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Term Paper, 2015
46 Pages, Grade: 2.1
CHAPTER ONE INTRODUCTION
1.1 Historical background to the study
1.2 Statement of problem
1.3 Objectives of the study
1.4 Study questions
1.5 Significance of the study
1.6 Scope of the study
1.7 Clarification of concept
CHAPTER TWO LITERATURE REVIEW AND METHODOLOGY
2.1 Literature review
2.1.1 Development of public enterprise
2.1.2 Categories of public organizations in Nigeria
2.1.3 Features of public enterprise
2.1.4 Objectives of public enterprise
2.1.5 Factors Affecting the Performance of State Owned Enterprises
2.2.1 Research design
2.2.2Area of study
2.2.3 Population of the study
2.2.4 Sample Size and Sampling Procedure
2.2.5 Sources of Data and Data Collection Technique
2.2.6 Tools of Data Analysis
CHAPTER THREE ANALYSIS AND DISCUSSION
3.1 Dynamic specification of the model and statistical technique
3.2 Test of Hypotheses
CHAPTER FOUR SUMMARY, CONCLUSION AND RECOMMENDATIONS
The establishment of public enterprises by governments of developing economies the world over has been identified as a strategic approach to accelerated economic and national development. The main prop was the fostering and harnessing of economic potentials, balancing and control of strategic and social interest of the country, full employment as well as generation of revenue for the development of infrastructure.
With the exception of some episodic successes recorded at inception, structural legacy of public enterprises and their corresponding impact on the Nigerian economy have been burdensome. This research was therefore inspired by the need to critically evaluate the factors leading to the dismal performance of public enterprises using the Cross River Newspaper Corporation as a case study. A sample of 360 persons was used for the study. The data for this study was generated from a well structured questionnaire which was administered on the sample. Research hypotheses were tested using Parsons Correlation Coefficient method. The result of the analyses revealed a positive correlation between the dependent and independent variables. Accordingly, the four Null Hypotheses were rejected. The research outcome revealed that public enterprises were poorly funded soon after the initial funds provided by government. Secondly, the relationship between changes in political leadership of the state and inconsistent economic policies Vis a Vis poor performance of public enterprises was positive. Thirdly, the relationship between the appointment of management staff on consideration other than merit and the attendant poor performance was positive. Fourthly, it was revealed that in spite of her social commitments; public enterprise can adopt the efficiencies of private ventures and operate profitably.
Recommendations were made in line with the above findings. These include, the need for public enterprises to be adequately and timely funded, the need for whittling down of undue and sometimes obstructive influence of government and its supervisory agents. Finally, it was recommended that burdensome and non-strategic enterprises requiring large amount of public funds to reactivate should be privatized.
The establishment of state owned enterprise under theparastatalization and nationalization strategy had been usedin developing countries in their effort to accelerate the paceif of national development.At the end of the Second World War, several Post-Wargovernments nationalized key industries and adoptedsubsidies and deficit financing of the economy in order to stimulate the economy and employment. Equally, significant was the fact that governments both in Europe and the United States adopted extensive government - funded social welfare programmes in such key areas as education, health, housing and social security.
However, with few exceptions, the story of public enterprises is anything but largely an illusion. Their operational performance has largely been inefficient and far below the social and economic objectives for which they were established. At inception, one could see in public enterprises an interesting skeleton; but following years of operation, there is not yet much meat on it. According to Akpan (2002), "the direct involvement of government in enterprise ownership and management to foster economic development only result in a fiasco. The non accomplishment of developmental objectives has been viewed as a common generic scenario in all developing countries". In some countries, public enterprises have become an unsustainable burden on the budget and the banking system, absorbing scarce public resources. Investments in public enterprises have hardly produced cost covering streams of income. For example, the financial performance of nine key outfits (Telecommunications, Postal Services, Airlines, Railways, Transport, Power, Cement, Iron and Steel, and Textiles) in five West African economies such as Ghana, Guinea, Benin Republic, Nigeria and Senegal has been persistently poor, with annual government transfer and overdrafts to these sectors ranging from 18-14 percent of GDP. Kikeri et al (1994).
