The Role of Commercial Bank in the Privatization of Public Enterprises in Nigeria


Various meanings of privatization have been stressed in the guide of explaining the basic concepts underlying privatization. Ibie (1986:16) recognizes  privatization as the “denationaliztion of national business” and also a process by which the size of an inefficient and effective public by which sector is reduced by transferring some of its functions to a relatively more efficient private sector “Ibie (1986:17). 

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By implication, this definition presumes that some of the functions of public sector included acquisition of private but certainly not in  some other countries like Britain, moreso, the definition neglects the other approach to privatization like loan shedding contracting etc.  in view  of divestiture.

Privatization has also been said to be the “transfer of government ownership control and services to the private sector”  Efcen, (1991:14:15). It is a process of transfer of ownership; interest and control in an enterprises from public sector enterprises to private sector Mukor (1986:23).

It is note worthy to observe that forgoing definition was sicant on the decree of transfer vis-a viz wholly or partially arguably “Privatization requires the re-examination and re-classification of product and services currently provided by the government followed by the application of the most suitable method to transfer some or all government responsibility into the hands of the public.  Abibee (1987:13).  This definition is silent as regards whether transfer of responsibility shoal be commensurate transfer or believed that the two should work simultaneously.

Privatization and commercialization Decree 00.25 of 1998 says the privatization can simply be defined as “the relinquishing of part or all of the requite and other interest held by the federal government or its orginey enterprises, whether wholly or partly owned by the Federal government Ibie (1986:18).


Objectives are performance index through which expectations are compared with actual results in the highlight of this, Akamiokor said one of the objectives of privatization is to be “Promotion of efficiency in the effect enterprises in the overall interest of National economy”.

Akamiokor (1989:13), Agreeably “Privatization would help to inject common sense into these enterprises that have all along been bugged down by government control and whose employee usually benefit rather them for consumers” banmgboga(1985:14). However another person gave a more comprehensive objective of privatization. These objectives include:

  1. injective market discipline at the board level since the board is expected to reflected the shareholding interest in the maximization of profit.
  2. Results in closer monitoring of the performance of management.
  3. Greater e-ecountability and e-valaution of a better management practitioners.
  4. Act as catalyst for the revitalization of the capital markets by making available in the capital market.
  5. Fund raising revenue for the government.
  6. Encourage share ownership by number of the public reading to a more efficient mobilization of saving within the economy. Hhniad (1986:24)

Read More: Privatization and commercialization in the Nigerian Economy


Existing literature on the role of commercial banks in privatization seen to have formed a consumers of opinion. Prominent among those views is one, which states that commercial banks “can use their incturorlo of branches to spread shares to rural areas. This should go beyond mere display of application posters and distributions of prospective alile (1987:19).

Recognizably, the branch banking system of commercial banks levers the contention but if the implementation of the  NEPD is anything to so by the rural dialers may not set to see a prospectus of any privatizable company until privatization program is over. In consomence of fan 1986 burget  speech  that “core will be taken to avoid the divested holding from individuals or fem areas o the country “,ible(1986:6).

Furthermore, commercial banks are expected to provide credit to the disadvantage Nigerians with which to purchase the shares of the privatizable implementation of the NEPD 1972 AND 1977,” EFOGU, (1986:17)

