The Impact of Privatization on the Efficiency of Firms in Nigeria : Current School News

The Impact of Privatization on the Efficiency of Firms in Nigeria

Filed in Current Projects, Economics Project Topic by on September 10, 2021

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– The Impact of Privatization on the Efficiency of Firms in Nigeria –

ABSTRACT  

The transfer of major public enterprises in Nigeria to the private sector in the year 2000 marked the beginning of the Nigeria experiment on full privatization of government-owned entities. Unfortunately, little has been done to assess the efficiency impact of this policy on enterprise performance. This study attempts to provide some empirical evidence from the oil & gas and manufacturing sector on the efficiency impact of the privatization policy in Nigeria.

First, the study made use of micro and macro indicators to examine the financial and operating performance of two fully privatized enterprises in competitive sectors in Nigeria by comparing the pre-and post-privatization performance. The results albeit mixed, show a significant improvement in some of the indicators, such as profitability in both Africa petrol and ASHAKA Cement Company of Nigeria.

Operating efficiency also witnessed an upsurge in the two indicators for both firms. While both firms witnessed a slight increase in capital investment spending as there was no evidence of capital investment spending before privatization in African petroleum. In the case of output, African petroleum shows a significant response (positive) to the claim of an increase in output than ASHAKA Cement.

The evidence shows that there have been significant employment losses in both African petroleum and Ashaka Cement. In the case of leverage African petroleum show significant accentuation to the leverage proposition while ASHAKA Cement is on the negative side. In the two firms, dividend payments increased after divestiture. 

INTRODUCTION  

Privatization, a method of reallocating assets and functions 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 has spread to every region of the world. All over the world, the public sector as a matter of experience has not been known for its capacity to create wealth.

Consequently, public enterprises were perceived as drain pipes for the government budget, thus creating budgetary strains and avoidable burdens on the economy (World Bank, 1995). It became a national policy imperative therefore to disengage the public sector from those areas where the private sector has the comparative advantage to perform while letting the state concern itself with the provision of infrastructure, security, and the enabling environment for business to thrive through enhanced wealth creation (BPE, 2003).

It is important to observe that for many developing countries like Nigeria it was perhaps unavoidable for the government, to promote the initial investments in the early phase of national development when the private sector was almost non-existent. Unfortunately, the government got herself so involved in a business that could better be performed the private sector, that government could no longer perform her traditional functions satisfactorily the function include the provision of infrastructure and security through the maintenance of law and order as well as the promotion of an enabling and conducive environment for investments and wealth creation. 

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CSN Team.

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