THE IMPACT OF PRIVATIZATION AND COMMERCIALIZATION

OF PUBLIC ENTERPRISES ON ECONOMIC GROWTH OF

NIGERIA

BY

ASOUZU, NNEKA VIVIAN

EC/2009/743

DEPARTMENT OF ECONOMICS
FACULTY OF MANAGEMENT AND SOCIAL SCIENCES
CARITAS UNIVERSITY, AMORJI – NIKE EMENE, ENUGU
ENUGU STATE

AUGUST, 2013

1
 TITLE PAGE

THE IMPACT OF PRIVATIZATION AND COMMERCIALIZATION

OF PUBLIC ENTERPRISES ON ECONOMIC GROWTH OF
NIGERIA

A PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE AWARD OF BACHELOR OF SCIENCE
(B.Sc.) DEGREE IN ECONOMICS

BY

ASOUZU, NNEKA VIVIAN

EC/2009/743

DEPARTMENT OF ECONOMICS
FACULTY OF MANAGEMENT AND SOCIAL SCIENCES
CARITAS UNIVERSITY, AMORJI – NIKE EMENE, ENUGU
ENUGU STATE

AUGUST, 2013

2
 APPROVAL PAGE

This research work has been read and certified as meeting part of the

requirements for the award of bachelor of science (B.Sc.) degree in

the Department of Economics, Faculty of Management and Social

Sciences, Caritas University. Enugu State, Nigeria.

By

--------------------------- -----------------------
Mr. P.E.C. Osodiuru Date
Supervisor

---------------------------- ---------------------
Barrister P.C. Onwudinjo Date
Head of Department

------------------------------- ------------------------
Prof. C.C. Umeh Date
Dean, Faculty of Management
and Social Sciences

------------------------------- -----------------------
External Supervisor Date

3
 DEDICATION

This research work is dedicated to the almighty god for his

divine love, guidance and infinite mercies through out my study years.

I also dedicate this work to my ever loving parents Engr. Dr.

and Mrs. Asouzu for their love, supports, criticism and their day and

night struggles to give me the best education, to my siblings Chuka,

Chidi, Nnamdi Ogochukwu, Amaka and Uche and to all my friends

Christiana, Sharon, Amara and Winner for their encouragements and

assistance.

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 ACKNOWLEDGEMENTS

I give my profound gratitude to God Almighty the creator of the whole

universe who gave me life and sound health in abundance and saw

me through my degree programme in this university. May all the

glory, honour and adoration be ascribed to his holy name.

My deepest and unquantifiable gratitude goes to my parents Engr. Dr.

and Mrs. Asouzu for their love, support, encouragement and prayers

through out my learning period in this university. You are the best

parents any one could ever wish for in the whole world.

My humble appreciation goes to my supervisor Mr. Osodiuru for

the guidance, support and advice throughout the duration of research

on my project work. You are truly an epitome of wisdom and a man

with an impeccable character. My appreciation also goes to all

lecturers in my department. Barr. P.C. Onwudinjo (Esq) , Mr. Ojike

R.O., Dr. C.C Umeadi, Mr. Odo, Mr. Osodiuru, Mr. Odionye, Chief

Odike, Prof. S.I Udabah, Prof. Onah who have at one point in time

impact knowledge in me. Thank you so much.

To my friends and colleagues, you have been wonderful and it

has been fun being with you and learning amongst you. Thank you

all for you all for your different contributions to my life and I want

5
forget you. To my roommates, I won’t forget all the memories we

have made together without you all life would have been hell on

earth.

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 TABLE OF CONTENTS

Title Page - - - - - - - - i

Approval Page - - - - - - - - ii

Dedication - - - - - - - - iii

Acknowledgements - - - - - - - iv

Abstract - - - - - - - - v

CHAPTER ONE

1.1 Background of the Study - - - - - 1

1.2 Statement of Problem - - - - - 4

1.3 Objective of the Study - - - - - 5

1.4 Statement of Hypothesis - - - - - 5

1.5 Significance of the Study - - - - - 6

1.6 Scope and Limitations of the Study - - - 7

1.7 Definition of Terms - - - - - - 7

CHAPTER TWO

2.1 Theoretical Framework - - - - - 9

2.2 Background of Privatization in Nigeria - - - 9

2.3 Definition of Privatization - - - - - 20

2.4 Origin and Development of Public enterprises in Nigeria 28

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2.5 Reasons of the privatization and Commercialization policy 28

2.6 The impact of Privatization on the Nigerian Economic- 32

2.7 How Counties Privatize (Methods of Selling State

Owned Assets) - - - - - - 34

2.8 Methods of Privatization - - - - - 35

2.9 Empirical Studies Comparing Pre versus Post

Privatization Performance for share issues Privatizations (SIPs) 38

CHAPTER THREE

3.1 Research Methodology - - - - - 47

3.2 Model Specification - - - - - 48

3.3 Method of Evaluation - - - - - 48

3.4 Justification of the Model - - - - - 49

3.5 Research Approach - - - - - 50

CHAPTER FOUR

4.1 Presentation interpretation of Result - - - 51

4.2 Economic Apriori Criteria - - - - - 52

4.3 Statistical Criteria (First Order fest) - - - 53

4.3.1 Coefficient of Multiple Determinants (R2) - - 53

4.3.2 The Student’s T - test - - - - - 54

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4.3.3 F – Statistics - - - - - - - 55

4.4 Econometrics Criteria - - - - - - 56

4.4.1 Test for Auto Correlation - - - - - 56

4.4.2 Normality Test for Residual - - - - - 58

4.4.3 Test for Heteroscedasticity - - - - - 59

4.4.4 Test for Multicollinearity - - - - - 60

CHAPTER FIVE

5.1 Summary of Findings - - - - - 62

5.2 Conclusion - - - - - - - 63

5.3 Recommendations - - - - - - 64

BIBLIOGRAPHY

9
 ABSTRACT

So much effort has been made towards understanding the

relationship between privatization and commercialization and the
economic growth of Nigeria. Privatization and commercialization of
pubic enterprises in every economy is introduced for the attainment of
specific objectives which includes economic growth and stability.
Data was collected and analyzed using ordinary least square method
(OLS). The result of the study shows that there is a positive but
insignificant impact of private investment on the economy, this due to
lack of investment in the private sector. On the strength of this
evidence, this work recommends that the government should allow
the private sector to establish major companies like electricity
generating companies, water supply companies etc. This study
finally concludes by saying that the impact of privatization and
commercialization of public enterprises on economic growth can only
take effective progress when the enterprises are wholly or partially in
some cases handled and controlled by the private owner whom will
not relent in the optimization of profitable enterprises.

10
 CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Several experts and informed opinions have presented privatization

and commercialization as one of the bitter pills to be taken by

Nigeria’s in order to recover from economic slump, it to a great extent

helps to solve some vital problems that has led to the untimely

devastating problems is the syndromes of “not- my fathers- work”

which has greatly and negatively affected both smooth running and

performance of the these enterprises. The privatization policy was

recommended by the onside report of 1982 by the Athakem study

group of statutory corruptions and state owned corporations set up in

September 1984, the competence of chief Executives of Nigeria

public enterprises held in Jos, plateau state in May 29-30, 1985 and

by international minatory fund, as a condition for is loan to Nigeria.

Public enterprises in Nigeria has been considered as inefficient and

wasteful, this is because they have viewed it wish the profit criterion.

According to a school of thought asserting the activities for public

enterprises with the profit criterion is not always a fair judgment

11
economic activities, it is usually not appropriate to us the performance

standard of the private sector “they are horses of different colours”.

Unfortunately, the Nigerian public sector enterprises have failed in

this efficient and effective provision of the services for which they

were established. Infact it was this feeling of failure and

crimelessness arising from the increased difficulty in the government

that prompted the proposition of privatization policy in Nigeria.

