ASSESSING THE COST PERFORMANCE AND ACCOUNTABILITY OF

PRIVATIZED PUBLIC ENTERPRISES IN NIGERIA

7
A STUDY OF OANDO (UNIPETROL) PLC IN ENUGU STATE

TABLE 0F CONTENT

Title page 1

Approval page 2

Certification 3

Dedication 5

Acknowledgement 6

Table of content 7

Abstract 11

CHAPTER ONE

1.0 Introduction 12

1.1 Background of the Study 12

1.2 Statement of problem 16

1.3 Research questions 17

1.4 Objective of the study 18

1.5 Statement of hypothesis 18

 8

1.6 Significance of the study 19

1.7 Scope of the study 20
1.8 Limitation of the study 20
1.9 Definition of key terms 21

CHAPTER TWO

2.0 Introduction 24

2.1 Literature review 24

2.2 The nature and concept of public enterprises 24
2.3 Performance of public enterprises in Nigeria 28
2.4 Problems of public enterprises in Nigeria 35
2.5 Public enterprises privatization in Nigeria 41
2.6 Concept of privatization 52

2.7 Types of privatization 55

REFERENCES 57

CHAPTER THREE

3.0 Introduction 59

3.1 Research Questions 59

3.2 Source of Data 60

 9

3.2.1 Primary source of data 60

3.2.2 Secondary source of data 60

3.3 Area of Study 61

3.4 Population of the study 61

3.4.1 Sampling design and technique 61

3.5 Instrument of data collection 63

3.6 Reliability of the test Instrument 63

3.7 Validity of the research instrument 63

3.8 Method of data Analysis 64

CHAPTER FOUR

4.0 Analysis of data and testing of hypothesis 66

4.1 Data presentation and analysis 66

4.2 Test of hypothesis 73

4.3 Tabulating the result 84

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CHAPTER FIVE

5.0 Summary, Conclusion and Recommendation 86

5.1 Summary 86

5.2 Conclusion 87

5.3 Recommendation 88

BIBLIOGRAPHY 90

APPENDIX I 93

APPENDIX II 94
 11

Abstract

Despite an impressive level of privatization activity across Africa and the

upsurge in search of the operating performance of privatized firms in both
develop and developing economies, our empirical knowledge of the
privatization program in Africa is limited. The purpose of this study is to
appraise the post privatization cost and operating performance as well as
accountability of some privatized public enterprises in Nigeria. A survey
research design was adopted for the study, sixty five internal audit and
thirty five accounting. Totally one hundred was randomly sampled and
stratified among the staff of Oando plc Enugu state. Three research
questions and hypothesis tested at 0.05 percent level of significance guided
the study. Frequencies, percentages, mean and standard deviation were
employed to answer the research questions while Z-test statistics were
used to test the hypothesis. It was found that privatization of unipetrol has
led to efficient and improved cost performance, and proper accountability
to share holders. We conclude and recommend among others that effective
cost performance and proper accountability to share holders is very
necessary in privatized public enterprises and that government should prive
the entire necessary enabling environment for the privatized company to
carry out their activities without unnecessarily increasing their cost.
 12

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Privatization of state-owned enterprises has become an important

phenomenon in both developed and developing countries. Over the last

decade, state-owned enterprises (SOEs) have been privatized at an

increasing rate, particularly in developing countries (DCs). Privatization has

become an important phenomenon in both developed and developing

countries. Over the past decade, privatization attempts have been

occurring at an increasing rate, especially in developing countries. The

compound annual average growth rate was around 10% between 1990 and

2000, with global privatization revenues jumping from $25 billion in 1990 to

$200 billion in 2000. The number of countries that have implemented

privatization policies has exceeded 110, not to mention that privatization

has touched almost every aspect of economic activity (Shadeh, 2002).

Privatization of state-owned enterprises (SOEs) has become a key

component of the structural reform process and globalization strategy in

 13

many economies. Several developing and transition economies have

embarked on extensive privatization programmes in the last one and a half

decades or so, as a means of fostering economic growth, attaining

macroeconomic stability, and reducing public sector borrowing

requirements arising from corruption, subsidies and subventions to

unprofitable SOEs. By the end of 1996, all but five countries in Africa had

divested some public enterprises within the framework of macroeconomic

reform and liberalization (White and Bhatia, 1998). In line with the trend

worldwide, the spate of empirical works on privatization has also increased,

albeit with a microeconomic orientation that emphasizes efficiency gains

(La Porta and López-de-Silanes, (1997); Boubakri and Cosset, (2001);

Dewenter and Malatesta, (2001) D'Souza and Megginson, (2007). Yet,

despite the upsurge in research, our empirical knowledge of the

privatization programme in Africa is limited. Aside from theoretical

predictions, not much is known about the process and outcome of

privatization exercises in Africa in spite of the impressive level of activism in

its implementation.
 14

Current research is yet to provide useful insights into the peculiar

circumstances of Africa, such as the presence of embryonic financial

markets and weak regulatory institution efforts. Most objective observers

agree, however, that the high expectations of the 1980s about the "magical

power" of privatization bailing Africa out of its quagmire remain unrealized

(Adam et al., (1992); World Bank,(1995); Ariyo and Jerome, (1999); Jerome,

(2005).

As in most developing countries, Nigeria until recently witnessed the

growing involvement of the state in economic activities. The expansion of

SOEs into diverse economic activities was viewed as an important strategy

for fostering rapid economic growth and development. This view was

reinforced by massive foreign exchange earnings from crude oil, which

fuelled unbridled Federal Government of Nigeria (FGN) investment in public

enterprises. Unfortunately, most of the enterprises were poorly conceived

and economically inefficient. They accumulated huge financial losses and

absorbed a disproportionate share of domestic credit. By l985, they had

become an unsustainable burden on the budget. With the adoption of the

structural adjustment programme (SAP) in 1986, privatization of public

 15

enterprises came to the forefront as a major component of Nigeria's

economic reform process at the behest of the World Bank and other

international organizations.

Consequently, a Technical Committee on Privatization and

Commercialization (TCPC) was set up in 1988 to oversee the programme. In

the course of its operations, the TCPC privatized 55 enterprises. Sufficient

time has elapsed since the start of reforms to allow an initial assessment of

the extent to which privatization has realized its intended economic and

financial benefits, especially with the commencement of the second phase

of the programme. This is particularly important in view of the lessons of

experience revealing interesting features that may alter earlier notions as

to the most appropriate way to implement privatization programmes

(Nellis, 1999). Concerns about globalization, in some transition economies

(notably the former Soviet Union and Czech Republic) and disappointment

with infrastructure privatization in developing countries are spawning new

critiques of privatization (Shirley and Walsh, 2000). Among the pertinent

issues to be addressed are: What is the extent and pattern of cost

performance and accountability of privatized firm? What have been the

 16

results of these performance? Has privatization improved the cost and

accountability of firm? Finally, what policy lessons are to be learned from

the privatization experience so far? These are the issues that come into

focus in the study.

1.2 Statement of Problem

The issue of cost performance and accountability of privatized public

enterprise have been a serious subject of the debate and different interest

group that is the “stakeholders”. The post privatization effect this

enterprise have been the subject of public scrutiny and criticism by the

public and others alike. Majority are of the view that their performance is

not different from the way it was when they were under public enterprise.

In response to this in recent national assembly committee, that was set

up to look into this enterprise partially supported public concern on their

performance. It is against these background that this research is carried

out to determine or find out if these view are true as the research is

intended to look at this research is intended to look at this privatized firms

cost performance and accountability.

 17

Public enterprise before their recent privatization where perceived to be

bedeviled by numerous challenges ranging from political interference,

inefficiency in the management of resources, conflict of objectives,

overdependence on subvention for survival etc. these over the years have

been the main source of criticism of public enterprises and the reason why

they are poorly managed . is this issue the same after the privatization o

these enterprises? This study is intended to establish it.

1.3 Research question:

Based on the problem statement and the objective of the study

stated above the study will answer the following questions;

i) Has privatization improved the cost performance and

accountability of this firm as anticipated?

ii) To what extent are privatized firms accountable to shareholders

and other relevant stake holders?

iii) To what level has there been effective checks and balances in

privatized enterprises in Nigeria.

 18

1.4 Objectives of the Study.

The overriding objective of this study is to evaluate the second wave of

the Nigerian privatization programme spanning 2008-2012. The specific

objectives are as follows:

(i) To examine whether privatization has improved the cost

performance and accountability of privatized firm.

(ii) To assess the extent to which privatized firms are accountable to

shareholders and other relevant stakeholders.

(iii) To determine if there are effective checks and balances in

privatized enterprises in Nigeria.

1.5 Statement of Hypothesis

Ho: Privatization has not led to efficient and improved cost

Performance.

Hi: Privatization has led to efficient and improved cost

Performance.
 19

Ho: There have been no effective accountability to share holders and other

relevant stake holders.

