound
capital base, prudential guidelines and a strong supervisory agency that will
follow up action to ensure compliance.
REFERENCES
Acemoglu, D., P. Aghion and F.
Zilibotti, 2005. Distance to frontier, selection and
economic growth. J. Eur. Econ. Associat. Forthcoming.
Aghion, P., P. Howitt and D.
Mayer-Foulkes, 2005. The effect of financial
development on convergence: Theory and evidence. Q. J. Econ., 120: 173-222.
Asli, D.K. and E. Detragiache, 1998.
Financial liberalization and financial fragility. IMF
Working Paper. http://ideas.repec.org/p/wbk/wbrwps/1917.html.
https://en.wikipedia.org/wiki/Deregulation
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