MBA 8345: PUBLIC ENTERPRISES

LECTURENOTES
By

G.T.Olawepo
B.Sc (Ibadan),M.Sc (Unilorin)
PGD Computer Science (Unilag)

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 UNIT ONE
INTRODUCTION

Definition of public enterprises

Public enterprises can be defined as “an organization that is set up as a corporate body and as
part of the governmental apparatus for entrepreneurial or entrepreneurial-like objectives.”
Public enterprises are organizations which emerged as a result of government acting in the
capacity of an entrepreneur (Obikese and Anthony 2004:248). Public enterprise (also known
as public corporation) is defined by Dimock and Dimock (1970:69), as publicly-owend
enterprise that has been chartered under federal, state or local government law for a particular
business or financial purpose. According to Pfiffner (1964:40), “A corporation is a body
framed for the purpose of enabling a number of persons to act as single person.”
Meaning of Public Enterprise
Public enterprise essentially have the features of several individuals who act as one. The
enterprise thus is viewed as an artificial person who is authorized by law to carry on
particular activities and functions. It is described as a corporate body created by the
legislature with defined powers and functions and independently having a clear-cut
jurisdiction over a specified area or over a particular type of commercial activity (Ekahtor,
2002:167)
Public enterprise is part of government apparatus and three implications are hereby
highlighted. First, a and its primary, by virtue of its intricate relationship with government, is
an instrument of public policy and its primary mission is in connection with governmental
objectives and programmes. It is therefore naturally under governmental control. Second, a
public enterprise, by its nature, mostly manages public resources, especially public money
and this means that attention must be paid to mechanism for enforcing accountability. Third,
the combination of financial an economic objectives with social and political aims invariably
makes it difficult to devise appropriate performance measurement instrument (Obikeze and
Anthony, 2004:248- 249)

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Origin of Public Enterprises
The origin of public enterprise could be traced to early twentieth century when government
intervened in economic management through departmental organizations ,which did not
involve creating autonomous 12 public bodies. In the alternative, it granted license to a
private enterprise for the management of natural or national monopolies and where public
bodies were involve in managing economic ventures, such bodies did not enjoy financial
autonomy. Public enterprises made a very strong appearance after World War I for a variety
of reasons, including managing the consequences of the war, especially the economic crisis
of the 1930s. However, public enterprises sector developed rapidly because of the spread of
Keynesian Interventionist. Between the two World Wars, political and ideological
consideration prompted the establishment of parastatals in the former colonial metropolis.
The movement toward the establishment of public enterprises received a new impetus after
World War II for reasons related to both ideological considerations and economic efficiency.
Economic nationalism and the success of the Soviet Revolution paved the way for
nationalism and strong state intervention in national economic management. When the
former European colonies in Africa became independent in the late 1950s and the 1960s,
there were only a few public enterprise in different countries. The public enterprises sector
then developed at a tremendous pace in the immediate years after independence through the
1980s and a huge public enterprise sector was firmly established in most countries. The
weakness of the private sector, the lack of infrastructure, the low level of social and human
development and the unfavourable social, economic and financial environment are some of
the reasons given to explain the proliferation of public enterprises in all areas of economic
and social development. Other reasons include the urge to generate revenue to limit foreign
economic domination, and to provide a substitute for private initiative where it was ot
forthcoming. Public enterprises in Nigeria date back to the colonial era when colonial
government established some public enterprises to provided essential services like electricity,
railway, and water. The post independent era marked a watershed in the growth and spread of
public corporations. At independence in 1960, Nigeria had 50 public enterprises, 200 in the
1970s and 1,500 in 1987 when government embarked upon economic reform programs. The
factors that account for the phenomenal increase include: the evolution of the federal
administrative structures (from four units in 1950s to twelve in 1967, nineteen in 1976,

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twenty one in 1987, thirty six in 1996). The oil boom, ad successive governments
commitment to making public enterprises an instrument of state economic intervention in the
1970s (Adamolekun, 2002:33)

Difference between Public and Private Enterprise

The differences are as follows:

i) Ownership

Public sector organizations are publicly owned by all citizens including tax payers, minors,
disables etc while private sector organizations are owned by individuals or group of
individuals who form the board of directors with a community of share holders.

ii) Goal or Objective

Public sector organizations are primarily for the provision of social welfare i.e. to serve the
public in Federal, State or Local government. On the other hand, private organization has its
own goals, i.e. to provide the public with its products or services and must make profit.

iii) Clientele

The services and production that emanate from the public sector management are collectively
referred to as Public Good, which means that every member or relevant public is entitle to its
enjoyment. In the case of the private sector clientele i.e. the goods and services provided is
relevant only to a section of the population of a given geographical unit.

iv) Accountability and Control

This is rendered to the people through their representatives in the parliament in the case of
the public sector, which means that managers of public sector hold offices in trust for the
people. In the private sector, accountability is rendered to the sole proprietor or board of
directors and ultimately the shareholders who also exert control.

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vi) Human Resources

In the public sector, personnel are in the majority, who owe their appointment essentially to
political other than technical, because of the consideration of equity, justice, fair play, equal
representation or quota system and federal character in assessment of public personnel
appointment. In the private sector, appointment into technical and administrative positions is
by character of efficiency; this is because profit maximization is the principal motive behind
the philosophy of private sector management.

