An Assessment of the Performance of Public Enterprises in Nigeria; A Case Study of NITEL (1985 – 2008)
Chapter One
Objective of the Study
There are certain aims and objectives for which the researcher embarked on this work such as:
(1) To ascertain if political interference and mismanagement of resources is responsible for poor performance of public enterprises.
(2) To ascertain if inadequate performance could enhance the performance of public enterprises.
(3) To discover if the problems of public enterprises has improved the efficiency of service delivery.
CHAPTER TWO
LITERATURE REVIEW
Nigerian Telecommunication Limited NITEL
Nigeria Telecommunication Limited was established in 1985 as a wholly owned federal government company with authorized share capital of N5.5 billion naira and with the trappings of a monopoly telecommunications operator. It has its head office at Marian Laos. NITEL has four(4) International telephones.
Switching centres (ITSCs) located in Lagos, Kaduna, Enugu and Kujama and more than 120 exchanges spread nationwide. Essentially it enjoyed protection and monopoly status by virtue of the wireless telegraph Act (WTA) of 1964, as amended in 1991.
However, with the introduction of Global system of Mobile Communication (GSM), it acquired its GSM operating licenses on the 20th of November 2002 from Nigeria communication commission (NCC). By these licenses, the state owned monopoly which is enjoyed was lost; as the regulating laws of the NCC will be binding on it.
This constitutes new board of directors of NITEL has Chief Aneze Chinwuba as its chairman. 50% of NITEL shares have been offered to the Nigeria public in two trances of 25% each for subscription.
NITEL assets have grown steadily from a mere 180,000 lines in 1985 to over 700 lines. The carrier license to NITEL comes with obligation to roll out 600,000 new fixed liens, within 36 months of the license, rising to 1.2 million new lines in five years. By the new dispensation, NITEL comes under the purview of the NCC.
Performance of NITEL
The African Economic Research Consortium (AERC) does sponsor several innovative studies on privatization. Jerome (2008) conducted a study that appraised the post-privatization performance of some privatized enterprises in Nigeria. The specific indicators examined were profitability, productive efficiency, employment, capital investment, output, prices and taxes. The study measures the change in any given indicator of performance by comparing its average value five years before and five years after privatization. Data envelopment analysis (DEA) was also deployed to measure changes in the level of technical efficiency in the selected enterprises. The result shows a mixed, but significant increases in the indicators used. It was found that the reforms undertaken resulted in increased profitability of the incumbent operator, network expansion and modernization, and productivity gains. However, the reforms have proved difficult to sustain, and the industry is still characterized by underinvestment and large unmet demand.
Amakom (2003) investigated the post-privatization performance of three former state owned enterprises, namely: FSB International Bank PLC, Aba Textile Mills and the ASHAKA Cement Company. He used performance indicators such as profitability, operating efficiency, capital investment, leverage, employment and dividend payout. He used Data Envelopment Analysis in determining whether productivity had improved after privatization exercise. The study revealed a significant improvement in productivity while efficiency is still to be appreciably noticed. From the study also, other indicators were showing mixed effect depending on the firm in question.
Wallsten (2001) studied the effects of privatization, competition and regulation on several performance indicators based on a panel data set for 30 African and Latin American Countries from 1984 to 1997. His finding was that whereas competition had a positive performance, privatization impact was mixed.
Li and Xu (2001) considered the impact of liberalization on telecommunications sector performance using 160 countries to evaluate the effect of privatization on telecommunications performance. Their findings show that privatization considerably increases teledensity and telecommunication productivity.
Fink et al (2003) analysed the impact of policy reform in telecommunications on sectoral performance using a new panel data set for 86 developing countries across Africa, Middle East, Asia, the Caribbean and Latin America over the periods of 1985 to 1999. Their findings also reveal that privatization and competition lead to significant improvements in the performances of the telecommunications sectors of the countries involved in their study.
In light of the studies reviewed above, it is clear that the privatization of telecommunications companies have increased the productivity levels in the telecom industries of the countries involved. However, the missing link is that there are specific cases of failures that must be exposed, and the reasons for their failure explored. This is the particular case with the privatization of the Nigerian Telecommunications (NITEL).
