EMPIRICAL ANALYSIS OF THE IMPACT OF PRIVATE SECTOR PERFORMANCE ON ECONOMIC GROWTH AND DEVELOPMENT OF NIGERIA.
This study examines the impact of private sector on economic growth and development from 1981 to 2015. The study uses the Mundell-Fleming model of growth to explain how interest rates and credit to private sector determine investment in the economy. The findings revealed that credit to private sector and exchange rate has positive impact on economic growth but only credit to private sector is significant while exchange is not. The study recommend that government through the central bank of Nigeria (CBN) should formulate suitable policies that will enhance the flow of investable funds (credit, loans and advances) between the financial sector and the productive private sector of the economy where goods and services are produce at low interest rate. Also, there should be efficient and effective monitoring and utilization of this funds in order to achieve the objective of investment, productivity and economic growth.
1.1 BACKGROUND OF THE STUDY
Privatization has become a major strategy adopted world over to improve the performance of public enterprises. It is a known fact that one feature of public enterprises all over the world but more importantly in developing countries of Africa especially Nigeria is inefficiency, bureaucracy of public enterprises and uncared attitude of most public servants or most people to public work and property. This leads to waste, slow growth and inordinate dependence on government support (in the form of annual subventions) even when the activity is apparently a profitable line.
As a way of improving the fortunes and performance of these enterprises through which profit orientation will be the motive of the enterprises, privatization is being canvassed such that government will divest itself of all its ownership interest and allow private sector to buy over these companies. In Nigeria today, the private sector is increasingly being recognized as the motivating force that fosters economic progress.
In Nigeria, the oil boom of the1970s among other factors gave impetus to a public sector-led government strategy. Public sector dominance was also prevalent in order to give government an increasing measure of control over its own resources (obadan 2000), the dwindling revenue of government as a result of the economic crisis of the 1980s coupled with the dissatisfaction with the performance of the public compelled Nigeria to adopt the privatization and commercialization in 1988.
Today, in Nigeria, privatization of key government business is no longer a household talk but it has become a major issue in the mind of every meaningful Nigerian.
The participation of the State in enterprises in Nigeria dates back to the colonial era. The task of providing basic infrastructure such as railway, road, bridges, water, electricity and port facilities fell on the colonial government due to the absences of indigenous companies with the required capital as well as the inability or unwillingness of foreign trading companies to embark on capital intensive project (Iheme, 1997). The involvement was expended and consolidated by the colonial welfare development plan (1946-1956) that was formulated when labor party came to power in the United Kingdom. This trend continued after independence such that by 1999, it was estimated that successive Nigerian government had invested up to N800 billion in public owned enterprises (Igbuzor, 2003 as citing Obasanjo, 1999). Throughout much of the twentieth century, there were three dominant strategies for infrastructure investment. In some countries, most notably those in the Eastern Bloc, State ownership of the means of production was promoted, while others (Western Bloc) promoted private ownership of production. A large number of countries also predicted what was termed a mixed economy, a combination of public and private ownership of the means of production. However, by the end of the twentieth century with the end of cold war between the eastern and western bloc, private ownership of the means of production gained ascendancy. Today, what is applicable is that the State should recede from this role, and that private ownership of the means of production is the only viable approach to the efficient production of goods and services, as well as economic growth and development. Consequently, there is a strong move all over the world to privatize erstwhile public enterprises (Igbuzor, 2003). Thus, privatization could be looked upon as the reduction of public sector intervention in economic activity. It involves the divesture of government economic activities (Anyanwu, 1993). It occupies a unique position in a global economic liberation and provides an avenue for raising productivity, thus, enhancing overall economic growth and development (Salako, 1999). This is however, achieved through increased involvement of the private sector in productive economic activities through the sale of public enterprises to the private sector with the ultimate aim of infusing improved economic efficiency in the businesses. With privatization, the role of government in direct productive activities diminishes as the private sector takes over such responsibilities with profit motive as its major objective. In such a situation, the government is only expected to provide essential infrastructure and an enabling environment through
which private enterprises could flourish. Privatization is predicated on the assumptions of State inefficiency and absolute efficiency of the market (Salako, 1999). It would be recalled that several Nigerian public enterprises have on several occasions been under severe criticism by international media agents for their operational and pricing inefficiencies. Nigeria like many other developing economies witnessed increasing cost and poor performance of State-owned enterprises (SOEs), resulting in heavy financial losses. In it, there has been proliferation of SOEs in all facets of economic endeavours, as a means of fostering rapid economic growth and development (Eke, 2000).
