Public Enterprise Management Lecture Notes PDF

GOMBE STATE UNIVERSITY SCHOOL OF POSTGRADUATE STUDIES FACULTY OF ARTS AND SOCIAL SCIENCES DEPARTMENT OF PUBLIC ADMINISTRATION LECTURE NOTES ON MPA 816/PADM 706 Public Enterprise Management For MASTER OF PUBLIC ADMINISTRATION & POSTGRADUATE DIPLOMA IN PUBLIC ADMINISTRATION (MPA/PGDPA) Compiled By Dr. Usman Bappi July, 2021 Name:____________________________________ Registration number________________________ Department_______________________________ Course code_______________________________ Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 1|Page Table of Contents One: Public Enterprise: Introduction and overview, meaning/Definition, Objectives, significance, characteristics Two: Classification of Public Enterprise: Public/Statutory Corporations, State Owned Companies, Public/Private Partnership, Financial institution Commercial and industrial companies, Regulatory or service board Three: Reasons for Establishment of Public Enterprise Four: Financing of Public Enterprises: Internally Generated Revenue, External Sources of funds, International Source of funds Five: The Organization and Management of Public Enterprises: Departmental undertakings, features, merits and limitations, Government companies features, merits and limitations, statutory bodies, features, merits and limitations Six: The Management and control of Public Enterprises: Seven: Theories of Public Enterprise: the classical theory, liberal theory, infrastructure theory, market failure theory, basic needs theory. Eight: Public Enterprise & National Development: roles of public enterprise in national development Nine: Privatization Policy in Nigeria: Deﬁnitions and Meaning of Privatization and Commercialization, Privatization and Public Corporation, Commercialization & its Objectives of Privatisation methods of Privatisation , Advantages & Disadvantages of Privatisation, Conclusion: the future of public enterprise. Ten: Challenges of public enterprise in Nigeria REFERENCES ………………………………………………………………………………….. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 2|Page Chapter One Introduction Traditionally, business activities were left mainly to individual and private organisations, and the government was taking care of only the essential services such as railways, electricity supply, postal services etc. But, it was observed that private sector did not take interest in areas where the development period was long, investment was heavy and the profit margin was low; such as machine building, infrastructure, oil exploration, etc. Not only that, industries were also concentrated in some regions that had certain natural advantages like availability of raw materials, skilled labour, nearness to market. This led to regional imbalances. Hence, the government while regulating the business activities of private enterprises went in for direct participation in business and set up public enterprises in areas like coal industry, oil industry, machine building, steel manufacturing, finance and banking, insurance etc. These units are not only owned by central, state or local government but also managed and controlled by them and are termed as Public Sector Enterprises. Public enterprises in Nigeria dates back to the colonial era when the colonial government established some public enterprises to private 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 500 in 1987, when government embarked upon economic reform programmes. As at today 2017, Nigeria has estimated xxxx public enterprises. Meaning of Public Enterprises: A public enterprise is viewed as an artificial person who is authorized by law to carry on particular activities and functions. It essentially has the features of several individuals who act as one. 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. It is a part of government apparatus and three implications are hereby highlighted. Public Enterprise, by virtue of its complex 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 mechanisms for enforcing accountability. Third, the combination of financial and economic objectives with social and political arms invariably makes it difficult to devise appropriate performance measurement instrument. A public enterprise is an agency of the government through which the government manages its commercial and economic activities. Government owned commercial or industrial organization where the government may hold either majority shares or all the shares. Definition: The multiplicity and diversity of the perspectives from which individual scholars and practitioners can often tend to view public enterprise have naturally resulted in a excess of definitions. Happily however, this has not prevented, at least not signiﬁcantly, the convergence of opinion on what key elements 'universally' constitute the central concern and focus of public enterprises. A Public Enterprise can be defined as ―financially semi-autonomous body created by an Act of Parliament to provide goods and services on a commercial basis and is ultimately responsible to the minister through the parliament and the general public.‖ It is an organization that Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 3|Page is set up as a corporate body and as a part of the governmental apparatus for entrepreneurial or entrepreneurial-like objectives. Public enterprises are organizations which merged as a result of government acting in the capacity of an entrepreneur. Public enterprises also known as public corporation can also be defined as publicly-owned enterprise that has been chartered under Federal, State or Local Government law for a particular business or financial purpose. It is a body framed for the purpose of enabling a number of persons to act as a single person. In an expert group meeting at the International Centre for Public Enterprises (ICPE) in Yugoslavia, a conceptual definition of public enterprises was formulated as follows:- "A public enterprise is an organisation which is owned by public authorities including central, state or local authorities, to the extent of 50 per cent or more ; is under the top managerial control of the owning public authorities, such control, including, inter alia, the right to appoint top management and to formulate critical policy decisions; is established for the achievement of a defined set of public purposes which may be multi- dimensional in character; and is consequently placed under a system of public accountability; is engaged in activities of a business character; involves the basic idea of investment and returns; and which markets its output in the shape of goods and services". This definition reflects the complex nature of the organisation described as public enterprises. The idea of investment and returns could be interpreted either as financial returns in the commercial sense or as social returns. Companies Act 1956 has defined a public enterprise as follows: "A government company is one in which not less than 51% of the paid up share capital is held by the central government or by any state government or governments or partly by the central government and partly by state government or governments" As state earlier, the business units owned, managed and controlled by the central, state or local government are termed as public sector enterprises or public enterprises. These are also known as public sector undertakings. A public sector enterprise may be defined as any commercial or industrial undertaking owned and managed by the government with a view to maximise social welfare and uphold the public interest. ―By public enterprise is meant economic undertakings, especially industries, agricultural or commercial concerns, which are owned (wholly or in part) and controlled by the state‖ -U.N. Publication ―A public enterprise means state ownership and operation of industrial, agricultural, financial and commercial undertakings.‖ -A.H. Henson Oshisani and Dean (l984) deﬁne public enterprises as ―semi-autonomous bodies, subject to the "overall control of the government, but having their own management responsible for policies and decision within statutory defined field, They went further to say that' because of the increasing popularity in Nigeria of the term, parastatals the two terms can be used interchangeably. As organizations created by partly or wholly owned and largely controlled by a public authority (federal, state or local government)‗ and which -are supposed or expected to operate along industrial, commercial or profit-making lines (even if they also have social objectives) Aire 1986. As economic undertaking, especially industrial, agricultural or commercial concerns which are own (wholly or in part) and controlled by the state. It includes those mixed enterprises, which are controlled by the state. A mixed enterprise is one jointly owned by private persons. If the state contributes over half of its capital, it automatically has a controlling interest. In some cases, the state even has control over a mixed enterprise for which it provides less than half of its capital. United Nations: 1975 Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 4|Page From all the different deﬁnitions given above, it can be concluded at this juncture that there is no authoritative and universally accepted definition of a public enterprise, As a working deﬁnition, public enterprise are (usually) government investment undertakings, managed outside the regular ministry (or civil service) and accorded autonomy to enable the enterprise to operate along commercial or business line, as it‘s the case inn private sector. Examples of public enterprises in Nigeria include Nigerian Railway Corporation (NRC), Central Bank of Nigeria, (CBN), water board/water corporation, Nigerian Postal Service, Nigerian Defence Industries Corporation, National Universities Commission, several government owned or controlled manufacturing enterprises (breweries, textiles, cement, steel, flour and vehicle assembly plants (PAN) fertilizer copany, mining etc) Objectives of Public Enterprise The major objectives of public enterprises could be summarised as follows: 1. To help in the rapid economic growth and industrialisation of the country and create the necessary infrastructure for economic development. 2. To earn return on investment and thus generate resources for development. 3. To promote redistribution of income and wealth. 4. To create employment opportunities. 5. To promote balanced regional development. 6. To assist the development of small scale and ancillary industries 7. To promote import substitution, and to save and earn foreign exchange for the economy. 8. To stimulate research and development, this may lead to the building of indigenous technology and optimum self-reliance 9. To serve as a regulatory agent of the government in ensuring compliance to law by organizations within its area of jurisdiction 10. To capture the advantages of increased participation by citizens in the ownership and management of the productive enterprises 11. To safeguard the interest of consumers by offering a basket of essential goods and services at a fairly low prices to low-income groups. 