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 UNIT TWO
CHARACTERISTICS, CLASSIFICATION, CREATION OF PUBLIC
ENTERPRISES
Characteristics of Public Enterprises
The main characteristics of public enterprises are:
i. A public enterprises comes into existence as a result of an Act passed by legislature or a
decree under military rule. Public enterprises also defines its aim and objectives, powers n
duties, immunities, the form of management and relationship with established departments
and ministries.
ii. It is a legal person, capable of suing and being sued, entering into contracts, acquiring and
owing property in its own name and can also dispose of property than ordinary
government departments.
iii. It is wholly owned by the state.
iv.Except for appropriations to produce capital or to cover losses, a public enterprises is
usually independently financed. It obtains its funds from the treasury or the public and
from revenues derived from the sale of goods and services. It is authorized to sue and
reuse its revenues.
v. It is generally exempted from most regulatory and prohibitory statute applicable to
expenditure public funds. There are no hard and fast rules behind them in the matter of
making contracts of buying selling works, etc. thus, a great deal of liability and discretion
is left for the management in the matte of procedure.
vi.It is ordinarily not subject to the budget, account and audit laws and procedures applicable
to government departments. Their audit is to be done by the Account- General of Nigeria
or any other person appointed by him. However, both the accounts and audit are
commercial in nature.
vii. Excluding the offices taken from government on deputation, the employees of public
corporations are not civil servants and are not governed by government regulations is
respect of conditions of service. The recruitment is not subject of civil service rules,
promotion is by seniority and personnel can be fired easily if they are incompetent.

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Classification of Pubic Enterprises
Public enterprises are classified into three; namely public/ statutory corporations, state-
owned companies, and mixed economy enterprises .these are explained below:

Public/Statutory Corporation
These are enterprises, which arise when the government responsibility for the management of
an economic or social pursuit through a special entity that has its own legal personality and
still keeps some of the special prerogatives or privileges associated with a governmental
organization. The bled of these features is aimed at enabling the organization to function
effectively as an autonomous body while it remains an instrument of government policy.
Enterprises that fall under statutory corporations include Central Bank of Nigeria (CBN),
Nigeria Television Authority (NTA), and Federal Radio Corporation of Nigeria (FRCN)
among others.
State Owned Companies
These are companies created by government under the provision of ordinary company law,
though they belong entirely to the government. They are registered in the registry of
companies, with the government as the sole proprietor. Government, therefore, appoints the
Boards of Directors as is customary in private companies. Example of such companies
includes New Nigeria Newspaper Ltd, New Nigeria Development Company Ltd., and Odua
Investment Company Ltd.
Mixed- Economy Enterprises
These are enterprises where the government is the majority shareholder in a partnership with
private entrepreneurs. In such companies, government usually dominates the board since it is
the major shareholder. One example of such enterprises in Peugeot Automobile Nigeria Ltd.
(PAN) (Obikeze and Anthony, 2004: 249-250).

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Categories of Public Enterprises

Public Enterprises are classified into the following categories:

1. Communication and Media Enterprises

i) Nigerian Communication Commission (NCC);

ii) National Information Technology Agency (NITDA);
iii) Nigerian Television Authority (NTA);
iv) News Agency of Nigeria (NAN);
v) Federal Radio Corporation of Nigeria (FRCN);

2. Economic Enterprises

i) Central Bank of Nigeria (CBN);

ii) Niger Delta Development Commission (NDDC);
iii) Bureau of Public Enterprises (BPE);
iv) Federal Mortgage Bank of Nigeria (FMBN);
v) National Council on Privatization (NCP);
i) 3. Energy Enterprises
i) Nigerian Electricity Regulatory Commission (NERC);
ii) Energy Commission of Nigeria (ECN);
iii) Nigerian National Petroleum Corporation (NNPC);
iv) Department of Petroleum Resources (DPR);
v) Nigerian Gas Company (NGC);

Characteristics of a Public Enterprise

Its characteristics are:

i) Government provide the capital for its operations;

ii) It has legal personality, i.e. it can sue and be sued in its own name;
iii) It is created by the government to achieve an objective. For example, Borno State
water corporation was created by government to provide clean and cheap water to
the people of Borno State;
iv) A public enterprise can take the form of a public or statutory corporation, state
owned company or a mixed economy enterprise.

Creation of a Public Enterprise Having defined a public enterprise, the next step is how
it is created in the first place. A public enterprise comes into existence in the following
ways:

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i) Creation of State owned Enterprise from the Scratch

In a democratic system of government like Nigeria, where there is separation of power, the
primary responsibility for creating public enterprises lies with the Legislature. The
Legislature establishes Public Corporations. The Executive on the other hand, can handle
the creation of state-owned enterprise. While the creation of a Corporation is usually backed
by an Act of parliament, the creation of the state owned company is backed by the relevant
company law or the Corporate Affairs Commission approval certificate. Example is the
Nigerian National Petroleum Corporation.

ii) State-Own Companies

These are companies created by the government under the provision of a law governing its
creation, though belonging entirely to the government. They are registered with the
Corporate Affairs Commission (in the case of Nigeria) or registered in the registry of
companies with the government as the sole proprietor. Example is the Borno State Fertilizer
Company.

iii) Creating a Mixed Economy Enterprise

A mixed economy enterprise is created when the government decides to acquire the majority
share in an existing enterprise or decide to jointly establish an enterprise with private
investors. In both cases, the government owns the majority of the shares (51 per cent or
more). Such a process involves only the executive or its mandated representative.

iv) Taking over Private Business

This is a process of taking over private enterprise or transferring the ownership of a private
enterprise to government. This is called nationalization. A law should be evoked to effect the
transfer.

