Privatisation and Commercialisation – SS3 Commerce Lesson Note (Second Term)

Privatisation is the transfer of ownership of a business from the government to the private sector, so the government stops being the owner. Commercialisation is the running of a government-owned organisation to make profit, with ownership and control staying with the government.

Behavioural objectives

1. Define privatisation and commercialisation.
2. State the advantages and disadvantages of privatisation.
3. State the advantages and disadvantages of commercialisation.
4. Explain the ways in which privatisation is carried out and the features of commercialisation.
5. Distinguish between privatisation and commercialisation.

Teaching methods and materials

Instructional techniques

• Identification: students pick out government-owned and privately owned businesses they know.
• Explanation: the teacher explains each term and each point.
• Questions and answers: short questions check understanding.
• Demonstration: the teacher uses a simple example, such as a government-owned water board changing owners.
• Videos: short clips on the topic, where available.

Instructional materials

• Videos: clips on privatisation in Nigeria.
• Loudspeaker: for playing the clips to the class.
• Textbook: a Commerce text for SS3.
• Pictures: photographs of public and private enterprises.

What are the key terms in this topic?

Key terms are the words a student must know before studying privatisation and commercialisation.

• Public sector: businesses owned and run by the government.
• Private sector: businesses owned and run by individuals or groups of individuals.
• Public enterprise: a business set up, owned and controlled by the government.
• Subsidy: money the government gives to an enterprise to help it meet its costs.
• Retrenchment: the removal of workers from their jobs because they are no longer needed.
• Capital market: the market where long-term funds are raised by trading shares and bonds.

What is privatisation?

Privatisation is the transfer of ownership, property or business from the government to the private sector.

• Effect: the government ceases to be the owner of the entity or business.
• Other use of the term: a publicly-traded company taken over by a few people is also said to be privatised.

What are the ways of carrying out privatisation?

There are four ways of carrying out privatisation: sale of shares, direct sale, lease or concession, and management contract.

• Sale of shares: the government sells shares of the enterprise to the public, often through the stock exchange.
• Direct sale: the government sells the whole or most of the enterprise to a private buyer or group.
• Lease or concession: a private firm is given the right to run a government asset for an agreed period.
• Management contract: a private firm is hired to manage the enterprise, while the government still owns it.

Why do governments privatise?

Governments privatise to improve poorly run public enterprises and to raise money.

• Poor performance: many public enterprises run at a loss and depend on government money.
• Need for funds: sales bring money to the government.
• Wider ownership: more citizens can own shares in businesses.
• Better service: private owners have a strong reason to cut waste.

What are the advantages of privatisation?

The advantages of privatisation are more revenue, efficiency, innovation, wider choice and a wider capital market.

1. More revenue: the government generates more revenue during the implementation of the policy.
2. Efficiency: it brings about efficiency and productivity in the business.
3. Innovation: it leads to innovation and a high level of creativity in the business.
4. Choice: it gives consumers an increased range of choices.
5. Capital market: it widens the capital market, since more shares are traded.

What are the disadvantages of privatisation?

The disadvantages of privatisation are job losses, inflation, lower living standards and unequal income.

1. Job losses: it may lead to mass retrenchment of workers.
2. Inflation: it may lead to inflation.
3. Living standards: it may lower the standard of living of citizens.
4. Unequal income: it may lead to an uneven distribution of income.

What is commercialisation?

Commercialisation is the running of a government-owned organisation to generate profits.

• Ownership and control: both remain with the government.
• Aim: the enterprise should cover its costs and earn a surplus, like a private business.

What are the features of commercialisation?

The features of commercialisation are economic pricing, less subsidy, managerial freedom and a profit target.

• Economic pricing: goods and services are sold at prices that cover costs and give a profit.
• Less subsidy: the government reduces or stops its grants to the enterprise.
• Managerial freedom: managers have more freedom to make business decisions.
• Profit target: performance is judged by results and profit.

What are the advantages of commercialisation?

The advantages of commercialisation are government funds, self-sufficiency, lower spending, accountability and competitiveness.

1. Government funds: it generates funds for the government.
2. Self-sufficiency: it makes the enterprise self-sufficient.
3. Lower spending: it reduces the government’s expenditure.
4. Accountability: it promotes accountability.
5. Competitiveness: it enhances the competitiveness of commercialised enterprises.

What are the disadvantages of commercialisation?

The disadvantages of commercialisation are unequal wealth, consumer exploitation, fewer workers and higher prices.

1. Unequal wealth: it may lead to uneven distribution of wealth.
2. Consumer exploitation: it may lead to the exploitation of the consumer.
3. Fewer workers: it may lead to a reduction in the workforce.
4. Higher prices: it may lead to an increase in the cost of goods and services.

How do privatisation and commercialisation differ?

Privatisation changes who owns a business, while commercialisation changes how a government-owned business is run.

• Privatisation: the government hands the business over to private owners.
• Commercialisation: the government keeps the business and makes it earn profit.

Who manages privatisation and commercialisation in Nigeria?

The Bureau of Public Enterprises (BPE) is the agency that carries out the programme in Nigeria.

• Role of the BPE: it handles the privatisation and commercialisation of public enterprises.
• Legal backing: the Public Enterprises (Privatisation and Commercialisation) Act of 1999.
• Enterprises affected: government-owned firms in areas such as telecommunications, power, oil and banking.

Evaluation

1. Define privatisation and commercialisation.
2. State four advantages of privatisation.
3. State four disadvantages of commercialisation.
4. List three ways in which a government can privatise an enterprise.
5. Give three differences between privatisation and commercialisation.

Assignment

Draw a table headed “Privatisation” and “Commercialisation” and, for each, write a one-sentence definition, two advantages and two disadvantages.