CHAPTER THREE
METHODOLGY
Data Collection
Methodological triangulation, collection of both qualitative and quantitative data, was adopted in this research study. A vital advantage of methodological triangulation in research is that it presents the prospect of enhanced confidence (Bryman and Bell, 2008). By using this method in this study, the findings do not only present the situation of NITEL but unveils why the privatization of the firm has failed. The decision to also focus on a qualitative approach appears fundamental in the nature of the chosen topic.
Though there are enough data available on the websites of the national privatization commission, the Bureau for Public Enterprise, Ministry of Industry and The World Bank, I needed to travel to Nigeria and undertake interviews with top officials of NITEL. The outcome of the trip confirms some authors’ observation that the greatest task facing studies on privatization, especially in African countries, is methodological constraints (Amakom, 2003 & Jerome, 2008).
The reason for visiting NITEL office in Nigeria was to get first hand information on the state of the company since it was privatized to Transnational Corporations (TRANSCORP), and get information from top management officials of the company in regard to the public opinion that politics has been the reason for NITEL’s failure. I also wanted to see the state of NITEL’s infrastructures by touring their facilities. Getting information from the Nigeria Telecommunications office did prove difficult. The major reason for this was because of the strike action of NITEL workers which is still ongoing as at the time of conducting and writing this research. The strike is a protest action over the non-payment of staff salary and other entitlements for more than fourteen months. However, some of the workers on hand were willing to grant interview on the state of things in the telecom company and why the company’s privatization had failed.
This study also presents an evaluation research approach. This approach was necessary because I needed to find out whether the intervention programme of privatization embarked by the Nigerian government had brought the efficiency that the Nigerian telecommunication company desired. Bryman and Bell (2008) hold up the evaluation research as a way of capturing the in-depth understanding of the context in which an intervention occurs and the viewpoints of the stakeholders.
I have undertaken a case-study design. This design involves the detailed and thorough examination of a single case (Bryman and Bell, 2008). I came to this approach due to my research topic which was centred on the Nigerian telecommunications as a case in the avalanche of privatized firms in the country. It has been rightly stated that case studies are suitable to answer “how and why” questions, when the focus is on a contemporary phenomenon with a real life context (Yin 1999). A major inadequacy of the case study design is that the evidence they present is limited as it has restricted external validity (Bryman and Bell, 2009).
CHAPTER FOUR
RESULTS PRESENTATION AND ANALYSIS
In this section, the results from the study are presented and analysed using the performance measures for Nigerian Telecommunications Limited (NITEL). The measures include those for profitability, operating efficiency, capital investment, productivity or output, leverage and employment. The statistical aspects of results of this study are summarised in Tables 1, 2, 3 and 4. Narrative analysis is also employed in the presentation and analysis of this study.
CHAPTER FIVE
CONCLUSION AND CONTRIBUTIONS
Nigerian public enterprises have long been criticized for their inefficiency, politicization, corruption and absence of productivity. This is because, past and current political leaders have used these enterprises to favour their supporters through excessive employment, regionally targeted investments and deliberate underpricing of products or overpricing of inputs from politically connected suppliers. In the quest to proffer a solution to this economic problem, the Nigerian government, with the influence of international agencies such as the World Bank and International Monetary Fund (IMF) decided to engage in the privatization of its public enterprises with the hope of eliminating government interference in business enterprises and ensure increased efficiency of the utilities. However, in spite of the privatization of most public utilities in the country, the cases of inefficiency and political interference still persist.
This study shows that public enterprises in Nigeria that have been privatized remain inefficient mainly as a result of government’s deliberate strategy of privatizing state owned enterprises (SOEs) to cronies and supporters and with little or no effort at ensuring that the private companies that take over these state owned enterprises are monitored to perform, or sanctioned when they failed to meet up with the contract terms in the Share Sale and Purchase Agreement (SSPA). Hence, the failure of privatization has been a problem of political economy rather than lack of technical or manpower capabilities, or the myth that the economic ideology of privatization does not fit the Nigerian socio-economic society. Worse still, the regulatory agencies which are responsible for ensuring that private companies live up to expectations of productivity and efficiency have been politically compromised. If such regulatory institutions are to perform effectively, they have to be independent of operators and the government (Samarajiva, 2002).