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Dissolving a Public Enterprise
Public enterprise can be dissolved by liquidation, a transfer to private ownership
(privatization), or a merger with another public enterprise. In the last case, the executive arm
of government can handle this, but in other cases, an act of parliament is required
(Adamolekun , 2002:31-32).
Reasons for the Establishment of Public Enterprises
There are many reasons for the establishment of public enterprises. These are outlined below:
 The desire to use the public enterprise as an instrument of effective plan implementation
in a context where it appears futile to devise a development plan for the private sector.
 The need to secure economic independence.
 The urgent desire to assure government control over “strategic ” sector of the economy
(e.g. central banking, broadcasting, iron and steel, roads, shipping etc.)
 The need to separate some activities from the civil service and allow more autonomy in
their running

UNIT THREE
PROBLEMS OF PUBLIC ENTERPRISES IN NIGERIA

Problems of Public Enterprises

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The fundamental problems of public enterprises are the defective capital structures, excessive
bureaucratic control or intervention, inappropriate technology , gross incompetence,
mismanagement, corruption and crippling complacency which monopoly engenders. 20
public enterprises equally serve as platforms for patronage and promotion of political
objectives and therefore even when their management have the will and the capability to
work honestly, they will still suffer from operational interference by political appointees.
Furthemore, most the leadership of public enterprises in Nigeria is corrupt and they feel only
accountable to the political office holders who got them their jobs instead of serving public
interest (Ejiofor, 1984:18).

Incompetent Management
It is mandatory for the management of every organization to carry out it organizational
objectives. Hence, it is expected that the management would have the technical or managerial
competence to do their duties. But in most of Nigeria ’s public enterprises, the management
teams are not appointed on merit, rather appointments are considered on political connections
or primordial reasons. Consequently, the appointees lack the necessary skills, expertise or
experience, and the management may end up mismanaging the enterprises. Similarly, board
members of public enterprise may not posses any requisite skills to perform their functions
because they are politicians who are usually compensated for their political patronage of
contribution. The Max Weber’s assertion that candidates for position in organization must be
selected on the basis of technical qualifications is to adhered to in appointing both
management and board members. This also results into recruitment and selection being bases
on emotive, primordial, and purely sentimental reasons. The effect in incompetent staff is
gross inefficiency in their operations. Moreover political instability and lack of continuity of
developmental programmes affect public enterprise in Nigeria.
Self – assessment exercise
Mention one of the fundamental problems of public enterprises in Nigeria.
Government Interference in Public Enterprises
With the limited autonomy granted public enterprises, they are expected to be free from the
day to day bureaucratic bottleneck of the mainstream civil service and government. In reality,
however, political office holders regard public enterprises as their “property” and frequently

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interfere in their affairs. Ministers and/ or commissioners who are managers of ministries of
public enterprise interfere in issues normally within the jurisdiction o the board or
management of political or personal reasons. Consequently their interference could lead to
distortion of policies, corruption, and overstaffing of public enterprises which often accounts
for their inefficiency.

Monopoly
Most public enterprises operate as monopolies and are therefore faced with the same
problems which afflict monopolies. Since monopolies do not have competitors, they don ’t
take the challenge to either innovate or offer better services seriously. This is because they
know that their customers have no alternative. Competitive market promotes efficiency since
there are always options to choose from.

Conflict of Objectives
While public enterprises are established to provide essential services as a public utility, they
are also expected to make profit as a business outfit. These twin objectives are contradictory
and have been the main reason for non-performance of public enterprises. For example,
despite political interference from government as the expense of economic rationality, public
enterprises are still expected to make profits. Economic and political rationalities are hardly
compatible (Obikeze and Anthony, 2004 : 257 and 258)

Problems of Public Enterprises in Sub Saharam African (SSA)

The performance of public enterprises in Sub Saharan Africa (SSA) and in Nigeria has not lived up
to expectations. In general, they face the following problems:
1. Distorted Pricing Policy: The pricing of public enterprises is not guided solely by profit
optimization principle. In the case of Power Holding Company of Nigeria, prices are kept low by
government even when costs have been rising.
2. Inappropriate Investment Decisions: Many sub-Saharam African public enterprises have been
established without sufficient reflection, with unclear objectives and few linkages to the rest of
the economy (Savas 1971).
3. Heavy Burden of Social Ovrheads: The prevalence of social objectives has greatly complicated
the operation of public enterprises in Sub Saharan Africa by making commercial criteria almost

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 inapplicable. In Ethiopia, public enterprises are expected to provide many social infrastructure,
which creates heavy financial burden.
4. Under Capitalization: Sub-Saharn Africa suffers from insufficient equity capital. This problem
worsened through drastic cuts in government subvention to public enterprises.
5. Excessive Political Interference: Public enterprises also suffer from frequent political
interference. They are often seen as instrument of political patronage by the government in
power. This results in overstaffing, poor choices of product and location, recruitment of
mediocre, etc.
6. Absence of Competitive Environment: This lead to complacency on the part of the
management of most public enterprises, resulting in poor services delivery and inefficiency s.
7. Corruption: PE managers and political appointees see most public enterprises, especially in the
developing countries, such as Nigeria, as instruments for private wealth accumulation.
Consequently, huge sums of money are often siphoned into private accounts, leading to huge
losses by the enterprises.
8. Poor infrastructures: The deteriorating state of infrastructures in most African countries also
contributes to the failure of public enterprises as they contribute to high cost of operation. In
Nigeria, for instance, power supply is unreliable, consequently, most public enterprises rely on
standby generators which cost must to purchase and maintain. In addition, the roads are in a bad
state.
Reasons for Public Enterprises Failure in Nigeria

i) Sitting of Enterprises

Political parties controlling governments’ site industries based on the political principle of vote
catching and not for sound economic reasons. It is only in exceptional cases that industries are sited
where they should be.

ii) Appointment of Board Members

The appointment of members of Board of Directors of government owned companies are not usually
based on experience, discipline and qualification, but on party stalwarts. In this case, will the
member work for the interest of (a) the party? Or (b) those in power?

iii) Appointment of Staff

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It is usually expected that executives of companies should interview and select senior staff that have
requisite experience, character and training to run such companies. But government owned
enterprises consider local government of origin, relationship with those in power, political influence
in the appointment of staff, thus throwing overboard the original aim and motives of the enterprises
built with the tax-payers’ money.

