Problems of Financing Government Corporations

Abstract of Problems of Financing Government Corporations

Government Corporation or parastatals are partly or completely financed by government.  Some of these government funded parastatals operate in some private fashion.  Government presence coming only in the form of control, directive and subvention.  Example mass transit services of state or local government. This research proper is on the “problems of financing Government Corporation. The information for the study was collected using primary and secondary methods of data collection. For the primary data collection, questionnaires, personal observations and oral interviews were used while existing literature relevant to the topic was consulted for the secondary data. The researcher used T-Test statistical model to analyze the data. At the end of this research work the researcher made the following recommendations; sufficient finance should be made available to government corporations through commercial banks, this has to be discovered to be the major failures and problems of corporations.  Sufficient supply of adequate finance will help the corporations to run and operate their activities efficiently. Furthermore, inadequate funding of corporations has a significant effect on its activities and performance.  Government should try and back up these corporations under their control by providing enough fund to them.  this will help the corporations to be able to operate very well and then be of help to the nations yearly budget. Lack of fund has really prevented them from backing up the numerous project they had intended to do and thereby has performed badly generally.

Chapter One of Problems of Financing Government Corporations

INTRODUCTION

Background Of The Study

Directorial improprieties in public corporations is expressed most frequently in terms of misrepresentations in financial statements of such corporations, manipulation in the stock exchange, commercial bribery, bribery of public officials directly or indirectly, in order to secure favourable contracts, embezzlement and misapplication of funds etc. These varied types of directorial criminality consist principally of violation of delegated or implied trust which can be reduced into two categories: misrepresentation of asset values and duplicity in the manipulation of power. The financial loss from directorial criminality high as it is, does not match the damage to social relations, resulting from mis-governance to social relations. Directorial criminality and mismanagement, thus violate trust and creates distrust.

Directorial improprieties, though has civil implications is crime in real sense since it is a violation of criminal law. And again, because “corporate law is widely believed to be tilted against shareholders of corporations” and because, “it is no more anomalous that shareholders do not manage or control “their” corporations and because directorial improprieties leads to bankruptcy criminal law has responded by providing appropriate machinery for control of the income of the public corporations. This paper seeks to assess the effectiveness of the machinery put in place by law to ensure control of directors. Public corporations on enterprises involve state ownership and control of certain utilities. Usually, the form and characteristics of public enterprises are regulated by the appropriate legal and institutional system of the particular country.

Public corporation are enterprises, which are partly or wholly owned by the government, which private enterprises have been unable to take care of due to lack of adequate capital.

Government have generally started playing a major role in economic development and in starting large enterprises in public sector.  Many parastatals come into being when it was believed that rapid economic development required the state to take on the role of an entrepreneur/should also be know that government involvement in running public sector help in shaping its economy.  Government ownership of these enterprises is to help improve its social and economic well being of her people and those amenities that the entrepreneurs cannot provide.

In any organization, there are so many components put together that make for an effective performance.  One of the se components is fund.  The problem that arises is the adequacy of the fund for effective oiling of the operations of an organisation, throughout its lifetime.  Many organisations which started well at the initial stage have failed by the wayside die to shortage of available funds.

Public enterprises could be classified into four categories, according to the degree of government participation in ownership and intervention in management.  We have the governmental departments or ministries and agencies like INEC, NBTE.  Government invested enterprises where the government held at least 50% of the equity and appoint management.  Subsidiary company of government invested enterprises which allow the government to invest indirectly through government invested enterprises and others.  And also government back enterprises where the government hold less than 50% of the stock.  In developing nation there is a general believe that government should own and control enterprises; and government gave majority control of them appoint top management.

Over the past decades, the number and variety for public enterprises in developing country like Nigeria, the overall performance of these enterprises have been rather disappointing.  They have suffered staggering loss thereby becoming a major drain on national budgets and the principal sources of heavy external borrowing.  They have equally failed to generate the expected job opportunities. The public enterprises have been pioneers in strategic and technology intensive field and through the price of public sector product such as coal or electricity have also had a significant impact on overall price levels.

