An Appraisal of the Role of Capital Market in the Privatization of Public Enterprises
CHAPTER ONE
OBJECTIVE OF THE STUDY
The major concern of this research work is to critically appraise the role of capital market (through the Nigerian Stock Exchange, Lagos) in the Privatization of public enterprises. Thus the following objectives;
- To critically evaluate the role of Nigerian Stock Exchange in relation to the privatization of public enterprises.
- To determine the extent to which the Nigeria Stock Exchange contributes to Economic development and growth.
- To determine the extent to which the development of capitalization will be related to the operation of the Nigerian Stock Exchange.
CHAPTER TWO
REVIEW OF LITERATURE
INTRODUCTION
Our focus in this chapter is to critically examine relevant literatures that would assist in explaining the research problem and furthermore recognize the efforts of scholars who had previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps.
REVIEW OF CONCEPTS
PRIVATIZATION
Privatization, which is currently at the forefront of global economic liberalization, is seen as a way to boost productivity and boost overall economic growth. This is accomplished by increasing the private sector’s involvement in productive economic activities by selling public enterprises to the private sector in order to improve economic efficiency. As a result of privatization, the government’s role in direct productive activities is reduced as the private sector assumes these responsibilities. In this scenario, the government is required to provide critical infrastructure as well as an enabling climate for private sector to flourish. The presumption behind privatization is that the government is inefficient and that the market is “absolutely” efficient.
Many nations, particularly developing ones, have seen rising expenses and poor performance of state-owned companies (SOEs) throughout the years, resulting in significant financial losses. SOEs have become an unsustainable burden in certain nations since the, consuming a substantial percentage of government expenditures in the form of subsidies and capital injection. SOEs, for example, have been found to have contributed significantly to public sector deficits and to have funded less than a fifth of their investments with internally generated funds (Nair and Filippines, 1988). As some governments faced serious economic issues, making it increasingly difficult to obtain loans both domestically and internationally, they were compelled to contemplate some extreme ways for revitalizing SOEs. Privatization was one of the changes undertaken by emerging countries. According to Kikeri et al. (1994), the high costs and poor performance of SOEs, as well as the small and transitory effects of reform initiatives, have led many governments to seek alternatives. Other factors include the fall of communism in Eastern Europe and the Soviet Union, as well as some early privatization triumphs in nations like the United Kingdom. In the face of rising public debt, some governments have turned to privatization as a means of increasing revenues and reducing losses. Furthermore, several governments are said to have chosen privatization above efficiency benefits due to their inability to fund investment in their SOEs. Government goals for privatization, on the other hand, differ from nation to country. They include expanding the role of the private sector in improving the mobilization of savings for new investments, the economy through increased private investment, new technology, and efficient management, and the economy through increased private investment, new technology, and efficient management to stimulate growth. Others include facilitating the growth of a competitive environment, increasing job possibilities through time, and lowering consumer costs of products and services. The need to improve government cash flow, improve SOE efficiency, promote “popular capitalism” and curb labor union power in the public sector, redistribute incomes and rents within society, and satisfy foreign donors who want to see the government’s role in the economy reduced are all common justifications for privatization. Privatization, which refers to the transfer of state control of businesses, can take many various forms. For example, the government might sell shares in SOEs to passive investors through public offerings without relinquishing control of the company. Leases and management contracts are another kind of privatization that do not involve the transfer of ownership. Private and public ownership are mixed in partial privatization. Private management and governmental ownership and control are combined through management contracts and leases. Other privatization options combine private ownership with government oversight. The incentive that leads the government to privatize and the political will to see it through will, to a significant part, decide the program’s success or failure.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
Primary data were collected via questionnaires, interviews and direct observation of trading on the floor of the Nigerian Stock Exchange, Kaduna. For the purpose of the research work, 120 questionnaires were distributed to the various institutions that make up the Nigerian Stock exchange in Kaduna and Abuja Metropolis. Out of this number, 102 questionnaires were retrieved. The remaining 18 questionnaires were either lost or misplaced by the respondents.
CHAPTER FIVE
Summary of Findings
Having analysed the data obtained for the study, tested all the four hypotheses of the study and applied the method of regression analysis to the performance situation of the Nigerian stock exchange, the findings of the study were summarised as follows.
- a) The valuation and pricing of the shares of the privatised enterprises were done in accordance with the rules and regulations governing share valuation and pricing.
