Challenges and alternatives

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UNIT 4 THE PUBLIC SECTOR CONTENTS

programmes especially in the post 1930 economic depression period.

Perhaps, in consonance with this theoretical exposition, most African countries (Nigeria inclusive) under condition of capital scarcity and structural defects in private business organisations and regardless of ideological disposition, unavoidably, extensively utilised Public Enterprises (PEs) otherwise known as state owned enterprises (SOEs) for resource mobilisation and allocation, especially, in the social services and utilities sector within post World-War 11 period. From the socio-political perspective, Ayodele (1996) conceives PEs (SOEs) as:

“business enterprises affected with public interests, bear intimate connection with the process of transportation, other socio-economic services and distribution, are under obligation to afford their facilities to the public generally upon demand at fair and non-discriminatory rates, enjoy in large measure, an independence and freedom from business competition brought about either by their acquisition of monopolistic status or by the grant of a franchise or certificate from the state placing it in this position”.

Examining this concept from its economic perspectives, Tanzi (1984) cited in Ayodele and Falokun (2005), perceives it as:

“Organization whose primary function is the production and sale of goods and/or services and in which government or other government controlled agencies have an ownership stake that is sufficient to ensure their control over the enterprises regardless of how actively that control is exercised”.

A critical but careful examination of these conceptions show that the issue of ownership, management and control of such business enterprises reside in government in order to move the nation to a more desired state in future. Perhaps, against the backdrop of the foregoing, Nigeria, for many decades up to 1986 when it adopted the World Bank and the International Monetary Fund (IMF) endorsed Structural Adjustment Programmes (SAP), made fairly extensive use of PEs, (SOEs) for its resource mobilisation and allocation. The restriction of the operation of PEs to the social services and utilities sector may not be unconnected with the multifarious socioeconomic problems which the country was facing at the time. In fact, such problems included:

• Inadequacy of basic infrastructure- electricity, water supply, transport services, telecommunications etc.

• Dependence on subsistent agriculture.

• Inadequ acy of capital reso urces. ^{1 2 8}

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• Weakness of the real economic sectors of the economy, particularly, the manufacturing sector.

• Technological under-development for a technology breakthrough.

The impact of these problems explain why in the presence of a very weak private sector in the country, PEs had to be brought into playing the leading role at least in the supply of social services and utilities (education, information facilities, water, electricity, telecommunication, transport services etc.).

By the 1970s, the global economies had started to witness a period of commodity boom. In this regard, Nigeria derived some windfall gains from the sale of its crude oil. We may wish to recall that the price of crude oil rose persistently from about $2.00per barrel (pb) in1972 to about $4.00pb in 1980. Production equally rose from 0.5million barrel per day (mbd) in 1972 to 2.5mbd in1980. With the windfall gain from this boom, the economic activities of Public Enterprises (PEs) became expanded beyond the orthodox domain of social services and utilities and spilled to agriculture, manufacturing, mining, banking, insurance, commerce and so on. By about the mid-1980s, the total number of PEs at the federal level alone had reached about 600 enterprises while smaller ones at state and local government levels had reached about 900 enterprises, some of the PEs at the federal level include:

• National Electrical Power Authority (NEPA), a merge of the Electricity Corporation of Nigeria (ECN) and Niger Dams Authority (NDA) for the development of electricity resources.

• Nigerian National Petroleum Corporation (NNPC) which metamorphosed from the Nigerian National Oil Company (NNOC) for the development of crude oil resources.

• Water Corporation of Nigeria for the development of water resources.

• Nigerian Railway corporation (NRC) and the Nigeria Airways Limited (NAL) for rail and air transport services, respectively.

• The Nigerian Postal Services Limited (NIPOST), and the Nigerian Telecommunications Limited (NITEL), for postal and communication services, respectively.

• Eleven river basin development authorities for the development of agricultural resources.

In specific terms, PEs economic activities by the mid- 80s had incorporated economic, activities such as:

• Banking and insurance.

• Oil prospecting, exploration, refining and marketing.

• Cement, paper and steel mills.

• Hotels and tourism.

• Fertilizer plants.

• Motor assembly plants-Peugeot Volkswagen cars.

• Rail, sea, air and land transportation.

• Agriculture via the river basin authorities.

The expansion of the PEs economic activities beyond its orthodox domain had some financial implication which did not create any financial problem at that time because of the positive impact of the windfall gains from the commodity boom of the period. In fact, by about 1980, an increasingly dominant PEs sector had emerged with the expansion of the PEs sector so much so that the sector had started to account for about 50percent of the GDP and above 65percent of the modem sector employment in Nigeria (FRN 1988).

In the mid-80s, about N36.465 billion had been invested in PEs at the federal level alone in terms of equity holding, local and annual grants or subventions. Consequent upon the negative impact of the rate of inflation on asset valuation, the Technical Committee on privatisation and Commercialisation (TCPC), the national body established to oversee the Commercialisation and Privatisation Programmes now Bureau for Public Enterprises (BPEs) on current level of assets valuation had revalued this investment at about N500billion (TCPC, 1993). In addition to this investment level, government had usually expended about 40% of its fixed capital expenditure and more than 30% of its recurrent expenditures on these PEs annually for the maintenance and sustenance of their activities. Besides, the production costs of these PEs were greatly subsidised in order to make for low tariffs of the produced products and services. For example, government subsidies on electricity supplies ranged between 35-52% up to 1986 when SAP was adopted.