However, the following have contributed to the poor performance and poor efficiency in these enterprises:

a.           Obscure and sometimes conflicting managerial goals.

b.          Inadequate management accountability and autonomy.

c.           Excessive government accountability and autonomy.

d.          Excessive government interference in day to day management

e.           Poor personnel and incentive system

f.            Inappropriate pricing and credit policies

g.           Poor financing

They have contributed to poor performance of public enterprises.  The financing and management of these parastatals caused a serious problem in our economy.  Its only very few government enterprises that are independent in the issue of financing, other solely depend on government.  The fate is yearly tied on the national budgets because they are financed by way of grants, subsidies or loan from government, if budget is delayed or cut down proposed expenditure, the funds of these enterprises will also be affected.  This will determine their performance for that very year whether surplus or deficit is to be made.

The Enugu State Transport Company (ENTRACO) was launched on 12th September 1988 by the military governor of Enugu State Col. Robert Nnaemeka Akonobi under the auspices of the Federal Urban Mass Transit Programme (FUMTP).  This programme is aimed at alleviating the transportation problem of the people, which was occasioned by the dearth of commuter vehicle (buses, cars).

To ensure that the ENTRACO was incorporated on the 8thDecember 1988.  the government has 30% share while remaining 70% will go to the public.  Staff will also own shares in the company.  The motto of the company is ‘’service and comfort’’.

The Company’s Fleet

The Enugu State Transport Company has a fleet of 70 vehicles as the time of writing this project, comprising the following:

a.           10 Peugeot 504 pick up van

b.           10 Peugeot J-5 bushes

c.           20 Mercedes benz 6080 buses

d.          10 Mercedes Benz 0365 buses

e.           20 L300 Mitsubishi buses

a.     Intra-City Services

The intra-city service is in operation in Enugu and Onitsha, in Onitsha the company operation nine routes. Each of these routes is depicted with a particular number/colour for easy identification by commuters.

While on the inter-city service, seven major routes are operated to major town in the state they are:

Awka        –       Ekwuluobia

Awka        –       Enugu

Awka        –       Onitsha

Awka        –       Nnewi

Awka        –       Nnobi

Awka        –       Abakiliki

Awka        –       Nsukka

b.     The Composition Of The Board

The composition of board is a follows:

1.          The commissioner for works, housing and transport

Enugu State.

2.          The general manager of the company

3.          The accountant of the company

The commissioner is representing the government while the other two are representing the company.  The management team is appointed by the board of directors. The composition is as follows:

a.           General manager

b.          Deputy general manager

c.           Accountant

d.          Operation manager

e.           Public relation officer

f.            Purchasing officer

g.           Administration manager

As the time of writing the project work the above board members are in office.  The company has the following departments.

a.           Administration department

b.          Account department

c.           Traffic department

d.          Stores department

e.            Workshop and engineering department

f.            Security department

g.           Internal audit department

h.          Planning and monitoring department

c.     Organisation Chart Of ENTRACO

Sources:   ENTRACO Journal

Statement Of The Problem

The problem facing government parastatals are of difference factors.  The major of which is the lack of adequate financing.  Due to inadequate fund, government parastatal tends to operate at a low capacity or inefficiency thus making services being rendered to the general public poor.

Enugu State Transport Company for instance has been having problem of financing: is it because government does not finance them the way they should?  Does the poor financing effect their earning for transportation and other source of revenue? Is it because of poor state of economy that government earning from both domestic and foreign sources were affected, and government subvention to corporation were fell drastically?

Objective Of The Study

The purpose of this study is to know the financing problem of Government Corporation, which actually have hindered their efficiency and profitability and ways it can be solved.  The objectives are

1.          To highlight the importance of adequate funding of Enugu State Transport Company to the improvement of services offered to its customers

2.          To determine the extent to which the high interest rates charged by commercial bank affect the loan seeking habit of Enugu State Transport Company.

3.          To ascertain the affect of inability of Enugu State Transport Company to provide adequate security on the obtaining of finance.

4.          To ascertain the effect of inadequate funding of Enugu State Transport Company on its activities and performance.

5.          To determine the extent to which commercial bank finance the activities of Enugu State Transport Company.