Arguably, although commercial banks are expected to provide credit to the disadvantaged Nigeria, “a general provision of bank funds for the asking might leads to a just for aking” Akamiokor (1989:10) this may not be in the interest of the SAP of Nigeria. He their for advocates for commercial banks to help in effective publicity and marketing of privatization. Writers however, suggest that “since money of these enterprises to be privatized own commercial banks some huge sum of money and in recognition of allowance of these banks by 1986 budget to acquire shares in some  listed enterprises up to a certain percentage bank can now shared of their equity in the privatizable comparities” ofogu (1989:17). This role dose not takes into account the liquidity problem of  many commercial banks. The high   risk associated with the performance of this role in relation to dispositors” money and the fact that section 13 sub-section F of decree No.33 of September 1977 restricts the investment activities of commercial banks. However, in another way round, privatization exercise is a compelling need for effecting this amendment such that further amendment of this decree not a guarantee that commercial banks shall perform this role due to some raging private sectors, investment beyond its usual high facilitating “does it mean that the latter is not particularly wolfing to fully participate in the industrialization of the country on that government is not conducting enough for any prospective entrepreneur to state his warned capital? It is quite obvious that the problem is not really that of the unrolling ness of the entrepreneur to invest his money on industrial development or the organization financed markets to external but as a general manager of central investment company limited, ikemefuna contented, the fundamental problem of commercial private sector investment in Nigeria is the absence of industrial culture, enterprenureship and financial displine among loan beneficiaries and prospective industrialist’ ogbomgbe(1990:10).

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Before we further research into the care of this financial problem, one has to emphasis that government has been more or lets praying up sorveirs in its encouragement or private sector investment  and industrial development of the rural areas. There have not been any subtraction commitments to the provision of vital infreshmentures that will induce entrepreneur to utilize their inventible funds for viable long-term ventures and for the industrialization of rural areas.

The most viable problem that militates against the private sector investment in Nigeria is the low exchange rate of the naira.

Because of this sad development, there have been fervent call for the pegging of the naira rate relatives to other foreign currencies. It is sheer stupidity to leave the exchange rate of the naira to the hegiras and precariousness of the free market, in spite of own preventive of free market system, there is the need for the central bank to intervene so that there will be a stabilization of the naira via-a-vis other currencies. The central bank should stop further depreciation of naira by fixing a more realistic exchange rate. According to one financial export, he in Nigeria is no longer the issued of availability of financed but the purchasing power xf fund available. Another major problem that hampers the private sector investment is the astronomical cost of borrowing (interest ratio) from bank . Banks change their favored customer particularly the large search- multi-national companies about 25% interest rate while there cost of borrowing for other usually the private sector investors is about 35%.

This has a very large extent, hammered there borrowing  power of the prospective investors, who under normal circumstance, out to rely on bank for loans and advent to establishes enterprises or employ a partake in privatization programmed. Sometimes even when the investors have succeeded in the surmounting of the financial hurdle of the banks, t5hey will be required to pay illegal managers. Obvious reason already pointed out. Not withstanding thus, ideology of swapping dust into equity will actually reduce the dust scaring  ration  of the privatizable companies but may  lead to  a complete neglect of the objective of privatization which is inject market discipline at the board level. Hhmad(1956:24).

For instance, assuming government decide to privatize osogbo steal rolling mill and this company is heavily in debated to Nigeria Arab bank 9a bank where government owns majority of shares).  If this bank is allowed to snap their dept to equity in this guidelines rations its stated percentage ownership in osogbo mills the immediate effect is that government ownership, management an control of this company is infested indirectly while the public believes the centrally. As a consequences of this development, the ownership stature of this privatization and commercialization decree No.25 1988 may still basically same which the privatization program is actually against.

Another viewer recognize that commercial banks have registry departments which perform function such as housing of shares, which can be done in privatization. Raza (1988:14) understandably it is possible for commercial banks to perform role but it can be best achieves by the merchant banks because commercial banks lack the requisite experts to handle such issues.  Merchant banks have adequate trained personnel in almost all spheres of business.

Secondly, the nature of commercial banks deposit do not allow for any long-term lending.

Finally, in highlighting the role of commercial banks we should also take into account  the fact that because of the obvious distance betimum the would be-investors end the privatisable companies and also the spare regional segmentation of most issuing houses, commercial banks should serve as source of obtaining relevant information about these companies to be privatized.


Banks have their peak in most urban areas but deep down the rural areas, a lot has to be done to bring banking to the doorsteps of rural dwellers.

It is   a fact that commercial banks play a great role in the smooth appraise of the exercise.