iv) Contract Awards and Kickback

Contracts in public enterprises are awarded only to those who contributed to the political party in
power or those who are able to pay certain percentage to the party.

v) Power Tussles

The establishment of a company by the government will usually set in motion the triangle of
power struggle involving the management of the companies, the ministry and the political
heavy weights on who should have the final say in running the State Enterprise.

vi) Unclear Objective

The objectives of each enterprise were never clearly defined. For instance, the law
establishing some development corporations stated that the objectives of the corporation shall
be to “facilitate and promote economic development”. This objective is a wide and vague
one, which means that the corporation can do anything from running private school to
building roads, as both will facilitate economic development.

vii) Non-Viable Projects

Another reason for the poor performance of the State Enterprises is that some project are not
needed but put in place, which often is due to lack of competent and detailed pre-investment
survey and market research. Sometimes, the only survey is that of an interested European
Machine peddler whose main interest is to sell machinery and not the success of the
enterprise.

viii) Political Patronage

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Another important reason for the failure of State Enterprises is the issue of Political
Patronage in the appointment of Board members and staff. In Nigeria, if a political party
wins an election, the party stalwarts expect their reward in some paid employment.

Role of Corporate Affairs Commission

The Corporate Affairs Commission is a commission that is responsible for the registration
of companies and Allied matters in Nigeria. It was established by the Companies and Allied
Matters Act of 1990. This Act repealed the Companies Act of 1968. The functions of the
Corporate Affairs Commission as set out in section 7 of the Companies and Allied Matters
Act are:

i) To administer the Act, including the regulation and supervision of the formation,
incorporation, management and winding up of companies;
ii) To establish and maintain companies registry and offices in all the States of the
Federation suitably and adequately equipped to discharge its functions under the
Act or any law in respect of which it is charged with responsibility;
iii) Arrange and conduct an investigation into the affairs of any company where the
interests of the shareholders and the public so demand;
iv) To undertake such other activities as are necessary or expedient for giving full
effect to the provisions of the Act.
v) The Commission also registers Business Names, and Incorporated Trustees as well
as provides a wide range of ancillary services.

Reasons for the Establishment of a Public Enterprise

Again, you should know at this stage why government decides to establish a Public
Enterprise in the first place. The reasons are as follows:

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 i) The desire to use the State Enterprise as an instrument of effective plan
implementation in a context where it appears futile to devise a development for the
private sector;
ii) The need to secure economic independence;
iii) The urgent desire to assure government control over “strategic” sectors of the
economy (e.g. Central Banking, Broadcasting, Iron and Steel, Roads, Shipping);
iv) The need to separate some activities from the civil service and allow autonomy in
their running;
v) The need to provide employment for the citizens when the private sector does not

Role of Minister or Commissioner of Public Enterprise

The Management of a Public Enterprise in Nigeria was appointed by the Federal, State or
Local Government. Each of them is accountable to the government through the Minister in
the case of the Federal Government, Commissioner in the case of the State Government and
Chairman of a local government in the case of the local government council. This is achieved
through their respective Ministries or Department responsible for public enterprises.
Minister, who has a State Enterprise under his /her Ministry, should be responsible for the
following:

Approval of bye-laws; Approval of capital and operating budgets, Approval of rates and
scales of charges for services rendered to the public by the enterprise; while ministerial
control over the following is subjected to the approval of the cabinet: Appointment and
removal of the Chairman and members of the Board; Approval of loans and advances to
enterprises; Approval of capital development projects; Appointment of External Auditors.

The Role of the Board of the Enterprise

There is the Policy Board whose members are appointed by the government and headed by
its chairman. There is also the Management or Executive Board which is made up of Heads
of major units in the organization and is headed by the General Manager or Group Managing
Director. The minimum number of policy board members is five and the maximum is 25. The
functions of the Board are to approve the budget of the enterprise, monitor its performance;
communicate the needs and achievement of the enterprise to the stakeholders. The type of
people appointed as board members are people with relevant business experience, and should

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be people who possess integrity, good personal record in the community, ability and
specialized knowledge.

Staffing and Financing of a Public Enterprise

The staff of State-owned enterprises are not civil servants; they have separate condition of
service which are sometime similar to what is obtainable in the private sector in terms of
salaries, allowances, bonuses over time payment, training, workshops and conferences. In
terms of appointment into the civil service, favouritism and politics come into play while in
the case of appointment into the State Enterprises, apart from political affiliations,
qualification and experience, other merital requirements comes into play.

Financing of Public Enterprise

There are various sources of funding a Public Enterprise. These sources are Internally
Generated Revenue and Funds from External Sources, as follows:

a) Internally Generated Revenue

Internally generated revenue refers to trading surpluses, earning from sales of goods and
services, taxes and dividends. These incomes could be used to finance State Enterprises
investment.

b) Externally Sources of Funds

State Enterprises get funds from government, national financial institutions, local private
entrepreneurs and international sources. The government therefore avail State Enterprises
with the following sorts of funds:

i) Capitalization Fund

Just like the Proprietor or shareholder, the government provides the necessary take-off funds
for the business.

ii) Grants

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There are various types of grants. These are Statutory Grants as well as Special or
Categorical Grants. Special or Categorical grants are attached to specific projects or
activities, whereas Statutory grants are regular and mandatory and could also be general or
related to specific activities. Regular grants are also referred to as subventions.

iii) Loan

Government can lend money to Public Enterprises to ease their financial management
problems or to assist them in specific projects or interventions that are of special interest to
governments.