HI: There have been effective accountability to shareholders and other

relevant stakeholders.

Ho: privatization has not led to effective checks and balances in privatized

enterprises in Nigeria.

Hi: privatization has led to effective checks and balances in privatized

enterprises in Nigeria.

1.6 Significance of the study

Giving the substantial number of enterprises that are yet to be

privatized, the study would provide insights into the desirability, feasibility

and sustainability of future reforms. It is envisaged that the policy

recommendations from the study would assist the National Council on

Privatization in correcting the pitfalls embedded in the previous endeavor.

 20

The study will assist students and fellow researchers generate

information on cost performance and accountability of firm particularly if it

is relevant to their studies.

In the overall, it is envisaged that the outcome of the study will assist

international, multilateral and donor agencies to identify the felt needs,

thereby facilitating the design of demand-driven policies and programmes

to ensure the success of privatization in Nigeria in particular and sub-

Saharan Africa in general.

1.7 Scope of the study

The scope of the study has been narrowed in order to look at the impact of

cost performance and accountability in the petroleum industry, particularly

in UNIPETROL (now called OANDO plc after privatization). The study will

cover a period of five(5) years ranging from (2008-2012).

1.8 Limitation of study

Like many other research study, this research is confronted with the

following limitations:
 21

1. Finance - The cost of running any research project is quite expensive. It

ranges from producing questionnaires to be distributed to respondents, the

cost of transporting to the areas where information concerning the project

is to be obtained etc, and this research is not an exception.

2. Time- The time required to complete a research project is often limited

judging from the information required to complete a comprehensive

research work. This research is also affected by time.

3. Problem of confidentiality- The challenge of getting respondents to fill

the necessary research questionnaires is tasking despite the confidence

giving to keep all information obtained from them in utmost confidence.

1.9 Definition of key Terms.

A. Accountability: It is rendering stewardship. It is also the act of being

able to

Shoulder responsibilities and carry the correlative burden of

performance.

In other words it means answerability, blameworthiness, liability and

the
 22

Expectation of account-giving.

B. Asset sale: is the transfer of ownership of government assets,

commercial-type enterprises, or functions to the private sector. In

general, the government has no role in the financial support,

management, or oversight of a sold asset. However, if the asset is

sold to a company in an industry with monopolistic characteristics,

the government may regulate certain aspects of the business, such as

utility rates.

C. Competition: occurs when two or more parties independently

attempt to secure the business of a customer by offering the most

favorable terms or highest quality service or product. Competition in

relation to government activities is usually categorized in three ways:

(1) public versus private, in which private-sector to conduct public

business; (2) public versus public, in which public-sector

organizations compete among themselves to conduct public-sector

business; and (3) private versus private, in which private-sector

organizations compete among themselves to conduct public-sector

business.
 23

D. Cost: this is the sacrifice rendered for benefit derived. It is seen in

terms of opportunity cost that is the one associated with alternative

forgone.

E. Divestiture: involves the sale of government-owned assets. After

divestiture, the government generally has no role in the financial

support, management, regulation, or oversight of the divested

activity

F. Privatization: privatization implies permanent transfer of control, as

a consequence of transfer of ownership of right, from the public to

the private sector. This definition is perhaps the most common usage

of the term.

G. Public enterprise: any corporation or parastatal established by or any

enactment in which the government of the federation or it agencies

has ownership or equity interest.

H. Public sector: that portion of an economy whose activities (economic

or non economic) are under the control and direction of the state.
 24

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

Privatization and public sector reform marks what has been termed

as "second generation" adjustment policies, an attempt at distinguishing

them from "'first generation" policies, which focused almost exclusively on

economic stabilization. It could be considered as a program of transition

from a planned economy to a market-based economy and has been

implemented in the developed, less developed and emerging economies.

The degree of implementation for each country could be different,

however, the objectives are very much similar one of which is to improve

the lackluster and unsatisfactory performance of state-owned enterprises.

This chapter aims to review the phenomenon of privatization.

2.2 The Nature and Concept of Public Enterprise

Public enterprises have numerous definitions and there is no single

generally acceptable definition of the concept. Sosna (1983) opined that

there are many reasons why in developed capitalist countries, there is no

single standard definition of public enterprises. Public enterprises were

 25

established at different periods, and each epoch naturally brought forth the

types of public enterprises most clearly matching its own conditions.

It is therefore believed that the variation in definition are informed

by the

ideological, values, interests, dispositions and circumstances that brought

public

enterprises into existence. Whatever the controversy and the lack of

uniformity might conjure up, we would however review the viewpoint of

some scholars of public enterprises. For instance, Efange (1987) define

public enterprises or parastatal as institutions or organizations which are

owned by the state or in which the state holds a majority interest, whose

activities are of a business in nature and which provide services or produce

goods and have their own distinct management.

Obadan (2000), Obadan & Ayodele (1998) defined public enterprises

as organizations whose primary functions is the production and sale of

goods and/or services and in which government or other government

controlled agencies have no ownership stake that is sufficient to ensure

 26

their control over the enterprises regardless of how actively that control is

exercised.

The basic reason for establishing public enterprises in all economies has

been to propel development. In the opinion of Obadan (2003), the case for

public ownership has often been made on many grounds among which are:

the persistence of monopoly power in many sectors ( meaning that certain

market have the tendency to move towards monopoly power, especially

when technological factors); freedom of government to pursue objectives

relating to social equity which the competitive market would ignore, like

employment and easy access to essential goods and services; capital

formation particularly at early stages to develop Investment in

infrastructure; lack of private incentives to engage in prospective economic

ventures; certain goods that are of high social benefits are usually provided

free or at a price below their cost and the private sector has no incentives

to produce such goods hence the government must be responsible for their

provision; the desire for the government to achieve redistribution by

locating enterprises in certain sectors (areas) especially where private

initiatives are low; and ideological motivation and the desire of some
 27

governments to gain national control over strategic sectors or over multi-

national corporations whose interests may not coincide with those of the

African countries or over key sectors for planning purposes.

Other factors that accelerated the growth of Nigeria’s public sector was

the indigenization policy of 1972 as enacted by the (Nigerian Enterprises

Promotion Decree). It was designed to control the commanding heights of

the economy. The policy further provided the much needed legal basis for

extensive government participation in the ownership and control of

significant sectors of the economy. It also reinforced the increasing

dominant of the public sector in the economy.

In spite of the impetus given to public enterprises especially in

Nigeria some criticisms are leveled against them. Their problems are so

enormous that even left the Nigerian public in a state of great

disillusionment. These criticisms vary from lack of profitability and reliance

on large government subsidies. Ogundipe (2002) once argued that between

1975 to 1999, government capital investments in public enterprises totaled

about 43 billion Naira. In addition to equity investments, government gave

subsidies of N11.5 billion to various state enterprises. All these

 28

expenditures contributed in no small measure to increased government

expenditures and deficits.

Similarly, public enterprises suffer from gross mismanagement and

consequently resulted to inefficiency in the use productive capital,

corruption and nepotism, which in turn weaken the ability of government

to carry out its functions efficiently (World Bank, 1991). There are

avalanche of literatures that point to the problems of public enterprises

especially in Nigeria. They include, , Sanusi (2001), Obadan (2003), Jerome

(2005). All these scholars have developed growing interest on the

conception and functions of public enterprises and of the need for their

reform

2.3 Performance of public enterprises in Nigeria.

Despite the fact that there are glaring objectives for setting these

enterprise in Nigeria, the court of public opinion do not favor their

performance as most of them are performing at a very minimal level of

efficiency. Despite the huge sums of money pumped into the

establishment, the dreams of the government and members of the public

over these enterprises are yet to be realized. It is the general belief of most
 29

Nigerians that SOEs are inefficient. The performance of most public utilities

provides adequate testimony for this inefficiency. Perhaps this informed

Laleye (op cit), who asserted that reports of investigatory panels set up by

government on all the parastatals testified to the fact that inefficiency has

reached scandalous proportions. The huge national investments on the

SOEs justify the general outcry about inefficiency. Unfortunately, this

manifests itself in Nigeria’s moribund educational system, inability to

supply portable water and epileptic supply of electricity, and petroleum

product with its chaotic attendant long queue in Nigerian petrol filling

stations. In the words of Akinkugbe (1996), the hospitals have become

mere consulting clinics with no drugs and dressings. All these inadequacies

make organizational goals to suffer and heap serious problems in the

society.

The efficient performance of most of these public enterprises in

Nigeria business environment are painted beautifully on the pages of

newspapers, television screen, radio jingles and indeed captures attention

on the bill boards along major highways, but in reality their performance

records are subject of embarrassment to the taxpayers. However, in the

 30

assessment of the performance of public enterprise, we are likely to be

confronted with one question; How do we assess the performance of public

enterprises in Nigeria? There is usually a problem in trying to assess the

performance of public enterprises. The problem arises from the fact that

unlike private enterprises that are set up with economic objective, public

enterprises may be set up with social consideration. Despite these glaring

difficulties, assessment of public enterprises will be done using some of

these enterprises as microcosm.

