Privatisation and Economic Growth

Topics: Economics, Public sector, Privatization Pages: 40 (12565 words) Published: February 22, 2012
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. 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 institutions and the manner in which they influence the pace and outcome of privatization efforts. 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.

Despite compelling evidence from other developed and developing countries that privatization is viable and capable of injecting dynamism into previously dirigisme economies, only a few countries in sub-Saharan Africa have made appreciable impact in privatizing their SOEs. And although the timing, extent, technique and motivations for privatization have varied considerably across countries, there is an unacceptably low level of success in the implementation of privatization programmes in Africa Nightingale, and Pindus (1997). The existing body of research is yet to provide useful insights into the peculiar circumstances of Africa and the manner in which they influence the outcome of privatization efforts. The case of Nigeria is even more puzzling, given the high potential for successful privatization Nwoye,[1997]. Yet, current research efforts have proved inadequate in unravelling the major causes of this scenario. Nigeria’s stalled privatization programme was resuscitated recently and informed inputs are being sought from various sources to enhance the success of this second attempt. Here in lies the potential benefit of this study. Giving the substantial number of enterprises that are yet to be privatized, the study would provide insights into the desirability, feasibility and sustainability of future reforms Public enterprises in Nigeria were established to propel socio-economic development and to grand against the control of the economy from foreign domination and exploitation Aboyade (1974). This accounts for why a larger proportion of the National Budget has been voted for the creation and sustenance of public enterprises. In view of the above problems of implementing privatization and commercialization...
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