Reform of Public Enterprises

As a result of the problems and failures encountered by the public enterprises, the
government then decided to bring in some changes in the operation of the enterprises through
reforms as follows:

i) The first attempt was the exercise of Rigid Control over their operation. This
attempt did not succeed because it amount to taking the powers of the enterprises
management.
ii) The second move was the inclusion of Civil Servants in the Boards of the
enterprises. This also has several disadvantages as put forward by Adibe (1999): i)
Civil Servants are normally appointed by virtue of their offices, and because of the
great turnover in staff, they are never on the board long enough to develop a sense
of identification with an enterprise.
iii) Civil Servants are by training, service-oriented rather than profit-oriented. They
are cautious and averse to taking the kind of risks necessary for the success of
commercial enterprises.
iv) Other measures tried include the establishment of a statutory corporation service
commission to be responsible for appointment, promotion and dismissal of the
staff of public corporations and State Enterprises.
v) Another reform was the establishment of standing tenders board for the award of
contracts. These attempts were later scrapped because they worsened the situation
by further restricting the autonomy of enterprises.

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 vi) Also, an attempt was made to compel the enterprises to operate on commercial
principles that are to charge customers the cost of services rendered. This did not
succeed.
vii) The next was the appointment of task forces over and above the boards of public
enterprises. Furthermore, the task forces are expensive and are likely to increase
the indebtedness of public enterprises.

UNIT FOUR
MANAGEMENT AND CONTROL OF PUBLIC ENTERPRISES IN
NIGERIA

History of State Enterprises in Nigeria

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Historically, state enterprises in Nigeria, began in 1898 when the British colonial administration
undertook the railway transport project from Iddo in Lagos to the hinterland. This was followed by
coal mining; electricity generation and ports construction with the development of relevant
government organizations. All these organizations were established as administrative organs to
facilitate trade and commercial actives in Nigeria. They were managed as government departments.
The railway corporation was considered very important, then, so the General Manager was a member
of the legislative Council (Tokunboh, 1990). In 1949, the structure of seeing public enterprises as
government departments came to an end. This was as a result of a labour dispute at the Enugu Coal
Mines when, arising from a go-slow strike by the mine workers over wage claims, 21 miners were
shot and killed by the police. A commissions under fitzgerald was set up to carry out an investigation
of the incident. A major recommendation of the commission was that government department such as
coal, mines, electricity (ECN) and railways should be transformed into public corporations.
Coal Mines- Nigeria Colliery Department
Electricity – Electricity Corporation of Nigeria (ECN)
Railways – Nigeria Railway Corporation
Ports – Nigerian Ports Authority
Since the 1950s, the growth of public corporations has been remarkable. By 1983,there were about
300 out of which 136 major ones were owned by the federal government alone. By 1988, there were
about 3,000 state-owned enterprises of various forms and sizes.
in Nigeria, both the federal and state governments were using the public enterprises as employers of
last resort. Hemming and Ali (1988) noted that state – owned enterprises enabled governments to
pursue goals of social equity that the market ordinarily ignored. Many government undertakings
were used to provide jobs for constituents, political allies and friends. The location of public
enterprises had been defended on the need to maintain “federal character” and promote national
integration.
One factor that accelerated the growth of public enterprises in Nigeria was the indigenization policy
of 1972 as enacted by the Nigeria Enterprises Promotion Decree ( Federal Government of Nigeria,
1972). The policy gave legal basis for extensive government participation in the ownership and
control of the economy. In 1989, the Technical Committee on Privatization and Commercialization
remarked that as at 1980, there were 70 non-commercial and 110 commercial federal enterprises and
parastatals, many of which depended on government support to cover their operational losses.

Forms of Public Enterprises in Nigeria

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Public enterprises take various forms. Broadly, these can be categorized into three (Adamolekun,
2002), namely:
(1) The government department;
(2) The statutory corporation;
(3) The state company
1. The Government Department: Originally, this was the form in which public enterprises
existed. The formations of the other forms- the statutory and state company are responses to the
need to reduce excessive central control by governments. This is also to say in other word that
the government department is the form of public enterprise in which the management has the
least autonomy. Unlike other two, there is no partnership with the private sector. They operator
with money appropriated under more or less detailed headings (either by items of expenditure or
by functions) and issued from a single government fund. The staffs are usually civil servants
although fairly stringent staffing and financial rules are applied.
Sometimes, it is possible for a government department to be given a legal personality and made
“self accounting” with its own financial and personal rules. In such an instance, it becomes very
difficult to see the difference between a government department and a statutory corporation,
except that the minister is directly responsible in the case of the former.
2. The statutory corporation: These are established by Law or Acts of parliament and exist as
separate legal entities. Here, the minister has no direct responsibility for the corporation. Such
enterprises are set up with status that mandate for their activities.
3. The State Company: These also have distinct legal personalities. They are usually established
to avoid the ministerial/ departmental control. They are registered under the normal company
law. The registration and operations of these companies are the same for privately owned
companies. The only difference is that the government has majority shares.

Control and Accountability in Public Enterprises

In section, you learnt about the structure of public enterprises. There distinct levels in the
organization structure are the Bards, the General Manager or Chief Executive and the Secretary to
the Board. This structure also dictates the control and accountability procedure in public enterprises.

Definition of Control
Control is the function which a manager performs that enables corrective action to be taken. Controls
are signals, standards and landmarks or progress points which management watches to ensure that
the desired objective will be achieved. In the case of public enterprises, control is the measurement
and correction of activities of public enterprises to ensure the accomplishments of short and long-