  1. Uneven distribution of application from has attributed to fraudulent attitude of most commercial banks staffs to startage of application forms arising from inexperienced distribution channels. It is also on record that the privatization of Nigeria flourmill, applications did not reach commercial banks with the result that of its branched did not receive any application from the expiration of the exercise.
  2. Poor attitude of commercial bank staff preferential treatment has however become a tradition with most commercial banks in stranding of loans commercial banks have conditions for lending to prime and ordinary customers reflected in the interest rate exchange for loan and the moratorium period.
  • Improper information Dissemination: admittedly, the distribution of prospectors keeps the recipients or the investors informed about the position of the company to be privatized. However this should go beyond mere display of application posters and distribution of prospectors which was the role commercial banks played in providing information in the indegenisation are. It should be noted that issueds houses cannot convinnently achieved a wide dissemination of bthe information required financial institutions thereby more rural dwellers can not afford the expenses materially and otherwise of traveling to towns to seeks for information from the issuing houses on these privatized companies.
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These information are necessary to facilitates easy privatization programmed but the question therefore is who and how shall it be affected?

  1. iv) Non- provision of credit by commercial banks: one of the function of commercial banks is to provide credit, therefore considering the liquidity nature of Nigeria economy now to avoid the possibllity of the share being concerned by few rich, commercial banks should provide  credit to disadvantaged Nigeria with which to purchase shares of the privatisable companies as provision of credit to will to- do class.



The  proponents of privatization have tended to support its pursuit with the following potential gains from the exercise to Nigeria.

  1. It promises to raise government revenue. People have expressed disappointment at the amount of losses suffered by the nation in the hands of the operators of public enterprises. Government treasury is being drained through the regular subventions needed to support those ailing ventures.
  2. They therefore reason that if those ailing enterprises are sold off to the interested private person, them there is instant revenue to the government from the sole. This is in addition to the fact that the lickage has erased. Furthermore, the privatized formerly sick enterprises are very likely to be revived and become prosperous on indirection of this revival is their ability to now make profits. Government revenue is further increased by the collection of profit taxes if properly assused and properly collected, excise taxis can also be imposed.

Many public business are known to  have failed because of their available poor performance in terms of low output an income generation.

A natural consequence of this failure is the massive lay off of labour thereby crating several unemployment.

Those in favour of privatization then believe that if such dormant enterprises are privatized and revived those qualified labour will be immediately reabsorbed. As the business further prosper and expend, more employment will be made.


The degree of financial malpractices and general looking of the assets of the enterprises experienced under government control will be drastically reduced. Such business now become somebody’s concern instead of nobody.

The private owners will monitor the activities of the various officers of these privatized ventures very closely. Those financial malpractice are readily discovered and exposed . corrective measure are promptly taken against the offenders to serve as disinfects  to other intending emprits.


Government is relieved of the heavy financial burden it had been subjected to   in term of the numerous regular sub ventures it had been making to sustain the lither to unlivable ventures. This relief can now enable a responsible government to direct its energies other social programmes, which can generate greater social benefits.



The enterprises are li8kely to be more productive after privatization than when under the government ownership. This assertion is rooted in some considerations.

For one thing, the private owners who are desirous to succeed are very likely to hire competent professionals to run their business as the professionals. For another thing, would be given free hands to organize the technical and economic senses.

Furthermore, the work force is expected to be more devoted to the goal of the organization. This is because private ventures are usually ill disposed to accommodate indolence behaviour patterns. Again, there is little or no room for disguised unemployment easily accommodated by the enterprises under government control.

Moreover, the privatized enterprises may be able to produce better quality product than was possible before. This is because they will discover that there are non other competitors that can displace them with more superior items, the monopoly power which they previously exercised under government ownership is very likely to be withdrawn.


Even after noting the numerous potential advantages of privatization, some people still fell uncomfortable with privatization in Nigeria. Their displeasure is predicted on what they consider as the distasteful aspect of the scheme which are discussed below.


