Public Enterprises and Their Structures: Definition, Types & Features

You’re probably familiar with the idea of private companies, owned and run for profit. But have you ever wondered about public enterprises? These organizations may sound mysterious, but they play a surprisingly big role in the economy and infrastructure of many countries. In this quick read, we’ll break down exactly what public enterprises are, the different types, and their key structural features. Whether you’re an economics newbie or want to brush up on the public sector, you’ll walk away with a solid understanding of this unique business model, from its purpose to its problems.

Definition of Public Enterprises

A public enterprise, also known as a state-owned enterprise or government-owned corporation, is an organization that is wholly owned, partially owned, or controlled by the government. These organizations operate to serve the public interest rather than maximize profits.

Public enterprises are established to provide essential goods and services to citizens that may not be sufficiently profitable or appealing for private companies to offer. They often operate infrastructure like public transit, utilities, healthcare, broadcasting, and more. What is the Purpose of a Public Enterprise?

Public enterprises are established to serve the public interest and welfare. Their main purpose is to provide essential goods and services to citizens that private businesses may not find profitable.

The key purposes of public enterprises are:

• Provide public goods and services: Public enterprises provide necessary goods and services for public use, like healthcare, education, public transport, electricity, water supply, etc. These are essential for the economy and human well-being.
• Promote social welfare: Public enterprises aim to promote social welfare by providing affordable and accessible goods and services to the public, especially to lower-income groups. They help raise the standard of living.
• Generate employment: Public enterprises generate employment opportunities in various sectors of the economy. They provide jobs to a large number of people directly and indirectly.
• Facilitate balanced regional development: Public enterprises establish their units across the country to ensure balanced regional development. They help in the development of backward and remote areas by setting up their production units.
• Earn profit: Although profit earning is not the primary objective, public enterprises aim to generate reasonable profits through their operations. The profits earned are used to finance their expansion and diversification programs.
• Increase productivity: Public enterprises make efforts to increase productivity through the adoption of modern technology and management techniques. An increase in productivity helps to reduce costs and improve the quality of goods and services.
• Facilitate economic growth: Public enterprises significantly contribute to the national economy through their operations and investments. They boost demand and production, which facilitates economic growth and development.

In summary, public enterprises aim to serve the larger public interest. They have a huge impact on a nation’s economy and play an important role in providing public goods and services, generating employment, ensuring regional development, and promoting social welfare.

Overview of Public Enterprises

Public enterprises were born out of the inadequacies of private enterprises to provide public services and goods. Governments around the world realized private companies were reluctant to invest in sectors that required large capital outlays and had long gestation periods, low returns, and national priorities. The public enterprises also came into existence as a result of the expanding scope of public administration.

In summary, public enterprises were established to overcome the limitations of private companies in serving national economic priorities.

Features of Public Enterprises

Public enterprises have some typical features that distinguish them from private enterprises. Here are the main characteristics of public enterprises:

Ownership and Control

Public enterprises are owned and controlled by the government on behalf of the general public. The government appoints the top management and makes strategic decisions. The government’s ownership gives it a lot of control and influence over the enterprises.

Service Motive

Public enterprises are not primarily motivated by profits but by the desire to provide services to the community. Their main objective is to serve the public and promote social welfare. They may provide essential goods and services that private businesses do not consider very profitable.

Monopoly Power

Public enterprises often enjoy monopoly power as they are the sole providers of certain goods and services. They do not face competition from other businesses. This can reduce incentives for efficiency and innovation. However, regulation and government policies aim to prevent the misuse of monopoly power.

Subsidies and Budgetary Support

Public enterprises frequently receive subsidies, grants, and budgetary support from the government. They are not fully dependent on their own revenue and profits. This financial support helps them achieve social objectives that may not be commercially viable. However, it can also reduce the pressure to operate efficiently or be financially sustainable.

Job Security

Employees in public enterprises may lack strong motivation and incentive to perform well. They have more job security and fewer performance-based rewards and promotion opportunities. This can negatively impact productivity, efficiency, and service delivery. Providing greater autonomy and incentives for good performance may help address this issue.

In summary, the key features of public enterprises are government ownership and control, service motive, monopoly power, subsidies, and lack of motivation. Recognizing these characteristics can help in understanding how public enterprises function and in identifying their strengths and weaknesses.

Types of Public Enterprises

Public enterprises are government-owned companies that provide goods and services to the public. There are several types of public enterprises:

• Departmental Undertakings: These are managed by government departments and are an integral part of the department. For example, the Railways is run by the Ministry of Railways. These undertakings have very little autonomy.
• Statutory Corporations: These are set up under an Act of Parliament. They have more autonomy than departmental undertakings but still remain under government control. For example, National Freight Company Limited, Nigeria Airways Limited, etc. They have a separate legal entity.
• Government Companies: These are incorporated under the Companies Act and are managed by government-appointed directors. For example, Aero Contractors. They have more autonomy and flexibility in their operations.
• Joint Sector Companies: The ownership and management are jointly shared between the government and private parties. For example, Agip Oil Company Limited is a joint-sector company operated by Agip and owned by NNPC (60 percent). They provide flexibility for the private sector and support for the public sector.
• Public-Private Partnerships (PPPs): These are enterprises in which the government joins hands with private companies to finance, build, and operate infrastructure projects like roads, bridges, hospitals, etc. The private sector brings in technical expertise and management skills. A classic example of a PPP in Nigeria is the contractual arrangement between FAAN and Bi-Courtney Aviation Services for the building, operation, and transfer (BOT) of the MMA2 domestic airport terminal in Lagos.