A publication of the Federal Republic of Nigeria (2005), painted a

picture of indisputable failure of public enterprises in Nigeria. The

publication explained that, at the inception of the 4th republic in 1999, the

federal government owned a total of 590 public enterprises. The

government controlled most of the petroleum, development banking,

telecommunication (fixed line), power and steels sectors of the economy .It

is instructive to note that over one third of the money the country realized

from the sale of oil since 1973 has been expended on public enterprises .It

was estimated that the federal governments investments in public

enterprises stood at over $100 billion (dollars) in 1996. It was also

 31

estimated that about 55% of Nigeria external debts with the Paris club of

creditors were due to funds sourced to establish these public enterprises.

However, the return on those investments averaged less than 2 percent per

annum. The publication further explained that the inefficiency of these

public enterprises is more glaring in terms of the quality of service rendered

when measured against the funds they draw directly or indirectly from the

public treasury. It is estimated that about $4 billion (dollars) was saved in

2004 alone in terms of funds which would have been drawn by the already

privatized enterprises, if they were still unprivatized. Since 1999, the

defunct National Electric Power Authority (NEPA) now Power Holding

Company of Nigeria (PHCN) has collected $10.6 billion (dollars) from the

national treasury to improve its services but power supply had continued to

be epileptic. It is conservatively estimated that the nation may have lost

over $800 million (dollars) due to unreliable power supply by the defunct

NEPA but now PHCN.

The Nigeria Telecommunication Limited attracted operating

subsidies of at least #50 billion between 1975 and 1999 to provide

Nigerians with the world most expensive phone network and a paltry
 32

400,000 lines, considered to be the lowest telephone density rates in the

world. In sharp contrast, within seven years of the liberalization of the

telecommunication sector, (MTN, GLO, CELTEL (now ZAIN), ETISALAT,

VISAPHONE, etc) have between them over 80million lines to Nigeria phone

network, without drawing a kobo from the public treasury. Instead, they

have contributed over $100 billion (dollars) in license fees, levies and taxes

(FRN, 2005).

Another indisputable picture of absolute failure was the national air

carrier, the defunct Nigeria Airways. As at 1979 when the military

Administration of General Olusegun Obasanjo handed over power to the

civilian Administration of President Shehu Shagari, the Nigeria Airways has

32 Aircraft in its fleet. Twenty years later, in 1999 when Obasanjo`s

administration took office, the sad story was that there was only one flying

aircraft in the Nigeria Airways fleet. In effect, the 2500 staff of these

enterprises was being paid to service only one aircraft (FRN, 2005).

The state of incompetence, inefficiency and absolute lack of

performance of public enterprises in Nigeria was painted more vividly in the

worse situation of the defunct Nigeria National Shipping Line (NNSL).As at

 33

1979, the NNSL owned twenty –four vessels, out of this number, and

nineteen were new vessel. By 1999, the entire vessel was all gone except

one. Nothing shows the lack of transparency in the running of the

organization than the case of the MV Trainer (one of the vessel), which was

sold by the Nigerian Unity Line (NUL), the successor of NNSL for $500,000

(dollars), but was bought back by the parastatal after two years for $2.5

million (dollars) without any renovation done and value added to it.

Eventually the corporation had to expend the sum of $1.5 million (dollars)

to refit the vessels. In May/June 1999, the vessel on its first voyage was

arrested in Spain for not being seaworthy. Indeed by 1999, virtually the

only value the National Unity Line has was its natural carrier status with

only one vessel which is functional. In order to pave way for the

privatization of the enterprise, the Bureau of Public Enterprises (BPE) sold

on a competitive price, the NUL`s one remaining vessel, the MV Trainer, in

2003 for $3,475,991.30.The proceed was utilized in settling all local and

foreign debts as well as paying three years arrears of salaries and terminal

benefits to free it from encumbrances. The Federal Government has finally

divested its 100% equity stake in NUL in December 2005 through the sale to
 34

a core investor, Sea force Shipping Company Limited, at a total bid price of

$20million (FRN, 2005).

The status of the Nigeria Railway Corporation was summarized thus:

in transfer, subsidies and waivers, which could have been better invested in

the country`s educational health and other social sectors .There are

virtually no public enterprises in Nigeria today that function well before the

era of privatization.

“While they were created;

“The corporation had a monthly pension bill of #250 million and paid

Monthly staff salary of #200 million including #27 million which was

Expended on the Railway Hospital alone, although it generated only

#30 million a month. This no doubt, made the privatization of the

Corporation inevitable so that the funds which were being pumped

to pay for services not rendered could be ploughed into other areas

of the Nations need” (FRN,2005).

Data obtained from various Government Departments revealed that

in 1998, Nigeria Public Enterprises enjoyed about #256 billion in transfers,

 35

subsidies and waivers, which could have been better invested in the

country`s educational, health and other social sectors. There are virtually

no public enterprises in Nigeria today that function well before the era of

privatization. While they were created to alleviate the problem of

inadequacy of the investment funds for starting them and shortcomings of

the private sector in order to accelerate the growth of the Nigeria

economy, many of them have stifled entrepreneurial development and

fostered economic stagnation. Public enterprises have served as platforms

for the promotion of selfish political objectives and consequently suffered

from operational interference by civil servants and political appointees.

They have contributed to income redistribution in favor of the rich over the

poor, who generally lacked the connections to obtain the jobs or contracts

and the goods and services of the public enterprises. These are defects or

abuses which the reform was anchored to correct.

2.4 Problem of Public Enterprises in Nigeria

The problems of public enterprises in Nigeria are many and varied.

Different scholars have tried to identify these problems from different

 36

perspectives.. But a more encompassing problem of public enterprises in

Nigeria is well articulated by Obikeze and Obi (2003) as follows;

(a) Incompetent Management and Board: It is the duty of management of

every organization to move it towards the realization of organizational

objectives. It is therefore expected that the management would have the

technical or managerial competence which will assist in this regard.

However, in most Nigeria public enterprises, the appointment of the

management team are not base on skills, knowledge and experience .It is

usually base on political patronage or other primordial consideration. The

effect of this is that most often square pegs are place in round holes

resulting in lack of direction, vision and mission of these enterprises. The

appointment of Board of public enterprises is even worse. While the

management may possess limited skills, the Board in most cases does not

possess any requisite skills. In fact, the major qualification for the

appointment of Board of government parastatal are; failed political

aspirants of the ruling party, party barons, party financiers/contractor

barons and election riggers. Apparently lacking in the knowledge of

management principles, the various Board have been unable to give the
 37

desired direction to those public enterprises. The end result has been the

gross inefficiency of most public enterprises in

Nigeria.

(b) Government interference: One of the main reasons for the creation of

public enterprises is to free them from the- day-to-day bureaucratic

bottlenecks of the government. However in actual practice, most political

office holders have seen this public enterprises as being directly under

them, consequently they interfere in their affairs. This interference are

exhibited by the minister/commissioners, Legislative committees,

federal/state executive councils, the vice president/deputy governor,

president/governor with his executive fiat. This incessant interference leads

to distortion of policies, bureaucratic redtapism and erodes the limited

autonomy which these public enterprises are supposed to enjoy thereby

resulting in inefficiency which defeats the essence of their creation.

(c) Conflict of objective: Public enterprises are established as business

organizations that provide essential services. The twin objective of

providing essential services as a public utility and making profit as a

business outfit are simply contradictory. This contradiction has been at the
 38

root of non performance of public enterprises all over the world and

Nigeria inclusive. In the case of Nigeria, political office holders who will

want these public enterprises to perform well would still want to use them

to generate high political goodwill at the expense of economic rationality.

Telling PHCN to extend electricity to remote areas where people cannot

pay their bills and still expect PHCN to cover cost is not possible, Housing

government officials in government owned hotels for months without

paying the bills and still expecting the hotels to make profit does not seem

feasible, Locating public enterprises with political consideration and making

such considerations pivotal to their operations will definitely not help them

achieve their economic objectives.

(d)Monopoly: Most public enterprises operate as monopolies before the

era of privatization in Nigeria. It is therefore not surprising that they are

face with the same problems which affects monopolies. The main problems

of monopolies arise from the fact that since they do not have competitors,

they are often not in a hurry to either innovate or offer better services

since they are aware that their customers/ clients have no other

alternative. In Nigeria, PHCN has continued to attract high patronage

 39

despite its trademark of epileptic services simply because Nigeria has no

alternative. Naturally when you are sure that your customers will always be

there for you despite the way you treat them, there is this natural tendency

to be impervious to their feelings. This has remained a fact that is general

to most public enterprises in Nigeria.