Unfortunately, most of them were structurally ill-conceived, economically inefficient with accumulated huge financial losses and thus absorbing disproportionate share of domestic credit. They were also sustained through heavy budgetary allocations of the country (Jerome, 1996, as cited in Eke, 2000). For instance, the state-owned enterprises (SOEs) are adjudged to have contributed substantially to public sector deficit and have financed less than one fifth of their investments through Internally Generated Resources (IGR) (Nair and Filippides, 1988). As some governments ran into severe fiscal problems such that loans became increasingly difficult to rise at home and abroad, they were forced to consider some radical methods of reviving the SOEs. Such reforms embarked upon by developing countries included privatization. Kikeri (1994) has noted that the high costs and poor performance of SOEs and the modest and fleeting results of reform efforts have turned many governments towards privatization.
It is the inefficiency of government-run public enterprises today that calls for the privatization of these enterprises. However one may note that privatization may not likely be the only solution of getting government-run enterprises on the ideal path of efficiency, deregulation and market oriented economy. The study therefore believes that there should be some silent initiatives that if properly harnessed could be the shining light to lead the nation’s ship to the desired harbor.
1.3 RESEARCH QUESTIONS
Given the following problems stated above, the research questions are:
- What is the impact of interest rate, credit to private sector on economic growth?
- What is the relationship between interest rate, credit to private sector on economic growth?
1.4 OBJECTIVES OF THE STUDY
- To evaluate the impact of interest rate and credit to private sector and how it has impacted on economic growth (GDP).
- To examine the nature of the relationship between of interest rate and credit to private sector and how it has impacted on economic growth (GDP)in Nigeria.
1.5 RESEARCH HYPOTHESIS
The hypotheses to be tested will be as follows:
Ho: Interest rate and credit to private sector has no significant impact on economic growth in Nigeria.
H1: Interest rate and credit to private sector has significant impact on economic growth in Nigeria.
Ho: Interest rate and credit to private sector has no relationship on economic growth in Nigeria.
H1: Interest rate and credit to private sector has relationship on economic growth in Nigeria.
1.6 SCOPE OF THE STUDY
The study covers the impact of the private sector from 1980-2014 using time series data for 35 years.
1.7 SIGNIFICANCE OF THE STUDY
- To provide information on the privatization of the Nigerian privatization exercise.
- To determine whether privatization has contributed positively or negatively to the growth and development of the Nigerian economy.
- To educate students about the nature of the Nigerian private sector.
1.8 ORGANISATIONAL FRAMEWORK
The research work is structured and organized into five chapters. The first chapter contains the background of the study, the statement of the research problems of the research, research questions, objectives of the study, and the justification of the study, organizational frame work and limitations of the study. Chapter two comprises literature review which is subdivided into conceptual framework, theoretical review and empirical review, while chapter three presents the methodology which includes; theoretical framework, type of data use for the study, sources and method of data collection, model specification, statistical method and analytical technique. Chapter four presents presentation of data and the interpreted and analysis of results. Chapter five presents the summary, conclusion and recommendations.
1.8 DEFINITION OF BASIC CONCEPT
PRIVATIZATION: This is the process of transferring ownership interest and control in a government-owned enterprise to the private sector.
PRIVATE SECTOR: This consists of private business ownership.
DEVELOPMENT: In actual fact development must be conceived of as a multi-dimentional
process involving changes in structures, attitudes and institutions as well as the acceleration of economic growth, the reduction of inequality and eradication of absolute poverty.
ECONOMIC GROWTH: It refers to sustained increased in productivity over a relatively long period or long periods each measuring at least 10 years. An index of such growth at the national level is increase in national product on real terms.
INVESTMENT: A trust or corporation that invests in securities, the funds obtain from the sale of its own shares and distributes a return to its share holders from income on the securities.