The Concept Of Privatization And Commercialization

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 GuidelinesThe 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.

Bayoumi, T., 1993. Financial deregulation and household saving. Econ. J., 103: 1432-1443.