For a large part of the frontlets century, there were countries in the

world (Eastern bloc) that promised state ownership of means of

production, whiles other (Western bloc) promised private ownership

of the means of production. A good number of countries practiced

what was termed mixed economy i.e. the combination of public and

private ownership of he means of production. However, at the end of

the twentieth century with the end of the war between the eastern and

western blocs, private ownership of means of production took

ascendancy.

Today, the received wisdom is that the state should recede and that

private ownership of means of production is the only viable approach

12
to efficient production f goods and services, economies growth and

development. Nigeria has more than 1,800 public enterprises at

Federal and state level which can be categorized as follows:

i. Public utility providing infers fractural services

ii. Strategic industries such as petroleum and petrochemical,

fertilizer plans iron steel.

iii. Economic/Commercial enterprises such as manufacturing of

consumer goods insurance, banks and hotel.

iv. Departmental/stationary boards designed to serve specific

socials of development roles as university and research

institutes, Ake (1981)

It is important to note that the introduction of SAP in 1986 serves as a

bench mark in economic policy-making in Nigeria with the resultant,

liberalization, deregulation, Privatization and commercialization

measures. The critical question here remains how many of these

policies have been able to resituate the political economy of Nigerian

and in true alleviating the yearning and aspiration of the working

class.

13
1.2 STATEMENT OF PROBLEM

Privatization and Commercialization of public enterprises is a vital

tool for the upliftment of the growth and development of the economy,

more especially the developing countries like Nigeria. Regrettably,

the problems facing this Privatization and commercialization program

is numerous to include:

a. Corruption

b. Lack of Transparency

c. Lack of accountability

d. Inconsistency and,

e. Incredibility

However, it is based on these problems that the basic propositions of

this Privatization and commercialization program are being hindered.

It is important to note that he major function that informed the

establishment of these public enterprises are to control the resources

and raise funds for the provision of certain infrastructural facilities

particularly in services requiring heavy financial investment e.g.

railway, telecommunication electricity etc, also tope form the function

of generating revenues that will add to financial development program

14
and projects as reliable instrument for the crucifies of jobs and

ultimately facilitate economic growth and development. In trying to

look into these discrepancies and proffer a way forward toward a

state of Privatization and commercialization of public enterprise in

Nigeria that enhances economic growth and development this

research work emanated.

1.3 OBJECTIVE OF THE STUDY

This study has a main objective of finding out the impact of

Privatization and commercialization of public enterprises on the

Nigerian economy.

1.4 STATEMENT OF HYPOTHESIS

It is against the background pf problem identified and the

objective of the study that the underlisted hypothesis was made:

Ho :βo : β1 = β2 = 0 (Null Hypothesis)

This means that the process for Privatization policy made no

significant impact on the economic growth of the Nigerian economy.

15
1.5 SIGNIFICANCE OF THE STUDY

This research work will be of great importance to the researcher,

because it will enable her to know the importance of privatization in

the economy of this country (Nigeria). It would also help to develop

her personal knowledge.

The research will also help the government to understand those

benefits that privatization and commercialization program embodies

which we have neglected and politicized within the past. In

understanding this on the side of the government, it will allow them to

retain and work towards real implementation of it and thereby

creating room for the rapid growth and development of this country.

Finally, the research will be useful to the students of economics and

other field, who wish to know more about privatization and

commercialization.

16
1.6 SCOPE AND LIMITATIONS OF THE STUDY

The research work is focused on the impact of privatization and

commercialization of public enterprises on the Nigerian economy

from 1980 to 2010.

1.7 DEFINITION OF TERMS

Definition of basic concepts is important so that the study will be

made meaningful, some definition of terms used in the study are as

follows:

a. Privatization

This is the process of transferring ownership interest and control from

a government owner enterprise to a private sector. It can also be said

to be the transfer of ownership and central of enterprises from state

to private sector.

Ogunna defined privatization as policy of selling off public enterprises

to individuals groups and organization so that as private organization

they should operate under the principles of profitability, effectiveness,

efficiency and viability rather than in a public interest.

17
Ikeme, (1997) defines privatization as any of the variety of measures

adopted by the government to expose of public enterprises

competition or to bring in private ownership management or control

into public enterprises and accordingly to reduce the weight of public

ownership or control or management.

b. Commercialization

This concerned with the reform of public enterprises to achieve high

efficiency and productivity without change of ownership.

c. Public Enterprises

These are any corporation board, company or parastatals established

by or under any enactment in which the government Federation has

ownership or equity interest. As defined by Ademolekun (1985) they

are organizations that engage as a result of garment activity in the

capacity of an entrepreneur.

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 CHAPTER TWO

2.1 THEORETICAL FRAMEWORK

According to Ogban-Iyam who sees theory as a set of interrelated

concepts that are used to explain, describe, interpret and predict the

relationship between phenomena or variables. Theory helps to

provides us with a way of looking at the real world.

Here, structural – Functional theory is used as a suitable framework

of analysis for the policy of privatization and commercialization of

public enterprises in Nigeria. Structural-Functionalism is a theoretical

framework is intended to explain the bases for maintaining order and

stability is society and relevant arrangement within the society. This

theory originated in the biological and medical science. It was

adopted as a mode of analysis in sociology and anthropology as

evidence in the work of Emile Durkhim and Talcott Parson. It was

developed for political analysis by Gabriel Almond, S. P. Verma who

stressed that structural – Functionalism involves two main concepts,

such as structures and functions. Structure refers to the arrangement

within the system which perform the functions. Also, structure is the

way in which the parts are connected together in order to be arranged

19
or organized. Function has been defined by Merton Robert as those

observed consequences which for the adoption or adjustment of a

given system. According to Orah young function is generally defined

as the objective consequences of a pattern of action for the system in

which it occurs.

The basic assumption of the structural functional framework is that all

system have structures which can be identified and these structures

perform functions within the system necessary for its persistence. It

refers to the structures that are found in any system and functions

performed by structures. This political system is defined as the

various structures and institutions in the society that perform political

functions or that bear on political decision making policy. Eme Awa

(1976) clearly defines political system as “the peculiar structures in

any particular system performing political functions”.

In analysis, there are three branches or structures of government

such as legislature, executive and Judiciary. The structure can be

analyzed from three main levels as person, institution and

subsystems. The whole of structure is analyzed into parts each

20
dealing with a particular sphere of activities for instance political,

economic and social subsystem.

Therefore, structure of government lead to substructure. It is the

government and their bureaucracy that makes rules, administering,

adjudicating and formulated those economic policies by the executive

for economic growth of the country. If the economic structure, such as

industries, Nigerian Telecommunications Limited, Power Holding

Company etc. which are established by the government are well

organized and harmonized functions are performed smoothly.

There are various kinds of opinions by many scholars on activities of

privatization and commercialization of public enterprises. The federal

government has restated its commitment to the privatization

programme saying that it would not allow obstacles to make it change

its focus.

Ukwu (1982 – 1987) said that the perennial problem of public

enterprises arises from the composition of the board and its

relationship with management. In particular , the conflict between the

21
chairman and the chief executive himself usually a direct appointee

are appointed for reasons of political patronage rather that nay

contributions they are capable of making to enhance performance.

Ugoo. E. Abba (2008:248) argued that some public enterprises

whose establishments are hinged on regulatory philosophy have also

not lived up to standard. Due to epidemic corruption in these

enterprises, officials collect bribes and truncate their primary reasons

for establishment. But in the words of Chief Olusegun Obasanjo

(1999) in his assessment of the decline in Nigeria’s public enterprises

assert that these enterprises suffer from fundamental problem of

defective capital structure, executive bureaucratic control or

intervention in appropriate technology gross incompetence and

mismanagement, blatant corruption and crippling complacency which

monopoly engenders.

