You are on page 1of 11

1

PRIVATISATION AND COMMERCIALISATION


IN NIGERIA
H.R. Zayyad
Introduction

Privatisation and Commercialisation in Nigeria


As government could no longer continue to support the monumental waste
and inefficiency of the public enterprise sector, the programme of
privatisation and commercialisation was developed to address the peculiar
socio-economic and political conditions in Nigeria, being part of the
Structural Adjustment Programme. The legal framework for the Nigerian
programme is the Privatisation and Commercialisation Decree No. 25 of
1988, and the implementation agency is the Technical Committee on
Privatisation and Commercialisation – an eleven-member body drawn from
both the public and private sectors. It was vested with wide powers to
monitor and supervise the implementation of the programme. The full
functions of the Technical Committeeare to:

Advise on the capital restructuring needs of enterprises to be


privatised or commercialised under this Decree in order to ensure a
good reception in the Stock Exchange Market for those to be
privatised, as well as to facilitate good management and independent
access to the capital market.

Carry out all activities required for the successful public issues of
shares of the enterprises to be privatised including the appointment of
issuing houses, stockbrokers, solicitors, trustees, accountants and
other experts to the issues.

Oversee the actual sale of shares of the enterprises concerned by the


issuing houses in accordance with the guidelines approved by the
Federal Military Government.

Submit to the Federal Military Government from time to time, for the
purpose of approval, proposals on sale of government shares in such
designated enterprises, with a view to ensuring a fair price and even
spread in the ownership of the shares.
Ensure the success of the privatisation and commercialisation
exercise taking into account the need for balanced and meaningful
participation by Nigerians and foreign interests in accordance with the
relevant laws of Nigeria.

Ensure the updating of the accounts of all commercialised enterprises


with a view to assuring financial discipline.

Perform such other functions as may be assigned to it from time to


time, by the President, Commander-in-Chief of the Armed Forces;

Seek and obtain the prior approval of the Federal Military


Government for the price of any share issue in respect of any
designated enterprise and the pattern of its allotment.

Objectives of the Privatisation and Commercialisation Programme


The objectives of the privatisation and commercialisation programme are:

(i) To restructure and rationalise the public sector in order to


lessen the dominance of unproductive investments in that
sector.

(ii) To encourage share ownership by Nigerians in productive


investment hitherto owned wholly or partially by the
Government, and in the process to broaden the Nigeria Capital
Market.

(iii) To re-orientate the enterprises for privatisation and


commercialisation towards a new horizon of performance
improvement, viability and overall efficiency.

(iv) To ensure positive returns on public sector investments in


commercialised enterprises.

(v) To check the present absolute dependence of


commercially oriented parastatals on the Treasury for funding
and to encourage their approach to the Nigerian Capital Market.
Distinction between Privatisation and Commercialisation

The term "privatisation", narrowly defined, means the transfer of


government-owned shareholding in designated enterprises to private
shareholders, comprising individuals and corporate bodies. Broadly
defined, privatisation is an umbrella term to describe a variety of policies
which encourage competition and emphasise the role of market forces in
place of statutory restrictions and monopoly powers.

Commercialisation, on the other hand, can be defined as the re-


organisation of enterprises, wholly and partially owned by the Government,
in which such commercialised enterprises shall operate as profit-making
commercial ventures without subvention from the Government.

The main thrust of the Nigerian commercialisation programme has been to:

a. Provide enhanced operational autonomy at enterprise level;

b. Evolve a more results-oriented and accountable management,


based on performance contracts;

c. strengthen financial/accounting controls at the enterprise level;

d. Upgrade the management information system of the affected


enterprises.

f. Ensure financial solvency of the public enterprises through


effective cost recovery, cost control and prudent financial
management.

g. Remove bureaucratic bottlenecks and political interference


through clear role definitions between the supervising ministry, the
board of directors and themanagement of public enterprises.

A critical component of the commercialisation programme, the performance


contract is designed to govern the relationship between the government
and the commercialised enterprise. Under it, the Board and management of
the enterprises will guarantee the attainment of certain levels of financial
and operational performance in return for enhanced operational autonomy.
The system is intended to:
a. Help in giving a positive orientation and ensure that affected
enterprises can efficiently fulfil their role in the national economy.

b. Identify a number of performance and efficiency indices which


the affected enterprises should, as a minimum, achieve annually

At the first glance it seems that privatization will lead ex-public sector
commercial enterprises to work more active with better efficiency, higher
productivity, and improving product quality in a competitive market. Based
on the latest definitions made by world economists, the advantages and
disadvantages of privatization can be listed as the following:

Faster growth because of the competition.

