Mukhtar Ahmed
A00015700
ACC301
Prof. Samuel Akanno
28th
October, 2015.
AN ASSESSMENT OF COST PERFORMANCE AND ACCOUNTABILITY IN
PRIVATIZED PUBLIC ENTERPRISES IN NIGERIA.
Abstract
The creation of public enterprises in
most countries around the world is for the purpose of boosting their economic
growth and social development. This research was conducted because of the
evidences discovered which proved that most of the public enterprises around
the world are not serving their purpose and are not living up to expectation of
national development. So many debates were performed by the leaders of the
nation over whether or not public enterprises are really needed for economic
growth and development and why most of them have failed or have done poorly in
ensuring so. Further into the research we will see what effects privatizing
public enterprises will have one the nation and what makes them so different
from being public enterprises.
Definition of some Key term;
·
Cost: Firstly, cost can be defined as the
total worth or value of an item or service including the cost of all the things
gone through to produce that item. i.e. the Cost of effort, opportunity cost
(cost of the things that were given up to get that item or service), manufacturing
cost (Material, Labor and Overhead), cost of all the risks involved to acquire
the item or service and also the cost of time and utilities.
·
Cost Performance: Cost performance is an aspect of
project cost management that has to do with how effectively and efficiently the
expenses spent on a project or business measured.
·
Accountability: accountability is simply the need
for a company, organization or an individual to account for all financial
activities, accept responsibilities for them and unveil the results in an
obvious fashion. Accountability makes anyone practicing accounting very careful
because a simple act of negligence can make one responsible legally. For any misstatement
that occurs or any signs of fraud an auditor is held accountable.
·
Privatization: privatization is the transfer of
ownership of a publicly owned or Government Company, property or business to a
privately owned company.
·
Public enterprises:any company or business owned and
financed by the federal government for the purpose of delivering services to
the members of the society.
·
Public Sector:part of our society that is under the
federal government’s control.
Introduction
Privatization of state owned
enterprises or rather public enterprises has become a major issue in both
developing and developed countries around the world. Over the years the issue
of privatization has been raised saying that its average growth has flown to an
alarming rate of 10% in a range of 10 good years. However, the revenues of the
public enterprises that have been privatized have skyrocketed from about
$25billion to $200billion in a span of 10years i.e between 1990 and 2000. Many
organizations have taken privatization as a major modern advancement in the
business world such that it has become an indispensable factor in the
globalization strategy of our current economy and also including structural reforms
(Jennifer).
So many evolving economies have tried
privatizing many of their businesses in the past decade so as to adopt a better
microeconomic stability, bring down the public sector borrowing desires arising
from corruption and also to decrease the subsidies attached to public sector
enterprises that are unprofitable. Through this research some issues of
privatization would be addressed and answers would be provided in detailed form
to guide readers. Some of the issues mentioned would be; (Jennifer)
·
The
degree and example of cost performance and accountability
·
Results
of performance
·
Improvements
of privatization on performance and accountability
·
Lessons
derived from privatization
These issues above will be mention
further in our discussion making them our main focus.
Cost performance and accountability
seem to be a major factor in assessing privatization. These two terms have been
subjected to a lot of controversies and criticisms, saying that the performance
of privatized enterprise would show no difference even if they were left to be
running their business as a public enterprise. Privatization was brought up as
a solution for some challenges the public sector were going through, these
challenges involved
·
Conflict
of objectives
·
Inefficient
resource management
·
Political
meddling etc (Jennifer)
These challenges would be briefly
explained further into the paper.
Public Enterprises;
There are so many ways in which one
could be able to define what public enterprises are, different scholars have
all brought up their own views on how they think it should be defined. A scholar
Efange, has defined public enterprises as “Organizations belonging to the state
which retains majority of the interest, also performing business like
activities and produce goods and services at their own specific kind of
management”. Some other scholars have defined it as an “organization whose main
function is to produce and sell goods and services in which government have no
means of ownership that is appropriate to certify their control over the
enterprises” (Adeyemo and Salami).
Most of us know that the main reason
of starting public sector enterprises in our current economy was to help the
country obtain further development. So below are more elaborated reasons on why
public enterprises were established…..
Why were public enterprises established? The reasons are given below
1. Firstly of all,
how political concerns have an influence on the involvement of the federal
government in the setting up of certain economic and social services. In many
of our countries in Africa, economic and social development is closely related
with the establishment of social services. The ability of the government to
provide for such countries is assessed by the various kinds of public services
they could establish in areas where they are highly needed. (Ogohi)
2.
Secondly, the creation of public enterprise
was also due to the development emphasis of countries like Nigeria. The
resources obtainable by the private sector of most developing countries are
inadequate for providing the goods and services needed. (Ogohi)
3.
Thirdly,it is not in the main interest of the
private sectors to protect the needs of consumers. (Ogohi)
4.
The fourthreason is that no individual should
be permanently underprivileged of the access to goods and services mainly
because of their geographical location or inadequate funding. (Ogohi)
5.