In the words of Ogunna (1999), the poor performance of public

enterprises in Nigeria can be approached from the perspective of

inadequate financial and material resources, poor management,

corruption and lack of continuity of public corporation boards. On the

22
other hand, the civilian government of first and second republic

appreciated the need for the public of privatization and

commercialization, which was reflected in the various panels to that

effect which they established.

Ollos (1986) was in support when he said that given the economic

recovery objective of government. “Privatization will relieve the

financial burden of government and releases fund for it to use in other

areas.

General Abdusalami Abubakar (rtd.) came to power in June (1998),

the continued with the policy with much more vigor and planned to

private or at least commercialize all public enterprises which be

believed would not only salvage the ailing public enterprises make

them more effective, but would in addition, provide enormous funds to

government for other public services. Obadan hints that the

enhancement of efficiency should be the primary objective of

privatization programme. This is because maximum efficiency will

bring moiré sustained gains, which can then be distributed to a wider

segment of the society.

23
Lewis (1994:178) supports the view of efficiency that the private

sector is to be more efficient more productive and more profitable. In

short, privatization according to him would increase government

revenues and cut down or eliminate waste and unnecessary

bureaucracy. Nellis (1999) in Obadan 200:19 agreed with the above

assertion by saying that in empirical terms, various assessment of

privatization out comes, particularly in the industry and middle –

income countries have concluded that privatization leads to improve

performance of private companies and that private owned firms”. He

posits that increasing evidence also shows that privatization yields

positive results in lower income and transition countries as well.

Guislain (1997:173) is of the view that the more for privatization is

that most government find themselves facing deep budget deficits

and public financials crises. The state no longer has the financial

resources either to offset the losses of state-owned enterprises

(SOEs) or to provide the capital increases necessary for their

development. Thus, emphasizing that privatization is the answer as

most of state-owned enterprises are deeply involved in corrupt

24
practices that have depreciated its values to achieve the basic

requirement expected of it.

The Director General, Bureau of Public Enterprises (BPE), Dr.

Christopher Anyanwu said that government would hinder it from

meeting its privatization objectives. He listed the objectives of the

privatization among other things to include the restructuring and

rationalization of the pubic sector in order to lesson the dominance of

unproductive investments, besides; privatization was targeted at

raising funds for financing socio-economic development in areas such

as health, education and infrastructure.

General Ibrahim Babangida’ administration was the first to take

concrete steps towards privatization and commercialization of some

public enterprises.

Having reviewed some books on administrative management

problems of public enterprise and possible ways of reformative

measures and the cause of these problems that have engulfed these

public enterprises especially from the external and internal factors

25
and also having reviewed some books and articles on these

privatization and commercialization policy has been detrimental to the

poor in the society. Let us now attempt a review of some books and

articles that see privatization and commercialization as an exploitative

tool in the hands of ruling class and its foreign allies.

Nnoli, O. (1981:4) historically, introduced the issues of initial rational

why government involved in business activities, that those reasons

should not be sacrificed at alter of bourgeoisie inclined profit

maximization. He contended because public Parastatals was only

peripheral to the interest of the foreign capitalist condition of work in it

particularly the ways were attractive than in the private companies

with a consequent lowering of workers moral and productivity. That

the public sector should be blamed for its inefficiency because at the

dawn of independence, change has occurred in public sectors, most

of its activities were performed by private contractors and their failure

is the success of the private sector.

Another article assessed that the different dimensions of which

privatization and commercialization have been viewed by various

26
scholars. I think the programme from the on set had no clear focus.

The government was not really sure what it wanted from the

programme and consequently the TCPC itself did not know where its

true mission was. They never knew whether their mission was

raising money for the government or sharing of the national cake.

Furthermore, Bola (2004), found out that the privatization in Nigeria

has been able to replace the public monopoly with private monopoly.

However, the major impact of the reform has been in the area of

increased competition and efficiency. These were evident in the

telecommunication, petroleum and banking sector.

According to Garba on Vanguard, Tuesday September 10, 2009,

today the world has virtually become a global village in terms of

communications and doing business is gradually shifting from

boardrooms to individual comes, courtesy of teleconference, In view

of these developments, two countries are looking up to you the

experts to ensure that their relations are boosted by the content

innovative trends in Telecommunications.

27
Mr. John Odey, the minister of environment (2009) said although the

telecommunications industry had impacted positively on the economy

and lives, it should not be allowed to hamper people health and

environment. We must balance the social, economic and

environmental aspects of our developmental areas,

Kalu (1999) contributed that as at end of 2005 over 10 enterprises

have been privatized while over 30 enterprises have been

commercialized. For example Nation Electric Power Authority

(NEPA), now power Holding Company of Nigeria (PHCN).

According to the Federal Government of Nigeria (1993), the long term

goal of a telecommunication enterprise is not only to be self financing

but also to generate a reasonable return on investment and provision

of digital exchange; transmission units, gateway, and cellular

telephone system all over the country.

Amechi argues that with the Nigerian beliefs which hold that

government enterprises are nobody’s property every one inside and

28
outside then strives to loot them and no one preserves them. He

argues that privatization is a step fighting this ugly trend.

2.2 BACKGROUND OF PRIVATIZATION IN NIGERIAN

The process of privatization began in March, 1988 by the

promulgation of Decree as part of the structural adjustment

programme (SAP) of the Ibrahim Badamosi Babangido’s

administration (1985 – 1993). As Mc Grew argued SAP is a neo –

liberal development strategy devised by international financial

institutions to incorporate national economics into the global market.

The privatization and commercialization Decree of 1988 set up the

Technical committee on privatization and commercialization (TCPC)

under the chairman of Dr. Hamza Zayyad to privatize III public

enterprises and commercialization 34 others. 1993, the TCPC

concluded its assignment and submitted a final report having

privatized 88 out of the III enterprises listed in the decree. Based on

the recommendation of the TCPC, the Federal Military government

promulgated the Bureau for public enterprises Act 1993 which

repealed the 1993 Act and set up the Bureau for public enterprises

29
(BPE) to implement the privatization programme in Nigeria. In 1999,

the federal government enacted the public enterprise Act 1999 which

created the National council on privatization under the chairmanship

of the vice president.

2.3 DEFINITION OF PRIVATIZATION

Privatization can be defined as the transfer of ownership and control

of enterprises from the state to the private sector. Iheme (1997)

defines privatization as any of a variety of measures adopted by the

government to expose a public enterprise to competition to bring in

private ownership and control or management into a public enterprise

and accordingly to reduce the usual weight of public ownership or

control or management. By section 14 of the Decree 25,

privatization is the relinquishment of part or all the equity and other

interest held by the federal government or its agency in enterprises

whether wholly or partly owned by the federal government. According

to Ejimofe (2000), the term privatization means the transfer of power

and functions form the public sector, through the government to the

private sector. He further stated that privatization should lead to the

30
general and financial independence of a company, without

dependence on subsidies or grants from the government.

Bajomo (1988), in his own statement in his paper (the rational for

privatization and commercialization) said that “privatization and

commercialization can referred to as a reward system involving a

move towards the pursuit of efficiency and effectiveness in the

attainment of objectives, through the adoption of management styles

that take profit making as one of its major focus”. He further said that

it is an orientation found throughout the world and that transplanting

this orientation in public sector means a move by public enterprises to

adopt the private enterprises, the non-profit thinking of public

enterprises.