12. To safe guard the country politically, economically, socially and security wise. Significance of Public Enterprise 1. Need for economic development and sound industrial base 2. Modern economy being a planned economy 3. Instability of the private sector to start huge industries 4. Need for balanced regional growth 5. Policy commitment of the government in power 6. Establishment of a socialists and welfare oriented society 7. Need for optimum utilization of natural resources 8. Need for fulfilling social objectives 9. Socio- political factor 10. Defence requirements 11. To curb monopolies and preventing concentration of economic 12. To act as a model employer 13. Stimulates research and development Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 5|Page 14. Raising the standard of living 15. Need for capital and technical knowhow 16. Employment opportunities and national dividend 17. Stimulates effective implementation of government policies Characteristics of Public Enterprises a) Ownership with the government b) Subject to government control and management c) Public accountability d) Autonomous functioning e) Part of political and administrative structure f) Varied range of activities g) Public purpose h) Economic enterprise i) Considerable financial freedom Looking at the nature of the public enterprises their basic characteristics can be summarised as follows: (a) Government Ownership and Management: The public enterprises are owned and managed by the central or state government, or by the local authority. The government may either wholly own the public enterprises or the ownership may partly be with the government and partly with the private industrialists and the public. In any case the control, management and ownership remain primarily with the government. For example, National Thermal Power Corporation (NTPC) is an industrial organisation established by the Central Government and part of its share capital is provided by the public. So is the case with Oil and Natural Gas Corporation Ltd. (ONGC). (b) Financed from Government Funds: The public enterprises get their capital from Government Funds and the government has to make provision for their capital in its budget. (c) Public Welfare: Public enterprises are not guided by profit motive. Their major focus is on providing the service or commodity at reasonable prices. Take the case of Indian Oil Corporation or Gas Authority of India Limited (GAIL). They provide petroleum and gas at subsidised prices to the public. (d) Public Utility Services: Public sector enterprises concentrate on providing public utility services like transport, electricity, telecommunication etc. (e) Public Accountability: Public enterprises are governed by public policies formulated by the government and are accountable to the legislature. (f) Excessive Formalities: The government rules and regulations force the public enterprises to observe excessive formalities in their operations. This makes the task of management very sensitive and cumbersome. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 6|Page Summary: Owned, managed and controlled by Government, Funded by Government. Welfare oriented, Concentrate on public utility services, Responsible to parliament and the Observance of Government formality is necessary. Public & Private Enterprise By private sector, we mean, economic and social activities undertaken privately by a single individual or group of individuals. They prefer to do business in private sector basically to earn profit. On the other hand public sector refers to economic and social activities undertaken by public authorities. The enterprises in public sector are set up with the main aim of protecting public interest. Profit earning comes next. Besides the difference in the objective, the enterprises in both these sectors also differ in many other aspects. In this section let us know the differences between the enterprises of public sector and private sector. S/No Basis of difference Private sector enterprises Public sector enterprises 1 Objective Maximisation of profit. Maximise social welfare and ensure balanced economic development. 2 Ownership Owned by individuals. Owned by Government. 3 Management Managed by owner and Managed by Government professional managers. 4 Capital by owners through loans, From Government funds and private sources and public sometimes through public issues. issues. 5 Area of operation Operates in all areas with Operates in basic and public adequate return on utility sectors. investment. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 7|Page Chapter Two Classification of Public Enterprise A public enterprise is a particular kind of statutory authority: one that sells goods and services to the public on a large scale, with the financial returns accruing in the first instance to the authority itself. Most public enterprises are in the non-budget sector, and operate with substantial independence. Public enterprises provide many services including, in some countries, utilities such as telecommunications, electricity, gas supplies, water and sewerage; transport, such as rail, airlines, shipping services and urban public transport; financial services, notably banks and insurance companies; and agricultural marketing. Some countries have government-owned oil companies, motor vehicle companies, and tobacco and alcohol companies. Indeed, it is hard to imagine a particular product or service that has not been government-owned in at least one country at one time. The only point in common of all these is their government ownership. As they differ widely from each other, and face quite different environments, some kind of classification needs to be developed. Public Corporations are classified into three: Public/Statutory Corporations: These are enterprises which arise when the government assumes 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 blend 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) and Nigerian Television Authority (NTA). State-Owned Companies: These are companies created by the government under the provisions 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 Board of Directors as is customary in private companies, e.g., the New Nigeria Development Company, Odua Investment Company Limited, etc. Public/Private Partnership: 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. An example is the Peugeot Automobile Nigeria (PAN). Adamolekum (1983) categorised public enterprise in to three. Statutory Corporations: these are enterprises that are established by specific statutes which contain provisions, relating to ﬁnance and personnel among other things; e.g 1. Public utility: NPA, NEPA, NNPC, PPMC, NITEL, NDIC,NFC, 2. Development and finance: CBN,NICON, FMBN, BOA,BOI 3. Welfare and social services: NTA, NEMA, FHA, scholarship board, pilgrimage, hospital board. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 8|Page State-Owned Enterprises: These are companies, which operate under the same company laws that regulate the functioning of private sector enterprises, even though they are fully owned by the government. E.g. Nigerian national shipping lines, New Nigerian Development Company Limited, Odua investment Company Limited, New Nigerian Newspapers Limited, Peugeot Automobile Nigeria Limited, Nigerian Hotels Limited, Gombe state investment and property development limited. Mixed-Economy Enterprises: A third category of enterprises are those in which the government cooperates as a senior partner (i.e. with majority ownership) "with private entrepreneur to establish an industrial or commercial venture. Union Bank of Nigeria Limited, National Oil Nigeria Limited, Nigerian Romanian Wood Industry, Agip Nigeria Limited, Un-petrol Nigeria Limited. According to Burk head (1956) public enterprises might be classified according to the economic activities they conduct. Accordingly, there are two type of public enterprise. 1. Those enterprises involving financial transactions, e.g. CBN, NIDB, NICON, etc. 2. Those enterprises involving transactions in good and services. E.g. Transport, water, electricity, education, health, etc. Oshisami & Dean. (1984) categorised public enterprise in to four types. 1. Public utilities: examples as the Nigerian Railway Corporation (NRC), Nigeria Airways (defunct), National Electric Power Authority (NEPA), Nigerian Ports Authority (NPA), Water Corporation, Post and Telecommunications Dept. (P&T) defunct, water corporation. NTA, FRCN (Radio) FHA. 2. Financial institution: Central bank of Nigeria, Nigerian industrial development bank, federal mortgage bank of Nigeria, bank of agriculture, bank of industry. 3. Commercial and industrial companies: Nigerian steel development authority, NNPC, PPMC, Nigerian national shipping line, Nigerian national supply company. 4. Regulatory or service board: Electoral Commission INEC, Public Service Commission, Nigerian Enterprise Promotion Board. Marketing Boards, Advertising Practitioners council of Nigeria. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 9|Page Chapter Three Reasons for Establishment of Public Enterprise There are many reasons for the establishment of public enterprises. They include: a) The desire to use the public enterprise as an instrument of effective plan implementation in a context where it appears a futile devise; a development plan for the private sector. b) The need to secure economic independence. c) The urgent desire to assure government control over ―strategic‖ sectors of the economy, e.g. the Central Bank. d) The need to separate some activities from the civil service and allow more autonomy in their running. e) The perceived need to provide employment for the citizens in context where the private sector offers very lucrative employment opportunities. f) The need to ensure state control of key profitable enterprises with a view to generating revenues that will add to available national capital for financing development programmes and projects. g) The desire of some socialist-oriented regimes to use sate control of key profitable enterprises to pursue the objectives of preventing the concentration of wealth or of the means of production and exchange in the hands of few individuals or of a group, i.e., promoting equitable distribution of wealth. Governments have established public enterprises for a variety of reasons. These can include: inadequate private supply of goods and services; rescuing private firms if their closure is against the public interest; improving competition; reducing social costs such as environmental externalities; even to protect national sovereignty in some way. Some developing countries prefer having public enterprise to having foreign ownership of important services. Rees (1984) argues that there are four reasons for the existence of public enterprise: a) To ‗correct‘ market failure. b) To alter the structure of pay-offs in an economy. c) To facilitate centralized long-term economic planning. d) To change the nature of the economy, from capitalist to socialist. The first point refers to services, which are desired, but will not be adequately provided by the market. Market failure can occur for reasons of natural monopoly, restriction of competition in some other way, externalities or spill-over effects on others and where the goods produced are to some degree public goods (Chapter 4). To have these industries in public hands may be ‗a way of retaining the cost advantage of a sole seller while preventing the resource misallocation which would result from a profit-seeking monopoly‘ (Rees, 1984, p. 3). Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 10 | P a g e The second point – the structure of pay-offs – means altering the benefits received by particular individuals or groups. Beneficiaries could include the employees, consumers or government. One way of altering pay-offs is the extensive cross-subsidization prevalent in public enterprise pricing. Rural electricity users may receive services at uneconomical rates, while other consumers are charged more than the cost to provide that service. If rural electricity services were provided privately, consumers would either pay more, or the company might decide that providing the service was simply too expensive. Also, some critics argue that government ownership leads to ‗featherbedding‘, providing terms and conditions for employees above those which could be obtained elsewhere, including the employment of more staff than may be needed. In other words the pay-offs are being directed to the enterprise‘s own employees. The third point – centralized long-term planning – is a motivation used in some countries. Government ownership of electricity and rail in France enabled the provision of services ahead of demand as part of the planning process for the nation, especially in regard to the government‘s attempts to decentralize the economy. Related to this is a general developmental role of public enterprise, in particular the public utility sector. In some sparsely settled countries like Australia and Canada, utilities were established in government hands from the beginning, due to the inability of private providers to make an economic return. This was not market failure because of natural monopoly problems, but for developmental ones: that is, markets were not capable of providing the necessary infrastructure. No one other than the government had the resources to carry out the development of key services (Dwivedi, 1996). The choice was either to have the government provide services or for them not to be provided to consumers at all. The fourth point – to change the economy from capitalist to socialist – has been a major factor in some countries. In the United Kingdom in the post-war period, railways, steel and coal were nationalized so that the commanding heights of the economy were in government hands. Public enterprise had been regarded as a form of ‗soft‘ socialism, perhaps a transition stage on the way to full socialism. If important industries were in government hands as public enterprises, this would facilitate the transition to a socialist state. In sum, there has been no single consistent governmental aim for using public enterprise. There have been a set of diverse reasons beyond mere profitmaking. Public enterprises have always had objectives other than to make money. Of course, a government has the power to involve itself in any part of society, which must include creating its own enterprises Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 11 | P a g e Chapter Four Financing of Public Enterprises Funding public enterprises in Nigeria has always been a critical issue, particularly because of the strong linkage between ﬁnance and autonomy. It is therefore important to identify the various sources of funding. Internally Generated Revenues: these are trading surpluses, earnings from sales of goods and serv1ces after payment of employed capital, taxes and dividends" public enterprises cannot generally decide independently how to use their surpluses and profits. The government has the last say and may allocate such funds to other purposes. Furthermore, because the depreciation of equipment is not always adequately ‗assessed (accrual accounting is still unknown in some cases and because the amount owing to the government (as the shareholder) is generally arbitrary decided, the real profit that could be used for self-financing is almost uncertain. External Sources of funds: Public enterprises derive funds from the government, national, financial institutions, local, private entrepreneurs, and international sources Capitalisation funds: as a shareholder or proprietor the government provides the funds necessary for the take-off of the business. Such allocations are rarely adequate to meet the needs of public enterprises in terms of equipment, plant and running capital. The result is that public enterprises generally are not in a good position to manage their affairs, as they face very serious economic constraints. Grants: There are different types of grants. There 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. Subsidies: These are allocations made for-the primary objective of offsetting the losses incurred by public enterprises. Public enterprises incurred losses either because government control tariffs or because the objective of the service provision and employment creation render profitability impossible. Loans: Government lends 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 government. Equity: Government in its capacity as a shareholder in a joint venture may contribute to increase the capital of the enterprises or to increase its shares. International Source of funds for public enterprises includes the foreign private sector (ﬁnancial institutions as well as entrepreneurs, international development agencies such as IMF, World Bank, ADB and in some cases foreign governments. International sources of require more guarantee and protection in international law than do internal sources. Political strings are attached to loans from foreign governments, and loans from international development agencies usually come with Conditionality‘s (i.e. speciﬁc actions to be taken before and during, the period when the loan is being drawn) and must-be guaranteed by governments; On the whole, public enterprises in Nigeria depend more on external sources of funds than on internally generated revenues. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 12 | P a g e Chapter Five Organisation and Management of Public Enterprises There are three different forms of organisation used for the public sector enterprises. These are (1) Departmental Undertaking; (2) Statutory (or Public) Corporation, and (3) Government Company. Departmental Undertaking: is a form of organisation which is primarily used for provision of essential services such as railways, postal services, broadcasting etc. Such organisations function under the overall control of a ministry of the Government and are financed and controlled in the same way as any other government department. This form is considered suitable for activities where the government desires to have control over them in view of the public interest. Departmental undertakings are the oldest among the public enterprises. A departmental undertaking is organised, managed and financed by the Government. It is controlled by a specific department of the government. Each such department is headed by a minister. All policy matters and other important decisions are taken by the controlling ministry. The Parliament lays down the general policy for such undertakings. Features: The main features of departmental undertakings are as follows: a) It is established by the government and its overall control rests with the minister. b) It is a part of the government and is managed like any other government department. c) It is financed through government funds. d) It is subject to budgetary, accounting and audit control. e) Its policy is laid down by the government and it is accountable to the legislature. Merits: The following are the merits of departmental undertakings:- a. Fulfilment of Social Objectives: The government has total control over these undertakings. As such it can fulfil its social and economic objectives. For example, opening of post offices in far off places, broadcasting and telecasting programmes, which may lead to the social, economic and intellectual development of the people, are the social objectives that the departmental undertakings try to fulfil. b. Responsible to Legislature: Questions may be asked about the working of departmental undertaking in the parliament and the concerned minister has to satisfy the public with his replies. As such they cannot take any step, which may harm the interest of any particular group of public. These undertakings are responsible to the public through the parliament. c. Control over Economic Activities: It helps the government to exercise control over the specialised economic activities and can act as instrument of making social and economic policy. d. Contribution to Government Revenue: The surplus, if any, of the departmental undertakings belong to the government. This leads to increase in government income. Similarly, if there is deficiency, it is to be met by the government. e. Little Scope for Misuse of Funds: Since such undertakings are subject to budgetary accounting and audit control, the possibility of misuse of their funds is considerably reduced. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 13 | P a g e Limitations: Departmental undertakings suffer from the following limitations: (a) The Influence of Bureaucracy: On account of government control, a departmental undertaking suffers from all the ills of bureaucratic functioning. For instance, government permission is required for each expenditure observance of government decisions regarding appointment and promotion of the employees and so on. Because of these reasons important decisions get delayed, employees cannot be given instant promotion or punishment. On account of these reasons some difficulties come in the way of working of departmental undertakings. (b) Excessive Parliamentary Control: On account of the Parliamentary control difficulties come in the way of day-to-day administration. This is also because questions are repeatedly asked in the parliament about the working of the undertaking. (c) Lack of Professional Expertise: The administrative officers who manage the affairs of the departmental undertakings do not generally have the business experience as well as expertise. Hence, these undertakings are not managed in a professional manner and suffer from deficiency leading to excessive drainage of public funds. (d) Lack of Flexibility: Flexibility is necessary for a successful business so that the demand of the changing times may be fulfilled. But departmental undertakings lack flexibility because its policies cannot be changed instantly. (e) Inefficient Functioning: Such organisations suffer from inefficiency on account of incompetent staff and lack of adequate incentives to improve efficiency of the employees. It may be noted that departmental form of organisation for public enterprises is on its way to oblivion. Most undertakings such as those providing telephone, electricity services are now being converted into government companies, e.g., MTNL, BSNL, and so on. Statutory Corporation: (or public corporation) refers to a corporate body created by the Parliament or State Legislature by a special Act which defines its powers, functions and pattern of management. Statutory Corporation is Also Known As Public Corporation. Its capital is wholly provided by the government. The Statutory Corporation refers to such organisations which are incorporated under the special Acts of the Parliament/State Legislative Assemblies. Its management pattern, its powers and functions, the area of activity, rules and regulations for its employees and its relationship with government departments, etc. are specified in the concerned Act. Examples of statutory corporations are CBN, Nigerian Deposit Insurance Company, etc. It may be noted that more than one corporation can also be established under the same Act. Features: The main features of Statutory Corporations are as follows: a. It is incorporated under a special Act of Parliament or State Legislative Assembly. b. It is an autonomous body and is free from government control in respect of its internal management. However, it is accountable to parliament and state legislature. c. It has a separate legal existence. Its capital is wholly provided by the government. d. It is managed by Board of Directors, which is composed of individuals who are trained and experienced in business management. The members of the board of Directors are nominated by the government. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 14 | P a g e e. It is supposed to be self-sufficient in financial matters. However, in case of necessity it may take loan and/or seek assistance from the government. f. The employees of these enterprises are recruited as per their own requirement by following the terms and conditions of recruitment decided by the Board. Merits: Statutory Corporation as a form of organisation for public enterprises has certain advantages that can be summarised as follows: a. Expert Management: It has the advantages of both the departmental and private undertakings. These enterprises are run on business principles under the guidance of expert and experienced Directors. b. Internal Autonomy: Government has no direct interference in the day-to-day management of these corporations. Decisions can be taken promptly without any hindrance. c. Responsible to Parliament: Statutory organisations are responsible to Parliament. Their activities are watched by the press and the public. As such they have to maintain a high level of efficiency and accountability. d. Flexibility: As these are independent in matters of management and finance, they enjoy adequate flexibility in their operation. This helps in ensuring good performance and operational results. e. Promotion of National Interests: Statutory Corporations protect and promote national interests. The government is authorised to give policy directions to the statutory corporations under the provisions of the Acts governing them. f. Easy to Raise Funds: Being government owned statutory bodies, they can easily get the required funds by issuing bonds etc. Limitations: Having studied the merits of statutory corporations we may now look to its limitations also. The following limitations are observed in statutory corporations. a. Government Interference: It is true that the greatest advantage of statutory corporation is its independence and flexibility, but it is found only on paper. In reality, there is excessive government interference in most of the matters. b. Rigidity: The amendments to their activities and rights can be made only by the Parliament. This results in several impediments in business of the corporations to respond to the changing conditions and take bold decisions. c. Ignoring Commercial Approach: The statutory corporations usually face little competition and lack motivation for good performance. Hence, they suffer from ignorance of commercial principles in managing their affairs. Government Company: refers to the company in which 51 percent or more of the paid up capital is held by the government. It is registered under the Companies Act and is fully governed by the provisions of the Act. Most business units owned and managed by government fall in this category. As per the provisions of the Nigerian Companies Act, a company in which 51% or more of its capital is held by central and/or state government is regarded as a Government Company. These companies are registered under Nigerian Companies Act, 1976 and follow all those rules and regulations as are applicable to any other registered company. The Government of Nigeria has organised and registered a number of its undertakings as government companies for ensuring managerial autonomy, operational efficiency and provides competition to private sector. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 15 | P a g e Features: The main features of Government companies are as follows: a. It is registered under the Companies Act, 1976. b. It has a separate legal entity. It can sue and be sued, and can acquire property in its own name. c. The annual reports of the government companies are required to be presented in parliament. d. The capital is wholly or partially provided by the government. In case of partially owned company the capital is provided both by the government and private investors. But in such a case the central or state government must own at least 51% shares of the company. e. It is managed by the Board of Directors. All the Directors or the majority of Directors are appointed by the government, depending upon the extent of private participation. f. Its accounting and audit practices are more like those of private enterprises and its auditors are Chartered Accountants appointed by the government. g. Its employees are not civil servants. It regulates its personnel policies according to its articles of associations. Merits: The merits of government company form of organising a public enterprise are as follows: a. Simple Procedure of Establishment: A government company, as compared to other public enterprises, can be easily formed as there is no need to get a bill passed by th parliament or state legislature. It can be formed simply by following the procedure laid down by the Companies Act. b. Efficient Working on Business Lines: The government company can be run on business principles. It is fully independent in financial and administrative matters. Its Board of Directors usually consists of some professionals and independent persons of repute. c. Efficient Management: As the Annual Report of the government company is placed before both the house of Parliament for discussion, its management is cautious in carrying out its activities and ensures efficiency in managing the business. d. Healthy Competition: These companies usually offer a healthy competition to private sector and thus, ensure availability of goods and services at reasonable prices without compromising on the quality. Limitations: The government companies suffer from the following limitations: a. Lack of Initiative: The management of government companies always have the fear of public accountability. As a result, they lack initiative in taking right decisions at the right time. Moreover, some directors may not take real interest in business for fear of public criticism. b. Lack of Business Experience: In practice, the management of these companies is generally put into the hands of administrative service officers who often lack experience in managing the business organisation on professional lines. So, in most cases, they fail to achieve the required efficiency levels. c. Change in Policies and Management: The policies and management of these companies generally keep on changing with the change of government. Frequent change of rules, policies and procedures leads to an unhealthy situation of the business enterprises. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 16 | P a g e Chapter Six Management and Control of Public Enterprises Enterprise management is often regarded as risk-averse, desirous of the quiet life, without adequate rewards or sanctions, and not as competent as in the private sector, in part because the ultimate sanctions of dismissal or company failure are muted. With goals and objectives being vague, it may not be possible to decide just how good public enterprise management actually is. Poor accountability relationships allow the opportunity for evasion of responsibility. Management can blame government directions for any shortcoming; governments can blame management; boards can blame both. Governments have often considered their public enterprises to be beyond control, while at the same time public enterprise managements have been consistently opposed to what they see as unnecessary levels of intrusion into their activities. The questions of privatization and accountability are linked. One of the arguments for privatization is that public ownership means an absence of real accountability. If accountability is poor and improvements not possible, the case for privatization becomes much stronger. The management and control of public corporations are necessary in order to have effective and efficient public enterprises. The management of public corporations is done through the management boards and the policy board. Supervisory (Technical and Sectoral Ministry) The increasing complexity of modern governments has led to the creation of a number of ministries, which are industry-specific, technology specific, sectorial in character and specialized in certain areas. These technical ministries make policies for the sector, design sectorial plans, study markets and prices and guide public enterprises functioning in the sector. The involvement of public enterprises with the technical ministries is quite simple. It is these ministries, which perform supervisory function over public enterprises. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 17 | P a g e Ministry of Finance Traditionally, the attitude of the Ministry of Finance flows out of its national responsibilities. Since it is vitally responsible for national financial stability and solvency, it is natural that its prime concern is that public enterprises should be financially viable, should provide returns from invested capital, should pay dividends to government, and should be a major means of resource mobilization. The voice of the ministry of finance is that of government as a shareholder. So far as public enterprises are concerned, the ministry of finance exercises interventionist power in areas such as: 1. It has a major say in public enterprises' investment decisions 2. It provides capital funds and long-term loans 3. It determines the expected rate of return on investments 4. It may intervene in pricing, wage and salary policies with the view of monitoring their national impacts Ministry of Planning The Ministry of planning, sometimes organized as "Planning Commission" or "National Planning Board", has the overall responsibility of designing the national development plan; preparing a gigantic national input-output table, and a national matrix of economic activity. Therefore, the role and performance of public enterprises is a matter of great concern to the ministry of planning as they are the major, perhaps the dominant, sources and instruments for the successful execution of the national plan. In practical terms, the influence of the ministry of planning over public enterprises would be the following: 1. Inclusion of public sector projects in the national plan 2. Resource allocations for this purpose (in collaboration with the ministry of finance) 3. Monitoring of project implementation/production to ensure successful implementation of the plan and the validity of the national input-output table Traditionally, the ministry of planning wouldn't see public enterprises as autonomous business firms. Rather, it views them as the building blocks of the national plan, and looks at their investments with frame of reference of social or economic profitability at the national level, instead of a single enterprise level. Ministry of Industry The responsibility of this ministry is to promote industrialization in the country. Since the substantive numbers of public enterprises are in the industrial sector, the ministry is deeply concerned about them as factors of industrialization. It affects public enterprises in the following areas: 1. Determines areas suitable for public sector investment 2. It encourages or opposes new investments on public enterprises on the basis of its assessment of domestic and international demand-supply conditions 3. It approves foreign technical collaboration and importation of technology 4. It protects public enterprises against the encroachments of large-scale foreign industries Traditionally, the