AN EMPIRICAL ANALYSIS OF THE IMPACT OF PRIVATE SECTOR ON THE ECONOMIC GROWTH AND DEVELOPMENT OF NIGERIA (1980–2010)

ABSTRACT

The study examines the private sector as the engine of economic growth and development in Nigeria. A model was specified and data were collected from the period of 1980-2010. The method used in this research work is the ordinary least square (OLS) regression model and variables which are: gross domestic product (GDP) as the dependent variable while foreign private investment (FPI), domestic private investment (DPI), total private savings (TPS), and total bank loans (TBL) are the independent variables and are all significant except total private savings that is insignificant. From the regression result, the following findings were made The estimate coefficients which are 0.8999687 {FPI} shows that a 1 percent  increase in foreign private investment will cause  89.9 per cent increase in GDP, 0.0851059 {DPI} shows that a 1 percent increase in domestic private investment will cause an 8.5 per cent increase in GDP, 0.2444129 {TBL} shows that a 1 percent increase in total bank loans will cause  24 per cent increase in GDP. 0.0268498 {TPS} shows that a 1 percent increase in total private savings will cause 2.6 per cent decrease in GDP. It is recommended that there should be policies that will attract foreign investors; such policies could be the reduction of corporate tax rate. Incentives should be given to local investors to enable them compete with foreign investors world-wide. Policies also should be made against the transfer of capital and profit from Nigeria to foreign countries as it drains the income meant for national development. The government should also maintain political stability in the economy because unstable environment discourages investors.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Privatization has become a major strategy adopted world over to improve the performance of public enterprises. It is a known fact that one feature of public enterprises all over the world but more importantly in developing countries of Africa especially Nigeria is inefficiency, bureaucracy of public enterprises and uncared attitude of most public servants or most people to public work and property. This leads to waste, slow growth and inordinate dependence on government support (in the form of annual subventions) even when the activity is apparently a profitable line.

As a way of improving the fortunes and performance of these enterprises through which profit orientation will be the motive of the enterprises, privatization is being canvassed such that government will divest itself of all its ownership interest and allow private sector to buy over these companies. In Nigeria today, the private sector is increasingly being recognized as the motivating force that fosters economic progress.

In Nigeria, the oil boom of the1970s among other factors gave impetus to a public sector-led government strategy. Public sector dominance was also prevalent in order to give government an increasing measure of control over its own resources (obadan 2000), the dwindling revenue of government as a result of the economic crisis of the 1980s coupled with the dissatisfaction with the performance of the public compelled Nigeria to adopt the privatization and commercialization in 1988.

Today, in Nigeria, privatization of key government business is no longer a household talk but it has become a major issue in the mind of every meaningful Nigerian. The participation of the State in enterprises in Nigeria dates back to the colonial era. The task of providing basic infrastructure such as railway, road, bridges, water, electricity and port facilities fell on the colonial government due to the absences of indigenous companies with the required capital as well as the inability or unwillingness of foreign trading companies to embark on capital intensive project (Iheme, 1997). The involvement was expended and consolidated by the colonial welfare development plan (1946-1956) that was formulated when labor party came to power in the United Kingdom. This trend continued after independence such that by 1999, it was estimated that successive Nigerian government had invested up to N800 billion in public owned enterprises (Igbuzor, 2003 as citing Obasanjo, 1999). Throughout much of the twentieth century, there were three dominant strategies for infrastructure investment. In some countries, most notably those in the Eastern Bloc, State ownership of the means of production was promoted, while others (Western Bloc) promoted private ownership of production.

A large number of countries also predicted what was termed a mixed economy, a combination of public and private ownership of the means of production. However, by the end of the twentieth century with the end of cold war between the eastern and western bloc, private ownership of the means of production gained ascendancy. Today, what is applicable is that the State should recede from this role, and that private ownership of the means of production is the only viable approach to the efficient production of goods and services, as well as economic growth and development. Consequently, there is a strong move all over the world to privatize erstwhile public enterprises (Igbuzor, 2003). Thus, privatization could be looked upon as the reduction of public sector intervention in economic activity. It involves the divesture of government economic activities (Anyanwu, 1993). It occupies a unique position in a global economic liberation and provides an avenue for raising productivity, thus, enhancing overall economic growth and development (Salako, 1999).  This is however, achieved through increased involvement of the private sector in productive economic activities through the sale of public enterprises to the private sector  with the ultimate aim of infusing improved economic efficiency in the businesses. 

With privatization, the role of government in direct productive activities diminishes as the private sector takes over such responsibilities with profit motive as its major objective. In such a situation, the government is only expected to provide essential infrastructure and an enabling environment through which private enterprises could flourish. Privatization is predicated on the assumptions of State inefficiency and absolute efficiency of the market (Salako, 1999). It would be recalled that several Nigerian public enterprises have on several occasions been under severe criticism by international media agents for their operational and pricing inefficiencies. Nigeria like many other developing economies witnessed increasing cost and poor performance of State-owned enterprises (SOEs), resulting in heavy financial losses. In it, there has been proliferation of SOEs in all facets of economic endeavours, as a means of fostering rapid economic growth and development (Eke, 2000).

Unfortunately, most of them were structurally ill-conceived, economically inefficient with accumulated huge financial losses and thus absorbing disproportionate share of domestic credit. They were also sustained through heavy budgetary allocations of the country (Jerome, 1996, as cited in Eke, 2000). For instance, the stateowned enterprises (SOEs) are adjudged to have contributed substantially to public sector deficit and have financed less than one fifth of their investments through Internally Generated Resources (IGR) (Nair and Filippides, 1988). As some governments ran into severe fiscal problems such that loans became increasingly difficult to rise at home and abroad, they were forced to consider some radical methods of reviving the SOEs. Such reforms embarked upon by developing countries included privatization. Kikeri (1994) has noted that the high costs and poor performance of SOEs and the modest and fleeting results of reform efforts have turned many governments towards privatization.

1.2 STATEMENT OF THE PROBLEM

It is the inefficiency of government-run public enterprises today that calls for the privatization of these enterprises. However one may note that privatization may not likely be the only solution of getting government-run enterprises on the ideal path of efficiency, deregulation and market oriented economy. The study therefore believes that there should be some silent initiatives that if properly harnessed could be the shining light to lead the nation’s ship to the desired harbor.

1.3 Research Questions

1.  Is privatization the engine of economic growth in Nigeria?

2.  Is there any relationship between privatization and economic growth?

1.4 Objectives of the Study

1.  To determine the relationship between private sector spending and GDP.

2.  To ascertain the relationship between public sector spending and GDP.

3.  To find out whether there is any relationship between public and private sector spending and GDP.

1.5 Research Hypothesis

Ho: Privatization does not have impact on economic growth in Nigeria.

Hi: Privatization have impact on economic growth in Nigeria.

1.6 Significance of the Study

1.  To provide information on the privatization of the Nigerian privatization exercise.

2.  To determine whether privatization has contributed positively or negatively to the growth and development of the Nigerian economy.

3.  To educate students about the nature of the Nigerian private sector.

1.7 Scope Of The Study

The study covers the impact of the private sector from 1980-2010.

1.8 Definition Of Basic Concept

PRIVATISATION: This is the process of transferring ownership interest and control in a government-owned enterprise to the private sector.

FULL PRIVATISATION: The government sells the enterprise in full to private individuals or groups.

PARTIAL PRIVATISATION: The government sells some of its shares or holdings to the private sector.

PUBLIC SECTOR: They are organizations that are owned and managed by the government.

PRIVATE SECTOR: This consists of private business ownership.