ECONOMIC POLICY IMPLICATIONS OF PORT CONCESSION IN NIGERIA

ABSTRACT

Previous research on privatization has focused on its effect on output, profitability, investment, and efficiency at the level of the firm, neglecting the economic growth and other impacts. Nigeria’s port privatization through concession in 2006 covered virtually all the ports in the economy. However, the few studies on the subject neither factored in the complexity that characterize the multiple port system nor controlled for alternative explanations of the changes in the economy. This correlational study tested the property rights theory by investigating whether the changes in production efficiency at the ports following privatization are good predictors of economic growth in Nigeria. Eight years of existing panel data were collected from Nigerian ports, providing 160 observations on several selected variables. The analyses controlled for the influence of confounding or interacting variables and addressed the complexity of the port system using linear programming. The multiple regression analysis showed that privatization, deregulation, cargo increases, interest rate, and inflation rate accounted for high variations in short and long-term economic growth. Port privatization transmitted growth to the economy through cargo throughput increases.  The Malmquist linear programming analysis revealed overall but modest improvements in production efficiency changes after the privatization. By isolating possible areas of efficiency improvements, this study may inform port managers in Nigeria on ways to improve overall competitiveness. The potential contribution of the research to social change lies in clearly identifying the critical variables to economic growth in Nigeria to aid economic planning, poverty alleviation and improving the quality of life.

CHAPTER ONE

INTRODUCTION

Background of the study

Privatization as a policy has existed in one form or another since antiquity. In ancient Greece, the state retained ownership of land, forests, and mines but ceded the provision of services to the private sector. The ancient Romans and Mesopotamians contracted out virtually all services in the state to private individuals and companies. In the Middle Ages, the Catholic Church devised a scheme that allowed landlords and tenant farmers to partner with the state. Although there was a resurgence of privatization during the Industrial Revolution of the 18th century, it was first introduced into the modern economic lexicon in the 1950s, with the privatization of British Steel by Winston Churchill (Parker & Saal, 2003; Yoffee, 2001).  The word, however, gained prominence as a policy instrument with the rise of conservative governments in Britain, the United States, and France in the late 1970s and early 1980s (Starr, 1988).

Over the past 30 years, countries have implemented privatization policies, intending to structure and stabilize their economies.  While the transition economies of Eastern Europe pursued the privatization of their state-owned enterprises (SOEs) as a strategy for transiting quickly from state-controlled to market-driven economies following the disintegration of the former Soviet Union, the countries of subsaharan Africa (SSA) embraced privatization for quite a different reason. The latter adopted privatization at the insistence of the World Bank and the

International Monetary Fund (IMF) with the strict implementation of the Structural Adjustment Program (SAP) as a precondition for the provision of economic relief packages. Economic relief became necessary when the subsaharan African countries faced serious macroeconomic challenges including budgetary constraints, widening current accounts, growing foreign debt, rising inflation, and balance of payment difficulties in the mid-1980s (Al-Obaidan, 2002). 

Nigeria is one of the SSA countries that embraced privatization, a policy instrument of the neoliberal growth theory of the early 1980s. According to neoliberal growth theory, the property rights conferred by way of privatization incentivizes the private sector to make a greater investment, intending to achieve higher efficiency gains, better services, increased productivity, and profitability (Tongzon and Heng, 2005). To date, Nigeria has undertaken the privatization of over 167 SOEs in power, telecommunications, financial services, and manufacturing (Chigbue& Bureau of Public Enterprises [BPE], 2007). A total of 24 of Nigeria’s seaports were among the

SOEs privatized by the Nigerian government (Adi, Iheanachor, Ndukwe, & Dim, 2013; Eniola, Njoku, Oluwatosin, &Okoko, 2014; Jaja, 2011; Oghojafor, Kuye, & Alaneme, 2012). As recently as 2012, Nigeria privatized 17 successor companies of its erstwhile electricity monopoly, renowned for its epileptic power supply, brownouts, and blackouts, after a lengthy sectorial reform process. 

Apart from the introductory section, there are 12 sections in this introductory chapter to the study. The first section provides background for this study. The section commences with a brief summary of the research literature related to the growth impact of the privatization of ports. The section also presents the literature relevant to the scope of the study topic and describes the knowledge gap I sought to address. The next section presents a statement of the research problem, including a summary of the evidence of the currency, relevance, and significance of the study to policy analysis. The section also identifies the gap in the literature that the study was intended to address. The third section addresses the purpose of the study; in the fourth section, I present and discuss the research question(s) and hypotheses. The section also identifies the independent and dependent variables of the study, together with the relationship expected and the measurement. The next section introduces the theoretical framework and identifies the theories that underlie the concept of privatization, including their origins and sources, major theoretical propositions, primary hypotheses, and nexus with the study approach and research questions. The section following presents the research design and methodology, along with their justification. The succeeding section provides a concise definition of the variables of the study and the underlying assumptions.