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range plans. Examples of controls are: budget, return on investment, profitability, absenteeism, and
efficiency.
Definition of Accountability
Accountability is being answerable for the performance of given responsibilities and according to the
standards or objectives set. It answers the question “how well”. In the case of public enterprises, it
means reporting and explaining on how the resources of the organization were used to achieve
predetermined goals/ objectives. Implicit in accountability is reward. Recognition reward should be
given for good performance while inadequate performance should be sanctioned. Public enterprises
are accountable to their supervising authorities/ the government and the public. Examples of
accountability methods are quality of product and over service rendered, annual reports, external
audit, judicial inquiries, press conference, physical inspection, scrutiny by other agencies.
Control of Public Enterprises
Public enterprises being owned by government, either wholly or partially, are subjected to some
control. The two main forms of control are ministerial control and parliamentary control (Ezeani,
2006).
1. Ministerial Control: Ministerial control of public enterprises takes various forms: firstly, a PE
must inform its supervising ministry, and obtain its permission before it makes any changes, and
embarks on any new important lines of operation, especially, where such major changes affect
the public interest. For example, a public corporation, such as the Power Holding Company of
Nigeria (PHCN), must obtain clearance from its controlling ministry before it takes any major
decision on almost all the major areas of its operation. Examples are personnel issues, increases
in electricity bills, introduction of new products into the markets, construction or purchases of
important technical installation, etx. (Olisa et. Al., 1990). The second form of ministerial control
is in the appointment of board members. The President is politically responsible for the
appointment of the board and can dissolve it if he is not satisfied with their performance.
Usually, the controlling ministry has a representative in the board whose role is to explain
government position on important issues, and ensures that the corporation’s affair are managed
along public service rules and other conditions of service of the public enterprise.
Each ministry, at the end of the year, prepares an annual report which its submits to the
government through its supervising ministry. The ministry after studying the reports asks
questions where necessary, before submitting the report to the government with its own
comments. The minister also appoints auditors to audit the account of public enterprises and
intervenes whenever there is a crisis, like employees of a public enterprises embarking on riots or
strikes or destruction of public property.

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2. Parliamentary Control/ National Assembly: Apart from ministerial control, public enterprises
are ultimately accountable to the National Assemble through their ministers, who are the political
enterprises. Parliamentary committees maintain oversight functions over the public enterprises
(Adamolekun, 2004). Parliamentary control takes the following forms (Ujo, 2001 : 83):
(a) Control through annual report- A public enterprises usually submits a comprehensive annual
report of its activities to the parliament through the minister.
(b) Control through annual account – A public enterprise usually submits its annual account for a
given financial year to the parliament. Such annual account and report are subject to debate in
the parliament and
(c) The financial Committee of the House may common the Minister whose ministry supervises
a particular public enterprises to explain or discuss issues concerning his/her corporation.
3. Judicial Control: Many public enterprises in Nigeria have, at one time or the other, been
subjected to judicial control by the government. From time to time, a government sets up
commission of inquiry into the affairs of one or other of its public corporation (Olisa, et. Al.,
1990).This action is prompted by public or employed outcry about corruption, mismanagement
or incompetence in the company/ organization.
The objectives of Control in Public Enterprises
The objectives are as follows:
1. The major purpose of control is to ensure that the objectives of the public enterprise are achieved.
2. The effectiveness of public enterprises control is to ensure that the resources of the organization
are adequately used such that outputs are greater than inputs.
3. To ensure the implementation of government policies and targets.
4. To ensure financial responsibility. It facilitates accountability of management to higher authority
and watches for misused of fund.
5. To ensure the achievement of social objectives of the government and achievement of non-
commercial objectives.
6. To curb the undue use of power of management.
7. To minimize centralization/ concentration of power by supervising ministry or board.
8. To provided timely, accurate and sufficient information to appropriate authorities and the public
for the appraisal of the effectiveness of public enterprises.
The agencies of control of public enterprises are:
i. National Assembly/ Parliament
ii. Minister/ Supervising Ministry
iii. Board
iv. Accountant General/ Auditory General
v. Public Accounts Committee
vi. Special Agencies of Control for example, Consumer Associations, Economic and
Financial Crimes Commission, and Independent Corrupt Practices and Miscellaneous
Offences Commission.

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i. National Assembly/ Parliament as a Control Organ
In any democratic setting, parliament is assigned the function of control and account of public
enterprises.
The Need for Parliamentary Control are:
(a) To fulfill constitutional responsibilities;
(b) To protect capital invested in the public enterprises;
(c) To safeguard public interest;
(d) To ensure uniformity in policies of government;
(e) To monitor the implementation of policies
(f) To control the civil servants in the supervising ministries and public servants in the public
enterprises.
ii. Methods of Control by Parliament
1. Parliamentary questions;
2. Discussions;
3. Debates on outstanding issues; and
4. Parliamentary Committees on public enterprise for in depth analysis of issues
iii. Minister as a Control Organ
A minister exercise control through one or the other, or combination of the following methods
(Prakash et. al., 1997):
(i) Formal Ministerial Control
(a) Administrative Devices
Issue of general policy directions;
Issue of specific directions;
Approval or veto of specified categories of actions and policies;
Participation in management as chairman, member of the board, etc;
Appointment of government board and top officials of the enterprises;
Power to call for reports, returns, etc. and
Power of suppression
(b) Financial Devices
Approval of issue of additional capital;
Approval of capital expenditure beyond specified limit;
Appointment of financial adviser; and
Prior approval of operation budget
(ii) Informal Ministerial Control
Under such control method, the Minister concerned is able to wield more effective control over
SOEs informally. Such informal controls is exercised through consultation and discussion between
the Minister and the Board behind closed doors or pressures, wire pulling or other informal contacts.
4. Accountant General / Auditor General
in many countries, audit control is vested in an auditor general. The power of auditor general
varies from country to country depending on the legal frameworks.
Basically, the audit control by Auditor – General covers the following
(i) Provision of funds
(ii) Regularity

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(iii) Sanctions to expenditure
(iv) Propriety
(v) Efficiency audit
5. Public Accounts Committee
This is a committee of the Senate consisting of not more than 40 members, who are saddled with
the responsibility of examining the accounts of government organizations showing the
appropriation of the sums granted by the House to meet Pubic Expenditure, together with the
auditor’s reports thereon. The Committee shall for the purpose of discharging that duty, have
power to summon persons, subpoena papers and records, and report its findings and
recommendation to the House from time to time. The Auditor General shall bring to the attention
of the committee any prepayment audit queries raised by the Internal Auditors of a Ministry,
Department or Agency but overruled by the Chief Executive
6. Special Agencies of Control- Example are: Consumer Associations, Economic and Financial
Crimes Commission, and Independent Corrupt Practices and Miscellaneous Offences
Commission.

