PUBLIC ENTERPRISE REFORM IN NIGERIA: EVIDENCE FROM THE TELECOMMUNICATIONS INDUSTRY

Abstract

This study examines the qualitative and quantitative evidence relating to allocative and productive efficiency in the publicly owned Nigerian Telecommunications Limited (NITEL) in the wake of its commercialization and the deregulation in 1992. Estimates of changes in internal efficiency using total factor productivity analysis suggest a substantial improvement in efficiency as a result of the regime shift. Furthermore, the reform undertaken resulted in increased profitability, network expansion and modernization of telecommunications services.  However, the momentum generated by reform has proved impossible to sustain. The industry is still characterized by under-investment and large unmet demand. The study recommends greater private sector participation in the delivery of telecommunications services in Nigeria, the introduction of competition in the sector, and the strengthening of ongoing reform efforts to embrace full privatization of NITEL with a view to overcoming protracted constraints on telecommunications performance and growth.

CHAPTER ONE

In recent years, several developing countries have embarked on the reform of public enterprises, including privatization, within the framework of macroeconomic reform and liberalization. More than 100 countries across every continent, most of them developing, have privatized some of their state-owned enterprises (SOEs). Equally striking is the volume of transactions. Between 1988 and 1993, over 26,000 privatization transactions with sales values exceeding US$50,000 each were recorded world-wide, generating a gross receipt of US$271 billion.  Of these transactions, about 900 were conducted in 1993 alone, against only about 60 in 1988. Developing and transition economies accounted for much of this tremendous growth (Sader, 1995). Between 1988 and 1994, developing countries around the world sold about 3,300 SOEs, with sales revenue rising from only US$2.6 billion at the beginning of the period to a peak of US$29 billion in 1992 (Megyery and Sader, 1997).

The resort to privatization/commercialization was informed by several considerations. First, by 1985, the quantum of resources required to sustain the SOEs had become an unbearable burden on the affected nations. Second, it was envisaged that a carefully planned privatization programme would be an effective strategy for improving operational efficiency, broadening share ownership, attracting foreign investment and reducing the role of the state where the private sector has the capabilities to operate more efficiently. Finally, since the beginning of the 1980s, privatization of public enterprises has become a major policy tool in both developed and developing countries following the apparently successful privatization programme in Britain. Privatization gained considerable momentum in developing countries given its endorsement by the multilateral financial institutions as a major plank of adjustment policies. The urge for privatization was further reinforced by the need to reduce government expenditure in the face of burgeoning fiscal deficits, and was also in conformity with the resurgence of “economic liberalism” in the development literature.