Meaning of Privatization Commercialization and Deregulation:
Privatization is the transfer of public assets to the private sector by sale, or contracting out. It means the sale of public utilities to private individuals.
Privatization is the contract operation of a public utility by private entity.
Privatization is defined in the federal government of Nigeria decree 25 of
1988 as the “relinquishment of part of the equity and other interest held by the Federal government or its agency in enterprises whether wholly or partly owned by the federal government.
Commercialization is defined as the “reorganization of enterprises wholly or partly owned by the Federal Government in which such Commercial enterprises shall operate as profit – making commercial ventures and without subvention from the Federal Government control over market forces.
The idea of privatization and commercialization has been generated by the desire of many National governments to improve the well being of their people. To create wealth and sustain a high level of national standard of living there is a crucial need for efficiency at resources mobilization and application.
Since it has been proved beyond any reasonable doubt that the private sector is better at mobilization and application of resources in a more efficient manner than the public sector it has become inevitable to divest such functions for which government has the least comparative advantage to the private sector
Reason for privatization and commercialization
i. To increase efficiency in public services
ii. To reduce deficits in governance
iii. To shrink the size of government
iv. To restructure and rationalize the public sector in order to lessen the dominance of unproductive investments in that sector
v. To re – orientate the enterprise for privatization and commercialization towards a new horizon of performance improvement, viability and overall efficiency.
iv. To ensure positive returns on public sector investments in commercialized enterprises
vii. To create a favorable investment climate for both local and foreign investor.
viii. To reduce the level of internal and external debts via the use of the debt conversion programme in the privatization of certain enterprises.
Merits of privatization and commercialization:
1. Privatization Commercialization and deregulation makes enterprises to be more efficient and effective in service delivery.
2. The trend encourages low cost of production whereas government producers have no incentive to hold down production costs, private producers who provide the services have more at stake thus encouraging them to perform at a higher level for lower cost.
3. Private firms have more flexibility than governmental units to use part – timers to meet peak periods of activity, to fire unsatisfactory workers, and to allocate workers across a variety of tasks
4. Privatization raises large sum of money for government to offset public borrowing
5. It weakens the power of public sector trade unions
6. It widens share ownership
7. It encourages commercial autonomy to formerly state – owned enterprises.
8. It reduces the burden of decision – making imposed on government by public ownership
9. It encourages more service providers with better products
10. It reduces deficits in public sector spending
Demerits of privatization and commercialization:
1. Privatization results in lay-offs of public sector employers
2. Private firms pay lower wages and fringes benefits than government owned corporations.
3. There is often a problem of take – over companies initially offering a price to the government that I s less than the actual production costs to induce the government to transfer the service to them, subsequently they would than demand a higher price after the government has dismantled its own production system.
4. Instability concern a government agency contract period they are always around to maintain but private company gives away country how much profit made from the contract.
5. Privatization disproportionately hurts minority populations because they tend to rely more heavily on employment in the public sector.
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