Privatization and Corporate Governance in Nigeria

Privatization and Corporate Governance in Nigeria.

Abstract

Privatization and corporate governance are emerging concepts that have become controversial lately.

While privatization is all about transfer of shares from the government to citizens or the private sector, corporate governance deals with the manner companies and enterprises are managed efficiently.

However, while the two concepts are familiar, not much attention has been paid to their interrelationship. Privatization started in Nigeria in 1988 with the privatization of 88 public enterprises by selling government equity shares to Nigerian shareholders.

This led to the creation of about 800,000 shareholders and 1.4 billion shares in the capital market between 1989 and 1993 compared to only 400,000 shareholders that existed in Nigeria from 1900 to 1988.

It is expected that by the time all the public enterprises are fully privatized about 12 million shareholders would have been created.

The upsurge in the number of shareholders in Nigeria changed the nature of shareholding from concentrated to dispersed ownership.

The implication of this is that shareholders of those companies are not only scattered all over Nigeria but held insignificant shares each to be able to monitor the performance of their directors.

Consequently, the gap between ownership and control is widened beyond expectation. The corporate law, is therefore, not adequate to meet the challenges by dispersed ownership.

Introduction

1.1 Background of Study

Nigeria has since independence in 1960 and particularly in the decade of the seventies – the oil boom years- developed a large parastatal sector incorporating economic activities such as banking and insurance, oil prospecting, exploration, refining and marketing, cement, paper, hotel etc.

As at 30^th November 1990, the Federal Government investment in each enterprise was over N36 billion and the replacement, cost was put at over N500 billion¹.

The reason for such huge government investment in the economy ranged from the provision of social services to inherited facilities meant to serve the colonial economy, the need to take over the economy from expatriates, the oil surplus of the 1970s and to achieve social justice and equitable distribution of resources².

In all, there are about 600 public enterprises at federal level and some 900 smaller ones at state and local government levels totaling 1,500 public enterprises.

These 1,500 public enterprises accounted for between 30 – 40 per cent of fixed capital investments and same proportion of formal sector employment³.

While the oil boom lasted, no one complained of waste and inefficiency of public enterprises and a lot more enterprises of questionable commercial and financial viability continued to be established.

References

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