Orjih (2001) said that privatization is the relinquishing of part or all the

equity and other interest held by the Federal government or its

agencies in enterprises whether wholly or partly owned by the federal

government. He went further to identify two forms of privatization as:

a. Full Privatization: This is the divestment by federal

government of all its ordinary shareholding designated

31
 enterprises. Mostly affected are enterprises which produce

goods that are not essential in nature.

b. Partial Privatization: This involves divestment by the Federal

Government of part of its ordinary share holding in designated

enterprises. The enterprises affected are the ones government

considers straight for their essential goods and services. In a

related development, Bakome (2008) also identified some

forms of privatization, which include a complete form of selling

government owned public enterprises to private buyers and

remove government completely from any involvement in the

affairs of such firms. Another form of privatization according to

him is to retain government ownership of the enterprises which

it is allowed to be run and managed on purely commercial basis

just like any other private business. Yet another form of

privatization according to him is by way of sharing ownership of

enterprises between the public and the private sector while

leaving the day-to-day running of the enterprises in the heads

of private administrators. He further said that deregulation can

be considered as another form of privatization. He also said

32
 that privatization has been achieved in some countries by

selling the business either entirely or partially to the employees.

2.4 ORIGIN AND DEVELOPMENT OF PUBLIC ENTERPRISES IN

NIGERIAN

In most countries of the world particularly the developing ones, the

decades following world war II (particularly, the 1960, and early

1970s and early 1970s) witnessed a massive intervention of the

government influence in the economics of these countries by

establishing public enterprises (PEs), state-owned companies

(SOCs). Public enterprises were seen as veritable tools for achieving

national socio-economic development. Thus, since the 1950s,

successive governments have used public corporations and state-

owned companies as tools of public intervention in the development

process. This was eloquently states in the Nigerian second National

Development plan.

Their Primary purpose is to stimulate and

accelerate national economic development

under conditions of capital scarcity and

structural defects in private business

33
 organization, there are also basic

considerations arising from the dangers

of leaving vital sectors of the national

economy to the whims of the private

sector often under the direct and

remote controls of foreign large

scale industrial combine.

Consequently, the PEs, especially in developing countries became

active in the sectors such as manufacturing, construction, finance,

service utilities, transportation, agriculture, nature resources etc. The

organization and functioning of public enterprises range from one

country to another.

It is important to note that the organization and functioning of public

enterprises vary in some important respects among countries world

wide.

The history of public corporations in Nigeria dates back to 1897 when

the Lagos colonial administration by ordinance establishment the

34
Lagos Race course Management Board to run, regulate, manage and

develop the race course on the Lagos Island. After independence,

many public corporations have been established by government.

They include: National Television Authority (1962), Nigeria Defense

Industries Corporation (1964), Nigeria Airway, Nigeria produce

marketing company Limited etc.

The first generation of state enterprises in Nigeria was established

along regional lines. Public enterprises were motivated by the need

for regional government to control the resources in the regions. The

Northern Region in 1962 formed the New Nigerian Development

Company (NNDC) with its Headquarters in Kaduna the regional

capital of the North. The Western Region established the Odua

investment Company (Odua’s Group) a holding company with head

office in Ibadan, its regional capital. The Eastern Region established

the Eastern Nigeria Development Corporation (ENDC) in 1960. Each

of these was a holding company with subsidiaries in real estates,

banking, agriculture, insurance and transportation. The regional state

enterprises drew their initial capital from state coffers and received

35
regular government subventions. Sub-regional interests ride for

positions of responsibility in the management of regional enterprises.

Competition among regional investment institutions was political

rather than economic. Performance were secondary, the appointment

of board members and management teams was a means of political

patronage. Since the regimes needed their enterprises as conducts

for public funds for political patronage and personal enrichment the

subvention continued to flow grossly under performing state

enterprises.

There were two reasons why the oil industry in Nigeria became a

symbol of national control. In the early 1970s, the oil industry was

regarded as too particularly strategic to be left in the heads of the

private sector and civil war was fought for the control of oil wealth

(1967 –1970). The quest for full control of the oil industry led to the

merge of Nigeria National oil Corporation (NNOC) with the Federal

Ministry of Petroleum in 1978 to form the Nigeria National Petroleum

Corporation (Decrees No. 33 of 1976). The creation of NNPC made

36
the Federal Government owner, the manager, marketers and auditing

officer in the all important oil industry.

It was then in 1975 that Nigeria’s military leader, General Yakubu

Gowon was quoted as saying that money was not the country’s

problem but how to spend it. The Abeokuta Iron and Steel plant was

started in 1975 with the Soviet Union as technical partner. Four more

(Aladja, Osogbo, Katsina, and Jos steel Rolling mills) were added to

the list of about 800 Federal Government commercial enterprises in

various sectors with over 1533 branches nationwide. This was in

addition to 32 federal ministries, 125 parastatals, 24 Federal

universities and 61 special institutions and research centres. The

investment extended from agriculture, banking and insurance,

transportation to hotel management, housing and publishing.

Despite the large investments, virtually energy sector of the Nigerian

economy was still import dependent. Several years after public

enterprises have served as platforms for patronage and the

promotion of political objectives and consequently suffer from

operational interference by civil society and political appointees.

37
Public Enterprises (PEs) have also contributed to income

redistribution in favour of the rich over the poor, who generally lack

the connections to obtain the job contracts or the goods and services

they are supposed to provide. Nearly half of all the revenue made

from the sale of crude oil between 1973 and 1999 went to public

enterprises.

A number of public commissions, wages and salaries review

commissions headed by Simeon Adebo (1969), Jerome Udoji (1973),

Gamaliel Onosode’s Presidential Commission on parastatals (1981)

and Al-Hakin in 1984 had undertaken various studies on the

performance of public enterprises in Nigeria. Their findings were

consistent in revealing that public enterprises were infested with

abuse of monopoly powers, bureaucratic bottlenecks,

mismanagement, corruption and nepotism.

2.4 REASONS FOR THE PRIVATIZATION AND

COMMERCIALIZATION

Some possible reasons are that the government had acceped its

inability to manage these enterprises effectively and profitably.

38
Government lacks the fanatical support to those entrepreneurships.

Also government considers Nigeria citizen ripe enough, rich and well

versed in the art of entrepreneurship.

1. The Question of Efficiency: The lack of efficiency in the public

enterprises had been blamed on reasons arising from

government proprietorship; the defense cannot be that

government cannot mange business effectively. From the

relative efficiency of the private enterprises, these public

enterprises are likely to become efficient and profitable it they

are transferred to the private sector, so as many of them should

be sold to private owners for them to perform better.

2. REVENUE GENERATION TO THE GOVERNMENT :

Privatization generates revenue for the government; the

revenue generated could be used to finish some economically

viable projects which have been abandoned because of the

scarcity of funds. By selling out its stock in these enterprises,

the government will also save the resources that ate usually

pumped into the public enterprises and allow the private sector

to reform these enterprises and usher in a new theme of life

into them.

39
3. BRINGING ABOUT BETTER REWARDING SYSTEM TO

GOVERNMENT ORGANIZATION AND MANAGEMENT:

The pattern of organization in government owned enterprises is

such that, it creates conflict and risk of commitment. This is

partly due to decision making mechanism and the rewarding

system. The decision managing mechanism is such that, the

top management and board of directors take decisions without

involving the subordinates, more over communication and

consultations system are very weak, the subordinates are not

properly briefed after decision making coming to the rewarding

system. It was based on seniority rather than on the

performance of individual workers so that the government

hoped that the cases will be bye gone if these enterprises are

organized in private sector pattern. In Nigeria, enterprises

relation system, the principle of collective bargaining that helps

to ensure enterprises peace only exists in the privates sector.

4. CREATING EMPLOYMENT OPPORTUNITY:

Privatization and Commercialization will lead to expansion of

the economy which will create employment opportunities. This

arises from the fact that the revenues generated from

40
 privatization and money used to support those industries

before, will be used to increase employment opportunities. The

government also assumed that the privatized industries will

start assumed that the privatized industries will start making

profit which they will plough back to expand their business. This

in effect will create employment opportunities that will absorb

both those, retrained initially and those that are employed.