Overextended and poorly performed public enterprises have also slowed the growth of private sector in many mixed economies as government would always block the entry of private firms which attempt to compete with governmentowned enterprises by granting them statutory monopolies. Government credits directed to capital intensive public enterprise often crowds private firms out of the money market. Even where government eliminated express guarantees from credit taken by public enterprises, creditors tended to assume that there was an implicit government guarantee, a perception that influenced their lending to the disadvantage of private sector. Similarly, inefficient provision of critical inputs and badly managed public utilities have increased the cost of business to private sector and the potential for expansion of the economy. Public enterprises compete for the lean economic resources available thereby creating diseconomies and reduction in productive capacity.
The growth of public enterprises in Nigeria came against the background of sudden windfall from the oil sector in the 1970s. This stimulated the tempo of public sector intervention in the economic development process. The development strategy at that time took a different shape. Public sector led development strategy was adopted in place of the private sector-driven development strategy that was promoted in the First National Development Plan 1962-1968. In the context of the Second and Third National Development Plans 1970-74 and 1975-80 respectively, not only did the government occupy the commanding heights of the economy, it effectively became the engine of growth -making huge investments in the economic, social and infrastructure sectors. Obadan (2000). The role of government in direct productive activities became more visible and the purpose for which public enterprises were established changed from stimulating and accelerating national economic development under conditions of capital scarcity and structural defects in private sector organizations to that of deliberate heavy intervention in the development process and engine of growth. Obadan (2000).
Accordingly, government established a large public enterprise sector through such economic activities as Banking and Insurance, Manufacturing, Transportation, OilExploration, Hotel and Tourism etc. Services provided by the Nigerian Railway Corporation, Water Boards, Ports Authority etc.; hitherto lumped within the civil service structure were restructured into autonomous entities in order to increase their effectiveness. Barren economic fields of strategic importance which were avoided by private Investors due largely to inappropriate technical/managerial expertise, high capital threshold, and low-profit potential were undertaken by government. Similarly, large monopolistic organizations like the Nigerian National Petroleum Corporation (NNPC), Power Holding Corporation of Nigeria (NEPA), Nigerian Security Printing and Minting Company (NSPMC) and the Defence Industry Corporation (DIC) etc were established to control services deemed too sensitive to be left in the hands of private sector organizations. Business enterprises like the Nigerian National Supplies Company (NNSC) a trading concern considered as traditional preserve of the private sector was established to protect consumers interest through price control. The Nigerian Breweries, NNPC, Liquified Natural Gas projects etc., were established to enable the state participate in the high profit potential ventures and in order to earn money for further development purposes. The ownership and control of the Centra Bank of Nigeria (CBN), National Insurance Corporation of Nigeria (NICON) and Ministry of Finance Incorporated were to enable it pilot the economy towards desired objectives and priorities.
However, the dominance of public enterprises in the Nigerian economy; as in other developing economies, have over the years constituted a significant drag on the, overall growth rate. Inefficient public enterprises littered the country like the carcasses of an aborted industrial dawn; and their performance dismal resulting in huge financial losses, poor customer service delivery and their inability tomeet demands, while at the same time overstretching thenation's economic resources and other social infrastructures. William Walls noted that "there are still around 1500state-run enterprises in Nigeria... of these, over 500 are under the control of the Federal Government while the rest are in the hands of the 36 state governments". He noted further that "These enterprises have consumed nearly half of the $300bn Nigeria has earned from its oil industry since 1973. They continue to soak up annual subsidies, import waivers and direct payments worth up to $2bn from the cash-strapped state coffers'".
According to Prof, Akinyemi, "... (See BBC Focus on African, p. 23) by the mid-70s it has become evident that government ownership of the commanding heights of the economy was not yielding the desired results. Government had become bloated and inefficient. Decisions in industrial and banking circles which needed urgent attention werevictims to the slow and ponderous processes of the civil service. (See Daily Sun 14 September, 2004) p. 22.
As president OlusegunObasanjo noted at the forma! inauguration of the National Council on Privatization (NCR) that state enterprises suffer from fundamental problems of defective capital structure, excessive bureaucratic control and intervention, inappropriate technology, gross incompetence and mismanagement, blatant corruption and crippling complacency which monopoly engenders. The National Institute for Policy and Strategic Studies identified three major factors affecting the performance of public enterprises. These include; political environment, funding' and conditions of service and the work environment.