- b) The allotment proposals make adequate provisions for an even and wide geographical distribution. This was evidenced by the fact that the Issuing House does not act alone in the preparation and approval of the allotment proposal. The Securities and Exchange Commission must approve the allotment proposal before it can be implemented.
- c) The Privatization of public enterprises has led to an increase in the volume of activities and hence, the absorptive capacity of the Nigerian Stock exchange.
- d) The level of public awareness and enlightenment about the stock exchange has been on the increase in recent times because the Nigerian Stock exchange has a good and efficient information apparatus to produce relevant, adequate, accurate and timely information about the shares to be sold.
- e) The firms to be commercialized may not be able to rely on the stock exchange for funds if they are not going to be listed on the Stock Exchange because the methods of funds generation adopted by the market may not be directly beneficial to them.
- f) The factors encouraging the growth of the Nigerian Stock exchange include: Eagerness of some companies to go public; Easy accessibility to the market; Existence of vibrant banking, petroleum and food and beverages sectors; The existence of the Association of Shareholders; The computerization of activities on the market; Favourable government policies; Increasing public awareness; Enabling legislations; Inflow of foreign investment; Improvement in infrastructure; Aggression on the part of Stock brokers; Increasing profitability of companies; The current efforts by the government to empower investors; Availability of media through which the public can be reached; and Strict policy on trading activities.
- j) The factors, which limit the performance of the Nigerian Stock exchange, include: High tariffs; insufficient information to investors; Poor consumption/savings pattern; Corrupt and sharp practices; Poverty on the part of the public; Poor investment climate; Ignorance/illiteracy on the part of potential investors; Poor performance of the economy; Secrecy about Securities and Exchange Commission’s activities; Government control of certain sectors e. g. oil and gas, transportation and so on; Poor corporate governance; Insider dealings; Government interference; Paucity of relevant data/information; and Purchase of shares for keeps;
Conclusion
Having analysed and interpreted the data obtained, the following conclusions were drawn from the study: The privatization and Commercialization of public enterprises are the real panacea to the Nigerian economic development; The roles played by the Nigerian Stock exchange have significant impacts on the success or failure of the Privatization and Commercialization programme of the Federal Government of Nigeria; The involvement of the Nigerian Stock exchange in the privatization of public enterprises has increased the volume of activities and hence, the absorptive capacity of the market.; Despite the strength of its information apparatus, the Nigerian Stock exchange is yet to effectively reach the majority of the rural dwellers who may not be aware of the opportunities they have to buy shares in the privatized enterprises; and that the performance of these roles is often facilitated and/or hampered by a number clearly identifiable factors.
Limitations of Study
The limitations of this study were as follows:
- It was not possible to study the entire population covered by the paper. Therefore, the paper was based on the sample drawn from the population for drawing conclusions and other inferences.
- It was not very possible to eliminate bias from the data obtained for the study as some of the answers given to questionnaires were given to merely satisfy the author’s curiosity.
- The statistical tools of data analysis for the study were used based on certain assumptions, which may not necessarily hold under normal circumstances.
These limitations might have subtly distorted the results of the tests and analyses performed in one way or the other thereby introducing errors to the results on which conclusions were based.
Recommendations
Based on the conclusions drawn above, the following recommendations are hereby given:
- The Federal Government of Nigeria should do the following among other things: Pursue the Privatization and Commercialization Programme with a single mind so that the programme will run transparently and objectively; Encourage the development of a vigorous and healthy private sector within the economy in order to promote savings and financial investments through the Nigerian Stock exchange; Articulate macro-economic measures designed to stimulate growth and stability; and Adopt micro-economic measures such as affected risk, yields, liquidity and flexibility of capital so that savings can be channelled through the Stock exchange.
- The Nigerian Stock exchange and its operators should be given more roles to play and greater independence in the privatization process in order to further underscore the importance of the Stock exchange to the entire process.
- The publicity of the shares earmarked for sale to the public should be carried to the rural areas for the benefit of the rural dwellers who might want to take advantage of the opportunity to buy shares in the privatised firms.
- As much as possible, government should avoid interfering unnecessarily in the process of share pricing and valuation and the determination of allotment basis.
- The timing of issues should be done carefully in order to prevent the problem of under subscription of shares and the over-stretching of the absorptive capacity of the Stock exchange.
References
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