Meaning, Origin, Classification and Characteristics of Public Enterprises


Meaning, Origin, Classification and Characteristics of Public Enterprises

Meaning of Public Enterprises

Public Enterprise essentially has the features of several individuals who act as one. The enterprise thus is viewed as an artificial person is authorized by law to carry on particular activities and functions. It is described as a corporate body created by the legislature with defined powers and functions and interpedently having a clear-cut jurisdiction over a specified area or over a particular type of commercial activity.

Public enterprise is part of government apparatus and three implications are hereby highlighted. First, a public enterprise, by virtue of its intricate relationship with government, is an instrument of public policy and its primary mission is in connection with governmental control. Second, a public enterprise, by its nature, mostly manages public resources, especially public money and this means that attention must be paid to mechanisms for enforcing accountability. Third, the combination of financial and economic objectives with social and political aims invariably makes it difficult to devise appropriate performance measurement instrument.

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Origin of Public Enterprises

The origin of public enterprise could be traced to early twentieth century when government intervened in economic management through departmental organizations, which did not involve creating autonomous 12 public bodies. In the alternative, it granted license to a private enterprise for the management of natural or national monopolies and where public bodies were involved in managing economic ventures, such bodies did not enjoy financial autonomy. Public enterprises made a very strong appearance after World War I for a variety of reasons, including managing the consequences of war, especially the economic crisis of the 1930s. However, public enterprises sector develop rapidly because of the spread of Keynesian interventionist. Between the two World Wars, political and ideological consideration prompted the establishment of parastatals in the former colonial metropolis.

The movement towards the establishment of public enterprise received a new impetus after World War II for reasons related to both ideological considerations and economic efficiency. Economic nationalism and the success of the soviet Revolution paved the way for nationalism and strong state intervention in national economic management. When the former European colonies in Africa became independent in the late 1950s and the 1960s, there were only a few public enterprises in different countries. The public enterprises sector then developed at a tremendous pace in the immediate years after independence through the 1980s and a huge public enterprise was firmly established in most countries. The weakness of the private sector, the lack of infrastructure, the low level of social and human development, and the unfavourable social, economic and financial environment are some of the reasons given to explain the proliferation of public enterprises in all areas of economic and social development. Other reasons include the urge to generate revenue to limit foreign economic domination, and to provide a substitute for private initiative where it was not forthcoming. Public enterprises in Nigeria date back to the colonial era when colonial government established some public enterprises to provide essential services like electricity, railway and water. The post independent era marked a watershed I the growth and spread of public corporations. At Independence in 1960, Nigeria had 50 public enterprises, 200 in the 1970s and 1,500 in 1987 when government embarked upon economic reform programs. The factors that accounted for the phenomenal increase include: the evolution of the federal administrative structures, the oil boom, and successive governments commitment to making public enterprise an instrument of state economic intervention in the 1970s.

 Characteristics of Public Enterprises

The main characteristics of public enterprises in the words of Ekhator are:

 i. A public enterprise comes into existence as a result of an act passed by the legislative or a decree under military rule. Public enterprise also defines its aims and objectives, powers and duties, immunities, the form of management and relationship with established departments and ministries.

ii. It is a legal person, capable of suing and being sued, entering into contracts, acquiring and owing property in its own name and can also dispose of property than ordinary government departments.

iii.  It is wholly owned by the state.

iv.   Except for appropriations to produce capital or to cover losses, a public enterprise is usually independently financed. It obtains its funds from the treasury or the public and from revenues derived from the sale of goods and services. It is authorized to use and reuse   its revenues.

v.    It is generally exempted from most regulatory and prohibitory statues applicable to expenditure of public funds. There are no hard and fast rules behind them in the matter of making contracts of buying and selling works, etc. thus, a great deal of liability and discretion is left for the management in the matter of procedure.

vi.  It is ordinarily not subject to the budget, account and audit laws and procedures applicable to government departments. There or any other person appointed by him. However, both the accounts and audit are commercial in nature.

vii.     Excluding the officers taken from government departments on deputation, the employees of public corporations are not civil servants and are not governed by government regulations in respect of conditions of service. The recruitment is not subject to Civil service rules, promotion is by seniority and personnel can be fired easily if they are incompetent.

viii.     Corporations are free from the control of the legislature.

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Classification of public Enterprises

Public enterprises are classified into three; namely public/statutory corporations, state-owned companies, and mixed economy enterprises.

These are explained below:

1.   Public/statutory corporation: These are enterprises, which arise when the government assumes responsibility for the management of an economic or social pursuit through a special entity that has its own legal personality and still keeps some of the special prerogative or privilege associated with a governmental organization. The blend of these features is aimed at enabling the organization to function effectively as an autonomous body while it remains an instrument of government policy. Enterprises that falls under statutory corporations include Central bank of Nigeria (CBN), Nigeria television Authority (NTA), and Federal Radio Corporation of Nigeria (FRCN) among others.

2.   State Owned Corporation: these are companies created by government under the provisions of ordinary company law, though they belong entirely to the government. They are registered in the registry of companies, with the government as the Sole Proprietor. Government, therefore, appoint the board of Directors as is customary in private companies, examples of such companies includes New Nigeria Newspaper Ltd, New Nigeria Development Company Ltd, and Odua Investment Company Ltd.

3. Mixed-Economy Enterprises: these are enterprises where the government is the majority shareholder in a partnership with private entrepreneurs. In such companies, government usually dominates the board since it is the major shareholder.  One examples of such enterprises is Peugeot Automobile Nigeria Ltd. (PAN)

 Establishment of Public Enterprises

The creation of a public enterprise raises some important legal issues. Whether a government is setting up a Parastatal from scratch or is taking over ventures belonging to private interest, the choice of the legal status of the enterprise depends greatly on the prevailing constitutional and legal provisions on government intervention in business and private property protection.

1.  Establishing a public Enterprises from scratch: This in a democratic setting, the primary responsibility lies with the legislature. This is to restrict individual right and public liberties, as it affect free competition and whatever reduces the freedom to embark on an economic activity in the society that recognize private initiative must be backed by law.

2.  Taking over Private Business: the process of taking over private enterprises of transferring the ownership of private enterprises to government is called nationalization. And enabling law is needed to affect such a transfer, which in some cases the enterprise being taken over is specifically mentioned in the law, but in other cases some general criteria are indicated to delineate the activity or type of entities concerned.

 3.     Dissolving a Public Enterprise: A public enterprise can be dissolved by liquidation, a transfer to private ownership (privatization), or a merger with another public enterprise. In the last case, the executive arm of government can handle this, but in other cases, an act of parliament is required.

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