IMPLEMENTATION OF THE POLICY OF PRIVATIZATION AND COMMERCIALIZATION IN NIGERIA BETWEEN 1986 TO 1998

CHAPTER ONE

INTRODUCTION

1.1  Background of the Study

At independence, Nigeria just like other third world countries was in a hurry to transform the society from agrarian to an industrial one. This was influenced by three related factors. The first was the urgent need to sustain political independence through solid economic base. The second was to catch up with the advanced developed economic. The third reason was the need to reduce the level of poverty backwardness (Ekpe, 2010).

In pursuance of the goal of economic and industrial development Nigeria leaders adopted a number of strategies. Strategies as: import substitution technique, export promotion method and institutional building.

Import –substitution strategy had been widely adopted in Africa to stimulate development. This strategy involved local production of a wide array of consumable goods which were previously imported but through the use of foreign inputs and capital. It was envisaged that through domestication of production that foreign exchange would be generated and conserved. Other strengths of this strategy included, generation of employment opportunities, proliferation of local industries, urbanization and technology transfer.

In pursuance of the ideal of import-substitution strategy, the Nigeria state for instance, had to import foreign technology, raw materials and manpower to ensure smooth operation of the strategy (Onoh, 1990). In addition, given the fact that most of the localized industries were capital intensive and were involved in the last stage of assemble operation spare parts and technical experts for maintenance repairs and replacement use required.

To be sure, import-substitution model of development led to the growth of urban centres. It also led local production of wide variety of products and above all it boosts the growth rate of the economy. But given the fact the unemployment was still widespread, poverty was also on the increase this strategy was seen as no the solution to the problems of under development.

The failure of import substitution approach did not deter Nigeria from grappling with problem of underdevelopments to forge ahead; more pragmatic moves were made by the state. One of such was the adoption of export-promotion model. This model was appealing because of the high demand for raw materials by multinational cooperation. According to Ndibbio (1989) the need to halt and reverse balance of payment, generate employment opportunities, earn foreign exchange and diversity the economic added extra impetus for the adoption of this model.

Undoubtedly, export promotion helped considerately in the transformation of the quality of Africa export. At the height of the implementation of this approach, it was no longer fashionable to export primary products in their natural form. In order to increase their face value and thus boost the quality of the product, commodities were processed and transformed to a more sophisticated level. For instance, palm produced and cocoa were exported under such brand names as cocoa-cake, cocoa-butter and palm meal of cake (EKPE,1999:6)

However, regardless of the merits of this strategy, it had been noted by many scholars that it was not realistic and pragmatic. In the words of Ake (1981) the approach proved to be totally unrealistic because of the adverse terms of trade, or the instability of export trade over the years.

The problem with Nigeria’s past industrial development efforts was that they were dependent on strong state intervention. It is contended that public sector driven economy is plagued by a number of difficulties. Some of them are; stimulation of corruption, inefficiency, diminishes effort and initiative and leads to wastage. As the Nigerian case has shown, regardless of government’s effort, in the ownership, management and control of many heavy industries, the economy was not resilient. On the contrary, corruption and mismanagement of government investment led to debt crisis.

In the face of mounting economic problems that affected Nigeria in 1980s, it was contended by the International Monetary Fund (IMF) and World Bank experts that market driven economy was the solution. Their arguments are predicted on the efficiency of the market in the sphere of resource allocation. It is argued that, market provides the best signals for new activities. For instance whereas product markets respond to new signals in appropriate ways, labour market assembles the right size and quality of labour for production. It is also argued that market enable the producers to know best what to produce and how to produce it efficiently (Krueger, 1981, Todero and Smith, 2004).

1.2  Statement of Research Problem

From independence in 1960 to 1986, the Nigeria economy was driven essentially by the state. This situation led to debt crisis because they embarked on gigantic projects and enterprise using foreign loans. With the oil boom of 1970s Nigerian leaders had hopes that the oil wealth would sustain the tempo of industrialization. But this was not to be. The oil glut at the global market severely reduced the country’s financial status. At this point foreign exchange from oil sales were not enough to provide infrastructure and social services. In the face of economic difficulties, in 1986, Gen Babangida embraced IMF/WB inspired Structural Adjustment Programme (SAP) as a potential therapy to bail Nigeria’s economy from the woods.

The major pillars in which SAP is based are liberalization, deregulation and democratic governance. Liberalization policy calls for limited government involvement on economic matters. This doctrine advocates the private sector to drive the economy. As advocated by the IMF/WB liberalization consists of two components, trade and financial liberalization. The first, enjoins all states to remove obstacles to free trade. Financial liberalization has to do with removal of all government obstacles to financial market.

Deregulation as a policy thrust of IMF/WB abhors and/or prohibits government’s intervention on economic activities. This being the cases, the state is expected to back rolled. This effect means that, all the investments and assets of government should be either privatized or commercialized. It is contended that, when once the state allows the private sector to take over its investment and run it with a view to maximizing profit, the economy would be resuscitated. The cardinals that agitate the mind is that, what is the relationship between deregulated economy and economic development? To what extent is privatization and commercialization related to economic and industrial development? The cardinal thrust of this research is to examine the relationship between private sector driven economy and development?

1.3  Objectives of the Study

The main objective of this study is to prove the veracity or otherwise of the assumption that market driven economy performs better than the one driven by the state.

Subsidiary Objectives

i      To assess the impact of privatization and commercialization or economic development.

  1. To examine whether private sector driven economy generates more employment opportunities than the state.

Iii.   To examine the relationship between privatization and economic growth.

  1. To evaluate the relationship between privatization and the level of inflation in the state.

1.4  Significance of the Study

The significance of this study are of two fold. The first significance is theoretical. This would surly contribute to knowledge by adding to the existing literature on the impact of privatization and commercialization.

The second significance is empirical in nature. These studies would be of immense value to students and researchers who may be interested in the study of structural adjustment programme. This study would serve as a resource material for future researchers. Also the finding of this study and the subsequent recommendations may serve as a road map to policy makers and bureaucrats who may be interested to know much about privatization and commercialization

1.5  Scope and Limitation of the Study

The study covers the implementation of the policy of privatization and commercialization in Nigeria between 1986 to 1998. the period covered by this study has imposed a limit to this work. This implies that privatization and commercialization are to be examined only with a twelve year period time frame.