Before 2002, NITEL was the national operator and monopoly service provider for domestic and international services. This had serious consequences in terms of inefficiency, high cost of services, and lack of universal access. The Nigerian Telecommunications Limited (NITEL) has undergone four privatizations to four different companies in the last seven years. First, in 2002, the Nigerian government sold 51 per cent stake in NITEL to Investment International Limited of London (IILL) for $1.2317 billion, but revoked the transaction when the company failed to complete the payment. After that, NITEL ownership was transferred to Pentascope with the Federal government of Nigeria yet retaining 49% equity. However, the failure of Pentascope to rejuvenate NITEL between 2003 and 2005 led to the revocation of the privatization the second time. Again, in 2005, Orascom, an Egyptian telecommunications giant failed to buy NITEL as the $250 million bid for the company was rejected by the Nigerian government. And the last (but surely not the least) was the sale of NITEL to Transnational Corporations for the sum of $500 million in 2006. As at 2009, the Federal government of Nigeria through her agency, National Council on Privatization, had revoked the sale due to the failure of TRANSCORP to improve the telecommunications company three years after its takeover. The state of NITEL has remained pitiable and dilapidated after years of control by the private sector with significant decrease in all the measures of efficiency used. TRANSCORP’s inability to manage NITEL started immediately after taking over the operations of the telecommunications company as the Share Sale Purchase Agreement signed by Transnational Corporation which obviously stated that it would inject N8.9 billion within 100 days of taking control of NITEL failed to materialize.
The findings of this research show that the privatization of the Nigerian Telecommunications (NITEL) was a failure. The so-called Privatization has failed to bring about the reduction of politically motivated resource allocation which has unquestionably been the principal harm of privatization in Nigeria. This is why the Nigerian government and the regulatory agencies have been largely responsible for the failure of privatization programmes carried out in the country. The failure of privatization policies in Nigeria has been blamed on political corruption and institutional failures. The institutional failures manifest in the biased selection of candidates and inadequate regulatory framework. The choice of candidate was politically influenced, with patronage and rent-seeking becoming major features. This finding agrees with the work of Carino (2003) on the fact that regulatory governance is a key factor in the success or failure of privatization programmes.
The Nigerian policy approach to privatization encourages political corruption and/ or rent-seeking. This approach to privatization, unlike the Thatcher approach, ensures that the Nigerian government remains a majority shareholder in most companies that the government transfers to private ownership. This was the exact case with NITEL, as the Nigerian government normally retains 49% equity shares in the company. Inadequate information about the state of Nigerian Telecommunications in terms of its assets and liabilities status was identified to be a major problem in the series of failed privatization of NITEL.
The research exposes how political expediency and the voracious quest of Nigerian politicians to hold on to power is the major reason for the interference with regulatory agencies in carrying out their responsibilities of enforcing regulatory rules for companies to meet efficiency targets and/ or sanction failing private companies.
The findings of the study suggest that the termination of the technical partnership that existed between TRANSCORP and British Telecom (BT) was another major factor that contributed to the failure of NITEL as it lacked the experience and technical expertise to drive its technical operations autonomously. The non payment of workers’ salaries and allowances for more than a year, which led to series of strikes, further paralysed activities in the operations of NITEL.
The study also found that the management of Transnational Corporation, who were the beneficiaries of the privatization of NITEL, engaged in corruption and gross mismanagement of NITEL which climaxed in lack of transparency and incompetency in the running of the affairs of the company. The corruption in the company manifested in the illegal awards of contracts to nonexistent firms or contractors by the management of TRANSCORP. Moreover, TRANSCORP deliberately failed to produce audited financial statements for the company since it took over its operations in 2006. Besides, there were serious cases of corruption within NITEL as the workers of NITEL illegally permit organizations and individuals to use their phone service for a token sum paid to the company and pocket a bribe for the secret bargain. Consequently, the telecommunications company was losing significant billable revenues. These facts also confirm the position of The Nigerian Communications Commission on the fraud in telecommunications industry in Nigeria.
