Public Corporations: Structure, Functions, and Economic Impact Analysis

Lesson Objectives

By the end of the lesson, students should be able to:

1. Analyse the problems associated with public corporations.
2. List and describe the sources of finance for public corporations.
3. Differences between Public Corporation and Public Limited Liability Company

Problems Associated with Public Corporations

• Corruption and Embezzlement: Many public corporations suffer from corruption, where officials divert funds meant for development into their personal accounts. Because these corporations are financed by the government, some managers misuse the resources, leading to embezzlement, ghost workers, inflated contracts, and poor service delivery. This reduces the effectiveness of the corporation and wastes taxpayers’ money.
• Inadequate Funding from Government: Public corporations usually depend heavily on government subventions to function. When government revenue is low, these corporations receive insufficient funds to cover their operations, pay workers, or maintain equipment. This often leads to delays in service delivery, breakdown of infrastructure, and poor output.
• Outdated Equipment and Poor Maintenance: Most public corporations operate with machines and facilities that are old and poorly maintained. Due to bureaucracy and insufficient funds, maintenance is often delayed, and spare parts are not readily available. This makes operations slow and inefficient, reducing the quality of services such as transport, electricity, and water supply.
• Low Morale of Workers due to Poor Incentives: Employees in public corporations are often poorly motivated because their salaries and working conditions are unattractive compared to those in the private sector. Promotion may be slow and not based on merit, while allowances and bonuses may be irregular. This low morale leads to laziness, lateness, absenteeism, and poor customer service.
• Political Instability Affecting Management: The management of public corporations is frequently influenced by politics. Changes in government may lead to changes in management boards, even when those removed are competent. Appointments are sometimes based on political loyalty rather than expertise, which results in instability, inconsistency in policies, and poor long-term planning.
• Bureaucratic Delays in Decision-Making: Public corporations often have long chains of command and rigid procedures for decision-making. Before approval for purchases, maintenance, or policy changes is given, files must pass through several offices. This bureaucracy leads to delays in responding to urgent issues, inefficiency, and loss of opportunities.

Sources of Finance to Public Corporations

• Government Subventions (Grants): Public corporations receive regular financial support from the government in the form of subventions or grants. These are funds allocated in the government’s annual budget to help cover operating costs, especially when the corporation’s income is not enough to meet expenses. Subventions are not expected to be repaid; rather, they ensure that essential services like electricity, water, and transport remain affordable for citizens.
• Loans from Government or Financial Institutions: Sometimes, public corporations borrow money from the government or commercial banks to finance major projects such as building infrastructure, purchasing equipment, or expanding services. These loans usually come with lower interest rates when obtained from the government, but borrowing from banks may involve stricter repayment terms. Loans provide corporations with the capital they may not immediately generate internally.
• Internally Generated Revenue (Charges, Tariffs, Service Fees): Public corporations also earn money from the services they provide to the public. For instance, electricity bills, transport fares, port charges, or water rates are sources of internal revenue. Although these charges are usually kept low to make services affordable, they remain an important source of finance to cover part of the operating expenses of the corporation.
• Sale of Shares (Partially Privatised Corporations): In cases where the government decides to reduce its financial burden, it may sell part of its ownership of a public corporation to private individuals or institutions. This process is called partial privatisation, and the money raised from the sale of shares becomes a source of finance for the corporation. Examples can be seen in government-owned banks or telecommunication companies where private investors are allowed to buy shares.
• Donations or Foreign Aid: Some public corporations may benefit from financial assistance in the form of donations or foreign aid. International organisations, donor agencies, or foreign governments may provide funds, grants, or technical support to help improve infrastructure and services. For example, a transport corporation might receive foreign aid to purchase buses or trains to expand its services. Though not a major source, donations and aid can reduce financial pressure on the government.

Differences between Public Corporation and Public Limited Liability Company

Lesson Summary

• They suffer from mismanagement, inadequate funds, outdated equipment, and bureaucratic delays.
• They are financed through government grants, loans, internally generated revenue, and sometimes foreign aid or donations.
• Public corporations are government-owned and service-orientated, while public limited companies are privately owned and profit-orientated.

Tags

Funding, Subventions, Loans, Tariffs/fees, Privatisation, Public Limited Liability Company (PLC), Shareholders, Profit motive, Companies Act, Service provision

Read also: Public Corporation