Skip to main content



08068231953, 08168759420



This study compares the pre- and post-privatization performances of ten enterprises from five sectors of the economy that experienced full or partial privatization through public share offerings during the first phase of the privatization programme in Nigeria. The study examines whether the financial and operating performance of the privatized enterprises improved affect divestiture and whether the performance improvement is attributable to the privatization programme. Wilcoxon signed rank test was used as the principal method of test for significant change in profitability, operating efficiency, output, capital investment spending and dividend payout of the privatized enterprise. The study documented significant increases in profitability, operating efficiency, output and dividend payout for our full sample of firms after divestiture. The results of our sub-sample further revealed that the performance improvements were induced by privatization. This is evidence in the sale of voting control by government and the remarkable changes in the composition of the Board of Directors and Chief Executive Offices of the privatized enterprises. These results, in comparison with those of previous studies, suggest that privatization yields significant performance improvements in diverted public enterprises.

Declaration                                                                             ii
Certification                                                                            iii
Dedication                                                                               iv
Acknowledgement                                                                  v
Abstract                                                                                  vi
Table of Contents                                                                    vii
1.1   background of study                                                       1
1.2   Statement of the problem                                              6
1.3   purpose of the study                                                       9
1.4   research questions                                                         11
1.5   research hypotheses                                                       12
1.6   significance of the study                                                 13
1.7   scope of study                                                                 14
1.8   limitation of the study                                                    15
1.9   definition of terms                                                          16
1.10 organization of the study                                               18
2.1   The concept of privatization                                           19
2.2 definitional issues                                                             19
2.3   objectives of privatization                                               22
2.4   brief history of public enterprises in Nigeria                 25
2.5   the failure of public enterprises                                     26
2.6   profiles of privatization in Africa                                    28
2.7   methods of privatization                                                 29
2.8   the Nigeria privatization programme                             30
2.9   privatization and efficiency                                            32
2.10 privatization and competition                                        33
2.11 privatization and regulation                                           34
2.12 principal agency theory                                                  36
2.13 fiscal theory                                                                    37
2.14 privatization experience of other countries                   39
2.15 lesson of experience for Nigeria                                      40
2.16 arguments for and against privatization                       44
2.17 the performance of privatized firms results from
Empirical studies                                                            48
3.1   Introduction                                                                    50
3.2   research design                                                              52
3.3   population of study                                                         54
3.4   sampling procedure and determination of sampling
size determination of sample size                                  55
3.5   data collection methods and testable predictions         57
3.6   operational measures of the variables                           59
3.7   data analysis technique                                                 60
4.1   The financial and operating performance of privatized
public enterprises                                                            62
4.2   changes in the composition of board of directors and
chief executive offices                                                      63
4.3   changes in government shareholding in the privatized
enterprises                                                                       67
5.1   summary of findings                                                                                                                                                                        70
5.2   Conclusion                                                                      72
5.3   recommendations                                                            80
Bibliography                                                                            88
Appendix                                                                                 100

The role of government in market economics around the world has changed dramatically over the past two decades; privatization of Public Enterprises (PEs) perhaps most strongly associated with Great Britain under Margaret Thatcher, has become a worldwide phenomenon
Privatization of State Owned Enterprises (OSEs) or Public Enterprises has been generally debates and discussion World-Wide. In Nigeria, it continues to evoke strong feelings among proponents and opponents, leading to a clash of viewpoints on the concept as the debate and discussion range.
From the ear of President Shehu Shagari, when in 1981, the Onosode Commission on Parastatals was set up to study our public enterprises operational problems and recommend how these can be solved to make them provide efficiently the services for which they were set up. To this end the commission recommended that commercially oriented parastatals able to subject themselves to the discipline of the capital market should be encouraged to borrow money on their own or issue bonds. It observed that many of the problems which seem internal to parastatals derive from the realities of the social and political environments in which they operate and to propose only reforms internal to the parastatals or in their relation with government, as the answer to the problem of getting parastatals to satisfy public expectations is simply to ignore significant variables. Experts interpreted this to mean that the commission recommended privatization of certain enterprises.\
Not-too long after, General Buhari took over as the Head of State, appointed a study group of statutory corporations and the state owned companies to review the financing, profitability and performance records of public ventures headed by Ali Alhakim, the managing Director and Chief Executive, Bank of the North.
The commission submitted its report on November 29, 1984. It identified the major problems of these enterprises as:
a.     Vague and conflicting objectives
b.     Inadequate autonomy
c.     Inflexibility in decision making process
d.     Inappropriate capital structure
e.     Underutilization of assets
f.      Absence of good credit system etc
It was in the light of the above that the Federal Military Government embarked on major reforms of its public enterprises under a programme of privatization and commercialization.
The first step in the development of the programme was the establishment of study groups under the general guidance of the World Bank groups to renew and classify all public enterprises in Nigeria into the categories of Public utilizes, Strategic Industries, Economic/Commercial Enterprises and Departmental/ Statutory  Boards. Enterprises which constitute public utilities and strategic industries were initially designated for commercialization while economic/commercial enterprises were slated for privatization.
After the ousted of Gen. Buhari by Gen. Babangida in a military coup in 1985, Gen. Babangida issued a charter for prosperous Nigeria. Hence, privatization was not only an economic, but also a political decision. In fact the Bahangida regime in its 1986 budget speech put the issue adequately: they (public enterprises) “have come to constitute an unnecessary high burden on government resources”. The President was right. According to much quoted statistics released by the secretary to the then Federal Government, Chief Olu Falae: that between 1980 and 1985 alone, the government invested N23 Billion in its parastatals and received a paltry return on investment of N933, 701,134. And from subventions of N11 billion, the government got a repayment of only N67, 959,735 with N26, 124, 463 as interest (Osuji Charles 2001:11).
This according to Olu Falae led the government to the inevitable conclusion that the answer lies in privatization. Hence, the promulgation of privatization and commercialization Decree No. 25 of 1988. This initiated the privatization and commercialization process.

