Notes on Administration of Public Enterprises and Extra-Ministerial Agencies

Notes on Administration of Public Enterprises and Extra-Ministerial Agencies

Definition

Public enterprises as a form of business organisation has attained a great deal of significance in recent times. During 20th century various governments have taken active part in the industrial and commercial activities. The term public enterprise denotes a form of business organisation owned and managed by the state government or any other public authority. So it is an undertaking owned and controlled by the local or state or central government. The whole or most of the investment is made by the government. According to A. H. Hansen, a public enterprise denotes “state ownership and operation of industrial, agricultural, financial and commercial undertakings”.

According to N. N. Malaya, “Public enterprises are autonomous or semi-autonomous corporations and companies established, owned and controlled by the state and engaged in industrial and commercial undertakings”.

What is the difference between a parastatal and Extra-Ministerial Department?
A Parastatal is a statutory body or corporation that is wholly owned or controlled by national or municipal government which chain of command passes through a cabinet member of the Executive Council of that government like a Minister, Commissioner, or Councillor. An extra-ministerial department, on the other hand, is a unit of government which function is independent of any ministerial oversight. In some cases, an extra-ministerial body performs a function that overlaps many ministries . For instance, the office of the Auditor-General and Accountant General which is sometimes not put under the Ministry of Finance. In some other cases, their function may relate directly to certain aspects of the functions of the President that he or she wants to delegate to an identifiable structure answerable to him directly without exposure to such checks and balances like congressional or parliamentary oversight. For instance, in some countries, the office of the Chief of Staff to the President and the Secretary to the Government Federation are extra-ministerial bodies which head take part in cabinet meetings, manage budgets but are only answerable to the President, not Congress or Parliament.

Origin of PE in Nigeria

1.     Desire of national petite bougeosies that inherited power from the Colonialists to create an economic base for their political power.

2.     Struggle for Nigerians to control the economy.

3.     Means of promoting exports and to realise import substitution

4.     Nationalisation of foreign private enterprises.

Characteristics

The chief characteristics of public enterprises are:

A public enterprise comes into existence as a result of an Act passed by the legislature or a decree under military rule. Public enterprise also defines its aims and objectives, powers and duties.

It is a legal person

Autonomous or semi-autonomous organisation: Public enterprise is an autonomous or semi-autonomous organisation because some enterprises work under the direct control of the government and some organisations are established under statutes and companies act.

State control: The public enterprises are financed, owned and managed by the government may be a central or state government.

Rendering service: The primary objective of the establishment of public enterprises is to serve the public at large by supplying the essential goods at a reasonable price and creating employment opportunities.

Useful to various sectors: The state enterprises serve all sectors of the people of the company. They do not serve a particular section of the people in the community.

Monopoly Enterprises: In some specific cases private sectors are not allowed and as such the public enterprises enjoy monopoly in operation. The state enterprises enjoy monopoly in Railways, Post and Telegraph and Energy production.

A direct channel for use of Foreign money: Sometimes the government receive foreign assistance from industrially advanced countries for the development of industries. These advances received are spent through public enterprises.

Public accountability: The state enterprises are liable to the general public for their performances because they are responsible for the nation.

Agent for implementing government plans: The public enterprises run as per the whims of the government and as such the economic policies and plans of the government are implemented through public enterprises.

Financial Independence: Though investment in government undertaking are done by the government, they become financially independent by arranging finance for day-to-day operation.

Classification

Public enterprises are classified into three; namely public/statutory corporations, state-owned companies, and mixed economy enterprises. They are explained below:

Public/Statutory Corporation

These are enterprises, which arise when the government assumes responsibility for the management of an economic or social pursuit through a special entity that has its own legal personality and still keeps some of the special prerogatives or privileges associated with a governmental organisation.

State Owned Companies These are companies created by government under the provisions of ordinary company law, though they belong entirely to the government. They are registered in the registry of companies, with the government as the sole proprietor. Government, therefore, appoints the Board of Directors as is customary in private companies. Example of such companies includes New Nigeria Newspaper Ltd, New Nigeria Development Company Ltd., and Odua Investment Company Ltd.

Mixed-Economy Enterprises These are enterprises where the government is the majority shareholder in a partnership with private entrepreneurs. In such companies, government usually dominates the board since it is the major shareholder. One example of such enterprises is Peugeot Automobile Nigeria Ltd. (PAN).

Problems of Public Enterprises

The fundamental problems of public enterprises are the defective capital structures, excessive bureaucratic control or intervention, inappropriate technology, gross incompetence, mismanagement, corruption and crippling complacency which monopoly engenders.

Public enterprises equally serve as platforms for patronage and promotion of political objectives and therefore even when their managements have the will and the capability to work honestly, they will still suffer from operational interference by political appointees.

Management and Control of Public Corporations

Management and Control of Public Corporations

Management

The management of public corporations is done through the management boards and the policy board. Each of them is briefly explained below:

The Executive Board In the executive board, majority of members of the board are staff of the same organisation. They are usually the heads of the various departments of the organisation. However, a few outside representatives are brought in to represent some outside interest. For example, the Nigerian Railway Authority is an example of public utility that has an executive board.