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 UNIT FIVE
Structural Adjustment Programme (SAP)

Meaning of Structural Adjustment Programme (SAP)

You will recall that the Structural Adjustment Programme (SAP) is economic policies that
have been promoted by the World Bank and the International Monetary Fund (IMF) for
developing countries like Nigeria since 1980. The World Bank and the IMF ensures that
developing countries accept and implement the SAP policies as a condition or assistance
from them. It was the acceptance of the SAP policies by Nigeria that led to the introduction
of the Commercialization and Privatization programme in Nigeria.

Definition of Structural Adjustment Programme (SAP)

SAP has been defined as a set of policies which combines short-term stabilization measures
and long term adjustment measures which can be applied simultaneously or they can overlap
each other. SAP implies the re-orientation of the Nigerian economy by its restructuring of
prices and financial variables with the primary objectives of reducing the size of the public
sector imports.

Objectives and side-effects of the Structural Adjustment Programme (SAP)

i) Drastic reduction of the size of the public sector through the reduction of subsidies
on social services;

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 ii) Denationalization of public enterprises (i.e. privatization and commercialization);
iii) Devaluation of the Naira;
iv) Trade liberalization with particular emphasis on export promotion;
v) To relieve the debt burden and attract a net inflow of foreign capital while keeping
a lid on foreign loans.

The Side-Effect of the Structural Adjustment Programme (SAP)

i) SAP boosted the inflationary crisis in the country thus causing a drastic increase in
the cost of living;
ii) The introduction of SAP also resulted into higher increase of prices of imported
raw materials and consumer goods;
iii) Due to increase in prices, the purchasing power of workers declined a great deal.
This is because salaries and wages remained constant and did not keep pace with
fluctuating price level.
iv) Increased unemployment rate in the country which was a result of mass
retrenchment embarked upon by different companies with reason being lack of raw
materials and other inputs of production.
v) The privileged class also benefited from SAP. This is because the limited foreign
exchange available within the economy, the privatization exercise, high interest
rate, among others, all favoured the privileged class.

IMF and SAP implementation in Nigeria

In Nigeria, the IMF role in the implementation of SAP started when the Alhaji Shehu
Shagari’s government (1979-1983) and Major-General Muhammadu Buhari’s government
(1983-1984) both individually approached the International Monetary Fund (IMF) for a loan
of $2.3 billion to be used to refinance the trade arrears and restore a temporary balance in the
international payments. The International Monetary Fund requested Nigeria to meet the
following conditionalities before the loan is granted to her:

i) removal of petroleum subsidy;

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 ii) devaluation of the Naira;
iii) liberalization of trade;
iv) reduction of public expenditure and the
v) classification of Parastatals into economic/social units to ensure efficient allocation
of resources.

The Buhari Administration and the International Monetary Fund could not reach any
agreement on i, ii and privatization of public enterprises. While the IMF wants the Buhari
Administration to make across the board commitment on privatization, the administration
was unwilling to commit itself on such a policy. The Buhari Administration then set up the
Al-Hakim Study Group to critically examined all State Enterprises and Corporations and
make appropriate recommendations. In its Report, which was submitted in November, 1984,
the Study Group recommended:

i) that the government should embark on selective privatization as a way of

prompting State Enterprises to be efficient;
ii) that the guiding principles in a policy of selective privatization should be “national
interest” and “national security”;
iii) that between 50-70 per cent of government equity shares in affected State
Enterprises should be sold in order to guarantee the autonomy of privatised State
Enterprises; and
iv) that at least 10 per cent of government equity shares in such State Enterprises
should be held by the employees in order to ensure a sense of belonging.

Buhari’s Administration rejected the across the board privatization of State Enterprises
because it will be unfair to sell the State Enterprises to a few people, considering the huge
public investments that had gone into the parastatals. Rather, the administration opted for
commercialization. The insistence of the Administration to commercialise rather than
privatise was one of the factors that stalled its loan negotiations with the International
Monetary Fund (IMF). Thus on August 26th 1985, General Muhammadu Buhari was
removed from office in a palace coup d’etat led by General Ibrahim Babangida. Babangida ’s
Administration then organized a national debate on the desirability or propriety of obtaining
an IMF loan by Nigeria. Nigerians clearly rejected the collection of the loan. Babangida ’s
Administration then accepted an International Monetary Fund/World Bank sanctioned
Structural Adjustment Programme, which has as its cornerstone a programme of Privatization

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and Commercialization of State Enterprises. In 1985, the then Chief of General Staff,
Commodore Ebitu Ukiwe informed Nigerians that the Federal Government had started
reviewing its involvement in State Enterprises with a view to formulating a policy on
Privatization and Commercialization of State Enterprises. In 1986 Budget Speech, President
Ibrahim Babangida told the nation that his administration had decided to privatise some
Public Enterprises, because they have come to constitute an unnecessary high burden on
government resources. He further stated that the Public Enterprises will be reformed through
classification and reclassification, while the government subventions to these Public
Enterprises would be reduced by 50 per cent and the enterprises will find the balance from
increases in their prices, charges, tariffs and rates. The modalities of the privatization,
according to President Babangida were that the divestment process will give special attention
and preference to groups and institutions like Trade Unions, Universities. Pension Funds,
Voluntary Associations, Patriotic Unions, Youth Organizations, Women Societies, Local
Government and State Investment Companies. Care will also be taken to avoid the divested
holdings from being concentrated in the hands of few individuals or few areas of the country.