Encouraging innovations.

Effective & time bound results.

Increase of cost affectivity.

Quality improvement.

Making possible more services to the public.

Promotion of productivity.

Significant Growth in the business.

Probable threat of lay offs.

It cuts back the work to gain more benefit.


Increasing unemployment.

Possible bankruptcy because of low profitability.

What Privatization Is

Privatization can be an ideology (for those who oppose government and


seek to reduce its size, role, and costs, or for those who wish to encourage
diversity, decentralization, and choice) or a tool of government (for those
who see the private sector as more efficient, more flexible, and more
innovative than the public sector) (Kamerman and Kahn, 1989; Gormley,
1991). Although privatization in the most general sense involves a
reduction in the role of government, the process carries different
implications depending on which function(s) of government are assigned to
the private sector: financing; production or delivery of services; and
monitoring or regulation (Kamerman and Kahn, 1989; LeGrand and
Robinson, 1984).

Privatization may take many forms (Kamerman and Kahn, 1989; Gormley,
1994: Kettl, 1995), including:

1. The Elimination of a Public Function. And its reassignment to the


private sector for financial support as well as delivery (police, fire
department, schools); opponents characterize this as "load-shedding"
(Bendick, 1989).
2. Deregulation. That is, the elimination of government responsibility
for setting standards and rules concerning a good or service (Gormley,
1996 and 1997).

3. Asset sales. That is, the selling of a public asset (a city building,
a sports stadium) to a private firm;

4. Vouchers. That is, government-provided or -financed cards or slips


of paper that permit private individuals to purchase a good or service from
a private provider (food stamps) or a circumscribed list of providers
(Medicaid; a child care voucher);

5. Franchising. That is, the establishment of a model by the public


sector that is funded by a government agency, but implemented by
approved private providers; and

6. Contracting. That is, government financing of services, choice of


service provider, and specification of various aspects of the services, laid
out in a contract with a private-sector organization that produces or delivers
the services.

THE IMPACT OF SMALL SCALE BUSINESSES IN NIGERIA

What is a small scale business?

A small scale business can be said to be one that requires a small amount
of capital to establish it, this kind of businesses usually have a small
number of employees or in most cases personally handled by the owner,
and are referred to as micro businesses (this is a term used by international
organizations such as The World Bank and The International Finance
Corporations. The term "mini business" or "Bop business" is a common
colloquial expression for a single family operated business with few or no
employees other than them). Adapting to change is crucial in business and
particularly in small businesses not being tied to and bureaucratic inertia
makes it easier to respond to the market place quicker. These proprietors
of small scale businesses tend to be intimate with their customers and
clients thereby resulting in greater accountability and responsiveness.
These kinds of businesses are common in many countries depending on
the economic system in operation. Example of these businesses are,
hawking, street retailing, small shop, market place etc. Before considering
the effect of small scale businesses Nigeria, certain things need to be
looked on which will be clearly stated.

HAWKING

In this form of small scale business, goods are carried from one place to
another, either on the hands, by carts or by canoes. Hawking is the most
cheapest and popular means of trading goods in Nigeria. People who are
involved in hawking are called either hawkers or itinerants or door to door.

ADVANTAGES OF HAWKING

1. Hawking is carried out with a small amount of capital

2. It provides door to door services for consumers.

3. It serves as a medium for advertising

4. Goods sold by hawkers are likely cheap.

5. Hawking serves as a stepping stone to bigger business.

DISADVANTAGES OF HAWKING

1. Hawking goods on major roads put the life of the hawker in ganger of
road accidents.

2. It causes traffic and hold-up in big cities

3. Young girls who are hawkers easily fall prey to men, who rape them and
the result becomes an early pregnancy.

4. Food items are exposed to health hazards by hawkers.


5. Hawking deprives some children of education if their parents prefer them
hawing than them going to school.

STREET RETAILING

These are retail traders who display their goods along major streets or
urban areas. These traders are different from hawkers because they
operate from a particular point. Some of these retailers go as far as raising
illegal structures in form of stores to protect themselves and their goods
from rain and sun. their products may range from clothing, to motor spare-
parts, food items etc.