The Policy Board Majority of the members of the policy board are from outside the organisation with few members from within the organisation. The policy board is responsible for managing all the policy decisions of the organisation, but the implementation of policies and the day-to-day operation of the organisation are carried out by the managing director. This method is applied to most public corporations in Nigeria (Ujo, 1994: 82).

Control

Even though public corporations are created to enable them have some degree of freedom to manage their affairs, they are still subject to various levels of control. Ministerial Control The supervising minister controls the public corporations under his or her ministry in the following ways. By the Appointment of Board Members Since the minister is politically responsible for appointing members of the board, he can dissolve it if he is not satisfied with their performance. Through Direction The minister ensures that public corporations satisfy the public interest they are created to serve and this is done by giving occasional directives, which the corporation must obey.

Giving Specific Controls

Some form of specific controls may be exercised by the minister on public corporations under his ministry. These controls may include the appointment of external auditors to audit the account of public corporations, reorganisation of departments, and controls on borrowing.

Parliamentary Control

The parliamentary control is necessary to ensure that the operation of public corporations is in accordance with public policy. Such controls include the following:

Through Annual Report

Public corporations are expected to submit comprehensive annual reports of their activities to the parliament through the minister and such reports are to be tabled in the parliament.

Control of public corporations is necessary to compel them to provide the services they are created to provide in the public interest. These controls could be done through management mechanisms or outright control of public corporations in accordance with the laws establishing them.

Privatisation of Public Enterprises and Commercialisation of Public Enterprises

Privatisation is premised on the fact that business should be left for those who are better qualified to handle them, which is the private sector, while the government concentrates on its core duty of governance. Governance in this sense entails law making, law implementation and adjudication. Government involvement in business takes the form of regulation and it does this through its agencies. However, in a contest where the referee is grossly incompetent, biased or both, then a fair result will not be expected.

In the Nigerian context, privatisation involves the disposal of all part of shares held by the government directly or through any of its agencies in the concern under consideration to carry on business. In other words, privatisation involves the sale of government shareholdings in enterprises to non-governmental entities (institutions or individuals). The Nigerian economy is non-cultural – being dependent on petroleum for over 90% of its earnings from the rest of the world. This is like putting one’s eggs in one basket. Thus, the so-called structural adjustment programme of government aims at correcting this defect in the commercialisation of some of our public enterprises, had been put in place with the hope that they would bring about desired structural changes.

In July 1988, the Federal Military Government promulgated Decree No. 25, (Privatisation and Commercialisation Decree) which gave a legal backing to the execution of the privatisation and commercialisation programme in Nigeria. The objectives of the programme are:

(i) To re-orientate the enterprises for privatisation and commercialisation towards a new horizon of performance improvement, viability and overall efficiency.

(ii) To develop the capital market.

(iii) To restructure the capital of affected enterprises in order to facilitate good management and access to capital market.

(iv) To restructure and rationalised the public sector in order to lessen the dominance of unproductive investments in that sector.

(v) To ensure positive returns on public sector investments in commercialise enterprises.

(vi) To check the present absolute dependence on the treasury for the funding by otherwise commercially oriented parastatals, and encourage their approach to the capital market.

(vii) To initiate the process of gradual cession to the private sector of such public enterprises which, by their nature and type of operations, are best performed by the capital market.

(viii) To promote wide share ownership. The decree provides for the establishment of the Technical Committee on Privatisation and Commercialisation (TCPC) which is vested with the responsibility of implementing the programme.

Commercialisation

Commercialisation is the re-organisation of enterprises wholly or partly owned by the government in which such commercialised enterprises shall operate as profit making commercial ventures and without subvention from the government.

Objectives of Commercialisation

The objectives of commercialisation programme are:

(i) To restructure and rationalise public enterprises to ensure an effective, cost conscious, and goal oriented management and staff whose future is linked with the fortunes of the organisation they operate.

(ii) To undertake a comprehensive review of the accounting and management information system of the parastatals with a view to installing and maintaining modern and effective accounting systems which will produce promptly the necessary data for monitoring their financial and operational performance.

(iii) To re-oriented the enterprises for commercialisation towards a new horizon of performance improvement, viability an overall efficiency: through the enforcement of strict commercial principles and practices.

(iv) To check the present absolute dependence on the treasury for funding the otherwise commercially viable parastatals through a more realistic capital structure which will enable them approach the capital market to fund their operations without government guarantees.

Commercialisation in Nigeria began in 1990 in the following areas:

a. Use of financial resources

b. Profitability

c. Development of its functional strengths and elimination of its weakness

d. Product/service range

e. Human resources and organisation

Problems of commercialisation include:

(i) Policy environment (not being conducive)

(ii) Special privileges to some groups (negating the objectives of the programmes)

(iii) Capital markets (not being able to cope) social costs (labour unions objecting)

(iv) Inadequacy of preparation (TCPC coping)

(v) Administrative capacity (training may help)

(vi) Transparency of the process (enlightenment campaign)

(vii) Other forms of privatisation (e.g. contract)

(viii) Measures for improving those that remain (important, may be neglected)

(ix) Investment of proceeds.

For the commercialisation programme in particular, success requires that more attention be paid to the issues of the rate of return, profit, the role of boards of debtors and management capacity.

Privatisation means government selling part or whole shares owned by it in public enterprises to individuals or institutions. Commercialisation, on the other hand, refocuses public enterprises for profit making.