The decree established the Technical Committee on Privatization and Commercialization (TCPC) with the late Dr. Hamza Zayyad as the Chairman. The period between 1988 and 1993 made up the first phase of the privatization and commercialization programme. During this period, the TCPC was able to privatize 88 out of the 111 enterprises slated for full or partial privatization. (Othman, 2003).
On 20th July 1998, the then head of state, Gen. Abdulsalam, Abubaka Established the National Council on privatization (NCP) with the Bureau of Public Enterprises (BPE) as the secretariat. The enabling law was the Public Enterprises (Privatization and Commercialization) Decree No. 28 of 1999 which late became an Act of Parliament with the enthronement of Democracy in Nigeria on May 29, 1999. The NCP was headed by the Vice President of the Federal Republic of Nigeria, Alhaji Atiku Abubaka, while PBE was headed by Mallam Nasir el Rufai as Director General. The promulgation of the Public Enterprises (Privatization and Commercialization) Act of 1999 marked the beginning of the second phase of the privatization programme. The second phase was subdivided into three: the first phase began in November 1999 to June 2000; the second phase between June 2000 and December 2000 and the third phase has not been concluded. In fact the programme is still in a continuous process.
Experience among many nations of the world shows that most Public Enterprises (PEs) have failed to meet the objectives for which they were set up. Rather than contribute to the national economic prosperity, they tend to consume a large proportion of national resources, thereby becoming economic drain pipes. The enterprises become a burden to the state.
Against the background of the economic recession which began around 1981, the Federal Government began to focus its attention on the activities of the public enterprises most of which were established on questionable commercial and financial viability. With the oil boom, no one complained of the wastes and inefficiencies of the public enterprises. Over the years, many of them developed into organized monsters that gulped huge national and financial resources of the government with insignificant returns on investment.
The government therefore appointed several study groups to examine the operations of such public enterprises with the view to determining the basis for a new funding scheme, appropriate capital structure as well as incentive measures to enhance their productivity and general efficiency. Without exception, such enterprises were found to be infested with monumental problem ranging from inefficiency through defective capital structures to outright mismanagement. (Ityokyaa 2007:9)
The failure of State Owned Enterprises (SOEs) to meet the economic objectives for which they were set up generated the need for the divestiture of state interest in these enterprises. Faced with multiple economic problems, the state must find ways of promoting growth and development with the limited resources at its disposal. In response to this demand, modern economic resort to finding means by which resources can be deployed for greater economic prosperity.
It is usually expected that private sector involvement in the ownership and management of State Owned Enterprises would help promote economic prosperity while allowing government to concentrate on governance, create an enabling environment, and deploy other resources to human development. Experience has shown that most governments with problematic State Owned Enterprises fail to allocate these resources efficiently. In Nigeria, one only needs to compare what the National Electric Power Authority (NEPA) draws from the Federal Treasury to its level of coverage and inefficiency in providing electricity, to appreciate this point. Public Enterprises consume about N200 billions of Natural resources annually, by way of grants, subsides, import duty waivers, tax exemptions, and the like
In the words of Othman (2003:2)
Most government owned industries and business operate at sub-optimal levels of capacity and are among the most inefficient in the world. (NEPA, NITEL, NPA, PAPER mills are examples).
No government business in Nigeria makes true profit today. None has ever made real profits unless managed by Technical partners (the NITEL, Niger dock and NAFCON stories are typical examples. The Public Enterprises returned 0.5% profit and employed about 420,000 people. Without NICON and CBN they would have provided negative returns. (Othman 2003:3).
The major purpose of this study is to compare the pre and post privatization performance of some selected enterprises from different sectors of the economy that experience full or partial privatization, through public share offerings during the first phase of the privatization programme in Nigeria. The study aims at examining whether the financial and operating performance of these privatized enterprises improved after divestiture and whether the performance improvement is attributable to the privatization programme.
The accepted wisdom in all countries that have undertaken successful privatization is that in order to create a successful privatization track record and to acquire sufficient momentum, complex issues need to be resolved and sufficient experience need to be acquired of first privatization transaction. Among the complex issues that have to be resolved are:
i.      Whether objective criteria have been established for the purpose of activating the performance of the privatized and/or commercialized enterprises;
ii.     Whether such criteria have been employed to access the success or failures in terms of the impact of such reform programme on the performance of the enterprises; and
iii.    Whether the impact (success or failure) as revealed by the criteria is attributable to the reform progrmme.
To this end, the study aptly set out to accomplish the following other objectives:
a.     To determine if privatization improves an enterprises profitability.
b.     To determine if privatization improves an enterprises efficiency
c.     To examine the effect of privatization on enterprises capital investment spending.
d.     To examine if privatization improves an enterprises output.
e.     And also to examine if privatization improves an enterprises divided payments.
f.      Based on the above make appropriate recommendations in the area of project evaluation.
Given the objectives of this study and the underlying significance, the subject matter of the study is examined through answers to the following questions.
a.     Does privatization improve an enterprise’s profitability?
b.     Does privatization improve an enterprise’s efficiency?
c.     Does privatization improve an enterprise capital investment spending?
d.     Does privatization improve an enterprise’s output
e.     Does privatization improve an enterprise’s dividend payments?