ministry of industry may not differentiate between the public and domestic private enterprises, rather threats both of them as instruments of industrialization. Ministry of Labor The main concern of the ministry of labor is the welfare of workers. Hence it promotes legislation for the protection of workers' rights covering issues like job protection, working hours, hazardous employment conditions, labor disputes and labor unions. While this ministry has no direct control over public enterprises, its policies have major impacts on enterprises in matters such as: 1. Wage negotiations and determinations 2. Welfare measures, bonuses and incentives 3. Disciplinary procedures and industrial disputes Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 18 | P a g e Traditionally, as champion of workers' rights, the ministry doesn't differentiate between public and private enterprises, rather threats both as employers. But it has a legitimate expectation that public enterprises should be a good example by being "model employers". Ministry of Commerce This ministry, sometimes called "Ministry of Foreign Trade", is responsible to preside over the country's foreign commercial transactions, to stabilize the balance of payments position by promoting exports and controlling imports. Although policies of the ministry of commerce do not distinguish between the public and private sectors, public enterprises are generally affected by the ministry's control over: 1. Import licensing 2. Foreign exchange releases 3. Export promotion and quotas 4. Tariff protection In general, Figure-2 simply portrays the various points of contact between the public enterprises and the government represented by its ministries, and implies the multiplicity of signals coming to the enterprise from the government agencies in various issues. In other words, a public enterprise could have relations with one or more of the ministries in addition to the supervising agency. Each organ has its own stake with public enterprises and demands certain requirements from its own perspectives. Now, one can be able to see the complex situations that public enterprises are facing with in terms of responding to this multiplicity of demands, in terms of interpreting what the government really wants, and in terms of striving to survive in this maze (confusion). Although relations with such agencies could have their own effects on the success or failure of public enterprise, the most decisive influence comes from supervising agencies. Therefore, it would be more important to explain the roles and functions of the supervising agencies and the aspects of interventions in the affairs of public enterprises. Areas of Government Intervention Despite differences in the magnitude of the relationship between public enterprises and the government from one environment to another, the hardcore of government's involvement will be found in the following rightful areas or matters (Fernandes, 1986:23-29). Figure-3 Basic Model of Government-Public Enterprise relations Government Government Areas of Intervention Public Enterprise Defining Corporate Objectives Approval of Investments Approval of corporate Plans Nomination of Board of directors Appointment of Chief Executive Directives on Security Matters Directives on Public Interest Obtaining Information, monitoring and Audit Performance evaluation Wages and Salary Policies Pricing and Marketing Policies Control "Control" is an active function, a purposeful activity that involve directing, restraining, and stimulating a person or an organization to a certain action or end (Prakash et al 1997:367). The question that needs clear answer is that, how tight or loose should be the degree or extent of control? Too much control will reduce public enterprises to the status of a government department, defeating Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 19 | P a g e the very purpose for which they were created, and too little control will place the state-owned industries outside the democratic regime. The United Nations identified the following as the purposes of control over public enterprises. 1. Promotion of efficiency: Control is geared towards promoting and maximizing the efficiency of public enterprises. 2. Implementation of government policies and targets: It enables the government to ascertain that its development policies and targets as regards to output, profit or rewards have been achieved or implemented. 3. To ensure financial responsibility: To ensure whether scarce public funds have been utilized in accordance with the intended purpose and in the best interest of the enterprise and the public. Thus control facilitates accountability of management to some higher public authority so that the misuse of funds may be precluded and appeased, if not totally avoided. 4. To ensure achievement of social objectives: On top of the commercial objectives, public enterprises are expected to achieve or facilitate achievement of social goals as defined by the government. Hence, control enables the government to ensure the achievement of social objectives assigned to public enterprises. 5. To restrain undue power of management: Most of the public enterprises are big both physically and financially. Consequently, mangers in the public sector have more powers and influence in their respective organizations. Thus, if uncontrolled, they may misuse such power to unnecessarily advance their personal interests. 6. To take corrective measures before things get worse: effective control enables to take an up-to-date corrective measures before mistakes could cause an irreversible or adverse effects in the operation of public enterprises. There are various agencies that are empowered to exercise control over the public enterprises. Their nature, composition and functions differ from country to country on account of political and ideological orientations. Besides, the extent of power vested in each agency also differs substantially by virtue of political and ideological differences and legal tradition prevailing in different countries. Therefore, there is no uniformity as regards to the ways of exercising such controls. Nevertheless, the international experiences suggest the following as the common and main agencies of control over public enterprises in different aspects. The Policy Board: Majority of the members of the policy board are from outside the organization with few members from within the organization. The policy board is responsible for managing all the policy decisions of the organization, but the implementation of policies and the day-to-day operation of the organization are carried out by the Managing Director. This method is applied to most public corporations in Nigeria. Even though public corporations are created to enable them have some degree of freedom to manage their affairs, they are still subject to various levels of control. Parliamentary Control: Basically, in any democratic society, the function of control and ensuring the accountability of public enterprises has been assigned to parliament, which is the legal representative of the public. The parliament uses different methods so as to exercise control over public enterprises such as: parliamentary questions, discussions, debates regarding related matters, and through parliamentary committee for in-depth examination of the working of the public enterprises. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 20 | P a g e Ministerial Control: The supervising minister controls the public corporations under his portfolio by the appointments of Board members since the minister is politically responsible for appointing members of the board, he can dissolve it, if he is not satisfied with their performance. These controls may include the appointment of external auditors to audit the account of public corporations, re-organisation of departments and controls on borrowing. In general, a minister can exercise control through a number of combination methods. 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: Audit against provision of funds, audit against regularity, audit against sanctions to expenditure, audit against propriety, efficiency Audit Special agencies of control: Countries may form special agencies to perform control over their enterprises, directly or indirectly. These special agencies could be consumers' councils, advisory committees, public relation, press, published information, and experts' committees and review etc. The Executive Board: In the executive board, majority of the board are staff of the organisation. They are usually the heads of the various departments of the organization. However, a few outside representatives are brought to be in charge of some outside interest. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 21 | P a g e Chapter Seven Theories of Public Enterprise In any economy, there are four types of economic activity: first, those which are privately remunerative – provided by market through Directly Productive Investments (DPI); secondly, those which are socially profitable but not privately remunerative – provided by State, like road building, irrigation, through Social Overhead Capital (SOC); and third, those which are privately remunerative but not capable of private execution, like heavy industry, high technology involving capital intensive investments like power, transportation, etc – also provided by the State with/without the help of the market; and fourth, those which are natural monopolies. PEs are set up to undertake the second, third and fourth category of activity. The third category of activity can be transferred to the private sector when the capitalist development in these countries attain sufficient maturity to enable them to handle capital intensive investment where private sector development takes place along with financial sector restructuring. That State intervention through economic planning and PEs can help countries to catch up decades of poor growth and slow development is also borne out by experiences in India, Mexico, South Korea, Brazil and China. Ideological and strategic economicand social considerations provided the genesis of growth and development of Public Sector in several of these countries. According to Egonmwan (1991:44) a theory or model simplifies, and abstracts from the real world, factors relevant to a problem and the essential cause-and-effect relations among them. This means that theories and models provide us the conceptual lenses through which we look at issues and their essential variables. For obvious reasons, the subject matter of public enterprises constitutes one of the societal issues which theories have been adopted to explain the cause and effect relationship. A number of theories have been developed for the explanation of the roles of the state in economic development. It must be noted that debate between the protagonists and the antagonists of public enterprises is centered on whether the economy should be regulated or deregulated. Some of these theories are discussed below. The Classical Theory: According to Ojobo (2006:21), the theoretical propositions of the classical theory are couched under a well-functioning market and focus on efficient allocation of resources, establishment of optional product prices, assurance of equitable income distribution via effective competition and advancement of social justice. Under this theory, the private sector is the mover of the economy while the role of the state is restricted to the maintenance of law and order, and the creation of the necessary institutions for the functioning of the market. In his appraisal of this conservative theory, Ramanadhan (1987) notes that the theory is not a ―blanket rejection of government‖, rather, it is a theory which credits the public sector with some crucial roles which reinforce the effectiveness of commerce in the economy. Friedman (1962) is an advocate of this theory. In his opinion government should not be involved in economic activities for the following reasons: a. slowness of government bureaucracy; b. difficulties in controlling huge public organizations; c. inefficiencies which political considerations can breed and also the lapses associated with the framework of the public sector; and d. the difficulties of assessing public programmes. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 22 | P a g e Nonetheless, because markets (especially in developing countries) do not always function efficiently due to varying market distortions, the market failure theory was propounded to counter the case for less government involvement. In this case, the justification for government intervention usually includes the desire to cover up gaps and deficiencies arising from private enterprises‘ performance, especially where such enterprises are unwilling or unable on the ground of financial profitability to undertake the production of certain goods and services which may be judged to be socially desirable. The Liberal Theory: Liberal theory of public enterprises emerged upon the criticisms of the market system which was the focal point of the classical theory. The liberals became skeptical of the efficiency of the market system in managing and allocating resources for national development (Ojobo, 2006:22). According to him, the limitations of the market system can only be overcome when government intervenes through the following devices: a. Private activities regulations; b. The subsidization policy, and c. Strict ministrial control. For these reasons, the liberal advocates for the intervention of government through the establishment of public enterprises to produce essential goods and services under the above strict regulatory devices. Infrastructure Theory: The infrastructure theory according to Lane (2004), there is the argument that the advantages of public enterprises are to be found within the theory of infrastructure. It is contended that, a need for huge and long-term capital investments and the rationality of accepting prices that does not cover average cost implied the need for public enterprises. In other words, if there was no public enterprises put into place for handling infrastructure services, then they would be taken over by private firms, using their market power to create a natural monopoly. Thus, the choice was either private sector inefficiency, or the use of the public enterprises which would allow government to steer away from a private monopoly. According to the infrastructure theory, public enterprises were extrinsically good because they avoided an even worse evil, namely private monopolies. ―This argument for public enterprises has been used in almost all countries‖ (Viscusi et al, 1992) Market Failure Theory: The market failure theory was propounded to counter the case for less government involvement in economic activities. John Maynard Keynes (1936) is the leading promoter of this theory. The central argument of this theory was that the economy cannot be regulated by market forces. The justification for government intervention includes the desire to cover up gaps and deficiencies arising from enterprise performance, especially where such enterprises are unwilling or unable on the grounds of financial profitability to render services or goods which are socially desirable. According to Ojobo (2006) other justifications for government intervention relate to the existence of external economies which cannot be translated readily into private revenue. The relevance of this theory is quite obvious within the Nigerian context. It was of prime importance that public enterprises generally exist in Nigeria and the services of these enterprises were essential social services that were crucial to National Development. As at the time these organizations were established there were little or no private entrepreneur who have the wherewithal in terms of financial requirements, administrative, technical and organizational skills Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 23 | P a g e with which to offer such services. (i.e. FRCN, NTA, NEPA NRC, NITEL etc.) Again the services of the FRCN, NTA, NEPA NRC, NITEL etc. and any other enterprises in Nigeria were affordable to Nigerians apart from contributing to the economic growth of the nation. Basic Need Theory: The fundamental argument in this theory is that societies need certain basic needs in other to achieve meaningful development. The provision of basic needs such as health, education, food, water, sanitation and housing directly affects poverty in less time and with less money, Jhingan (2002) Basic needs increase output and earnings via human development in the form of knowledgeable and healthy individuals. However, the problem of the basic needs approach is that there is no common ground on these needs. According to Rogers (1996), an individual basic requirements are measured relatively irrelevant to others needs and are seen as "necessities" to "privileges" - freedom of speech, access to quality and standard education, information, consumer protection and repay facilities, the right to partake in decision making and implementation both at the national and local level. In another dimension, meeting human needs and improving quality of life is seen as the primary goals of development rather than building the economic wealth of the nation (Rogers, 1996). Chinsman (1999) noted that the long-term development approach, which was exclusively synonymous with economic growth, was no longer sustainable and may not have improved people's well-being as strong as expected. He stressed the importance of basic needs: Generally the main goal of state development is to eliminate poverty, provide employment and meet the basic needs of the populace, which means that basic goods and services such as shelter, education, food, water and healthcare facilities among others must be accessible to all and sundry. (Chinsman, 1999)The success of the community is assessed and measured in terms of the availability of basic social facilities such as electricity, healthcare, school, clean and portable drinking water, road network, market, electricity and other things to improve the quality of life. If central, regional and local governments provide the necessary facilities and enabling environment (basic needs) for development of its human capital (capacity building) for individuals, institutions and communities, the community and national development will be achieved, Hence the need for public enterprise in all sector of the economy. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 24 | P a g e Chapter Eight Public Enterprise & National Development National Development Development has been examined both in its narrow and broad sense. In the former case, development can be viewed at individual level which means increased skills and capacity, greater freedom, creativity, self-discipline, responsibility and material wellbeing (Rodney, 1976:9). In the latter case, development can be seen as the total transformation of a system. Here, the various sub- systems such as social, political, administrative and ecological are captured in the system. According to Bernard (1995:2) He observed that, in common parlance, development may mean growth or change or planned growth. He went further that development may apply to diverse perspectives such as social, economic, political development or socio-politico-economic development. Some other scholars however disagreed with the notion that development is synonymous with growth. This category of scholars maintained that in the underdeveloped countries of Asia, Africa and Latin America, development requires social and cultural change as well as economic growth. That is, quantitative transformation must occur concurrently with qualitative increases. There is, in fact, a reciprocal relation between the two, and neither process is likely to continue for long or go very far without the other. Hence, development means change plus growth. Omotola (2006:29) shared this view as he contends that development is ―a multidimensional process involving major changes in social structures, political attitudes and national institutions, as well as the acceleration of economic growth, the reduction of inequality and the eradication of absolute poverty‖. Development is conterminous with capacity expansion, and freedom. As capacity expansion, it requires adequate empowerment of the state and society such that they can adequately distill their complementary responsibilities. It also requires enhanced state capacity as well as institutional and governmental stability. As freedom, development demands greater latitude of autonomy for the political community and its constituent‘s parts, as well as the individual members of such communities. Riggs (1961) defined development in terms of rising levels of autonomy or discretion (of social systems) in the sense of ability to choose among alternatives, not, of course in the sense of caution or moderation. Riggs introduced the concept of development as an increase in the level of discretion of social system. He also stress upon the performance value- increasing efficiency, reducing costs, improving the machinery of production, and of government, of administration. He stressed further on the justice values of freedom, independence, equality, change, even revolution and it involves levels of diffraction which is a necessary condition for achieving autonomy. Riggs insisted that development involves the ability to choose whether or not to increase outputs, whether or not to raise levels of per capital income, or to direct energies to other goals, to the more equitable distribution of what is available, to aesthetic or spiritual values, or to quantitatively different kinds of output. Development is a process of acquiring a sustained growth of a system‘s capacity to cope with new, continuous changes towards the achievement of progressive political, economic and social objectives. In a United Nation publication (1963), the term development was defined as ―the process of allowing and encouraging people to meet their own aspiration‖. The prime objective of development is the attainment of a good life for the people. The good life has the following Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 25 | P a g e component: achievements, recognition and freedom. Achievements relates to the realization of the basic necessities of life which includes food, shelter, health and survival (protection and security). Recognition or esteem refers to such other terms as identity, dignity, honour, self – respect, etc. Seers ( ), sees the concept of development in a broader and wider aspect than economic development. To him, in order to determine the level of development of a society or a nation, answers to the following questions must be obtained: What has happened to poverty? What has happened to unemployment? What has happened to inequalities? Roles of Public Enterprise in National Development The role of public enterprises should be explored from the role the public sector plays in the development of the country. This role should be seen within the context of mixed