In many towns in Nigeria, there are by-laws prohibiting traders from


displaying their goods along major streets and bus-stops.

MARKET PLACE BUSINESS

This is a method whereby traders agglomerate in a common meeting


place-local market to buy and sell goods. Each trader has his own store or
lock-up-store. The amount of capital required for this type of business
depends mainly on the type and quantity of goods sold. All form of goods
sold in this type of market range from food stuff to hard wares.

SMALL STORES BUSINESS

There are small stores where goods traded found in front of residential
houses of the traders own building rents purposely for that type of
business. These types of small stores are found in both urban and rural
areas. Their capital requirement depends mainly in the type of quantity of
goods sold in them.

MOBILE SHOP

This are small trade businesses where shops are moved from one place to
another in motor van car lories. Like hawking trade, they are moved from
area to area or road to road selling goods and services to people. Mobile
shops sell almost all types of goods and they reach consumer easily
including those in rural areas. These shops use all sort of advertising
methods like playing music, the use of microphones to shout their waves
etc. in order to bring the existence of their goods to the knowledge of the
consumer.
TIED SHOP BUSINESS

These are businesses that confine whatever they sell in common with what
their producer supply directly to them. The manufacturer of these products
sold in these tied shops, support machinery for the sale of such product.
Tied shops sell single products like beer, ice cream etc.

VENDING MACHINE BUSINESSES

These are forms of small scale business in which costumers obtain self
service from automatic machines, these machine sell goods like hot and
cold drinks, coffee etc. to customers. All the customer has to do in order to
obtain whatever he or she wants is to slot in the correct amount of money
and then press a button indicating the kind of product you want. The
machine will release the product to the tune of the amount you have slotted
in, these kinds of machines are commonly used in advanced nations. Many
business organizations like post offices use them to sell their products after
working hours.

WHY THERE ARE MANY SMALL SCALE BUSINESSES IN NIGERIA

1. Lack of sufficient capital in the part of business men that should be used
in establishing large business organizations saving as a result of low per
capital income.

2. Majority of the people in Nigeria fall into low income groups who can only
afford to buy goods in units.

3. Majority of the people in Nigeria are in small scale business like hawking
because they fail to obtain white collar jobs.

4. lack of true entrepreneurship prevent many people from establishing


large business units.

5. A small scale business requires small capital which many people can
easily provide.

6. Small scale business does not incur much capital which many people
can afford.
The effect of small scale businesses in Nigeria can be traced to its positive
and negative effects on Nigeria's economy which should be critically
examined

ADVANTAGES OF SMALL SCALE BUSINESS IN NIGERIA

1. Small scale business trade requires small capital.

2. It is located near the consumers residential houses

3. Customers are highly recognized and respected in small scale


businesses

4. Small scale business is closely supervised and render efficient service


than their larger counterpart

5. It serves as a stepping stone to bigger business.

6. Small scale business serves as a good medium for advertising goods.

7. The owner of the business may combine other forms of business with his
small scale business.

8. Small scale business does not require high running expanses like rent
and wages.

9. It also provides employment to those who could not get white collar jobs.

DISADVANTAGES OF SMALL SCALE BUSINESS IN NIGERIA

1. These types of business face the problem of inadequate capital.

2. Limited expansion as a result of lack of enough capital.

3. Small scale businesses do not enjoy economic offsets.

4. The amount of profit it makes is low compared to larger ones.


WHY SMALL SCALE BUSINESSES CONTINUE TO EXIST DESPITE
STIFF COMPATITION FROM LARGE ONES

1. Small scale businesses require small capital and can continue to exist no
matter how small its capital is

2. Customers patronize small scale business because it provides door-to-


door services and they do not live to go far in order to get their needs.

3. The owner of a small scale business shows more personal interest and
attention to the business.

4. Small scale business is carried out with flexible policies, rules and
regulation that are easy to change with the changing conditions in order to
suit the customers.

5. Customers are highly respected by the owners of small scale


businesses.

6. Small scale business opens from early in the morning till late in the night,
on Saturdays, Sundays and even on public holidays.

7. Price of goods sold in small scale retail trade are low which result in
small profit but quick turnover.

8. As a result of the closeness of the owner of a small scale business to


customers, he grants them credit facilities which make them to continue
patronizing the business hence, it continues to exist.

9. Small scale business sells mainly popular goods like food items that are
always in high demand.

Note: There are comments associated with this question. See the
discussion page to add to the conversation.

You might also like