(e)Unstable management board: Closely related to the problem of

incompetent management and board is the issue of unstable management

and board of public enterprises in Nigeria. One of the major political

problems that have bedeviled the nation is the problem of political

instability. Since independence in 1960, the country has been ruled by

seven military rulers and has a high numbers of military coup. As expected,

every new administration, be it military or civilian, usually dissolves all

board of public enterprises. Whenever these boards are dissolved, some

top management staff are usually relief of their appointment and a new set

will be appointed. In most cases, before board and management formulate

and implement their policies mid-way, the government that appointed

them will be swept away. The new government dissolves the board and

appoints a new one which in most cases will discard the policies of the old
 40

board and management. This has remained a cyclical process that has

scuttled any meaningful growth or improvement of public enterprises in

Nigeria.

(f)The problem of federal character principle: There is no gainsaying the

fact that for any organization to achieve its objectives it must have people

with proven competence. It was on the realization of the need for

competence in organization that Max Weber (the greatest exponent of

bureaucracy) states that “candidates for positions in organization must be

selected on the basis of technical qualification”. However, in the case of

Nigeria public enterprises, recruitment and selection are based on emotive,

primordial and purely sentimental reasoning. The principle of federal

character has compounded the problem since it has legalized nepotism and

segregation in employment in the form of ethnic balancing. Resulting from

this shoddy recruitment criteria, is gross inefficiency in their operations.

Apparently since nobody can give what he does not have, it is therefore not

surprising that the staff of Nigeria public enterprises have not been able to

deliver over the year

 41

2.5 Public Enterprises Privatization in Nigeria

In spite of its diminishing size and importance due to privatization,

Nigeria's public enterprise sector is one of the largest in sub-Saharan Africa

in terms of both scale and scope as reflected in the absolute numbers of

enterprises and the contribution to the gross domestic product. Since the

colonial era, public enterprises have assumed increasingly diverse and

strategic development roles in the Nigerian economy. And this was

accentuated during the oil boom of the 1970s and 1980s, when successive

military regimes, buoyed by economic nationalism and massive oil

windfalls, developed a large public enterprise sector encompassing a broad

spectrum of economic activities. These covered large basic industries

(manufacturing, agriculture, services, public utilities and infrastructure).

They included telecommunications, power, steel, petrochemicals, fertilizer,

vehicle assembly, banks, insurance and hotels (Jerome 2003).

Prior to the privatization wave, there were about 600 public enterprises

(PEs) at the federal level and about 900 smaller PEs at the state and local

levels. Shares of employment, value added and gross fixed capital

formation of public enterprises generally exceeded those of other African

 42

countries. The estimated 1,500 enterprises accounted for about 57% of

aggregate fixed capital investment and about 66% of formal sector

employment by 1997 as indicated in Table 1. It is estimated that successive

Nigerian governments invested about 800 billion naira (approximately

US$90 billion equivalent) in the PE sector over two decades, which remains

currently one of the largest in Africa.

Table 1: Share of public enterprises (PEs) in the development indicators of selected

African countries by 1997.

Country Number of PEs

Nigeria 600 50% 57% 66%

Côte d'Ivoire 150 n/a 18% n/a
Ghana 181 n/a 25% 55%
Kenya 175 n/a 21% 9%
Tanzania 420 13% 26% n/a
Burkina Faso 44 5% 20% n/a
Senegal 50 9% 33% n/a

= Formal sector only n/a = Not available

Source: Obadan and Ayodele (2005).

Public enterprise deficits have been a major source of fiscal

problems and a drag on growth (World Bank, 2002). In the wake of the

economic recession that began in 1981 following the collapse of oil prices,
 43

the activities of public enterprises attracted more attention and underwent

closer scrutiny, much of it centering on their poor performance and the

burden they impose on government finance. The poor financial returns

from these enterprises, against the background of severe macroeconomic

imbalance and public sector crisis, precipitated the concern of government

towards privatization (Obadan 2001). In fact, by 1984 the World Bank and

International Monetary Fund (IMF) were increasingly advocating for

privatization as a policy tool in Nigeria (IMF 2007). The privatization

programme was subsequently adopted as part of the structural adjustment

programme embarked on in July 1986 by Ibrahim Babangida, who assumed

power in 1985 in a bloodless military coup. On assuming power, Babangida

made clear his resolve to scrap the moribund economic policies of his

predecessor and resumed negotiations with the IMF.

Cognizant of the hostility surrounding the negotiations, he initiated a

three-month national debate on acceptance of the IMF loan and its

attendant conditionality’s. Then, following widespread support for a

rejection of the loan, Babangida launched an economic reform programme

dubbed "the structural adjustment programme" (SAP) in July 1986 as an

 44

alternative to the IMF stabilization programme. The programme in its

entirety met and even in some cases surpassed IMF stipulations. In his 1986

New Year budget speech, Babangida announced a halving of statutory

allocations to all economic and quasi-economic parastatals and the

intention of government to divest its holdings in a number of non-strategic

enterprises. Between 1986 and 1998, the regime impetuously liquidated

agricultural commodity boards and the Nigerian National Supply Company

(NNSC), and divested various units of the Nigerian Livestock Production

Company and a commercial agricultural concern with various assets in the

North.

However, this was not backed by policy or institutional framework for

implementation. The first genuine effort in the implementation of the

programme was the inauguration of study groups to review and classify all

public enterprises in Nigeria under the guidance of the World Bank (World

Bank, 2002). The Babangida regime in July 1988 subsequently promulgated

Decree No. 25 on privatization and commercialization after about two years

of dilly-dallying. The decree gave legal backing to and formally initiated

Nigeria's privatization and commercialization programme, thus marking the

 45

first comprehensive approach to divestiture, embodying an institutional

focus and a clearer programme. The decree listed 145 enterprises to be

affected by the exercise. A total of 111 enterprises were slated for full and

partial privatization, while 35 others were to be commercialized. The list

was later amended in order to convert five enterprises from partial

privatization to full commercialization; those five were:

a) Nigerian Industrial Development Bank Limited;

b) Nigerian Bank for Commerce and Industry Limited;

c) Federal Mortgage Bank Limited;

d) Federal Super Phosphate Fertilizer Company Limited; and

e) National Fertilizer Company of Nigeria.

a. According to the decree the programme is expected to:

I. Restructure and rationalize the public sector in order to lessen the

preponderance of unproductive investments;

II. Reorient the enterprises towards a new horizon of performance

improvement, viability and overall efficiency;

III. Ensure positive returns on investments in commercialized public

enterprises;
 46

IV. Check absolute dependence of commercially-oriented parastatals on

the treasury and encourage their patronage of the capital market; and

V. Initiate the process of gradual cessation of public enterprises that can

be best managed by the private sector.

In conformity with the provisions of the decree, an 11-person

Technical Committee on Privatization and Commercialization (TCPC) was

inaugurated on 27 August 1988 with a broad mandate to coordinate the

rehabilitation of government enterprises and oversee Nigeria's privatization

programme. The actual divestiture commenced in the early months of 1989

with the shares of four firms (Flour Mills of Nigeria, African Petroleum,

National Oil and Chemical Company, and United Nigeria Insurance

Company) being issued in the market. The shares were successfully sold

with each issue reportedly oversubscribed. From 1988 to 1993 when the

privatization process was suspended, 55 firms had been privatized by the

TCPC. In the course of its operation, the TCPC adopted five methods of

privatization:

• Public offer of equity shares for sale

• Private placement of equity shares

 47

• Sale of assets: • Management buy-outs:

• Deferred public offer

Five enterprises had earlier been converted from privatization to

commercialization, while for 18 others it was decided that no further action

was required for various reasons ranging from duplication in the provisions

of the decree to non-readiness for the exercise (TCPC, 1993). The 22

enterprises left to be privatized were said to be under active preparation

for the exercise. The predominance of public offer was to ensure wider

share ownership and the desire to extend the frontiers and depth of the

Nigerian capital market. In all, the TCPC sold about 1.5 million shares, 4

resulting in the creation of over 800,000 new shareholders. Market

capitalization of the Nigerian Stock Exchange increased from N8 billion to

over N30 billion by September 1992. The privatization programme yielded

gross revenue of about N3.7 billion from the 55 enterprises privatized by

the TCPC. The original investment in these enterprises according to MOFI

records was N652 million, indicating a capital gain of N3.1 billion or nearly

600%. The government also relinquished about 270 directorship positions

in these companies, reducing the scope for wasteful political patronage.

 48

The government promulgated Decree No. 78 of 1993, establishing the

Bureau for Public Enterprises (BPE), which replaced the TCPC although the

bureau did not affect the privatization of any enterprise.

Government subsequently opted for a new scheme of contract

management and/or leasing of public enterprises to private concerns in

1995 but the proposal was criticized by foreign creditor institutions as being

a poor substitute for outright privatization. Thus, it was never

implemented. Towards the end of 1998, General Abdusalam Abubakar,

who came to power in June following the death of his predecessor, General

Sani Abacha, reaffirmed his commitment to the privatization programme

and launched the current (second-round) privatization drive that promises

to be one of the biggest in Africa. Resumption of the privatization

programme has been one of the pre-conditions set by the IMF for

renegotiating an interim programme that would pave way for a medium-

term economic strategy agreement for Nigeria (Omoleye, 2008).

