Public Enterprises

CONTENT

1.         Features of Public Enterprises

2.         Reasons for government ownership of Public Enterprises

3.         Advantages and Disadvantages of Public Enterprises

4.         Sources of Capital/Finance for Public Enterprises.

PUBLIC ENTERPRISES

Public Enterprises are business organizations established, owned, managed and controlled by the government. They are also referred to as Public Corporations or Statutory Corporations.

Examples of Public Enterprises in Nigeria are PHCN, NNPC, NRC, NPA e.t.c.

METHODS OF FORMATION OF PUBLIC ENTERPRISES

1.         Creation by Act of Legislature or a Decree

2.         Nationalization of private industries

Nationalization is the bringing of ownership and management of private industries under the control of the government. Nationalized industries are therefore industries taken over from private owners by the government.

FEATURES OF PUBLIC ENTERPRISES

1.         They are owned and financed by the government

2.         They render essential social services

3.         Profit making is not the main motive of their establishment.

4.         They are usually monopolies

5.         They are established by Acts of Parliament or Decrees

6.         They are managed by appointed Board of Directors

7.         Their employees are public servants

8.         Huge amount of capital is involved in their establishment.

9.         They are separate legal entities

10.       Their services are restricted

11.       They enjoy perpetual existence

REASONS WHY GOVERNMENT OWN PUBLIC ENTERPRISES

1.         The large capital requirement which is needed in some business cannot be provided by private interests

2.         For price control and consumer protection purposes i.e. to prevent exploitation of consumers

3.         To control or curtail private monopoly powers

4.         For strategic and security reasons

5.         To generate revenue for the government

6.         To prevent foreign dominance of the economy

7.         To provide essential services to the citizens at affordable prices.

8.         To avoid wasteful duplication of facilities and services inherent in market competition.

9.         To provide employment opportunities to the people

10.       To ensure even distribution of income.

11.       To ensure constant supply of goods and services and checkmate the activities of hoarders of goods

12.       To control vital economic activities eg. NNPC, FAAN.

13.       To promote rapid and even economic development of the whole country eg. Rural industrialization

14.       To encourage research and development activities.

15.       To provide a model of efficient management in some social and economic activities eg. State farms, universities, schools, hospitals etc.

EVALUATION

1.         List and explain six reasons for government ownership of enterprises.

2.         State and explain five feature which are common to public corporation and public limited companies

ADVANTAGES OF PUBLIC ENTERPRISES

1.         They ensure steady supply of essential services

2.         They prevent exploitation of consumers

3.         They provide employment opportunities for people

4.         They generate revenue for the government

5.         They enhance the provision of infrastructural facilities

6.         They check duplication of the facilities and wasteful competition

7.         They ensure the development of critical capital intensive projects eg. Steel industry.

8.         They provides essential services at reasonable costs

9.         They check foreign domination of the economy

10.       They uphold and strengthen national security

11.       The are accountable to the public – they have to submit their annual reports/accounts to the Parliament

12.       They ensure availability of enough capital for projects

DISADVANTAGES OF PUBLIC ENTERPRISES

1.         Their operations involve very large capital requirements.

2.         Very slow decision making process, bureaucracy and red tapism

3.         Prevalence of large scale fraud, corruption and mismanagement.

4.         Frequent government/political interference of its activities and management

5.         Politicization of appointments.

6.         Inefficiency of its operation e.g poor and irregular services.

7.         Poor and epileptic funding by the government.

8.         Diseconomies of large scale production

9.         Non-challant attitude, lack of commitment, laziness, negligence on the part of workers.

10.       Dependency on the public treasury for funds. Public enterprises are usually chronic loss-makers and as such constitute a drain on public funds.

11.       It lacks privacy.

SOURCES OF CAPITAL/FINANCE FOR PUBLIC ENTERPRISES

1.         Grants and subvention from the government.

2.         Grants from foreign countries or international organizations.

3.         Internally generated revenue/retained profits

4.         Loans from banks or other financial institutions

5.         Trade credits (i.e. credit purchases)

6.         Hire purchase

7.         Equipment leasing

8.         Sale of Assets

EVALUATION

1.         Explain five difference between public limited companies and public corporations

2.         State six disadvantages of public corporation

GENERAL EVALUATION QUESTIONS

1. State three uses of capital as a factor of production
2. State four uses of land as a factor of production
3. State five features of a partnership business
4. Explain five reasons why government participate in business
5. State five advantages of a public limited company

WEEKEND ASSIGNMENT

1.         The most common form of business unit in West Africa is (a) Co-operative society (b) Joint stock company (c) Sale proprietorship (d) Public corporation.

2.         Which of the following would not affect the form of a business unit (a) Availability of raw materials (b) The type of business (c) Number of persons involved (d) The capital size.

3.         The functions of public corporations include the following except (a) Providing even development (b) Providing employment opportunities (c) Providing essential services to the public (d) Maximizing profits for the board members

4.         Which of the following is established to provide essential facilities to the citizens (a) Public limited company (b) Public corporation (c) Sole proprietorship (d) Co-operative society

5.         Which of the following is a public monopoly (a) Lever Brother Nigeria Plc (b) PZ Nigeria Plc (c) National Electric Power Authority (d) United African Company Ltd

THEORY

1.         List the Sources of finance available to a Public corporation.

2.         State four advantages and two disadvantages of public corporations

READING ASSIGNMENT

1.         Essential Commerce for SSS by O. A. Longe Page 173 – 177

2.         Comprehensive commerce for SSS by J. U. Anyaele Page 311 – 316