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THE ROLE OF
CAPITAL MARKET ON PRIVATIZATION PROCESS IN NIGERIA
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE BODY
Privatization
Appeared on standard dictionaries only in the early 1980s [it appeared in
Webster new collegiate Dictionary is one of the radical methods through for
thinning the government owned enterprises [which failed to maximize greater
goods, he did so at high cost and ran government into severe fiscal problems in
the 1980s making loans difficult to raise both home and abroad].
Around the
other method was to strengthen the methods by which government controlled their
enterprises.
To achieve
these goals, a viable capital market must be put in place.
In Nigeria context, the
privatization process has been greatly criticized by the media and even by the
civil society, it is the focus of this paper to enlighten the masses on how the
current privatization process will help to redistribute income, create more
employment for the people, channel funds from the surplus to the deposit group
and increase the revenue of the government in the country.
The privatization process is one of
the recommendation of the structural adjustment [SAP] for many years up to
1980, the Nigerian government made fairly extensive use of the public
enterprise [PES] for resource mobilization and allocation, particularly within
the social service and utilities sector with the windfall from the crude oil
sales during the boom of the 1970s, the economic activities of PES in Nigeria
expended significantly beyond the authoday domain of social services and
utilities into agriculture, banking and finance, manufacturing, mining,
commerce etc.
With this expansion by the 1980s,
and increasingly dominant PES sector, accounting for about 50% of the Gross
Domestic Product [GDP] and 60% of the modern sector employment had emerged in
Nigeria [FRN 1986] by this time also, the number of PES at the federal level
alone had reached about 600 enterprises and some 900 smaller one at the state
and local government level, [Technical committee of privatization and
commercialization [TCPC, 1993].
Also by the 1985 estimate, total
investment in these PES at the federal level is about N36,756.00 billion which
TCPC now Bureau for public enterprises [BPE] revaluated using the 1993
estimates being about N5000.00 billion of the investment estimates public
utilities [PUS] public enterprises producing hard core infrastructure such as
electricity, water telecommunications and transport, accounted for about 37.4%
[TCPC, 1993] for the maintenance and sustenance of the economic activities sof
this PES, the Nigeria government had usually expanded about 40& and 30% of
its forced capital and recurrent expenditures respectively on them annually at
the pre-structural adjustment programme [SAP] period [FRN 1986] from the
foregoing, it has been ascertained that the oil boom of the 1970s made it
possible for the government to dabble into starting from the doctrine that
government should control the commanding height of the economy, the public
sector went ahead to set up many manufacturing trading activities in direct
competition with well established private enterprises. They also required
majority shares in the oil companies.
Commercial bank, insurance
companies and newspaper, some state government even went to the extent of
investing in laundry and dry cleaning services yet, it must be stressed that
even the most of the industries that have deliberately been chosen to reserve
for government in Nigeria re either wholly or partly run by the private sector
elsewhere e.g power generation and distribution [USA and UK] to mention but a
few. These sectors have been found out to be performing in Nigeria.
This is why privatization is
indispensable of the moment of the ailing nations economy. The achieve greater
efficiency, the capital market has to be fully alive, one of the objectives of
the privatization process is to ensure a more viable capital market within an
economy and also the privatization process cannot be carried out successfully
without the capital market.
The capital market, through the
Nigerian stock exchange is saddled with the responsibility of ensuring a
successful privatization.
STATEMENT OF
PROBLEM
All over the
world the public services as a matter of experience has not been meant in their
capacity to create wealth consequently public enterprises have usually been
perceived as drain pipes for government budget this creating budgeting strains
and avoidable burden on the economy it become imperative therefore to disengage
the public sectors from those areas where the private sectors has the
comparative advantages to perform while letting the state concern itself with
the provision of infrastructure security and enabling environment for business
to thrive through enhanced wealth creation this led the researcher to carry out
this research on the role of capital market in the privatization process the
Nigerian experience.
OBJECTIVE OF
STUDY
The objective of this research is
to harmonize the different beliefs by people of the privatization process
evaluate the social and economic benefits of privatization and the evaluation
of the role played by the Nigerian stock exchange [NSE] towards the development
of the nation especially the privatization programme the success or failure of
the first phase of the privatization process will be critically examined to be
able to connect the mistakes made in the past if the programme is proved
successful then the paper will be aimed at gearing people up in active
participation in the current privatization process which is the second phase of
privatization of the Nigerian government.
It is also the objective of this
paper to suggest techniques to government on how best to supplement her
privatization policy. This paper will also focus on ways of further developing
the capital market through the privatization process. Furthermore, how income
will be redistributed, cost, minimized and efficiency in production will be
substantiated with more facts.
HYPOTHESIS
The
following hypothesis shall direct the thrust of this study by looking at the
NUI and alternative hypothesis HD, the capital market has not played any role
in the privatization HI – the capital marked has played a role on
privatization.
SIGNIFICANCE
OF STUDY
The study is
important because it will help correct erroneous belief by some people that the
privatization process will make life extremely difficult for Nigerians. Though
privatization is not the almighty solver of all economic problems but if it is
well implemented not in writing above but in policies. The advantages will be
seen in the nations economy, it will inform and educate the readers on
investment decisions give a man fish and he will live forever. If the
investment decisions are cautiously taken many Nigerians will see themselves
living forever, furthermore the paper will correct the belief that the sales of
these enterprises shares is for a particular set of people and encourage all to
invest in the sector.
SCOPE OF THE
STUDY
This study will be mainly concerned
with various factors that affect privatization especially the capital market
and Nigeria stock exchange [NSE] this study will focus on privatization and the
role of the capital market in actualizing the privatization process by using
the Nigeria situation.
This study will also focus on the
function of the capital market as it affects the privatization process in
Nigeria.
It will focus on likely problems
and benefits and the impact of the capital market in the privatization of
public enterprises in Nigeria.
DEFINITION
OF TERMS
Privatization:
This is the process of turning the government owned establishment into the
private hand.
Capital
Market: This is the market for medium and long term funds for business
activities.
Asset: A
person or properties that is valuable or useful to somebody.
Shares: Any
of the units of equal value into which a company is divided and sold to raise
money.
Placement:
The act of finding a suitable place for something.
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