The over-riding influence of government on the operational efficiency of public enterprises in Nigeria is worthy of note, It has been maintained by Mallam El Rufai, former Director General, Bureau for Public Enterprise that "the existence of these agencies (Public Enterprises) enables the President of Nigeria and his cabinet to appoint about 4000 directors, members of boards... this patronage power is enormous and constitutes the main attraction for holding political office in Nigeria and one of the causes of our political instability". (See BBC focus on Africa) P.32. This brings to light the ever present economic concern about the relationship between ownership and efficiency. These therefore, are the major concerns of this study.
Kodilinye (1973), remarked during the annual conference of the Nigerian Economic Society that "the general impression about public enterprises in Nigeria was that they were not fulfilling the objectives for which they were created". Stressing further; Wallis noted that, "they have long ceased to serve their original purpose; of driving industrial growth, generating employment and providing services cheaply to the public" (see BBC Focus on Africa) p. 33.
As captured by AbbahTheophiius,-"At a point in the 1970s through a good part of the 1980s, River Basin Development Authorities were charged with the task of executing of projects that would facilitate integrated rural development. Though there was a measure of success in some parts of the country, if Rural Basin Development Authority's story is told today, it is mostly that of their failure. In between political interference and mismanagement, the lofty objectives of the River Basin Development Authorities were thwarted, and the country is worse off for it". (See Sunday Punch, 29 February, 2004) p: 20.
One typical example of public enterprise inefficiency is the Nigeria's state run power company. NEPA Produces between 2400 and 4000 megawatts of electricity for a population of 120 million while Eskom an independent power plant PHCN in South Africa, produces around 45000 megawatts for a population a third of the size of Nigeria. Similarly, under Nitel's monopoly, only 400,000 people had access to telephone while under the GSM liberalization the potentials; according to market research, are that 7 million or more Nigerians would have access to a mobile phone within four years of liberalization.
The above highlights provided the framework under which the Nigerian government commissioned various study groups including Onosode (1982) and AI-Hakin (1984), to examine the performances of public enterprises, and advisegovernment on ways of rationalizing and improving thepublic enterprises and making them less dependent ongovernment for survival. The various study groupsidentified the following as the bane of public enterprisegrowth:
(1) Defective capital structure
(2) Ill-advised investment that resulted in costly and inefficient utilization of public resources.
(3) Inept management, financial indiscipline, corruption and nepotism.
(4) Bureaucratic redtapism
(5) Constant political interference in decision making by government
(6) Misuse of monopoly power at the expense of the public.
(7) Rigidity and low quality of service.
The groups accordingly identified the following alternative policies on public enterprise management. This includes:
(1) Control intensification
(2) Commercialization option
(3) Turnkey option
(4) Privatization option. Ekpenyong (2000).
The various reforms instituted by government to identify alternative policies on parastatal management, in the long run could not provide the necessary tonic to reverse operational and functional dependence of these outfits on government. The aggregate effect of these lapses facilitated the rigorous' campaigns for privatization as a rewarding alternative to other known options.
It has been variously argued that whether or not a particular public enterprise is doing well; it can only be found in the conceptual framework establishing it. Three broad concepts can be used to delineate public enterprises in line with their operational objectives. These are:
(1) The public utility type,
(2) The commercial enterprise type, and
(3) The hybrid type.
This criterion makes it necessary for different evaluative criteria to be used in assessing their performance.
Whereas the commercial enterprises are incorporated with a profit motive, public utility companies are strictly of a social service nature whose primary objective is to satisfy the public and not to make profit. The hybrid organization combines the characteristics of commercial and public utility organization by offering affordable goods and services to the public while at the same time striving to remain self reliant. The central theme of this research is to assess-why inspite of 'whatever logic may have been adduced for establishing public enterprises in .Nigeria, their overall performance do not satisfy the social and economic objectives for their existence. It is also aimed at investigating why public enterprises whether commercial, utility or the hybrid type are characteristically inefficient despite their huge capital investment, periodic subvention, statutory monopoly and, tax and tariff waivers they enjoy.
This study is borne out of the need to evaluate the widespread criticism of public enterprises as failures, the problem of continuously maintaining moribund public ventures and to appraise "the decision of the Nigerian government to privatize all state owned enterprises. Specifically, this research will:
1. Assess the extent to which capital structure affects public enterprises
2. Raise issues in government entrepreneurship
3. Assess corporate governance and how governmental and bureaucratic influence affects the performance of public enterprises.