The fifthmainly has to do with the issue of
National security. Security agencies like the police are too important to be
left out as a plan B and live everything to the private sector to handle. (Ogohi)
6. The sixthand
final reason is about the indivisibility. Facilities that must be financed
through taxation like road construction, bridges and tunnels e.t.c. must be
provided publicly to all. (Ogohi)
Performance Analysis of
public sector enterprises in Nigeria
In spite of all the objectives laid
down by the government in setting up public enterprises, their performance has
proven to be very poor and at a minimum level which is rather seen as an
unfavorable act by the court of public opinion. Although massive amounts of
money are supplied for the establishment of these enterprises, dreams or rather
goals of the federal government and individual of the public are still yet to
be fulfilled. It is highly noticeable that right now most citizens of Nigerian
believe that the enterprises owned by the state are both ineffective and
inefficient (Jennifer). Reports of major
investigations set up by the government have proven that the inefficiency of
these enterprises have already reached alarming rates. Such inefficiency has
already manifested itself in the Nigerian educational system, lack of attention
in the petroleum sector resulting into long exhausting queues at most gas
stations and the inadequate supply of standard electricity and water. According
to Jennifer (Jennifer), most of the major
hospitals have turned into ordinary clinics with inadequate drug supply and
also lacking qualitative equipment.
False information on the efficient
performance of these public enterprises are shown on the public communications
network or rather the media (Daily papers, road side billboards, TV screens and
radio jingles) as positive feedback, however in actuality their execution
records are subject of shame to the citizens. On the other hand, we are prone
to be gone up against with one inquiry which is the question raised as to, How
we perform the assessment of the public enterprises?. Measuring or assessing
the performance of public enterprises are usually not done with ease because
public enterprises are mostly built under social considerations not like
private enterprises that are set up with economic objectives. Regardless of the
difficulties, the assessment still takes place using some of the enterprises as
models.
In 2005 the Federal Republic of
Nigeria released a publication containing the unarguable failure of the public
enterprises in Nigeria. It revealed the, In 1999 when the fourth republic
commenced, Nigeria’s federal government was said to possess up to 590 public
enterprises. Under their control was the sector of telecommunications, most of
the petroleum corporations, the sector of steel and power and also the
development banking of the economy. More than 1/3 of the revenues Nigeria has
made from oil transactions since 1973 have all been used up on the management
of public enterprises. In 1996 it was estimated that up to a hundred billion dollars
was invested on public enterprises by the federal government, however, those
investments only managed a return of 2% per year. The money these enterprises
directly and indirectly draw from the nation’s treasury compared to the
services rendered is further explained in the publication. Had it been the public
enterprises weren’t privatized, an amount of four billion dollars which was
saved in 2004 alone would have been spent. An amount of $10.6 billion was taken
from the Nation’s treasury by the Power Holding Company of Nigeria (PHCN) to
improve the power supply of the country but no improvement was seen. (Jennifer)
According to Jennifer (Jennifer), between 1975 and
1999, the Nigerian Telecommunications Limited (NTL) had received fifty billion
dollar worth of operating subsidies to provide its citizens with what was
supposed to be the world’s most expensive telephone network system and 400,000
worth of lines. This was considered to be one of the world’s lowest and poorest
telephone density rates. Compared to the recently private telecommunication
companies (MTN, ZAIN, Airtel, ETISALAT, GLO etc) which have prevailed
prominently, all of the companies listed above have over 85 million telephone
lines working among them and they have never needed a dime out of the nation’s
treasury. In return, all of them have put together more than a hundred billion
dollars in taxes, levies and license fees (Jennifer).
Jennifer continued by saying that the
establishment of the Nigerian Airways was also one of the disgraceful failures
of the public enterprises. In 1979 when power was handed over to former
President Alhaji Shehu Shagari, 32 air planes went into operation under the
name of Nigerian Airways. Some 20 years later when former President Olushegun
Obasanjo took back office, sadly only one Nigerian Airways Aircraft was out of
the fleet of 32 was in operation.
Meanwhile all the 2500 staff working for the Nigerian Airways were now
being paid just to service and operate on that single aircraft left (Jennifer).
The inefficiency of Nigerian public
enterprises has been vividly clarified in their lack of performance maintaining
the Nigerian National Shipping Lines (NNSL). In 1979, 24 vessels were owned by
the NNSL which was a public serving enterprise, 19 of those vessels were newly
build. Just like the Nigerian Airways case the entire fleet of vessels were
gone except for one. I believe that the most common inefficient performance of
the Nigerian enterprises is that of the Nigerian Railway Corporation. With this
much research you will notice that there was never a public enterprise in
Nigeria today that operated well before the privatization era.
While they were made;
“The company had a
month to month annuity bill of #250 million and paid Month to month staff pay
of #200 million including #27 million which was exhausted on the Railway
Hospital alone, in spite of the fact that it produced just #30 million a month.
This doubtlessly, made the privatization of the Company unavoidable so that the
assets which were being pumped to pay for administrations not rendered could be
furrowed into different regions of the Nations need” (Jennifer).