economy because Nigeria operates a mixed economic system. This is a system which sand witched between the capitalist and the socialist systems. The concept of mixed economy describes a situation in which the economics of the country involved are described by the mutual co-existence of the public (government) and private investors. In other words, part of the economy is controlled by the government while the other part is controlled by the private sector of the economy. In this case, public enterprises are vehicle or instrumentalities employed by the public sector to perform essential roles in economic development. Their roles include; The provision of necessary infrastructure facilities for private enterprises to operate; Example of such infrastructural facilities include roads, pipe borne water, electricity, health institutions schools etc. the facilities are provided by the by government as a way of incentive for private enterprises to operate since Nigerian operate mixed economic system. The establishment of a set of regulatory device to make private enterprises conform as mush as much as possible to standards of good behaviour today, public enterprises play direct and indirect roles, among the direct roles, public enterprises provider employment opportunities for the teeming population of Nigerian. Public enterprises provide goods and service to the public at reasonable cost. Examples Railway Corporation. Another role of public enterprises to national development is that a lot of revenue is generated from the sale of their product and services, example of such revenues are finds generated by NRC. Through its user charges; NEPA bills, water rates charged by water boards. The provision of finance for development in other sector of the national economy, they usually provide financial service (loans and advance) for development in other sectors of the economy. (CBN BOI BOA etc.) Sometimes, public enterprises are set up to prevent foreign investment domination. Example of such public enterprises is the defence industries corporation (DIC), printing and minting company, and Nigerian national petroleum corporation (NNPC) etc. The following are other social and economics roles public enterprise plays in national development. Balanced Regional Development When establishing new public enterprises, the government took into consideration the issue of balanced region growth (BRG). Public enterprises which assist in the promotion of new private industries consider the same factor too. A typical example in this regard is the oil refineries and petrochemical companies (RPC). Benin, the refineries at Port Harcourt in rivers state, other RPC Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 26 | P a g e are situated at warri in delta state and Kaduna in Kaduna state. The alesa eleme refinery near rivers state were designed to process 60,000 and 150,000 barrels of crude oil per day respectively. Besides these and several other core industries like steel plant at Ajaokuta, paper plants at oku iboku and iwopin; fertilizer plant at onne and Kaduna, liquefied natural Gas project in river state; marble mining company at igbeti. Tin mining company at Jos and machine tools industry at Oshogbo, there are several cement producing factories and international Airport spread in different part of Nigerian on the baris of BRG. These public enterprises have ensured to a great extent, development of the six geopolitical zones of Nigeria south west , south east, south-south north west, north east, north central. Eradicates the Concentration of Wealth and Means of Production Public enterprises help to promote the spread and distribution of wealth and means of production in the society. It helps to reduce to a very low degree the concentration of wealth to the common detriment. The distribution of public enterprises companies or industries, to different regional locations has resulted in the creation of several other infrastructural facilities by private wealthy individual. The industrialization of the region further attracts the banks government or privately owned. To further ensure the avoidance of concentration of wealth and means of production in few individual, public enterprise financial institution have been established to provide financial resistance to many small and medium scale enterprises in the country. Some of these are small and medium scale enterprise apex unit of CBN, NERFUND, NIDB, etc. Other institution established for SME support include small industries credit committee (SICC) establishment in 1971 by the federal government to administer small industries credit fund to enterprise with capital investment outlay not exceeding N 150, 000.00; the industrial development central (IDC) started in 1962 but taken over in 1970 by federal government. These financial institution help to ensure capital formation, however, public enterprise has been utilized to develop the town and villages in the country. Reduction of Income Disparities Besides generating employment to the citizen, public enterprise has helped in reduction of disparities in income over a wide area. Workers or labour have benefited from public enterprise generosity of reduction in income inequality through the low ceiling set on salaries and fringe benefits at all levels. Poverty Alleviation Government makes every effort to assist the underprivileged in the society through the expansion of public enterprise services. This has been made possible in the provision of social service in pursuit of the strategy to alleviate poverty in the country. To achieve this role, some public sector organizations were established to take care of rural activities and employment generation. Rural activities: Since a greater percentage of citizen live in the rural areas, the federal government established the directorate of food, roads and rural infrastructure ( DFRRI). Prominent among DFRRI programmes are:- Rural electrification; Road construction and network programmes; Promotion of production activities in food and agriculture; Rural industrialization; Technological development, and Rural housing. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 27 | P a g e Employment Generation: To help solve unemployment problem no and assist the underprivileged sail across the poverty line, of employment (NDE). The Directorate in its employment drive developed four cardinal programmes. These are:- Youth employment and vocational skills development (YEVSD). Agricultural employment (AE) Small scale industries and graduate employment (SSIGE). Special public works (SPW). National Directorate of Employment (NDE) Conservation of Foreign Exchange : One of the significant roles of public enterprise in national development is to check the outflow of foreign exchange and ensure steady inflow of foreign exchange and encourage the repatriation of profits. The establishment of most manufacturing public enterprises and financial institution to provide funds to private enterprise engaged in the manufacturing or production of goods and service has saved for the country valuable foreign exchange which would have bent spent in the importation of those goods and service which are now manufactured in the country. The establishment of some manufacturing industries we the Nigerian machine tools company limited (NMTC) at Oshogbo, the cement plants at Nkalagu, Ewekoro, Calabar, Sokoto, Ukpella, Benue and Ashaka, Vegetable oil companies machine and motor spare parts companies, Textiles, drinking and beverages etc. are few examples of effort in the right direction to conserve foreign exchange. Provision of Fair Treatment to Labour: Public enterprise at as ―model employer‖ beside certain imperatives and uncertainties in recent decades compelling workers or employees of public enterprises to form very strong trade unions, the exploitation of labour under capitalist system and/or private enterprises in the absence of strong union, is supposed to be remedied by public enterprises. The conditions of service and models of treatment of workers by employers are specified by the constitution. These rules and regulations which govern civil and public services, helps employee relationship. The public enterprise working conditions and welfare arrangements should serve as a model. Control the Basic and Strategic Sectors of the Economy: The public enterprise has to occupy a significant position which enables it control and command the economy. The control over the major source of finance the central bank of Nigerian (CBN), ensures effective regulation of the entire economy. Beside the financial sector, other areas are industry, education and agriculture. There can be achieved through effectives, and efficient policies, establishment important core industries, educational institution and Agricultural finance, existence and promotion agencies. The measures that will ensure the possible control and command of the basic and strategic sectors of the whole economy should not be static but dynamic. Revenue Supplement: Public enterprises are important in supplementing the revenue of the state through appropriate pricing policies and securing profits which may otherwise go to the private sector. Public enterprises especially in the developing economics make meaningful investments. Such investments may be for the expansion of the enterprises which yield some surpluses in the economy. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 28 | P a g e Chapter Nine Privatization Policy in Nigeria Deﬁnitions and Meaning of Privatization Privatization has been deﬁned indifference ways by various writers according to Cool and Patrick (1988) it (privatization) reflects a new policy initiatives geared to alter the balance between private and public sectors. For Hemming and Mansor (1988) Privatization is a process by the public sector toward the pursuit of efficiency and effectiveness in attainment of objectives with dominance of ﬁnancial consideration through the adoption of management styles that reward good and penalise poor performance. Section 14, Decree No. 25 of 1988 deﬁnes it as the transfer of government owned shareholding in designated enterprises to private shareholders, comprising individuals and corporate bodies. From all the deﬁnitions given above it can be seen that privatization is selling of a part or the entire equity 0f a publicly owned organization to private individuals or organisation such that the control of the public institution is transferred from government or any of it agencies to private hands. From the above definitions one can easily deduce that there are forms Privatization namely: (a) Full Privatization and (b) Partial privatization Full Privatization has been deﬁned as divestments by the federal Government of all ordinary shareholding in the designated enterprise. Partial privatization has, on the hand; been deﬁned as divestments by the Federal Government of part or its ordinary shareholding in the designated enterprise. Privatisation and Commercialisation: Privatization is the fact that business should be left for those who are better qualified to handle them, which is the private sector, while the government concentrates on its core duty of governance and policy regulation through the ministries. Government involvement in business takes the form of regulation and this is done through its agencies. The main motive about government regulation in a purely private sector, amongst other things, is to achieve public policy objectives of financial stability, high economic growth, stable prices, full employment, levels of output and equilibrium and balance of payments position. This privatization, without adequate regulatory agency measures, will mean allowing laissez-faire attitude pervade the economy which may lead to what is known as economic disorder and financial chaos. Businessmen driven by the pursuit of profit, employ both ethical and unethical means. It is only law that will restrain their activities thereby protecting the people, business and society in general. Privatisation and Public Corporation: In the Nigerian context, privatization involves the disposal of all part of shares held by the government directly or through any of its agencies. Privatisation involves the sale of government shareholding in any enterprise to non-governmental entities. The Nigerian economy is non-cultural being dependent on petroleum for 90% of its foreign exchange earnings. Commercialisation: This is the re-organisation of enterprises wholly or partly owned by the government in which such commercialized enterprises shall operate as a profit-making commercial venture and without subvention from the government. In July, 1988, the Federal Military Government promulgated Decree No. 25 on Privatization and Commercialization which gave a legal backing to the execution of the privatization and commercialization programme in Nigeria. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 29 | P a g e 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. Objectives 1. To re-orientate the enterprises for commercialization towards a new horizon of performance improvement, viability and overall efficiency through the enforcement of strict commercial principles and practices. 2. To develop the capital market. 3. To restructure the capital of affected enterprises in order to facilitate good management and access to capital market. 4. To restructure and downsize the public sector in order to lessen the dominance of unproductive investments in that sector. 5. To ensure positive reforms on public sector investments in commercialise enterprises. 6. To check the present absolute dependence on the treasury for the funding by the otherwise commercially-oriented parastatals and encourage their approach to the capital market. 7. 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 Nigerian capital Market. 8. To promote wide share ownership. 9. To undertake a comprehensive 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. 10. To reduce the level of internal and external debts via privatisation/commercialisation. 11. To create a favourable investment climate for both local and foreign investors. Methods of Privatization: the technical committees on privatization and commercialization (TCPC) now known as Bureau of Public Enterprises (BPE) developed five main approaches for the privatization of public enterprises. The ﬁve methods are as follows. Public Sales of Shares: This method which is affected through the Nigerian capital market enables such enterprises to be on the Nigerian stock exchange. Private Placement: There are some enterprises in which government Holdings are so small that the TCPC now BPE could not persuade shareholders to make a public offer of sales. In such enterprises private placement of shares are always made. Sales of Assets: There are some public enterprises which have unimpressive track records and besides, the future outlook of such public enterprises is deemed hopeless. In case of this type, such ventures are liquidated and their assets sold piecemeal through public tender. Management Buyout: Under this approach the entire affected or a substantial part of its equity capital is sold to the workers. Deferred Public Offer: Some public enterprises may be considered viable and it is reckoned that if such public enterprises are sold by shares, the anticipated revenue will be lower than the real values Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 30 | P a g e of their underlying assets. In such cases, the deferred public offers approach is adopted to revalue asset and negotiate, on a willing buyer/willing seller basis, a price that will be more reflective of the current value of the affected public enterprise's assets. Many hotels were privatized through this approach. Advantages of Privatisation Improved efficiency: The main argument for privatisation is that private companies have a profit incentive to cut costs and be more efficient. If you work for a government run industry, managers do not usually share in any profits. However, a private firm is interested in making a profit, and so it is more likely to cut costs and be efficient. Since privatisation, companies such as BT and British Airways have shown degrees of improved efficiency and higher profitability. Lack of political interference: It is argued governments make poor economic managers. They are motivated by political pressures rather than sound economic and business sense. For example, a state enterprise may employ a surplus worker which is inefficient. The government may be reluctant to get rid of the workers because of the negative publicity involved in job losses. Therefore, state owned enterprises often employ too many workers increasing inefficiency. Short term view: A government many think only in terms of the next election. Therefore, they may be unwilling to invest in infrastructure improvements which will benefit the firm in the long term because they are more concerned about projects that give a benefit before the election. Shareholders: It is argued that a private firm has pressure from shareholders to perform efficiently. If the firm is inefficient then the firm could be subject to a takeover. A state owned firm doesn‘t have this pressure and so it is easier for them to be inefficient. Increased competition: Often privatisation of state owned monopolies occurs alongside deregulation – i.e. policies to allow more firms to enter the industry and increase the competitiveness of the market. It is this increase in competition that can be the greatest spur to improvements in efficiency. For example, there is now more competition in telecoms and distribution of gas and electricity. N.B: However, privatisation doesn‘t necessarily increase competition; it depends on the nature of the market. E.g. there is no competition in tap water because it is a natural monopoly. There is also very little competition within the rail industry. Government will raise revenue from the sale: Selling state owned assets to the private sector raised significant sums for the UK government in the 1980s. However, this is a one off benefit. It also means we lose out on future dividends from the profits of public companies. Disadvantages of Privatisation Natural monopoly: A natural monopoly occurs when the most efficient number of firms in an industry is one. For example, tap water has very significant fixed costs. Therefore there is no scope for having competition amongst several firms. Therefore, in this case, privatisation would just create a private monopoly which might seek to set higher prices which exploit consumers. Therefore it is better to have a public monopoly rather than a private monopoly which can exploit the consumer. Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 31 | P a g e Public interest: There are many industries which perform an important public service, e.g., health care, education and public transport. In these industries, the profit motive shouldn‘t be the primary objective of firms and the industry. For example, in the case of health care, it is feared privatising health care would mean a greater priority is given to profit rather than patient care. Also, in an industry like health care, arguably we don‘t need a profit motive to improve standards. When doctors treat patients, they are unlikely to try harder if they get a bonus. Government loses out on potential dividends: Many of the privatised companies in the UK are quite profitable. This means the government misses out on their dividends, instead going to wealthy shareholders. Problem of regulating private monopolies: Privatisation creates private monopolies, such as the water companies and rail companies. These need regulating to prevent abuse of monopoly power. Therefore, there is still need for government regulation, similar to under state ownership. Fragmentation of industries: In the UK, rail privatisation led to breaking up the rail network into infrastructure and train operating companies. This led to areas where it was unclear who had responsibility. For example, the Hatfield rail crash was blamed on no one taking responsibility for safety. Different rail companies have increased the complexity of rail tickets. Short-termism of firms: As well as the government being motivated by short term pressures, this is something private firms may do as well. To please shareholders they may seek to increase short term profits and avoid investing in long term projects. For example, the UK is suffering from a lack of investment in new energy sources; the privatised companies are trying to make use of existing plants rather than invest in new ones. Conclusion: The Future of Public Enterprise In any discussion about public enterprise, it is necessary to address questions of organization and management as well as ownership. Both have been problematic in practice and have led to governments reducing their reliance on public enterprise as an instrument of policy. There are really two options for the future. The first is to improve the sector, aiming for greater efficiency and better public control, hopefully permitting enterprises some independence, while retaining the benefits of public ownership. Improvements can be made, particularly in accountability, and public enterprise can continue. The second perspective is that whatever is done, public enterprise is still just that, public and enterprise and from this inherent conflict between government and market stems inefficiency and the endemic problems of accountability. The option then is to dispose of assets. There were some public enterprises that could be privatized with little adverse effect. There seems little point in hindsight for governments owning banks, insurance companies or airlines. On the other hand, the privatization of public utilities has not reduced demands on government to regulate them. In many countries there were political consequences long after the relevant utilities were taken from the public sector. Indeed, there was little public support or political pressure in favour of privatization, but governments saw the opportunity to raise some optional income. This was probably a more important motivation than ideology. The response of most governments to the question of public enterprise has been to privatize in those circumstances where it could be done, so to a great extent, the experiment with government ownership of enterprises is finishing. There may even be benefits for consumers in the long run, although they have been slow in arriving. In the Notes on Public Enterprise Mgt.: compiled by. Dr Usman Bappi (2021) 32 | P a g e final analysis it seems difficult to see any long-term future for the public enterprise sector in any advanced or developing country, especially for those enterprises supplying goods or services on a large scale. There may be a continued existence for smaller enterprises or ones set up in cooperation with the private sector, but that will be all. The reduction of the public enterprise sector in the 1980s and 1990s says something about the public sector in general. The fact that government entities may hav

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