In his national broadcast of October 1998, General Abubakar

announced that his government would privatize refineries, petrochemical

and bitumen production, and tourism in addition to the spillovers from the
 49

first-round privatization. The legal framework of the second privatization

programme was put in place with the promulgation of the Public

Enterprises (Privatization and Commercialization) Decree No. 28 of 1999.

This decree provides for a reorganized institutional framework that

included the establishment of the Bureau of Public Enterprises as the main

organ for the execution of the privatization and commercialization

programme, full privatization of 25 public enterprises in oil, cement,

banking, agro-allied, motor vehicle assembly and hotel businesses, and

partial privatization of 37 enterprises in sectors ranging from

telecommunications to sugar companies. However, the responsibility for

implementing the programme was left to the incoming civilian

administration.

On assuming office in June 1999, the Obasanjo administration

signaled its strong commitment to privatization of state-owned enterprises

as a critical element of its strategy for economic recovery and accelerated

growth. Under the 1999 Privatization and Commercialization Act, the

federal government established the National Council on Privatization (NCP)

to oversee the privatization programme. The Act made the Bureau of Public
 50

Enterprises (BPE) the implementing agency and secretariat of NCP. The NCP

is chaired by the Vice President of the Federal Republic of Nigeria. Its

members include all Cabinet ministers and top government officials with

overall economic policy functions. These include the Minister of Finance,

the Chief Economic Adviser and Minister of Planning, and the Governor of

the Central Bank. The NCP also co-opts the concerned sector minister

responsible for a given PE when decisions are made on the privatization of

that enterprise and on related sector policies. Under the three-phase

privatization programme announced by President Obasanjo in July 1999,

the FGN has set the goal of divesting about 100 PEs through privatization or

commercialization. These include major PEs in the productive sectors, in

services and in infrastructure. They cover the following sectors:

(a) Manufacturing: cement, vehicle assembly, machine tools, pulp and

paper, sugar mills, aluminum smelting, steel, petrochemicals, and oil

refineries;

(b) Services: hotels, oil marketing, and financial institutions and banking;

and
 51

(c) Infrastructure: telecommunications, power, ports, railways, air

transport, airport passenger handling and freight forwarding.

Significant progress has been made with implementation of phase

one of the privatization programme, with the sale of government

shareholdings in eight PEs including two cement companies and two banks.

The FGN has made important progress in preparation of the

telecommunications and electric power reform programme. This includes

adoption of a new National Telecommunications Policy, opening the sector

fully to competition in 2001, and a National Electric Power Policy. Some

Nigerians are opposed to the programme, however. As the World Bank

(2001) notes: While the Obasanjo administration is strongly committed to

an accelerated privatization programme, significant stakeholder groups are

resisting the reforms. These include PE [public enterprise] managers and

employees, senior government officials and civil servants, notably in

sectoral ministries, who perceive that their current power and perquisites

will be reduced as the privatization programme is implemented. In the

National Assembly, a range of politicians view privatization as a threat to

national sovereignty, and an unwarranted reduction in the role of the state.

 52

The strongest opposition has emerged from labor unions, particularly

in the utilities sector. In part, such opposition is due to adherence to often-

outmoded economic thinking. This situation is further complicated by the

deep-seated ethnic and regional differences in Nigerian society, which can

complicate the sale of public enterprises generally, and in particular of PEs

located in different regions, unless it is fully supported by the local elite and

local population. The situation was heightened by the lack of a credible

privatization process, absence of a popularly acceptable regulatory

framework and total neglect of issues relating to social safety nets among

others.

2.6 Concept of Privatization

Different authors define privatization differently. Some authors

define

Privatization narrowly and some others define privatization broadly.

Burman and Kikeri, (2007) define privatization narrowly to mean the

transfer of a majority of ownership from states to private sectors by the

sale of ongoing concerns or assets following liquidation. To further the

understanding of Privatization, Ogunlalu (1999) in Asaolu and Oladele

 53

(2006) conceives Privatization as the transfer of shares ownership or sale of

shares owned by government in public enterprises to the private funds.

Privatization of shares makes the enterprises to become public companies

and this facilities easy transferability of shares (Asaolu and Oladele, 2006).

Hanke (1987) in Jerome (2005) defined privatization as a transfer of assets

and services functions from public to private hands. These authors

emphasize activities ranging from selling state-owned enterprises to

contracting out public services with private contractors. Thus, privatization

is the transfer of ownership fully or partially from governments to private

sectors through various methods such as direct sales, share issues, leasing,

etc. Some other authors look at privatization as a wider phenomenon

comprising of interrelated activities that reduce the government ownership

and control of enterprises and that promote private sector participation in

the management of state-owned enterprises.

Vickers and Wright (1998) in Jerome (2005) view privatization as an

umbrella term for a variety of different policy that are loosely linked which

mean the strengthening of the market at the expense of the state. Hartley

and Parker (2006) define privatization as “the introduction of market forces

 54

into an economy in order to make enterprises to work on a more

commercial basis. They mean that privatization includes denationalization

or selling off state-owned assets, deregulation (liberalization) competitive

tendering, as well as the introduction of private ownership and market

arrangements in the ex-socialist states.

In Nigeria privatization, The Privatization and Commercialization Act

of 1988 and the Bureau of Public Enterprises Act of 1993 defined

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

interests held by the Federal Government or any of its agencies in

enterprises whether wholly or partly owned by the Federal Government. It

could also be referred to the changing status of a business, service or

industry from state, government or public to private ownership or control.

Occasionally, the term privatization is to include the use of private

contractors to provide services previously rendered by the public sector.

Based on these various definitions of privatization discussed above, this

study uses the definition of privatization which is a bit narrow that is Share

issue privatization (SIP, hereafter). In this definition, privatization includes

 55

the transfers of a full or partial government ownership to private ownership

through the sale of equity in the capital market.

2.7 Types of Privatization:

The literature is filled with descriptions of the types of privatization.

For now, Hebdon and Gunn (1995) in Jerome (2005) identify the following

four most common types of privatization:

1) Public/Private Partnerships: This occurs when public funds are used to

stimulate private sector investment. An example would be a public

transportation system where the buses are owned and maintained by a

private firm that is paid with government funds for the services it provides.

2) Cessation of Service/Commercialization: This occurs when a government

ceases to provide a public service altogether, leaving it to the private

sector, if they feel they can make a profit doing so, to provide the service at

a fee charged directly to the public as opposed to a government agency.

3) Sale of State Owned Enterprises (SOE): Selling public assets (e.g., golf

courses, convention centers, airports, Conrail in 1987) can produce a

onetime fiscal windfall to a community, at the expense of a future stream

 56

of income. Recently as a result of the Department of Defense Base

Realignment and Closure (BRAC) activities, some former military

installations have been sold to the highest bidder

(4) Contracting Out: contracting out involves the provision of public

services literally from A to Z (i.e. administrative support to zoo keeping)

through contracts with private firms. While the service is provided by for-

profit companies as well as by non-profits (e.g., much social service

contracting), the government remains responsible for service quality and

delivery.
 57

REFERENCES

Ariyo, A. and A. Jerome (1999). “Privatization in Africa: An appraisal”.

World development.

Beck, T, R. Cull and A. Jerome. (2005) “Bank privatization and efficiency in

Nigeria Empirical evidence”. Journal of banking and finance.

Chong, Alberto and Florencro Lopez-de Silaanes (2003). “The truth about

privatization in latin America”.

D’Souza J. and W. L. Megginson (1990). “The financial and operating

performance of newly privatized firms during the 1990’s” Journal of

Finance, 54.

Jerome A. (2002). Public Enterprise Reform in Nigeria. Evidence from the

telecommunications industry, AERC Reseaech Paper No. 129, African

Economic Research Consoitium Nairaobi, Kenya. Http:// www.

Aercafrica.org/documents/rp129.pdf.

Jerome A. (2005) “Privatization and regulation in South Africa; An

evaluation” Chapter 6 in Edmund Amann, ed, Regulating

 58

Development Evidence from Africa and Latin America. North

thampton, Massarhusttes, and Cheltenham, Uk:Edward Elgar

Publishing Ltd.

La Porta R. and F. Lopez de-Silances (1997) “Benefits of privatization;

Evidence from Mexico” NBER Working Paper No. 6Z15. National

Bureau of Economic Research, Cam Bridge, massachuttes.

Obadan M. I. (2000). Privatization on Public Enterprise in Nigeria; Issues and

Conditions for success in the second round. NCEMA Monography

Series, No 1. National Centre for Economics Management and

Administration (NCEMA), Ibadan, Nigeria.

Shirley M. (1999), “Experience with Privatization: A new Institutional

Economics Perspective”, paper prepared for presentation at the

Biannual Research Workshop, 5 December.