According to some information
received in 1998 form some sectors in the government; over 256 million naira
was spent by the Nigerian public enterprises in subsidies, transfers and waivers,
this massive sum of money would have brought more positive change to the
country if it had been invested in health providing services, amended the
educational system or even other social developing sectors.
Challenges faced by public enterprises;
So many scholars around the world
have brought up their own views on what they think is the leading challenge
that really affects public enterprises. Below are some few factors that could
be the possible factors leading to the inefficiency of the public enterprises.
1. Conflict of Objective: Unsteadiness in the political
framework happens when the legislature of a state changes too frequently and
out of the blue. Each new government wants to designate its own particular
representatives to the sheets of government enterprises. These steady changes
in the approach making body of the enterprise lead to conflicting arrangements.
Steady changes can likewise prompt postponements in the finish of business
ventures. A few activities in which enormous measures of cash have been spent
are relinquished in light of the fact that the new top managerial staff does
not favor of them (Ogohi).
2.
Poor Management: Individuals from the board who make
arrangements for the organization are political nominees who might not have any
introduction in the company’s region of operations. Once more, the
administration can make its organizations utilize administration staff that is
not legitimately qualified. These two components can bring about poor
administration (Ogohi).
3.
Mismanagement of Funds: Some government administration
enterprises are famous for their bungle of funds. Huge amounts of funds or
money get missing as a result of embezzlement. Authorities likewise plot with
contractual workers who are paid up with all the required funds for work that
is either not done or is despicably done. There have been utilized for vital
improvement ventures by the organization or the legislature (Ogohi).
4. Poor Attitude to work: So many people working for the government see their work as government
work. Government work, they shockingly accept, require neither reality nor
duty. The outcome is that people don’t do their work at all or do it
inadequately and the partnership hence can’t viably release the obligations for
which they were set up (Ogohi).
Thereare still more problems to be discovered. These are just a few of
the ones researched upon. Some solutions have been brought up to solving these
problems. They are,
·
The
value management of the personnel should be enhanced
·
The
control the government has over the public enterprises should be reduced by
privatizing the public corporations.
The Privatization of Public Enterprises in Nigeria;
Since the colonial time, open
ventures have accepted progressively various and vital advancement parts in the
Nigerian economy. Privatization of public enterprises didn’t just start
instantly it was a gradual and slow process of development. The government
first decided to partially privatize 111 enterprises. At the start of partial
privatization the objective of the program was to;
I.
Ensure
in any legal way possible that they get positive returns on every single investment
made on the privatized of commercialized public enterprises.
II.
Start
the procedure of steady suspension of the public enterprises that can be best
handled by the private sector.
III.
Making
sure that the enterprises reduce their dependence on the nation’s treasury and
encourage them to use the capital market.
IV.
Reorganize
the public sector in order to reduce the effects of inefficient investments.
V.
Reform
the public enterprises towards a new perspective of performance perfection and
efficiency.
Types of privatization
·
Private/public
partnership privatization.
·
Cessation
of service
·
Selling
of the state owned enterprises and
·
Contract
out privatization (Jennifer).
Conclusion
The system of privatization and
commercialization is a noteworthy open door for change of Nigeria’s inefficient
public enterprises and to set them up to spare the needs of the Nigerian
economy in the 21st century. Enterprises will be made more proficient more
responsible and more capable to the needs of the customers it is intended to be
serving the Nigerian open. The Nigerian private division will likewise have the
advantage colossally in the formation of new business opportunities and a
superior speculation atmosphere. A considerable measure of new shareholders
have been made and now have a say in the illicit relationships of the sorted
out private segment. The execution of the Nigerian Capital Market will be
improved enormously, too the development possibilities of the Nigerian economy.
Be that as it may, what lessons arrive for Nigeria, Africa and the Third world
nations undertaking comparable projects? Our involvement in Nigeria focuses to
the way that it is troublesome, if not unimaginable, for the legislature in
creating nations to strip its enthusiasm for endeavors totally. In numerous
African nations, the institutional bases for feasible divestiture don’t exist.
Moreover, nearby capital with which to encourage execution of divestiture is
not accessible. In this way doubtlessly the reasonable choice for most African
nations is to subject a generous piece of people in general undertaking part to
changes that will offer them some assistance with achieving administration and
profitable effectiveness (Kingsley).
Adeyemo, D.O. and Adeleke Salami. “A Review of
Privatization and Public Enterprises Reform in Nigeria.” Contemporary
Management Research(2008): 401-418.
Jennifer, Abah Ojoma. “A Study of
OANDO (UNIPETROL) in Enugu State.” An Assessment of Cost Performance
and Accountability in Privatized Piblic Enterprises in Nigeria (2013):
1-95.
Kingsley, Maduka Chukwuma. My Project.
23 March 2011. 21 November 2015 <http://maduphilo-myproject.blogspot.com.ng/2011/03/privatization-of-public-enterprises-in.html>.
Ogohi, Daniel Cross. “Analysis of
the Performance of Public Enterprises in Nigeria.” European Journal of
Business and Management (2014): 24-32.