4. Investigate the extent to which political instability has affected public enterprises in Nigeria
5. Assess the extent to which privatization will affect thesocio- economic development of Nigeria.
6. Identify the specific problems of the Cross RiverNewspaper Corporation and proffer appropriatesolutions.
7. Make recommendations that will help in the formulation of publicenterprise policy in Nigeria.
1. Are public enterprises adequately funded?
2. What is the effect of government entrepreneurship on public enterprises?
3. To what extent do the appointment, promotion and discipline of management by government affect the performance of public enterprises?
4. To what extent does the social objective of public enterprise conflict withits economic objectives and what are the effects of this on the overall efficiency-ofthe enterprise.
The study is very important in the following ways:the result of this study would be useful to the government and its supervisory agents on the need for whittling down undue and obstructive influence. The study will also expose the need for adequate and timely funding of public enterprises. By this also, there should be need to privatize burdensome and non-strategic enterprises requiring large amount of public funds to reactivate.
This research work is limited to the Critical Evaluation of Public Enterprises using the Cross River State Newspaper Corporation as a case study. The period of evaluation will be five years between 1998-2002.
A number of constraints including finance, time among others have contributed in limiting the study to this enterprise. However the researcher will ensure satisfactory,unbiased judgment and conclusions capable of being representative and generalized.
The Cross River Newspaper Corporation (CRNC) whollyowned by the Cross River State Government is known tohave climbed the crest of history as one of the leadingtabloids in Nigeria in the 1970s and early 1980s. It isknown to have in it's alumni some of the best brains in contemporary journalism in the country.
Formerly known as the South Eastern State Newspaper Corporation, the corporation was established by edict No. 1 of 1970 as published in the South-Eastern State OfficialGazette No. II, Vol. 3 of 12th March, 1970 and amended as Edict No. 9 of 1973 and' published in the supplement of South Eastern State of Nigeria Gazette No. 41, Vol. 6 dated 27th September, 1973.
Publishers of the Nigerian Chronicle and Sunday Chronicle, the corporation commenced business and published its maiden issue of the Nigerian Chronicle on the 11th January, 1971 as a weekly newspaper for 177 weeks before expanding into a daily newspaper.
A total sum of N786,629.55 was expended on the acquisition of land, building, plants and machineries, equipments, furniture and fittings for the full take-off of the corporation as at September, 1971.
In 1978, the commercial stationery and printing arm of the corporation was established to cater for the printing needs of the public. This unfocused expansion quite expectedly turned out to be an albatross. Thereafter, to date, the corporation has never known any sustainable operational peace due to factors which include a ban on the importation of newsprint by government, internal problems such as official corruption, ethnicity and politicization of appointments of management positions due to perceived viability of the corporation as a result of commercialization, inadequate funding, obsolete equipment and undue interference in its operation by government.
Its operation over the years particularly in the middle 1980s appears to indicate zero growth in structure and production. From an annual production of seven million copies of newspapers in the seventies, production took a long plunge into the deep between 1998 - 2002 with annual production and sales figure as indicated in the table below.
Abbildung in dieser Leseprobe nicht enthalten
The above shows that during the period under review, the corporation operated at far below its minimum capacityand virtually approach collapse with each successive year.
Available record shows that the corporation has been operating with obsolete machines since the last known replacement of machine was in 1991 in which only the Rotary machine was replaced. Partial turn-around maintenance was carried out on the machines only in 2002 after several years of neglect.
Between 1998 and 1999, the corporation received a monthly subvention of 3,000,000 covering recurrent expenses and working capital. Currently, the corporation operates with a monthly imprest of N500,000 to cover its operating cost following centralization of salaries and wages of civil and public servants by the Cross River State Government. Needless to say that this amount is grossly inadequate and barely subsistent for a business entity of this size whose total sales volume is not adequate to cover the production cost.
Given the age of the machines, overall poor level of production and poor market, share of the corporation, continuous maintenance and expenditure of public funds to the tune of N3000000 monthly on this venture for the maintenance of recurrent services is unnecessary. The Nigerian Chronicle and Sunday Chronicle published by the corporation have effectively remained non-available in the newsstand. The stationery and printing arm, regrettably a very viable arm of the corporation is not living up to expectation given the obsolete state of its machines and lack of marketing skill.
As would be seen from the various factors stated above among others, it is clear that the entire machinery needed to put the corporation back to life is lacking. The corporate life of the organization as a public enterprise have reached cross roads. Private capital, sound managerial and professional expertise appears to be therefore what is needed to induce growth and revitalize the corporation.