Technical Committee on Privatization and Commercialization (TCPC), 1993.

Final report. Two the presidency, Abuja.

World Bank; (1991). “Nigeria Privatization Support programme.

 59

CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

This chapter explained how the research study was carried out by

identifying the appropriate research design employed in the study. It

equally describe the population of the study, research instrument to be

used, sample and sampling procedure, data collection methods, the

method of data analysis, and among other relevant issues.

3.1 Research methodology

The design of the study is the description of various processes to be

undertaken for the successful completion of the work. A survey method

was adopted to obtain data from the respondent. In order to ensure the

accuracy of this method the researcher used questionnaire personally

administered on the respondents.

 60

3.2 Source of data collection

The data for this research work was sourced using both primary and

secondary method of data collection.

3.2.1 Primary sources of data.

The primary data or the study unit regarding with information is to

be collected on first hand basis. This data will be gathered from data

supplied by respondents of the questionnaire and interview which serves

the desired information and personal observation.

3.2.2 Secondary source of data

The source gathered for this research includes: journals, textbooks,

magazines, bank statements for the year, seminar papers e.t.c. other

sources are bulletins, authorized gazettes, financial statement for the year

e.t.c. most of the materials were accessed from universities library, state

library, and private sources.

 61

3.3 Area of study.

the research work has a wide range of study intended to cover public

enterprise in Nigeria in reference to oando fuel station due to the time lag

and location.it is located at new haven junction enugu-state.

3.4 Population of the study.

Since one the major enterprises in the Nigerian petroleum sector is Oando

plc, the population of the study is the entire organization. However, for the

purpose of this study and the need to establish a realistic population and

sample size, the staff strength of Oando plc used is one hundred and (100)

staff.

3.4.1 Sampling Design and technique

In determining the sample design for the work, a well structured

questionnaire was designed which contained about sixteen (16) questions.

The questionnaire was divided into two sections, A and B. This

questionnaire was developed by the researcher and administered to the

staff of Oando plc.

 62

The sample size for the research work was determined using yaro yamani

formular which is as stated

n=

where n= sample size

N=total population size

e=margin of error (5%)

1=constant

n=

n=

n=

= 99.8

= 100
 63

3.5 Instrument for data collection.

For the purpose of this study, the researcher used questionnaire as a direct

instrument for data collection. The questionnaire was structured in

multiple choice terms from which the respondents responded to their

choosed options available.

3.6 Reliability of the test instruments

The research instrument administered to the population were reliable

because the respondent were consistent in answering the questions that is

if the result obtained were consistent then the respondent gave the same

answers to many of the research questions.

3.7 Validity of the research instrument

The questionnaire is designed to elicit responds on impact of public

financial statement on shareholders’ investment decision. The measuring

instrument is valid because the researcher succeeded in achieving the

objective which is to test whether the research design is capable of eliciting

the required response from the respondent.

 64

3.8 Method of data analysis.

Data related to this research work where analyzed using percentage and

simple statement as referred to the information collected from

respondents through research questionnaire delivered as represented in a

tabular form.

Thus, a parametric statistical testing tool, 2 tests was used to test

hypothesis about the difference between means of the groups. The formula

for the 2 test statistical tool is stated below:

x1 x2
Z
s12 s 22
N1 N2

Where xi and x2 are means of two groups of sample

S1= standard deviation of population 1

S2= standard deviation of population 2

N1= size of sample from population 1

N2=size of sample from population 2

 65

A five likert scale was used to award point to each specific question

responded by the respondents. The favorable statement are scored as

follows:

Strongly agreed (SA) – 4

Agreed (A)- 3

Disagreed (D) – 2

Strongly disagreed (SD) – 1

DECISION RULE

Reject the null hypothesis (H0) and uphold alternative hypothesis (H1) if the

2calculated value exceeds the 2- critical otherwise do not reject the null

hypothesis.
 66

Chapter Four

4.0 Analysis of data and Testing of Hypothesis.

This chapter deals with the statistical analysis of data collected for

this study and the testing of hypothesis.

4.1 Data Presentation and Analysis

For the purpose of this research Hundred (100) questionnaires were

distributed to accounting and sales department of Oando Plc in Enugu

state, Nigeria in the proportion of 65 questionnaires to internal auditors

and 35 questionnaires to the accounting department.

For an in-depth analysis of this research work on ten point questionnaire

statement was raised, distributed and responded to by the respondents.

The responses from respondents to the questionnaire were represented in

figures and percentages respectively as this stated in the tables below.

 67

QUESTIONNAIRE 1
Emphasis on cost performance by privatized enterprises has helped to
reduce unnecessary waste and improved profitability.
Table 4.1: the responses and percentage of responses from respondents, to
questionnaire one.
RESPONSES PERCENTAGES (%) RESPONSES
RESPONDENTS
SA A D SW NO Total SA A D SW NO Total
INTERNAL
20 15 19 6 5 65 20 15 19 6 5 65
AUDIT

ACCOUNTING 17 7 5 2 4 35 17 7 5 2 4 35

Total 37 22 24 8 9 100 37 22 24 8 9 100

QUESTIONNAIRE 2

To a reasonable extent privatized organization has improve its cost

performances
Table 4.2: The responses and percentages of responses from respondents
to questionnaire two.
RESPONSES PERCENTAGES (%) RESPONSES
RESPONDENTS
SA A D SW NO Total SA A D SW NO Total
INTERNAL
35 15 6 4 5 65 15 10 11 20 9 65
AUDIT

ACCOUNTING 3 10 5 15 2 35 3 10 5 15 2 35

Total 38 25 11 19 7 100 18 20 16 35 11 100

 68

QUESTIONNAIRE 3
There have been effective checks and balances in the privatized enterprises
compared to when it was public.
Table 4.3: The responses and percentages of responses from respondents
to questionnaire three.
RESPONSES PERCENTAGES (%) RESPONSES
RESPONDENTS
SA A D SW NO Total SA A D SW NO Total
INTERNAL
30 20 10 3 2 65 25 20 5 5 10 65
AUDIT

ACCOUNTING 10 9 5 6 5 35 10 9 5 6 5 35

Total 40 29 15 9 7 100 35 29 10 11 15 100

QUESTIONNAIRE 4
Due to privatization, there have been serious reduction of fraud in the
enterprises.
Table 4.4: The responses and percentages of response from respondents to
questionnaire four.
RESPONSES PERCENTAGES (%) RESPONSES
RESPONDENTS
SA A D SW NO Total SA A D SW NO Total
INTERNAL
25 10 15 10 15 65 25 10 15 10 5 65
AUDIT

ACCOUNTING 10 10 9 4 2 35 10 10 9 4 2 35

Total 35 20 24 14 7 100 37 20 24 14 7 100

 69

QUESTIONNAIRE 5
Privatization has now led to effective accountability of revenue and assets
by the staff of the organization.
Table 4.5: The responses and percentages of responses from respondents
to questionnaire five.
RESPONSES PERCENTAGES (%) RESPONSES
RESPONDENTS
SA A D SW NO Total SA A D SW NO Total
INTERNAL
25 10 15 10 5 65 25 10 15 10 5 65
AUDIT

ACCOUNTING 10 8 10 5 2 35 10 8 10 5 2 35

Total 35 18 25 15 7 100 35 18 25 15 7 100

QUESTIONNAIRE 6

Due to privatization, organizations now pay proper attention to its

shareholders wealth maximization and other stakeholders.
Table 4.6: The responses and percentages of responses from respondents
to questionnaire six.
RESPONSES PERCENTAGES (%) RESPONSES
RESPONDENTS
SA A D SW NO Total SA A D SW NO Total
INTERNAL
30 20 6 4 5 65 18 13 8 17 9 65
AUDIT

ACCOUNTING 11 5 7 6 6 35 11 5 7 6 6 35

Total 29 18 15 23 15 100 29 18 15 23 15 100

 70

QUESTIONNAIRE 7:
Privatization public enterprises now carryout corporate social
responsibilities.
Table 4.7: The responses and percentages of responses from respondents
to questionnaires seven 7
RESPONSES PERCENTAGES (%) RESPONSES
RESPONDENTS
SA A D SW NO Total SA A D SW NO Total
INTERNAL
35 15 5 6 4 65 35 15 5 6 4 65
AUDIT

ACCOUNTING 14 5 3 6 7 35 14 5 3 6 7 35

Total 49 20 8 12 11 100 49 20 8 12 11 100

 71

QUESTIONNAIRE 8
To a reasonable extent the rank of the cost performance of the
organization has improved.
Table 4.8: The responses and percentages of responses from respondents
to questionnaire eight (8).
RESPONSES PERCENTAGES (%) RESPONSES
RESPONDENTS
SA A D SD NO Total SA A D SW NO Total
INTERNAL
15 25 6 4 5 65 15 25 6 4 5 65
AUDIT