5. REDUCING GOVERNMENT REGULATION ON THE

SOCIETY:

The team of experts from international monetary fund and

World Bank that studied the Nigerian economy pointed out that

one of the problems of the Nigerian economy is that, the

economy is over regulated by the government. This is because

the private sector of the economy is directed by the Market

forces of demand and supply in the basic of the private

enterprises. But the privatization policy as specified in 2006

budget proposed contained a clause that read “the government

will divest its interest without being controlled”. This suggests

that the privatized industries will be controlled by the

government.

41
2.6 THE IMPACT OF PRIVATIZATION TO THE NIGERIA

ECONOMY

The Privatization programme had created a lot of anxiety, suspicions

and expectations among Nigerians. While others are coursing for its

implementation some have faulted the process of the implementation

programme.

According to EL-Rufai former DPE Director General and now Minister

of Federal Capital Territory (FCT), “the programme would ensure the

inflow of investment, management and technology that would

improve and grow the nation’s infrastructure service and industries for

the benefit f the people. He further states that privatization without

competition and injection of cash is bound to be sub-optimal. He said

that international, community that a new transparent Nigeria is open

for business, to respector, rationalize and improve the efficiency of

the public sector, raise funds for financing socially oriented

programmes such as poverty alleviation health education among

other and to expose his economy to international competition and

attracting foreign resources.

42
According to the Federal Government Blue print on Privatization and

Commercialization, its objectives are:

i. To restrict and rationalize the public sector in order to lesson

the dominance of unproductive investment in the sector.

ii. To re-orientate the enterprise for Privatization and

Commercialization, towards a new horizon of performance

improvement, viability and over all efficiency.

iii. To range funds, for financing socio-economic development in

such area as health, education and in fracture

iv. To ensure positive recturns on public sector investment in

commercialized enterprises, through more efficient

management.

v. To check the present absolute dependence on the treasury for

funding by parastatals and to encourage them approach the

Nigerian capital market to meet their funding requirements.

vi. To initiate the process of gradual cession to the private sector

of such public enterprises which are better operated by the

public sector.

vii. To create more jobs, acquire new knowledge and technology

and expose the country to international competition.

43
2.7 HOW COUNTRIES PRIVATIZE (METHODS OF SELLING

STATE-OWNED ASSETS)

A key decision to be made by he privatizing government is the

method through which the state owned asset is transferred to private

ownership. This decision is difficult because, in addition to the

economic factor such as valuing the assets, privatizations are

generally part of an ongoing highly politicized process. Some of the

factors that influence the privatization method include:

(1) The history of the assets ownership

(2) The financial and competitive position of the SOE

(3) The governments’ ideological view of markets and regulation

(4) The past present and potential future regulatory structure in the

country.

(5) The need to pay off important interest groups in privatization

(6) The government ability to credibly commit itself to respect

investor’s property rights after divestiture.

(7) The capital market conditions and exiting institutional

framework for corporate governance in the country.

(8) The sophistication of potential investors

44
(9) The government’s willingness to let foreignness own divested

assets

The complexity of the goals of the process means that different

countries have used may different method for privatizing many

different types of assets. Although financial economists have leaned

much about selling assets in well-developed capital market we still

have a limited understanding of the determinates and the implications

of the privatization method for state owned assets. Theoreticians

have modeled some aspects of the privatization process, but to be

traceable their models must ignores important factors. Empirical

evidence on the determinants of privatization is also limited by the

complexity if the goals of the privatization process.

2.8 METHODS OF PRIVATIZATION

Brada (1996) presents an excellent taxonomy of privatization

methods. Although the context of his paper is central and eastern

Europe his classification of four principle divestment methods is quite

general. In addition the provides a review of the success and failures

of each of these general approaches in central and Eastern Europe.

Of course, there are many variations within each of his four

45
categories and Brada shows many privatizations use combinations of

the different types of privatization.

Brada’s first category is privatization through restitution. This method

is appropriate when land or other easily identifiable property that was

expropriated in years past can be returned to either the original owner

or to his or her heirs. This form of privatization is rarely observed

outside of Eastern Europe, though it has been important there. For

example, Brada (1996), reports that up to 10% of the value of state

property in the Czech Republic consisted of restitution claims. The

major difficulty with this form of privatization is that the records

needed to prove ownership are often inadequate or conflicting.

The second method is privatization though sale of state property,

under which a government trades its ownership claim for an explicit

cash payment. This category takes two important forms. The first

direct sales (or asset sales) of state owned enterprises (or some

parts thereof) to an individual, an existing corporation, a group of

investors. The second form is share issue privatization (SIPs), in

which some or all of a government’s state in a SOE is sold to

46
investors through a public share offering. These are similar to IPOs in

the private sector but where private IPOs are structured primarily to

raise revenue, SIPs are structured to raise money and to respond to

some of the political factor mentioned earlier.

Brada’s (1996) third category is mass or voucher privatization,

whereby eligible citizens can use vouchers that are distributed free or

at nominal cost to bid for states in SOEs or other assets being

privatized. This method has been used only in the transition

economies of central and eastern Europe, where it has brought about

fundamental changes in the ownership of business assets in those

countries, although it has not always changed effective control longer

descriptions of the issues that governments in central and Eastern

Europe have confronted when designing voucher privatization

programs are provided in Bornstein (1994, 1999) Alexandrowicz

(1994). Drum (1994) and Shafik (1995).

The final method is privatization from below, through the startup of

new private businesses in formerly socialist countries. Havrylyshyn

and Mc Ghettigan (1999) also stress the importance of this type of

47
economic growth in the transition economics. Although privatization,

from below has progressed rapidly in many regions (including china

the transition economics of central and Eastern Europe, Latin

America and sub-Saharan Africa).

2.9 EMPIRICAL STUDIES COMPARING PRE-VERSUS POST

PRIVATIZATION PERFORMANCE FOR SHARE ISSUE

PRIVATIZATIONS (SIPs)

The studies examine how privatization affects from performance by

comparing pre-versus post-divestment data for companies privatized

via public share offering. Since the first study to be published using

this methodology is Megginson, Nash and Van Randenborgh (1994),

we will refer to this as the MNR methodology. This empirical

procedure has several obvious economic and econometric

drawbacks. Of these, selection bias probably causes the greatest

concern, since by definition a sample of SIPs will be biased towards

very the largest companies sold during any nation’s privatization

program. Furthermore since governments have a natural tendency to

privatize the “easiest” firms first, those SOEs sold via share offering

(particularly those sold early in the process) may well be among the

48
healthiest state-owned firms. Another drawback of the MNR

methodology is its need to examine only simple, universally available

accounting variables (such as assets, sales and not income) or

physical units such as number of employees. Obviously, researches

must be careful when comparing accounting information generated at

different times in many different countries. Most of the studies citied

here also ignore (or at best, impurely account for) changes in the

macroeconomic or industry over the seven year event window during

which they compute pre-versus post privatization performance

changes. Finally the studies cannot account for the impact in

privatized firms of any regulatory or market opening initiatives that

after are launched simultaneously with or immediately after major

privatization programs.

Summary of empirical studies comparing pre versus post privatization

performance changes for forms privatized Via public share offering:

Non-transition Economies.

This table summarized the sample selection criteria methodologies

and empirical findings of general recent academic studies of

49
privatization that employ samples from more than one country and

more than one industry.

