Nigeria Economy | |
Nigeria Economy | |
1945 VIEWS | |
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Friday, April 24, 2020 / 06:00PM / State Owned Enterprises Department of The
Nigerian Stock Exchange (NSE) / Header Image Credit: Wikipedia
At her earlier stage of
development, Nigeria was characterized by a strong government presence which
resulted in the establishment of about 600 public enterprises solely owned by
the government. These public enterprises influenced various sectors of
the economy chief of which was providing infrastructural facilities to enhance
the overall welfare of the society.
The United Nations
Development Programme (1990), noted that despite the huge sums spent by various
governments on these state owned enterprises, their performance fell far below
expectations. The problems of public enterprises are multidimensional and
according to World Bank's Human Development Report of 1983, these problems
include poorly planned investments; political influence in decision-making;
costly and inefficient application of public funds; increasing budgetary
burden; over-extension of government managerial capacity; and diversion of
credit and other resources from the private sector.
In 1986, the inefficiency
of state owned enterprises became the launching pad of a global programme - Structural Adjustment Programme (SAP) with the main objective of ensuring
efficient and effective resource allocation and utilization in Nigeria.
Privatization was then adopted to achieve this objective and formed an integral
part of the SAP. Further, the Privatization and Commercialization Act of
1988, formally set up the Technical Committee on Privatization and
Commercialization (TCPC) chaired by Dr. Hamza Zayyad with a mandate to
privatize 111 public enterprises and commercialize 34 others.
During the first phase of
the privatization exercise which lasted from July 1988 till June 1993, about 88
government-owned enterprises were either fully or partially privatized jointly
with foreign or private Nigerian investors. However, for basic industries
with large capital requirements such as vehicle assembly plants, paper and
steel mills and sugar and fertilizer companies, privatization proved
challenging due to the financial insolvency and negative net assets of these
entities. This first phase of the privatization programme had an absolutely
positive outcome and succeeded in providing relief for government in financing
public enterprises.
Furthermore, the Nigerian
capital market was deepened and broadened by the large body of shareholders
created as a result. An example is the Flourmills Nigeria Plc public
offer price of N0.80
and market price of N0.61
as at 23rd January 1989 which grew to a market price of N21.25 as at 31st
March 2020. The equity market capitalization of the Nigerian Stock
Exchange (NSE) through which the shares were sold grew from N8.9 billion in 1987 to N65.5 billion in 1994
(after Phase-I) and N11.39
trillion as at the end of March 2020. The catalytic effect of the volume
of shares released into the market via the privatization exercise cannot be
overemphasized.
In 1999, under the Bureau
for Public Enterprises (BPE), the second phase of the privatization programme
kicked off with 97 enterprises slated for privatization. From December
1999 to date, additional enterprises have been privatized either through core
investor sale or concession. This added a large volume of shares to the
capital market whilst at the same time, the Federal government realized
Significant revenues from the sales. These enterprises include
Transnational Corporation of Nigeria (Transcorp), Power Holding Company of
Nigeria (PHCN), Nigerian Telecommunication Company (NITEL), Nigeria Newsprint
Manufacturing Company Limited, Abuja International Hotel (Le Meridien),
National Clearing and Forwarding Agency, Stallion House, NICON Hilton Hotel and
Eleme Petrochemicals Company Limited among others.
A positive effect of
privatization in Nigeria is the increase in the number of companies listed on
the Nigerian Stock Exchange (NSE) by privatizing through public offering and
the attendant increments in public participation in capital market
activities. It is important to note that the Capital Market plays a
significant role and serves as a facilitator and stimulant for socioeconomic
growth and development through the mobilization of long-term funds. So
far, the privatized enterprises in Nigeria have been able to achieve the
desired objectives of increased efficiency and productivity and this is
reflected in the appreciated market prices in the now public companies.
Some other examples
include; Okomu Oil Palm which was privatized and listed on the NSE in 1991 and
has since grown to become Nigeria's leading oil palm company with a current
share price of N68
and a market capitalization of over N52.51 Billion as at 31st March 2020. The re-establishment of the
Bureau for Public Enterprises (BPE) in 1999 led to the privatization of Benue
Cement Company along with 24 other companies by the then Abdulsalam Abubakar
regime. Consequently, the Federal Governments majority shares in the
company were sold in April 2000 with the emergence of Dangote Industries
Limited as the core investor in the Company. By 2006, the annual turnover
of the company skyrocketed to a sum of N6.02billion from N391 million in 2003 indicating a giant stride.
From a mere N5.00 at the end of the
first quarter of 2006, the market price of the stock appreciated to about N55.00 in April 2007.
On the revenue side,
privatization of Government Owned Businesses helped to create additional
liquidity for the Government thereby facilitating debt reduction. Other
direct and indirect benefits include; financing new expenditures, increasing
the scope of investments in infrastructure and further improved tax revenues
driven by the collections from the privatized businesses. For example, in
the first phase of the privatization exercise in March 1991, over N200 billion was remitted
to the Treasury, the proceeds which had by far exceeded initial
expectations. Also, over N552 billion from the sales of public enterprises were realized in the
third phase between 1999 to 2007.
With the positive impact
highlighted above on privatization through public offering, it is possible in
the long run to envisage the emergence of Nigeria as one of the attractive
depots for investment given the Governments' continued efforts towards
privatization of the state owned entities. Furthermore, privatization through
public offering mays serve as a credible initiative that can be used to address
the well-established infrastructure gap whilst ensuring good governance and
democratized ownership within Nigeria.
Previous
Article from the State Owned Enterprises
Department of the NSE
1.
Can
Privatization of Government Owned Enterprises be Instrumental to the Economy's
Sustainability?
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