ACCOUNTING 13 9 10 2 1 35 13 9 10 2 1 35

Total 28 34 16 6 6 100 28 34 16 6 6 100

 72

QUESTIONNAIRE 9
The general performance of the privatized public enterprises has been
improved compared to whom it was government owned.
Table 4.9: The responses and percentages of responses to questionnaire
nine (9).
RESPONSES PERCENTAGES (%) RESPONSES
RESPONDENTS
SA A D SW NO Total SA A D SW NO Total
INTERNAL
25 15 7 11 7 65 25 15 7 11 7 65
AUDIT

ACCOUNTING 10 5 6 6 8 35 10 5 6 6 8 35

Total 35 20 13 17 15 100 35 20 13 17 14 100

 73

QUESTIONNAIRE 10
The general performance of enterprises in terms of cost and accountability
has been highly satisfactory.
Table 4.10: The responses and percentages of responses from respondents
to questionnaire ten.
RESPONSES PERCENTAGES (%) RESPONSES
RESPONDENTS
SA A D SW NO Total SA A D SW NO Total
INTERNAL
23 15 4 21 2 65 23 15 4 21 2 65
AUDIT

ACCOUNTING 11 6 4 9 5 35 11 6 4 9 5 35

Total 34 21 8 30 7 100 34 21 8 30 7 100

4.2 Test of Hypothesis

The hypothesis earlier stated chapter one would be tested in this chapter

for rejection or acceptance the hypothesis is to be tested using the Z test

for uncorrelated data.

x1 x2
Formula Z
s12 s 22
N1 N2

Where
 74

Z = test statistics

x1 = mean of sample 1

x 2 = mean of sample 2

S1 = Standard deviation for sample 1

S2 = Standard deviation for sample 2

n1 = Sample size for sample 1

n2 = Sample size for sample 2

Hypothesis One
Privatization has not led to efficient and improved cost performance.
Table 4.15: Mean Computation of internal auditor’s responses to test the
hypothesis.
X f fx
Strongly Agree 4 35 140
Agree 3 15 45
Disagree 2 6 12
Strongly Disagree 1 4 4
No opinion 0 5 0
0 65 201
 75

x 201
Mean x1 3 .1
N 65

Table 4.16: Computation of standard deviation of internal auditor’s

responses to test the hypothesis.
X F x x x1 x12 F(x1)2

4 35 4 – 3.1 = 0.9 0.81 28.35

3 15 3 – 3.1 = 0.1 0.01 0.15
2 6 2 – 3.1 = 1.1 1.21 7.26
1 4 1 – 3.1 = 2.1 4.41 17.64
0 5 0 – 3.1 = 3.1 9.61 48.05
101.5
f ( x1 ) 2
Variances S 2

N 1

101.5
S12
65 1

S1 1.585

S1 1.258
 76

TABLE 4.17: Mean computations of accountant’s responses to test the

hypothesis
X F Fx
Strongly Agree 4 3 12
Agree 3 10 30
Disagree 2 5 10
Strongly Disagree 1 15 15
No opinion 0 2 0
Total 0 35 67
fx 67
Mean x2 1.91
N 35

TABLE 4.18: Computation of Standard deviation of accountants responses

to test the hypothesis.
X F x x x1 x12 F(x1)2

4 35 4 – 1.91 = 4.3681 13.1043

2.09
3 15 3 – 1.91 = 1.1881 11.881
1.09
2 6 2 – 1.91 = 0.0081 0.0405
0.09
1 4 1 – 1.91 = - 0.8281 12.4215
0.91
0 5 0 – 1.91 = - 3.6481 7.2965
1.91
 77

44.7 44.7
S 22
35 1 35 1

S 22 1.3147

S2 1.3147

S1 = 1.146

x1 = 3.1 x 2 = 1.91

S1 = 1.258 S2 = 1.146

N1 = 65 N2 = 35

Computing the Z – Test

x1 x2
Z
s12 s 22
N1 N2

3.1 1.91 1.19 1.19 1.19 1.19

Z 4.76
(1.258) 2
(1.146) 2
1.583 1.313 0.024 0.038 0.062 0.25
65 35 65 35
 78

DECISION:

Since the Z – Calculated value 4.76 is greater than Z – critical value 1.98 at

an infinite degree of freedom and 0.05 percent level of significance we

reject the null hypothesis (H0) and uphold the privatization has led to

efficient and improved cost performance.

Hypothesis Two
There have been no effective a accountability to shareholders and other
relevant stake holders
Table 4.19: Mean computation of internal auditors’ responses to test the
hypothesis.
X F Fx
Strongly Agree 4 30 120
Agree 3 20 60
Disagree 2 10 20
Strongly Disagree 1 3 3
No opinion 0 2 0
Total 0 65 203
fx 203
Mean x1 3.1
N 65
 79

Table 4.19: Computation of standard deviation of internal to audit

responses to test the hypothesis
X F x x x1 x12 F(x1)2

4 18 4 – 2.22 = 3.1684 57.0312

1.78
3 13 3 – 2.22 = 0.6084 7.9092
0.78
2 8 2 – 2.22 = 0.0484 0.3872
0.22
1 17 1 – 2.22 = - 1.4884 25.3028
1.22
0 9 0 – 2.22 = - 4.9284 44.3556
2.22
134.986
f ( x1 ) 2 134 .986 134 .986
Variance S 2
S12 2.109 S1 2.109 1.45
N 1 65 1 64
 80

Table 4.21: Mean computation of accountings responses to test the

hypothesis
X F Fx
Strongly Agree 4 11 44
Agree 3 5 15
Disagree 2 7 14
Strongly Disagree 1 6 6
No opinion 0 6 0
Total 35 79
fx 79
Mean x 2 2.25
N 35

Table 4.22: Computation of standard deviation of accountants

X F x x x1 x12 F(x1)2

4 11 4 – 2.22 = 1.5 2.25 24.75

3 5 3 – 2.22 = 0.5 0.25 1.25
2 7 2 – 2.22 = -0.5 0.25 1.75
1 6 1 – 2.22 = -1.5 2.25 13.5
0 6 0 – 2.22 = -2.5 6.25 37.5
77.75
f ( x1 ) 2 77 .75 77 .75
Variance S 2
S12 2.286 S1 2.286 1.512
N 1 35 1 34

x1 = 3.07 x 2 = 2.25 S1 = 1.45 S2 = 1.512

 81

N1 = 65 N2 = 35

Table 4.23: Computation of standard deviation of internal auditors’

responses to the hypothesis
X F x x x1 x12 F(x1)2

4 30 4 – 3.1 = 0.9 0.81 24.3

3 20 3 – 3.1 = -0.1 0.01 0.2
2 10 2 – 3.1 = -1.1 1.21 12.1
1 3 1 – 3.1 = -2.1 4.41 13.23
0 2 0 – 3.1 = -3.1 9.61 19.23
69.05
f ( x1 ) 2 69 .05 69 .05
Variance S 2
S12 1.0789 S1 1.0789 1.038
N 1 65 1 64

Table 4.25: Mean computation of accountants’ responses to test the

hypothesis.
X F Fx
Strongly Agree 4 10 40
Agree 3 9 27
Disagree 2 5 10
Strongly Disagree 1 6 6
No opinion 0 5 0
Total 0 65 83
 82

fx 83
Mean x 2 2.37
N 35

Table 4.25: Computation of standard deviation of accountants’ responses

to test the hypothesis.
X F x x x1 x12 F(x1)2

4 10 4 – 2.37 = 2.6569 26.569

1.63
3 9 3 – 2.37 = 0.3969 3.5721
0.63
2 5 2 – 2.37 = - 0.1369 0.6845
0.37
1 6 1 – 2.37 = - 1.8769 11.2614
1.37
0 5 0 – 2.37 = - 5.6169 28.0845
2.37
70.1715
70.17 70.17
S 22 2.063
35 1 34

S 22 2.063 1.436

S1 = 1.436

x1 = 3.1 x 2 = 2.37

S1 = 1.038 S2 = 1.436
 83

N1 = 65 N2 = 35

Computing the Z – Test.

x1 x2
Z
s12 s 22
N1 N2

3.1 2.37 0.73 0.73 0.73 0.73

Z 2.659
(1.038) 2 (1.436) 2 1.0774 2.0620 0.0165 0.0589 0.0754 0.2745
65 35 65 35

Decision:

Since the Z – Calculated value 2.659 is greater than z – critical value 1.98 at

an infinite degree of freedom and 0.05 percent level of significance, we

reject null hypothesis (H0) and uphold alternative hypothesis (H1) which

states that privatization has led to effective checks and balances in

privatized enterprises in Nigeria.