STUDY SAMPLE DESCRIPTION, STUDY SUMMARY OF EMPIRICAL FINDINGS

PERIOD AND METHODOLOGY AND CONCLUSION
MEGGINSON, Compare 3 years average post- Document economically and statistically
NASH AND VAN privatization financial and operating significant post- privatization
RANDENBORGH performance ratios to the 3-year pre- increase in input (real sales),
(1994) privatization values for 61 firms from 18 operating efficiency, profitability,
countries and 32 industries from 1961- capital investment spending, and
1989. Tests significance of median derided payments, as well as
changes in post versus pre- privatization
significant decreases in Leverage.
period. Also binomial tests for % of firms
No evidence of employment
changing as predicted
declines after privatization, but
significant changes in firm
directors.
MACQUIEIRA Compare pre-versus post. Privatization Unadjusted results identical to MNR
AND ZURIITA performance of 22 Chilean significant increases in output,
(1996) companies privatized from 1984- profitability employment, investment

1989 use Megginson, Nash and Van and dividend payments. After adjusting

Randenborgh (MNR) methodology to for market movement, however, the

changes in output employment and
perform analysis first without
liquidity are no longer significant and
adjusting for overall market
leverage increases significantly.
movements (as in MNR) then with
an adjustment for contemporaneous
changes
BOUBAKI AND Compare 3- year average post- Document economically and statistically
COSSET (1998) privatization financial and operating significant post- privatization
performance ratios to the 3-year increase in output (real/sales),
pre-privatization values for 79 operating efficiency profitability,
companies from 21 developing capital investment spending,
countries and 32 industries over the dividend payments and
period 1980-992 Tests for the employment as well as significant
significance of median changes in decreases in leverage.
rate values in post verse pre- Performance Improvements are

50
 privatization period. Also binomial generally even large than those
tests for percentage of firms documented by Megginson, Nash and

changing as predicted Van Landenborgh. (MNR).

D’SOUZA AND Document offering terms method of sale Document economically and statistically
MEGGINSON and ownership structure resulting from significant post- privatization
(1999) privatization of 78 companies from increase in output (real sales),
10 developing and 15 developed operating officering, and
countries over the period 1990- profitability as well as significant
1994. Then compare 3-year average decrease in leverage. Capital
post- privatization financial and investment spending increase, but
operating performance ratios to the insignificantly, while employment
3-year pre- privatization values for a declines significantly. More of the
sub sample of 26 firms with firms privatized in the 1990s are
sufficient data. Tests for the from telecoms and other regulated
significance of median changes in industries.
ratio values in post versus pre-
privatization period. Also binomial
tests for % of firms changing as
predicted
VESBRUGE Study offering terms and share ownership Document moderate performance
MEGGINSON results for 65 banks fully or partially improvements in OECD countries
AND LEE (1999) privatized from 1981 to 1996. Ratios preying for profitability, fee
income
BOUBAKRI AND Example pre-versus post- privatization Document significantly increased capital
COSSET (1999) performance of 16 African firms spending by privatized firms, but find

privatized through public share only significant changes in profitability

offering during the period 1989- efficiency output and leverage.

1996. also summarize findings of

three other studies pertaining to
privatization in development
countries
D’OUZA AND Examine pre-versus post- privatization Finds that profitability, output efficiency,
MEGGINSON performance changes for 17 national capital spending, number of access
(2000) telecommunication companies lines and average salary reemployed all

privatized through share offerings increases significantly after

51
 during 1981-1994. privatization leverage declares
significantly
DEWENTER AND Compare pre-versus post- privatization Document significant increases in
MALASTESTS performance of 63 large, high- profitability (using net income) and
(2000) information companies divested significant decreases in leverage and

during 1981-1994 over both short labor intensity (employees + sales) over

term [(+1 to +3) vs. (-3 to -1)] and both short and long-term compares in
hormones. Operating profits increase
long term [(+1 to + 5) vs. (-10 to -
prior to privatization but not after.
1)] horizons. Also examine long run
Document significantly positive
stock return performance of
long-term (1-5years)
privatized firms and compare the
abnormal/stock return mostly
relative performance pf a large
concentrated in Hungary, Poland
sample (1500 firm-years) of state
and the UK result also strongly
and privately-owned firms during
indicate that private firms out
(1975, 1985 and 1995).
perform state-owned firms.

In spite of all the draw backs, studies employing the MNR

methodology have two key advantages. First they are the only

studies that can examine and directly compare large samples of

economically significant firms, from different industries, privatized in

different countries, over different firm period. Since each firm is

compared to itself (a few years earlier) using simple, inflation

adjusted sales and income data (that produce results in simple

percentages) this methodology allows one to efficiently aggregate

multi-national, multi-industry results. This point is made clear in the

52
 table below, which summarizes the result of three studies that use

precisely the same empirical process and fest methodology.

SUMMARY RESULTS FROM THREE EMPIRICAL STUDIES OF

THE FINANCIAL AND OPERATING PERFORMANCE OF

PRIVATIZED FIRMS (compared to their performance as states

owned enterprise)

Variables and Numb Mean value before Mean value Mean change E-statistic for % of firms Z-station for
studies cited er of Mean value after after due Difference in with significance
obser privatization privatization privatization performance improved of %
vation performan changes
ce
Profitability
(Net income
sales)
Megginson 55 0.0552 0.0799 0.0249 3.15*** 69.1 3.06***
Nash and Van
Randenborgh (0.0442) (0.0611) (0.0140) 3.16*** 62.8 2.29***
(1994)

Bonbakri & 78 0.0493 0.1098 0.0605

Cosset (1998) (0.0460) (0.0799) (0.0181)

D’ souza & 78 0.14 0.17 0.03 3.92*** 71 417***

Megginson (0.05) (0.08) (0.03)
(1997)
0
Weighted 218 0.0862 0.1257 0.0396 67.6
average
Efficiency
(real Sale per
employee)

Megginson 51 0.956 1.062 0.1064 3.66*** 85.7 6.03***

Nash and van (0.942) (1.055) (0.1157)
Randenborgh
(1994)

Boubakri & 56 0.9224 1.1703 0.2479 80.4 460***

cosset (1998) (0.9056) (1.1265) (0.2414)

D’souza & 63 1.02 1.23 0.21 4.79*** 79 5.76***

Megginson (0.87) (1.16) (0.29)
(1999)

53
Weighted 170 0.9733 1.1599 0.1914 81.5
Average

Investment
(capital
expenditure+
sales)

Megginson 43 0.1169 0.1689 0.0521 2.35*** 67.4 2.44**

Nash and van (0.0886) (0.1221) (0.0159)
randenborgh
(1994)

Boubakri & 48 0.1052 0.2375 0.1322 2.28** 62.5 1.74*

cosset (1998) (0.0649) (0.1043) (0.0157)

D’souza & 66 0.18 0.17 0.01 0.80 55 0.81

Megginson (0.11) (10.10) (-0.01)
(1999)

Weighted 157 0.1405 0.1900 0.0493 60.6

Average

Output (real
sales
(adjusted by
CPI)

Megginson 57 0.899 1.140 0.241 4.77*** 75.4 4.46***

Nash and van (0.890) (1.105) (0.190)
randenborgh
(1994)

Boubakri & 78 0.9691 1.220 0.2530 5.19*** 75.6 4.58***

cosset (1998) (0.9165) (1.123) (0.1892)

D’souza & 85 0.93 2.70 1.76 7.30*** 88 10.94***

Megginson (0.76) (1.86) (1.11)
(1999)
0
Weighted 209 0.9358 1.7211 0.8321 80.3
Average
Dividend
(cash
Dividends +
Sales)

Megginson 39 0.0128 0.0300 0.0172 4.63*** 89.7 8.18***

Nash and van (0.0054) (0.0223) (0.0121)
randenborgh
(1994)

Boubakri & 67 0.0284 0.0528 0.0244 4.37*** 76.1 4.28***

cosset (1998) (0.0089) (0.0305) (0.0130)

54
D’souza & 51 0.015 0.04 0.025 4.98*** 79 5.24***
Megginson (0.00) (0.02) (0.02)
(1999)

Weighted 106 0.0202 0.0655 0.0228 80.4

Average

a: number exceeds 211 because of over aping firms in different

satrapies

*** Indicates significances at the 1% level

** Indicates significance at the 5% level

* Indicates significance at the 10% level

All these studies offer at least limited support for the proposition that

privatization is associated with significant improvements in the

operating and financial performance for SOEs divested via public

share offering. Two of these studies focus on specific industries

(banking [Verbrugge, et al (1999)] and telecommunications (D’souza

and Megginson (2000)]), one examines data from a single country

(chile Macquieira and Zurita (1996)], and the other six employ multi-

industry, multi-national samples. Five of these studies. MNR (1994),

Bonbabri and Csset (1998), D’souza an Megginson (1999, 2000) and

Boardman Lauren and Vining (2000) document economically and

statistically significant post privatization increase in real sales (output)

55
profitability, efficiency (sales per employers) and capital spending

coupled with significant declines in Leverage. Macquieria and Zurita

find similar results for chillum firm using data that is not adjusted for

changes experienced by other Chilean firms over the study period but

many of these improvements cases to be statistically significant once

such adjustments are made.

