Public enterprises are business organizations owned and operated by the government.
They are usually established by law to provide essential goods and services or to carry out commercial activities in the public interest.
Their main aim is to serve the public and promote national development, not just to make profit. Public Enterprises are also known as Public Corporations.
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Reasons For Government Ownership Of Public Enterprises
1. Large Capital Requirement
Public enterprises often require significant capital investment, which may be beyond the financial capacity of private businesses.
2. Revenue Generation
These enterprises serve as a source of income for the government, helping to fund other public projects and services.
3. Limiting Foreign Control Of The Economy
The government may establish or participate in certain businesses to reduce or prevent excessive foreign influence and control over key sectors of the economy.
4. Eliminating Wasteful Competition
Government involvement can help streamline operations in certain industries, thereby avoiding unnecessary duplication and unhealthy competition.
5. Avoidance Of Duplication
Public enterprises are created to prevent the wasteful duplication of capital and resources that may occur if several private businesses engage in the same essential service.
6. Provision Of Infrastructural Facilities
The government may establish enterprises to develop infrastructure such as roads and railways. These are vital for national development but may not attract private investment due to low or delayed returns.
7. Prevention Of Monopolistic Practices
Public enterprises help to curb monopoly by ensuring that essential goods and services are not controlled by a few private firms, which could lead to inflated prices.
8. Fair Distribution Of Income
Government participation in business helps ensure that wealth and income are distributed more evenly, rather than being concentrated in the hands of a few individuals or companies.
9. To Ensure High Standards Of Service
The government may run certain enterprises, like educational institutions, to guarantee a higher quality of service—especially in areas requiring costly infrastructure that private businesses may not afford.
10. Strategic and Security Considerations
For national security and strategic control, the government may take charge of critical sectors such as airports, seaports, defence, and oil installations, where allowing competition may pose risks.
11. Job Creation
The government may establish or participate in business ventures as a way to generate employment opportunities for its citizens.
12. Provision Of Essential Services
The government provides essential services like water and electricity at affordable or subsidised rates, ensuring access for all citizens, including those who may not be able to afford them if provided by private firms.
Types And Formation Of Public Enterprises
1. Public Corporations
Public corporations are organisations created to manage government-owned businesses. They are set up by an Act of Parliament or a government decree. Some of these corporations operate on a fully commercial or semi-commercial basis.
They are managed by a board of directors appointed by the government, while the minister responsible for the sector serves as the overall supervisor. The board handles the day-to-day running of the enterprise. Example: NITEL (Nigerian Telecommunications Limited).
2. Quasi-Government Departments
These are government departments that carry out certain commercial activities. Although they perform business-like functions, they remain under government control and are accountable to a minister. Example: Government-owned hospitals.
3. State Government-Owned Enterprises
These are businesses established and managed by individual state governments. They usually operate on a smaller scale and focus on services that meet the specific needs of their region.
They are created through state edicts. Examples: Lagos State Transport Corporation, Lagos State Water Corporation.
4. Local Enterprises
Local enterprises are set up by local governments through bylaws. They provide and manage services such as health care, education, recreation, and abattoirs.
Many of these enterprises are located in rural areas to support local development.
Advantages Of Public Enterprises
1. Provision Of Infrastructure
Public enterprises help in the development and delivery of essential infrastructure such as roads, schools, railways, and electricity to the general public.
2. Access To Large Capital
Since these enterprises are funded by the government, they usually have access to sufficient capital, allowing them to expand and operate effectively.
3. Continuity And Stability
Public enterprises tend to have a long-term existence, as they are not easily affected by changes in ownership or market conditions.
4. Support For Capital Projects
The establishment of public enterprises often promotes the execution of large-scale development projects, such as rural electrification and water supply.
5. Consumer Protection
These enterprises are designed to prioritise public welfare, helping to prevent the exploitation of consumers by keeping prices fair and services accessible.
6. Maintenance Of High Standards
Government involvement in certain sectors ensures high standards in service delivery, such as in education and healthcare.
7. Public Accountability
Public enterprises are answerable to the government and, by extension, the citizens, ensuring transparency and responsibility in their operations. They are accountable to the people, as they are required to submit annual reports and financial statements to the parliament for review.
8. Separate Legal Identity
A public enterprises is recognised as a legal entity, which means it can enter into contracts, sue, and be sued in its own name.
9. Employee Welfare And Job Security
Workers in public enterprises often enjoy better job security and benefits, as the government ensures their welfare is protected.
10. Employment Creation
Public enterprises help reduce unemployment by offering job opportunities to a large number of people.
11. Benefits Of Large-Scale Production
With access to substantial capital, public enterprises can expand their operations and take advantage of economies of scale, leading to increased and more efficient production.
Disadvantages Of Public Enterprises
1. High Capital Requirement
Setting up a public enterprises requires a very large amount of capital, making it expensive to establish and maintain.
2. Government Interference
The government may interfere with the operations of public enterprises by appointing unqualified or inexperienced individuals to their boards, which can negatively affect performance.
3. Operational Inefficiency
The absence of competition often leads to inefficiency and poor management within the enterprise.
4. Risk Of Monopoly Abuse
Since many public enterprises operate as monopolies (e.g., NEPA, now PHCN), they may misuse their dominant position, leading to unfair practices.
5. Bureaucracy And Red Tape
Decision-making processes can be slow and cumbersome because approvals often have to go through many layers of administration.
6. Corruption And Mismanagement
Many public enterprises have become hotspots for embezzlement and misuse of public resources.
7. Lack Of Profitability
Most public enterprises run at a loss due to their large size and complexity, making them difficult to manage efficiently.
8. Wastage
Wastefulness is often tolerated because losses are absorbed by taxpayers, reducing the incentive to minimise costs.
9. Lack Of Initiative
Employees and managers may show little initiative because all major decisions require government approval, limiting flexibility.
10. Lack Of Privacy
Public enterprises must publish their annual reports, which means they have little to no privacy regarding their operations.
Read also: Reasons For Government Ownership Of Enterprises
