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 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. 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 fueled 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 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.
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