 84

4.3 Tabulating the Result

Hypothesis One

Respondents x w N Z- Z– Decision
Calculate Critical
Value

Internal 3.1 1.258 65 4.76 1.96 Reject H0

Audit

Accounting 1.91 1.146 35

Hypothesis Two

Respondents x w N Z- Z– Decision
Calculate Critical
Value

Internal 3.01 1.45 65 2.43 1.96 Reject H0

Audit

Accounting 2.25 1.512 35

 85

Hypothesis Table

Respondents x w N Z- Z– Decision
Calculate Critical
Value

Internal 2.1 1.038 65 2.659 1.96 Reject H0

Audit

Accounting 2.37 1.436 35

 86

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION.

5.1 Summary

This study assesses cost performance and accountability in the

privatization of public enterprises in Nigeria. The findings of the study are

summarized in itemize forms as follows;

a) It was discovered that privatization of Unipetrol has led into efficient

and improved cost performance. This also in tender on the general

perception that privatization of public enterprises will improve cost

performance and enhance organizational profitability.

b) Empirical evidence has shown that enterprises that relates with her

shareholders, employees, suppliers, creditors and even community

where they operate performs significantly. Result of these findings

confirms this as it was discovered that Oando Plc relates very well

with all relevant stakeholders.

 87

c) It was also discovered that privatization has led to effective cheek

and balances in privatized enterprises in Nigeria.

5.2 CONCLUSION

The following conclusions were made from the findings of this study;

Privatization of Oando Plc has led to improved cost performances and

effective cheeks and balances.

a) There is availability of proper cheek and balances of shareholders as

to improve better productivity. Management is encouraged to make

decisions based on the information provided by the management

accountant. This is because if management should adhere to the

above statement, they will enhance proper accountability to

shareholders and maximize profits as well.

b) After examined in details the assessment of cost performance and

accountability in privatized public enterprises, one can conclude that

privatization has led to improvement of general performance of the

enterprise.
 88

c) Based on the findings, it was concluded that privatization of

Unipetrol has led to efficient and improved cost performance. And

enhanced organizational profitability.

d) Based on the findings, one can also conclude that privatization brings

a strong and effective accountability to shareholders and other

relevant stakeholders.

5.3 RECOMMENDATION

The researcher wish to make the following recommendations;

a) Government should provide the entire necessary enabling

environment for the privatized company to carry out their activities

without unnecessary increasing their cost.

b) The enterprises still need close supervision to enhance compliance to

the regulatory requirement and compel them to satisfy the needs of

their relevant stakeholders when necessary.

c) It is often said that agencies of regulation must themselves be

regulated in order to ensure that the tool of reform does not become

corrupt itself, the bureau of public enterprises should build processes

 89

mechanism into its function to adhere to transparent procedure,

open bidding, rules and regulations and international best practices

in the privatization exercise. In this way, the Nigerian public

stakeholders and civil society organization will know who is bidding

for which enterprises, how the selection procedure of bidders are

concluded and at what price.

These recommendations will be at immense value and guide to the

National Council on Privatization (NCP) the bureau of public enterprises

(BPE), and all the stakeholdreers in the Nigerian enterprises in general and

PHCN in particular, on the need to privatize public enterprises to propel the

Nigerian economy to a greater leap forward in.

 90

BIBLOGRAPHY

Ariyo, A., & Jerome, A. (1999). Privatization in Africa: An appraisal of World

development. Abuja: Macsons Publishing Ltd.

Beck, T., Cull, R., & Jerome, A. (2005). Bank privatization and efficiency in
Nigeria: Empirical evidence Journal of banking and finance. New York:
smithe publishers.

Boyelco, M., Shelter, A., & Vishing, R., (1996). A theory of privatization.
Economic Journal. Westernberg: Nileason And Co Inc.

Chong, A., & Florencro, L. S. (2003). The truth about privatization in Latin
America.
Http://iicg.com.yale.edu/workings_/papers/privatization_in_la.pdf.
[Viewed on 5th December 2003].

Jerome, A. (1996). Public Enterprises Reform in Nigeria; Expectations,

Illusions and Reality. Economic Reform and Macroeconomic
Management in Nigeria. Ibadan: Ibadan University Press.

Jerome, A. (2005). Privatization and Regulation in South Africa; an

Evaluation: Regulating Development Evidence from Africa and Latin
America. Massachusetts: Uniedward Elgar Publishing Ltd.

La Porta, R., & Lopez, F. (1997). Benefits of privatization; Evidence from

Mexico. NBER Working Paper No. 6Z15. National Bureau of Economic
Research, Cambridge, Massachusetts: Gazzeberaeu Inc.

Nash, M., & Randenbough, V. (1994). The financial and Operating,

Perofrmance of newly privatizated firms, An International Empirical
Analysis. Journal of Finance. 49 (2). Houston: Databiscal Publishers.

Nellrs, J. (1999). Time to Rethink Privatization in Transition Economics:

International Finance Corporation (ICT) Discussion Paper No. 38. The
World Bank. Washington D. C: world Bank Publishing Press.
 91

Obadan, M. I. (2000). Privatization on Public Enterprise in Nigeria: Issues

and Conditions for Success in the Second Round. Ibadan, Nigeria: Ups
press Ltd.

Sachs, J., Zinnes C., & Eliat, Y. (2000). The gains from privatization in
Economics: Is a Change of Ownership Enough! (AER II Discussion
Paper No. 63 Harvard Institute for International Development.
Massachusetts: Cambridge Publishers.

Shirley, M. (1999). Experience with Privatization: A new Institutional

Economics Perspective, Paper Prepared for Presentation at the Biannual
Research Workshop, 5 December. Houston: Databiscal Publishers.

Shirley, M. & Walsh, P. (2000). Public verses Private Ownership. The

Current State of the Debate. Policy Research Laboring Paper
No.2420, the World Bank. Washington D. C.: World Bank Publishing Press.

Vickers, J. & Yarrow, G. (1988). Privatization: An Economic Analysis. Cam

Bridge, Massachusetts: MIT Press.

White, O. C. & Bhatra, A. (1998). Privatization in Africa: Bureaucrats in

Business. New York: Oxford University of Press.
 92

APPENDIX I
Department of accountancy,
Faculty of management and,
Social sciences,
Caritas University,
Amorji-Nike,Emene.
Enugu State P.M.B 01784
19th June, 2013.
Dear Respondent,
ASSESSING THE COST PERFORMANCE AND ACCOUNTABILITY OF
PRIVATIZED PUBLIC ENTERPRISES IN NIGERIA.
I wish to solicit for your assistance on the above research topic to
enable me complete my project as partial fulfillment for the award of
degree. I am a student of the department of accountancy caritas university,
Enugu.
The study is purely for academic purpose and whatever information
obtained will be used for the research only and shall be treated with
utmost confidentiality.
Thanks for your anticipated corporation.

Yours sincerely
Abah Ojoma Jennifer
 93

APPENDIX II

QUESTIONNAIRE

INSTRUCTION: Please fill in the space provided by ticking (-----) against the

information that is applicable to you.

SECTION A

a) Sex: Male ( ) Female ( )

b) Age: 20 – 30 ( ) 31 – 40 ( ) 41 – 50 ( ) and above
c) Marital status: Married ( ) Single ( ) Divorced ( )
d) Status;
Top level manager
Middle level manager
Lower level manager
e) How long have you served in this work?
1 – 4 years ( )
5 – 9 years ( )
10 – 19 years ( )
f) Educational qualification;
MBA/MSC ( ) BSC/HND ( ) OND/NCE ( )
SECTION B

SA – Strongly agreed
 94

A – Agreed
D- Disagreed
SD – Strongly disagreed
NO – No opinion
g) Emphasis on cost performance by the privatized public enterprises
has helped to reduce unnecessary waste and improve profitability
SA ( ) A ( ) D ( ) SD ( ) NO ( )
h) To a reasonable extent, privatized organization has improved its cost
performance
SA ( ) A ( ) D ( ) SD ( ) NO ( )
i) There have been effective checks and balances in privatized
enterprises compared to when it was public.
SA ( ) A ( ) D ( ) SD ( ) NO ( )
j) Due to privatization, there have been serious reduction of fraud in
the enterprises.
SA ( ) A ( ) D ( ) SD ( ) NO ( )

k) Privatization has now led to effective accountability of revenue and

asset by the staff of the organization.
SA ( ) A ( ) D ( ) SD ( ) NO ( )

l) Due to privatization, organization now pays proper attention to its

shareholder wealth maximization and other stakeholders.
SA ( ) A ( ) D ( ) SD ( ) NO ( )

m) Privatized public enterprises now carry out corporate social

responsibilities.
SA ( ) A ( ) D ( ) SD ( ) NO ( )

n) To reasonable extent, the rank of the cost performance of the

organization has improved.
 95

SA ( ) A ( ) D ( ) SD ( ) NO ( )

o) The general performance of the privatized public enterprises has

been improved compared to when it was government owned.
SA ( ) A ( ) D ( ) SD ( ) NO ( )

p) The general performance of the firm in terms of cost and

accountability has been highly satisfactory.
SA ( ) A ( ) D ( ) SD ( ) NO ( )