It was also found that Transnational Corporations (TRANSCORP) experienced financial difficulties and hence, were obviously not willing to carry out further capital investment or to repay loans for investments they had already undertaken, so forcing the Nigerian state to revoke the sale of the Nigerian Telecommunications (NITEL). However, the expectation of the Nigerian people was that the government should have intervened earlier to ensure service delivery given the national importance of the Nigerian Telecommunications Limited (NITEL).
The Nigerian government failed to develop an effective and dependent regulatory body to set efficiency targets for NITEL or monitor the company’s performance from the onset. The fact was that the regulatory agencies were compromised by political objectives, and their regulatory roles were interrupted by ministerial and presidential interventions due to the centralization of power in the government of Nigeria.
This research is consistent with the findings of previous researchers (Syn, 2003 and Afeikhena 2003, etcetera) which noted that political interference with the privatization process affects the success of privatization programmes. What was however not shown in these previous studies was the fact that the regulatory agencies are incapacitated by their dependent relationship with the highly centralized government of Nigeria. Also, a major contribution of this study to existing literatures is that when States privatize partially, they do so to retain the political influence of politicians over the operations of the business enterprise. This was the case with series of failed attempts at privatizing NITEL. Also, the incompetence of the companies involved in the failed privatizations highlight the importance of identifying the right, worthy and financially able companies to take over public utilities.
Recommendations:
In order to avoid failures in future privatizations of public enterprises, particularly the Nigerian Telecommunications, the following recommendations are provided.
- That the Nigerian government should consider the total privatization of state owned enterprises rather than being a joint owner with the private companies. This will eliminate, in totality, the political interference with the running of NITEL and all the privatized firms in the country
- An independent and effective regulatory framework that will not only monitor service delivery, but enforce credible sanctions on defaulting beneficiary companies of privatization. To this end, the current composition of the Nigerian Communications Commission (NCC), National Council of Privatization and Bureau for Public Enterprises should be disbanded having supervised the four attempts at privatizing NITEL without being successful. Parker (2001) asserts that new models of regulation and competition are required in places where the incumbent(s) have shown repeated failure.
- The regulatory agencies charged with pre and post privatization regulations in Nigeria, namely: the National Council on Privatization and Bureau for Public Enterprises should be merged into one single body to allow for smooth operations rather than having overlapping responsibilities as the case seems now. Nigeria could as well pattern her regulatory agency after the British practice which designates the regulator as a single individual rather than a commission or a committee
- Adoption of strategies that will be aimed at curbing the existing opportunities for corruption and self-serving behaviour by, for instance, limiting the discretionary and monopolistic power of the chairman of the National Council on Privatization, which in Nigeria, is the Vice-president of the country . Also, appointments into this regulatory agency should be based on track record and established public reputation so that the of appointees’ service in public establishments.
- This research supports the call by the Nigeria Communications Commission (NCC) for the provision of law enforcement processes against criminal activities in the telecommunications sector in order to ensure that speedy trials be achieved and convictions obtained in proven cases (this recommendation by NCC is contained in the “Telecommunications Offences and Enforcement Processes” attached as appendix 7 in this thesis).
- Providing clear information on the state of a company to be privatized to bidders on time would impact positively on the bid process. These information, according to Stottmann (2000), should include information on the present and projected service area, the current characteristics of the service, human resources, financial performance and tariffs and consumer factors (such as consumer preferences, affordability and willingness to pay). It is only when such information is made available to bidders that such bids become realistic and viable.
- Finally, the current World Bank’s superficial analysis of political context of corruption (Minogue, 2004) which strives to create a spurious firmness of correlations between types of political institution, levels of corruption, and categories of economic performance are indefensible axioms that calls for urgent empirical studies. This is necessary as this study has, by implications of its findings, shown that the high rate of corruption that was said to have affected the economic development of Nigeria under military regimes of the country’s political history are still very much present (and even on the increase) in this present democratic situation.
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