The Concept and Purpose of Public Enterprises

The Concept and Purpose of Public Enterprises

This chapter will study critically the existing literature on the concept and management problem of public enterprises in general and in Nigeria. International dictionary of management defines public corporation as “body set up by government statute or declare to administer some from of public services. These public service could be economic or socio-political in nature.   According to Friedman (1974:87).

The public corporation became the vague when as part of the aftermath of the second world war, development planning was considered to be more susceptible of solution by the employment of the public corporation as agencies of government than by the time honoured procedures of the civil services departments for reasons that the relativbe independence of public corporations made them more easily adaptable as instruments of social and economic development in an era of rapid changes.

Many definitions and concepts have been given in the public enterprises. According to NS care Jones at al (1974). It is widely accepted basic legal forms of public enterprises, namely, the government department, the statutory corporation and the state company,   established under the general companies law of the state”.

Also defining the public enterprise, the sessional paper No 7 of 1964 states that state owned company is defined as a company in which government is the sole-share-holder, or in which only a small proportion of the share capital is for special reasons left ion private hands on such a conditions that the state can if necessary, have there shares also at its disposals.

J.M. Oruorie (1986) sees government companies as “those companies which are owned by any government in the federation with the basic objective of making profits” he explained that they are in the main limited liability companies and distinct from government corporations which are established mainly to carryout social and essential services.

In the words of S. I. Owyalah (1990) a public enterprise otherwise known as a parasitical is an organization in which the public sector (government ) either wholly owns or has a controlling interest.   He goes further to identify five broad categories of public enterprises.

  1. Organization set up to perform certain specific responsibilities and usually under the direct supervision of a designated ministry, for instance NIPOST.
  1. Organization established by a special legislation to perform specific functions for example, Nigeria ports authority, and Nigeria electric power authority.
  1. Institutions funded by the government through subventions such as universities and research institutions and;
  1. Enterprises which although ow3ned by the public sector do not receive any subventions but instead make their surpluses available to the government for instance, central bank of Nigeria.
  1. The limited liability companies holly owned by the government such as Nigerian airway. Delta steel company.

From the above definitions, the differences not withstanding the common feature is the nature and finding of the organizations. The company is wholly or partly owned by the government and on the other hand, government constitutes finding all or major part of the capital of such enterprises. An enterprises in a commodity money relations economy is an economic unit which produces commodities, engages in trade or provides services mainly for profits, in other words, a concrete economic organization.

Nigeria is running a mixed a economy in which both public and private enterprises operates. Government activities has been increased through the establishment of public enterprises as agencies of economic and social development. The purpose of state enterprises has been viewed from many angles. Government participated in the provision of essential goods and service through the public enterprises which Hanson sees as a state ownership of and operation of industrial agricultural and commercial undertakings. Public enterprises were set up chiefly as part of specific government policies to project or promot6eticu;ar undertaking in the public interest. It is believed that through this way government should obtain control of industrial most vital to the economy.

Stressing on this welfare motive or the government in establishing public enterprises, Beishline (1964) states that the federal government usually engages in activities in this category (public enterprise) in order to unable or unwilling to furnish when the need original arises, supporting the above view, Garey, Jones argued that “it seems doubtful, however, if profitability although one criterion is a sustaining criterion for public enterprises”. From the above statement it is observed that government owned companies are established for the welfare of the citizens and state rather than on purely economic basis.

Reviewing the purpose of government owned companies the labours and transaction between 1945 and 1950 states that public ownership seems to be a unique instrument. First, it is a means of abolishing private ownership, which for various reasons is considered immoral or inefficient. Secondly, it is seen as an indispensable means of central economic planning”

However, in Nigeria, with government participation in commercial ventures of the country, the number of government owned enterprises has increased tremendously. Public enterprises are established an owned by both the federal and state government. These enterprises vary widely in terms of their functions, types of organizations in and nature of operations. Worthy of more is the fact that the “two fundamental principles underlying the concept and practice of public corporations in constitutional law are that they are legal entities that enjoy considerable independence of action and their employees are not civil servants (public corporations are however, accountable to parliament for their doing”. The emergence of parastatals in Nigeria are as a result of both economic and socio-political considerations.


Public enterprises are state participation in production activities. State participation in production activities include public owned enterprises controlled by federal government, state owned corporations and federal or state owned joint stock companies. They are operating them more efficiently (than government department) on profit basis.