Development economists the world over are inagreement with the role of government in the social and economics development process of every nation.
“ The existence of a state and a government asinstruments of social organization is an established fact. What varies from state to state is the size and role of the government and, therefore, the division between it and the Private economic agents in the relative share of thecommand over resources" Okigbo (1979). Public corporationsin their various forms therefore allows government to play it's instrumental role for national development.
Fubara (1990), described public enterprises asinstruments of national policy for economic development.For Ademolokun (1983), "Public enterprise 'emerged as aresult of government acting on the capacity, of anentrepreneur" Governments acquire business interest throughparastatalization strategy, nationalization of existing-.private entities and the establishment of fresh productive entities or joint venture schemes so as to learn certain managerial andproductive skills from foreign partners.
Developing countries relied more on State Owned Enterprises (SOEs) than industrialized economies did in the hope that they would balance or replace a weak or ideologically unacceptable private sector; would invest more and also produce a capital surplus to finance investment; and would transfer technology to strategic firms in mining, telecommunications transport and heavy industry. Kikeri et al, (1994). " Bythe early 1980sSOEs accounted on Average for 17% of GDP in Sub-Saharan Africa and a much modest 3% in Asia (this excludes China, India and Myanmar). Nellis (1986); "compared with 10% of GDP in mixed economies worldwide" Short (1984). In Eastern Europe and Central Asia, SOEs uniformly accounted for the bulk as high as 90% of all productive activities.
Supporting government big role in business, Sullivan, J. Wrote: "It has often been said that the government should get out of the way and let the market function. That idea is a myth. Government isabsolutely essential in setting up the framework of a market economy; without rules and structure of a binding nature, anarchy results. Under such conditions, business becomes nothing but 'Casino Capitalism' where investments are simply bets" (see Business Times, April 16 - 22, 2001) p. 13.
For Friedman (1971) public enterprises flourished due to the following reasons.
1 . They provide a nucleus for the economic expansion of the nation and offer the advantages of large scale operation, without the disadvantage of private monopoly.
2. Some enterprises which are necessary and vital to the nation may not be attractive to the private sector and are therefore necessarily undertaken by the state. Forexample, rail transport in the vast and under populated regions of Australia and Canada.
3. Where there is shortage of private venture capital, the state often establishes public enterprise to undertake business that requires heavy capital investment.
Economic and defence policy have also been adduced as reasons for government participation in business. In Britain, whole business sub-sectors have been nationalized by the establishment of public firms. The government has explained that the control of an entire industry by them rather than fragmented private ownership would lead to a rationalization of activities within the industry and a lot more intensive programme of investment. Dainith (1974).
According to Okigbo (1982) government expenditure (in Public enterprise) may constitute a very significant large share of the markets... it is in this sense that an economy can be 'engineered', i.e. guided in it's path by the intervention of public authorities, either directly in the markets or by their policies.
Strictly on fiscal grounds, Italy has reserved to itself such monopolies as tobacco, salt and quinine. Municipalitieswere also granted monopoly rights in some important local fields as transportation, gas, water, electricity, and milk supply. Treves (1974),
In France, Drago (1974), wrote that“public enterprises may be established as Enterprise Pilotes to be leaders in their industrial setting in terms of efficiency, technology, industrial relations and so on”.
Kiliick (1987), has identified the factors responsible for the existence and spread of public enterprise in various countries as ideological, political, developmental, employment creation, consumer protection, and the need to improve the distribution of national income.
Enterprises such as the United Kingdom Post Office, British Airports Authority and Atomic Energy Authority have been managed under public ownership for security reasons. The government of Britain had to acquire for diplomatic reasons the Aero Engine and other relevant function of Roils Royce in 1971 which was important to her national defense and collaborative programmes with other countries and to many air forces and civil airlines all over the world. Dainith (1974).
Unlike private enterprises which are incorporated under the Companies and Allied Matters Act, public enterprise are established through statutory enactments. “The adaptability of public enterprises in response to social .demands is a widely recognized attribute”. Friedman (1974). This meansthat they exist primarily to serve the needs of the populace either through revenue generation to government or ensuring ready availability of goods and services.
Public enterprises according to Orojo (1992), are set-up by the government' for the purpose of its participation in theeconomic activities of the country. While some of the statutory corporations are essentially for social services... others are largely commercial, operating generally like private corporations.
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