The wealth of nation will be more heavily concentrated in the hands of a fem privilege/affluent member of the Nigeria society. Majority of the Nigeria cannot afford to buy shares from the public enterprises that are to be privatized. They are very poor. They are further impoverished because even the title claims over the collective wealth when it was controlled by the government has non been forcibly removed from them they remain dispossessed all the more.


Private concern are generally associated with  maximum profit motives one way through which they attempt to achieve this objectives is by high price changes of their products. Those high prices may be above the reach of many of those that genuinely need the effected commodities some of them that manage to buy do so below the quantity they really desire. The product of the society are therefore not equitaqble distributed since those that need them most gain the least access to them.

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In the further pursuit of profit, the non-owner of the privatized ventures. One initial excise carried out in privatized ventures is the rationalization of staff. They may be a harmful mechanization or automation of formerly more labour- intensive venture when under public control is therefore disposed with capital.

The obvious consequence is high rate of unemployment. The economy can suffer from depression as unemployment rises due to zero incomes for many, leading to reduce demand.

This is the situation feared by kerl mares an for which he warned the capitalists to beware of pricing themselves out of existence. All the above are sourced of social tension and disquilibrium which can degenerate to social unrests and leads to massive losses in lives and property if not thoughtful handled.


Privatization can easily lead to the economic colonization of a developing country like Nigeria by the more advanced or industrialized nations off the moved. This can occurs when through privatization these foreign interest succeed in buying up the privatized lays sector of the economy. They are undoubtedly richer than the indigenous enterprises. They are so for better equipped to take over these major businesses.

If that one happens, then definitely the Nigeria will degenerate to more observers of the proceedings in the nation’s economic activities. By a stretch of the imagination, it becomes obvious that having handled over the control of the economy t5o the foreigners it makes no nation since thinking that  the nation has attained potential independence really.


Allowing private interests to acquire and control sensitive ventures in the country can really expose the general life o the nation to serious danger.

To privatize the production of heavy arms ammunition in Nigeria can give rise to indiscriminate use of five arms in the society. The level of violent crimes and consequent mortality rate will be too high that will obstruct the achievement of the desired progress in the nation. Peaceful environments attract development.



It is patently elder that Nigeria is poised to embark on privatization. It is therefore necessary to reflection  some measure that may be adopted in order to minimize the          unpalatable effects of that exercise.

  1. The government has to devise the moans of encouraging Nigerians to play very active roles in the control of the nation’s economic activities. The privatization exercise must not be allowed to marginalize the Nigerians in the ownership of especially the principal sectors of the nations economy. It is not just enough for the Nigeria to buy shares in the privatized business and relax to a fault their by allowing the foreigners to wholly debate the major operations of the enterprises. Such foreigners will naturally emphasis their own personal interest and that of their own nations above the things that concern Nigeria and her citizens.

If the Nigerians exercise effective control over the lay privatized enterprises then the fear of economic colonization will be alloyed.

  1. The government must also endavour to protect the interest of the attempt to privatized business units. She must find a means of demonstrating some sense or fairness and equity in the distribution of the nation’s cash while common enterprises among the various income group in the society.

The government can provide some very soft credit facilities to the low and middle-income earners to assist them in the purchase of some reasonable shares in the privatisable companies. Some percentage of shares in these ventures should be exclusively resured for people in income closes

  • Various paid- employment-generating programmes have to be introduced so those workers that have been discharged by the privatized enterprises can be redeployed.

One fertile sector of the Nigeria economy that can assist

will in this job- creating exercise is the primary or agricultural sector government can expand that sector through to engage the millions of idle able-bodies Nigeria in production activities such expanded employment will also assist in reducing the level of poverty in the entire society.

  1. Government must ensure that the incidence of near absolute monopolies is reduced. Where such monopolies are unavoidable their operations have to be regularly monitored. This is necessary to discourage them from exploiting the other Nigeria through the provision of subtended goods or changing exorbitant prices for their products.

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