In Nigeria, it is defined as comprising all organisation run by employees of any of the government or in which any of the government has majority of the equity holding. That is it is in the study to mean government or quasi-government organisastions that are engaged in activities that are business like in character, involving the provision of goods and services that might be commercially provided.

The government believed that the public enterprises can be used to stimulate and accelerate national economic policies under the conditions of capital scarcity and structural defects in private enterprises.

These are industries that must be organized as public utilities, such as electricity, railway, telephone, water etc. There are also industries that do not pass the test of private profitability, which the private enterprises may be willing or unable to undertake.

Lastly, a public enterprises has a Board of Directors appointed by government as owners of the enterprise. The board controls the corporations especially on policy matters and in itself responsible to a controlling government ministry.


The structure of government parastatals is the same irrespective of the objectives and ownership (state or federal). The government appoint a board of directors, whose functions include the formulation of board policy guidelines. This is in line with the view that the government companies were set up as guard against inefficiency and misappropriation in these industries, like oil, steel, electricity among others considered very important for the growth of the economy.

Bedford Fubara (1983) in the own view states that the intents and purpose for which government owned businesses have been established very considerably. They could be classified as regulatory, promotional, developmental, infrastructural, public service or business commercial. Some of these intents and purpose as are interrelated and multi-dimensional.

There is a host of political reasons for government to take over business enterprises. David Coombes has political view when he argues that public ownership has frequently been sought for political reasons. The purpose of state enterprise would not be so much economic but political in the sense of changing the existing control of industry. In this respect, according to him one of the main purposes of public ownership must presumably be to ensure greater political control. However in the same vein, Garey Jones argues that:

Lack of homogeneity within a country presents the political leadership with another reason for the nationalisation of property: the need to centrilse power and authority. Many countries suffer from deep divisions, they are concerned to diminish or destroy countervening power within the state.

Public enterprises, looked at in another way are though to have a major influence on the differential growth regions and cities. Walts arguing in this direction states that large industrial enterprises (public enterprises inclusive) play an important role in most advanced western economies. Not only do the enterprises produce their own special patterns in provision of employment, in the location of production capacity and in the flows of materials and information: they also, through these influence the special characteristics of the towns and cities with which they are associated. Large enterprises are more innovative and adopt innovations earlier than small firms and therefore, could be established by the government to produce their own special pattern.

The above arguments and views notwithstanding, the public enterprises seems the same anywhere with little significant difference if compared on a global scale. In summary, Martin f. Farns states that “Government intervention in the united states as elsewhere , has been nationalised on many grounds, including defence, the need to combat unemployment, revenue needs for other government activities, failure or inadequacies of private operations, private abuses, resources conservation or on the ideological ground of social welfare or the government nature of the undertaking. Commercial ventures of the nation has not been very rewarding as government owned firms, institutions, industries and parastatals constitute an economic waste pipe resulting from poor management, neglect and avenue for fraud.

Commenting still on the performance of public enterprises, the Business Times of July 12th 1992 states that “a look at the operations of the companies in the public and private sectors shows that the public sector companies perform poorly; their performance in resent times raises eyebrow ass they always and operations in losses and rarely brake-even”

The on-going commercialisation and privatisation practice of both federal and state enterprises is one of the plans for the attainment of government objectives in the restricting of the Nigeria economy. Auka (1985) writing on the reasons for commercialisation and privatisation of government owned companies states that this will enhance their productivity, fair competition within the industries and remove the bureaucracy that clouded their civil service nature.

Considering the nature of government owned companies and the monopoly position which some of these establishment hold, one wonders why these poor performance of the public enterprises.

In his work-performance of Nigeria public corporation- M.S.O. Olisa (1985) grouped the factors that causes inefficiency in public enterprises as economic, socio-political, administration, operational and technical factors. Through the extent of the effect of the same factor on the various organisation differ. This depends on the nature of personalities which make up the board of management, the type of business which the corporation operates and the nature human and material resource needed for its operation.

The economic factor include staffing and staff establishment, high cost equipment uncompetitive or low quality product and service market and market potential, financial management, capital problem, competition, world economic force and intant industry benefit. Among the socio-political factor are political intervention and control, ethnicity, bribery and board and board members, industrial relation and trade unionism. The administrative factor among other are healthy human relationships, management efficiency and intrusion of government bureaucracy. Included in the operational techniques factor are quality of equipment and method, professional expertise and experience and the problem of infrastructure according to him, some of these problem are self-generated.


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3 Comments on “The Concept and Purpose of Public Enterprises”

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