56
 CHAPTER THREE

METHODOLOGY

3.1 RESEARCH METHODOLOGY

In this work, certain methods were used, this chapter explains in

details the procedure adopted in arriving at the inference of this

research work. Research decision is the frame work of investigating a

research problem, in other works it refers to the methods used in

investigating and analyzing a research problem. Data collection on its

own involves a range of activities from the individuals in the library

extracting information from volume of materials available as regards

to this work. Two main forms of data collection exit which are the

primary and secondary source.

Secondary data will be used in this research work and will be

obtained from the central bank of Nigeria’s (CBN) statistical bulletin.

The method adopted by the work is the multiple regressions with

ordinary least square (OLS) techniques of estimation.

57
3.2 MODEL SPECIFICATION

In this section we pursue our objective further by specifying out

model. The model is to verify the performance and impact of

privatization and commercialization on Nigeria economy. This

approach is to modify the model by specifying a multiple regression

equation made up of the log of real gross domestic product (lrgdp) as

function of the independent variables (i.e. Log of private investment

(lpin), log of government expenditure (lgovexp), inflation rate (Inf).

Lrgdp = f(lpin, lgovexp, inf))

Lrgdp = b0+ b1lpin + b2 logevexp + b4 inf + u

DEFINITION OF VARIABLES

Lrgdp = Log of real gross domestic product

Lpin = Log of private investment

Inf = inflation rate

u = Error term

3.3 METHOD OF EVALUATION

Considering the nature of the study and the fact that Log of private

investment being the major explanatory variable is a dependent

variable, we evaluate the impact of the variable in a question on GDP

58
with the pre-privatization and commercialization era serving as a

bench mark.

Some statistical econometric tests will be used to evaluate the

regression, some of which include the coefficient of multiple

determination R2 which measures the overall significance, the data

coefficients measures the relative significance of each of the

independent variables t-statistic, Durbin the regression equation.

3.4 JUSTIFICATION OF THE MODEL

In this study, secondary methods of data collection were used in the

collection of data. The use of secondary data was chosen for this

study because it is considered to be the most appropriate method for

the needed information at the least amount of time. However this has

been amongst other instrument of data collection for this study

because of some added advantage it has over other methods. The

log of private investment is the main explanatory variable, while

government expenditure and inflation are control variables.

59
3.5 RESEARCH APPROACH

The approach used in this study is basically obtained from secondary

sources. This is regarded as the plan structure and strategy of

investigation conceived as to obtain answers to research problems. It

ensures that the required data are collected and that they are

accurate. However the secondary data used in this study was

obtained from the central bank of Nigerian (CBN) statistical bulletin.

60
 CHAPTER FOUR.

PRESENTATION AND ANALYSIS OF RESULT.

4.1 Presentation and Interpretation of Result:

Dependent variable: Real Gross Domestic Product.

Method: Ordinary Least Square.
Period of study: 1981-2010
Included Observations: 30
Variable Coefficient Standard error t-statistics t-prob. {95%
Confidence
Interval}
Constant 0.4401855 0.2891464 1.52 0.140 -0.1541634
1.034534
LPIN 0.0793637 0.570239 1.39 0.176 -0.0378506
0.196578
LGOVEX 1.043627 0.363132 28.74 0.000 0.968984
P 1.11827
INF -0.0013613 0.0023707 -0.57 0.571 -0.0062343
0.0035117
R2 = 0.991 F{3, 26} = 1657.61{0.0000} Prob > F = 0.0000
DW = 1.662682 Root MSE =0.22203 for 3 variables and 30 observations.

From the above, the interpretation of the result as regard the

coefficient of various regressors is stated as follows:

The value of the intercept which is 0.4401855 shows that the Nigerian

economy will experience a 0.4401855 increase when all other

variables are held constant.

61
The estimate coefficients which are 0.0793637 {LPIN} shows that a

unit change in LOG of PRIVATE INVESTMENT will cause a

0.0793637% increase in Real GDP, 1.043627 {GOVEXP} shows that

a unit change in GOVERNMENT EXPENDITURE will cause a

1.043627% increase in Real GDP, -0.0013613 {INF} shows that a

unit change in INFLATION will cause a -0.0013613% decrease in

Real GDP.

4.2 ECONOMIC APRIORI CRITERIA:

The test is aimed at determining whether the signs and sizes of the

results are in line with what economic theory postulates. Thus,

economic theory tells us that the coefficients are positively related to

the dependent variable, if an increase in any of the explanatory

variables leads to a decrease in the dependent variable.

Therefore, the variable under consideration and their parameter

exhibition of a priori signs have been summarized in the table below.

This table will be guarded by these criteria

When β > 0 = conform.

When β < 0 = not conform.

62
Variables Expected Estimate Remark

signs

LPIN + β>0 Conform

LGOVEXP + β>0 Conform

INF + β<0 Not conform

From the above table, it is observed that all the variables

conform to the economic theories.

A positive relationship which exists between LPIN, GOVEXP and

RGDP indicates that an increase in LPIN and GOVEXP will result in a

positive change in the Growth Rate of RGDP. This conforms to the

priori criteria because an increased or high LPIN and GOVEXP over

the years will increase Inflation in the economy.

4.3 STATISTICAL CRITERIA {FIRST ORDER TEST}

4.3.1. Coefficient of Multiple Determinants {R2}:

The R2 {R-Squared} which measures the overall goodness of fit of the

entire regression, shows the value as 0.9911 = 99.11%

approximately 99%. This indicates that the independent variables

accounts for about 99% of the variation in the dependent variable.

63
4.3.2. The Student’s T-test:

The test is carried out, to check for the individual significance of the

variables. Statistically, the t-statistics of the variables under

consideration is interpreted based on the following statement of

hypothesis.

H0: The individual parameters are not significant.

H1: The individual parameters are significant.

Decision Rule:

If t-calculated > t-tabulated, we reject the null hypothesis {H0} and

accept the alternative hypothesis {H1}, and if otherwise, we select the

null hypothesis {H0} and reject the alternative hypothesis {H1}.

Level of significance = α at 5% =

= 0.025

Degree of freedom: n-k

Where n: sample size.

K: Number of parameter.

64
 The t-test is summarized in the table below:

Variables {t-value} t-tab Remark

LPIN {1.39} ± 2.056 Insignificant

LGOVEXP ± 2.056 Significant

{28.74}

INF{-0.57} ± 2.056 Insignificant

The t-statistics is used to test for individual significance of the

estimated parameters {β1, β2 and β3}.

From the table above, we can deduce that LGOVEXP {28.74} is

greater than ±2.056, which represents the t-tabulated implying, that

LGOVEXP is statistically significant.

On the other hand, the intercept {1.52}, LPIN {1.39} and INF {-0.57} is

less than the t-tabulated {±2.056} signifying that Intercept, LPIN and

INF is statistically insignificant.