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 UNIT SIX
DEREGULATION, PRIVATIZATION AND COMMERCIALIZATION IN
NIGERIA
Meaning of Deregulation
Deregulation is the gradual withdrawal or removal of regulation in the way of liberating the
economy (Nkechi, 2013). While Okey (2010) defined deregulation as the freeing of a trade or
a business activity from rule and controls.

Difference between Commercialization, Deregulation and Privatization

Deregulation and Privatization are often used in relation to commercialization.
Commercialization involves a situation in which the mandate of public enterprise is operated
as money making venture and can source for funds or their activities internally without
subvention from the government. But deregulation and privatization sharply are different.
Deregulation on the other hand is an economic reform, a fiscal monetary policy measures in
which laws or rules of entry and exit into a market is weakened, relaxed or totally removed in
order to enable economic actors compete. Privatization elates to transfer of ownership of
enterprises from government to private owners. Privatization is the opposite of
nationalization. Nationalization is the conversion of ownership from private owner, usually
foreign owners to the government.
Privatisaton of Public Enterprises
In the Nigeria context, privatization involves the disposal of all part of shares held by the
government directly or through any of its agencies in the concern under consideration to
carry on business. In other words, privatization involve the sale of government
shareholdings in enterprises to non-government entities (institutions or individuals). The
Nigeria economy is non-cultural- being dependent on petroleum for over 90% of its earnings
from the rest of the world. This is like putting one’s eggs in one basket. Thus, the so-called

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structural adjustment programme of government aims of correcting this defect in the
commercialization of some of our public enterprises, had been put in place with the hope
that they would bring about desired structural changes. In July 1988, the Federal Military
government promulgated Decree No. 25, (Privatisation and Commercialisation Decree)
which gave a legal backing to the executive of the privatization and commercialization
programme in Nigeria. The objectives of the programme are:
(i) To re-orientate the enterprises for privatization and commercialization towards a new
horizontal performance improvement, viability and overall efficiency.
(ii) To develop the capital market
(iii) To restructure the capital of affected enterprise in order to facilitate good management
and access to capital market.
(iv) To restructure and rationalized the public sector in order to lessen the dominance of
unproductive investment in that sector.
(v) To ensure positive returns on public sector investment in commercialise enterprises.
(vi) To check the present absolute dependence on the treasury for the funding by otherwise
commercially oriented parastartals, and encourage their approach to the capital market.
(vii) To initiate the process of gradual cession to the private sector of such public enterprises
which, by their nature and type of operations, are best performed by the capital
market?
(viii)To promote wide share ownership. The decree provides for the establishment of the
Technical Committee on Privatization and Commercialization (TCPC)which is vested
with the responsibility of implementing the programme.
Details of the duties of the committee are spelt out in sections 54 (1) and (2) of Decree 25 of
July 1988.
SELF-ASSESSMENT EXERCISE
What is privatization?
Commerciallisation
Commercialization is the re-organisation of enterprises wholly or partly owned by the
government in which such comercialised enterprises shall operate as profit making
commercial ventures and without subvention from the government.

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Objectives of commercialization
The objectives of commercialization programme are as follows:
(i) To restructure and rationalize public enterprises to ensure an effectives, cost
conscious, and goal oriented management and staff whose future is linked with the
fortunes of the organisation they operate.
(ii) To undertake a comprehensive review of the accounting and management information
review of the accounting and management information system of the parastatals with a
view to installing and maintaining modern and effective accounting systems which
will produce promptly the necessary data for monitoring their financial and
operational performance.
(iii) To re-oriented the enterprises for commercialsiation towards a new horizon of
performance improvement, viability an overall efficiency: through the enforcement of
strict commercial principles and practices.
(iv) To check the present absolute dependence on the treasury for funding the otherwise
commercially viable parastatals through a more realistic capital structure which will
enable them approach the capital market to fund their operations without government
guarantees.
Commercialization in Nigeria
Commercialisation in Nigeria began in 1990 in the following areas.
(a) Use of financial resources
(b) Profitability
(c) Development of its functional strengths and elimination of is weakness
(d) Product/ service range
(e) Human resources and organization
Problems of commercialization
The problem of commercialization include:
(i) Policy environment (not being conducive)
(ii) Special privileges to some groups (negating the objectives of the programmes)
(iii) Capital markets (not being able to cope) social costs (labour unions objecting)
(iv) Inadequacy of preparation (TCPC coping)
(v) Administrative capacity (training may help
(vi) Transparency of the process (enlightenment campaign)
(vii) Other forms of privatization (.g contract)
(viii)Measures for improving those that remain (important, may be neglected)
(ix) Investment of proceeds

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For the commercialization programme in particular, success requires that more attention be
paid to the issues of the rate of return, profit, the role of boards of debtors and management
capacity (Sexty, 1985: 60).

Methods and Types of Privatization and Commercialization

There are two broad methods each of Privatization and Commercialization:

i) Full Privatization: This means the divestment by the Federal Government of all its
financial exposures in the designated enterprises;
ii) Partial Privatization: This means the divestment by the Federal Government of
part of its financial exposures in the designated enterprises;
iii) Full Commercialization: This means that the enterprise so designated will be
expected to operate profitably on a commercial basis and be able to raise funds
from the capital market without government guarantee. Such enterprises are
expected to use private sector procedures in the running of their business;
iv) Partial Commercialization: This means that such enterprises so designated will be
expected to generate enough revenue to cover their operating expenditures. The
government may consider giving them capital grants to finance their capital
intensive projects (Obaji, 1999). However, there are three types of privatization,
these are: Pragmatic privatization which is regarded as a means of cutting cost;
Tactical privatization that is regarded as a way of rewarding allies and Systematic
privatization, which is used to change institutional structures and societal
ideologies.

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