There are two key issues to be evaluated in this project. They are the operating performance and the financial performance of the affected enterprises before and after the privatization exercise. To this effect, therefore we have the following hypotheses:
H01: There is no significant relationship between privatization and an enterprise’s profitability.
H02: There is no significant relationship between privatization and an enterprise’s operating efficiency.
H03: Privatization does no significantly improve on enterprise’s capital investment spending.
H04: There is no significant relationship between privatization and the output of an enterprise.
H05: There is no significant relationship between privatization and an enterprise’s dividend payments.

Privatization is a global phenomenon which is being taken seriously in recent times by the Nigeria government. Although many for a and workshops have been held and number of scholars have published and presented papers on selected issues on the subject of privatization, this study derives its significance from an attempt to add to existing literature on the subject and more especially by providing empirical evidence of the performance of these enterprises before and after privatization. Further, it makes suggestions that seek to make the government and the critiques of the programme to amicably sink their differences.
The study addresses the complex issues that have arisen following the conclusion of the first phase of the privatization programme in Nigeria. Specially, the study identifies objectives criteria for assessing the impact of privatization on the privatized firms, which have been applied and recommended by reform experts.

The study is limited to the evaluation of the operating and financial performances of privatized firms involved in the first phase of the exercise, before and after the privatization exercise. This is restricted to only about ten companies about five sectors of the economy.
The study was limited by the following constraining factors:
Funding: The cost of conducting a research of general application is quite enormous and given the understanding that students usually have lean purse, the research was limited to the extent of resources which the researcher has to carry out the investigation.
Respondents Constraints: This constraint is a major one worth mentioning here as the initial response rate in disclosing vital information regarding some of the companies delayed the work and have compelled the researcher to go the Bureau for Public enterprise (BPE) and the Stock Exchange to obtain some of the information required. More so, permission has to be sought from the highest authorities in almost all the firms visited before the necessary data was released.
Privatization: In the Nigeria context, this may be defined (narrowly) as the sale of government interest in public owned enterprises to the private sector.
Debt/Equity SWAP: This is a method whereby privately held debts of a government owned enterprises is converted into equity, thus privatizing the enterprise in the percentage that the new equity bears to total equity outstanding.
Joint Ventures: A joint venture in the context of privatization means a new company whose shares are partially owned by the government and partially owned by private sector investors.
Leases: A method whereby a private sector is granted the use of some or all of the assets of a State Owned Enterprise (SOE) for specified period of time and for specified fee.
Liquidation: A method of dissolving and winding up of an entity in accordance with procedures under insolvency laws or administrative rules.
Management Contracts:  A method where the government enters into a contract with a private sector operator who becomes responsible for the management of the state owned enterprise for a specified period of time and for a fee which may be based partially on performance.
Commercialization: This may be defined as the recognition of the enterprises wholly or partly owned by the federal government in which such commercialized ventures are allowed to operate without the subvention from the federal government of Nigeria.
The study is organized into five chapter wherein chapter one(1) being the introductory part of the study, deals with the background of the study, statement of the problem, purpose of study, statement of hypotheses, research questions and the operational definitions of terms used.
Chapter two (2) focuses on the review of relevant, related literature to enhance a better understanding of the theme of the study while chapter three (3) deals with the methodology employed in the study.
Chapter four (4) deals with the analysis of data collected as well as testing and validation of hypotheses formulated in chapter one.
Chapter five (5) being the final chapter discusses findings of the research and ends with conclusion and recommendation on the entire research.