4.3.3. F-Statistics:

The F-statistics is used to test for simultaneous significance of all the

estimated parameters.

The hypothesis is stated;

H0: β1 = β2 = β3

H1: β1 ≠ β2≠ β3

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 Level of significance: α at 5%

Degree of freedom: V1 = k-1 V2 = N-K d/f

Decision Rule:

If the f-calculated is greater than the f-tabulated {f-cal > f-tab} reject

the null hypothesis {H0} that the overall estimate is not significant and

conclude that the overall estimate is statistically significant.

From the result, f-calculated {1657.61} is greater that the f-tabulated

{2.93}, that is, f-cal > f-tab. Hence, we reject the null hypothesis {H0}

that the overall estimate has a good fit which implies that our

independent variables are simultaneously significant.

4.4 ECONOMETRICS CRITERIA.

4.4.1. Test for Autocorrelation:

One of the underlying assumptions of the ordinary least regression is

that the succession values of the random variables are temporarily

independent. In the context of the series analysis, this means that an

error {Ut} is not correlated with one or more of previous errors {Ut-1}.

The problem is usually dictated with Durbin-Watson {DW} statistics.

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The Durbin Watson’s test compares the empirical d* and du in d-u

tables to their transforms {4-dL} and {4-dU}.

Decision Rule:

• If d* < DL, then we reject the null hypothesis of no correlation

and accept that there is positive autocorrelation of first order.

• If d* > {4-dL}, we reject the null hypothesis and accept that there

is negative autocorrelation of the first order.

• If dU< d* < {4-dU}, we accept the null hypothesis of no

autocorrelation.

• If dL < d* < dU or if {4-dU} < {4-dL}, that test is inconclusive.

Where: dL = Lower limit

DU = Upper limit

D* = Durbin Watson.

From our regression result, we have;

D* = 1.662682

DL = 1.214

DU = 1.650

4-dL = 2.786

4-dU = 2.35

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 Conclusion:

Since if dL {1.214} < d* {1.662682} < dU {1.650} or if {4-dU} {2.35} < {4-

dL} {2.786}, that test is inconclusive.

4.4.2. Normality Test for Residual:

The Jarque-Bera test for normality is an asymptotic, or large-sample,

test. It is also based on the ordinary least square residuals. This test

first computes the skewness and kurtosis measures of the ordinary

least square residuals and uses the chi-square distribution {Gujarati,

2004}.

The hypothesis is:

H0 : X1 = 0 normally distributed.

H1 : X1 ≠ 0 not normally distributed.

At 5% significance level with 2 degree of freedom.

JB = + = 8.73

While critical JB > {X2{2}df} = 5.99147

Conclusion:

Since 8.73 > 5.99147 at 5% level of significance, we reject the null

hypothesis and conclude that the error term do not follow a normal

distribution.

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4.4.3. Test for Heteroscedasticity:

Heteroscedasticity has never been a reason to throw out an

otherwise good model, but it should not be ignored either {Mankiw

Na, 1990}.

This test is carried out using White’s general heteroscedasticity test

{with cross terms}. The test asymptotically follows a chi-square

distribution with degree of freedom equal to the number of regressors

{excluding the constant term}. The auxiliary model can be stated

thus:

Ut = β0+ β1LPIN +β2GOVEXP+β3INF + β4LPIN2+ β5GOVEXP2+

β6INF2 + Vi.

Where Vi = pure noise error.

This model is run and an auxiliary R2 from it is obtained.

The hypothesis to the test is stated thus;

H0: β1 = β2 =β3 =β4 =β5 =β6= 0 {Homoscedasticity}

H1: β1 ≠ β2≠ β3≠ β4≠ β5≠ β6 = 0 {Heteroscedasticity}.

Note: the sample size {n} multiplies by the R2 obtained from the

auxiliary regression asymptotically follows the chi-square distribution

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with degree of freedom equal to the number of regressors {excluding

constant term} in the auxiliary regression.

Decision Rule:

Reject the null hypothesis if X2cal> X2 at 5% level of significance. If

otherwise, accept the null hypothesis. From the obtained results, X2cal

= 9.80 < X2 0.05 {9} = 16.9 we therefore reject the alternative

hypothesis of heteroscedasticity showing that the error terms have a

constant variance and accept the null hypothesis showing that the

error terms do not have a constant variance.

4.4.4 Test for Multicollinearity:

The term Multicollinearity is due to Ragnar Frisch. Originally it meant

the existence of a “perfect” or exact, linear relationship among some

or all explanatory variables of a regression model. The tests were

carried out using correlation matrix. According to Barry and Feldman

{1985} criteria; “Multicollinearity is not a problem if no correlation

exceeds 0.80”.

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 LPIN LGOVEXP INF REMARK

LPIN 1.000 -

LGOVEXP 0.7528 1.000 Nm

INF 0.1264 -0.2368 1.000 Nm, Nm

Where M = Presence of multicollinearity

Nm = No multicollinearity.

From the above table, we can conclude that multicollinearity do

not exists in all the variables. This result means that there is no

existence of a perfect or exact, linear relationship among all

explanatory variable.

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 CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATIONS

This last chapter of the work presents the summary of the research

findings, recommendations and conclusion.

5.1 SUMMARY OF FINDING

The summary of the results drawn fro the empirical findings are

itemized below:

1. There is a positive but insignificant impact of private investment

on economic growth of Nigeria over the years.

2. This study under the time frames of 1981-2010 (30 years),

private investment and government expenditure has a positive

impact on economic growth but inflation has a negative impact

on the economic growth. This implies that an increase in private

investment and government expenditure will cause the

economy to grow while a unit change in inflation will decrease

the rate of growth in Nigeria economy.

3. There is a negative and insignificant impact of inflation on the

Nigerian economy.

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4. This study also has it that private investment is insignificant in

the Nigerian economy.

5.2 CONCLUSION

In conclusion, privatization has been seen as a mean to governments

interested in fostering a new division of labor between the public and

private sectors in order to increase the effectiveness and contribution

to the development of both sectors. Therefore the success of

privatization should be judged not in terms of the sale, the pries paid

to the government or expansion of enterprises sold but rather on the

basis of wealth.

It is very clear that economics cannot be excluded rom polities and it

is well known that the basic problem facing public enterprises on

Nigeria is control or management. This cannot be addressed through

privatization. Honestly, the exercise reduces real income and

encourages people in economic recovery.

As the Federal Government of Nigeria (FGN) 1993 also currently

observed the primary agreement for privatization and

73
commercialization is of course, that the efficiency and profitability of

the investment would improve after the exercise.

It is therefore important to note that the impact privatization and

commercialization of public enterprise on the economic growth of

Nigeria can only take effective progress when the enterprises are

wholly or partially in some case handled and controlled by the private

owner when will not relent in the optimization of profitable enterprises.

5.3 RECOMMENDATIONS

Based on the research findings of this study, for the private and

foreign sector to be resumed of the governments good faith towards

privatization and commercialization after the declaration its intentions

it should go about if gradually and with root and branch rapacity.

The following areas would go a long way to demonstrate the validity

of this intentions stare with the profit making business.

a. The government should make an open declaration that

private sector autonomous investment would be allowed to

establish electricity generating companies, water supply

74
 companies, telecommunication and postal services,

additional private airlines and at the same time take steps to

introduce management of corresponding public sector

institutions.

b. The financial sector is a rough and ready candidate for initial

steps in the field of privatization and commercialization.

Government should sell to the local private sector 50% of its

existing holdings in commercial banks and insurance

companies and their shares should be quoted in the stock

exchange.

c. This research work has it that inflation causes a decrease in

the growth of real gross domestic product, so therefore

government and policy makers should adopt policies that will

help to reduce inflation in the economy in order to improve

economic growth.

75
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