In summary, public enterprises aim to provide essential services to citizens as well as generate employment. Though there are various types, a common feature is that the government exercises control over its ownership and management. Some enterprises may have more autonomy and flexibility compared to others, but ultimately, they are accountable to the government.

Types of Public Enterprise Structures

Public enterprises can be classified into three main types based on their commercial and noncommercial objectives:

Commercial Public Enterprises

Commercial and public enterprises are government-owned businesses that operate to generate profits. They produce goods and services for sale to the general public. Some examples are public utilities like electricity and water supply boards. These enterprises aim to be financially self-sufficient by generating enough revenue from the sale of their goods and services.

Nonprofit Public Enterprises

Nonprofit public enterprises provide goods and services for the benefit of the public rather than to make a profit. They are often subsidized by the government. Examples include public hospitals, parks, museums, and universities. The main aim of these enterprises is to provide essential services to citizens rather than generate profits.

Mixed Public Enterprises

Mixed public enterprises have both commercial and noncommercial objectives. They aim to generate profits through the sale of goods and services as well as achieve certain social objectives. For example, public transport companies provide an essential service to the public but also try to generate revenue through fares and advertising. Postal services also have a commercial element through the sale of stamps and a social element in providing mail delivery services.

In summary, public enterprises are set up and owned by the government to provide goods and services to citizens. They can have primarily commercial, noncommercial, or mixed objectives depending on the nature of the goods or services they provide. All public enterprises ultimately aim to benefit the public through the provision of essential infrastructure, utilities, and other services.

How are Public Enterprises Funded?

Public enterprises are government-owned companies that provide goods and services to citizens. They receive funding from the government to operate and provide these public services. There are a few main ways public enterprises are funded:

Government Budget Allocations

The government allocates funding for public enterprises through its annual budget. The government determines how much money it will provide to different public enterprises each year based on their operating costs, expansion plans, and other needs. These budget allocations make up a major portion of funding for most public enterprises.

Service Charges

Some public enterprises generate revenue by charging fees for the services they provide. For example, public transit systems charge fares for riders to use buses, trains, and subways. Public utilities charge customers for the amount of water, electricity, or other resources they consume. These service charges provide public enterprises with an independent source of funding, so they are not entirely dependent on government budget allocations.

Borrowing

Public enterprises may borrow money from public and private sources to fund large projects, major expansions, or other capital investments. They can issue bonds to raise funding from public investors and also take out loans from private banks and lenders. The enterprises are responsible for paying interest and repaying the principal on these borrowed funds. Borrowing provides public enterprises with a way to raise substantial amounts of funding for long-term investments and infrastructure projects.

Other Sources

Additional funding sources for public enterprises include grants, subsidies, and endowments. Grants and subsidies are provided by governments, non-profits, and other organizations to support public enterprises. Endowments are large donations of money that public enterprises invest to generate ongoing funding from interest and returns. These other funding sources, while often smaller, supplement the main ways public enterprises are financed.

In summary, public enterprises rely on a combination of government budget allocations, service charges, borrowing, and other funding sources to finance their operations and public services. Together, these methods provide public enterprises with the necessary funding to fulfill their role in society.

Advantages of Public Enterprises

Public enterprises have some advantages over private enterprises. Here are seven main benefits of public enterprises:

Serve Public Interest

Public enterprises aim to serve the public interest rather than maximize profits. They provide essential goods and services even in areas where private businesses may not find profitable. This helps in bridging the gap between supply and demand of certain necessary goods and facilities.

Promote Balanced Regional Development

Public enterprises set up industrial units in backward areas to promote balanced regional development. They help in the dispersal of economic activities over different regions and states. This reduces the concentration of industries in certain pockets and promotes equitable distribution of income and wealth.

Generate Employment

Public enterprises generate huge employment opportunities, especially for the disadvantaged sections of the society. They adopt labor-intensive techniques of production to absorb more labor. This helps in reducing unemployment and poverty in the country.

Protect Consumers

Public enterprises protect the interests of consumers by providing goods and services at reasonable prices. They do not exploit consumers by charging exorbitant prices to earn huge profits like private businesses often do. Price controls and subsidies are used to make essential goods affordable and accessible to all.

Support Other Industries

The activities of public enterprises support and stimulate the growth of other industries through backward and forward linkages. This leads to the overall development of the industrial sector in the economy.

Save Foreign Exchange

Public enterprises produce goods that can substitute imports and save precious foreign exchange for the country. They promote import substitution by manufacturing goods that are otherwise imported from other nations.

Provide Infrastructural Support

Public enterprises set up and develop infrastructure facilities like transport, communication, energy, banking, etc. This infrastructural support spurs industrialization and economic growth of the country. Private businesses also benefit from these facilities.

In summary, public enterprises play a crucial role in the economic development of a country by serving the public interest, promoting employment and balanced regional growth, protecting consumers, supporting other industries, saving foreign exchange, and providing infrastructural support.

Disadvantages of Public Enterprises

Public enterprises, while aiming to serve the public good, also come with some significant disadvantages.

Bureaucratic Issues

Public enterprises are often slow to adapt to changes due to bureaucracy and red tape. Decision-making involves multiple levels of management and government approval, which can stall important initiatives. This bureaucracy also fosters an environment where employees care more about following protocol than achieving results or satisfying customers.

Lack of incentives

Employees of public enterprises typically have little incentive to perform well or be innovative since their pay and job security are not tied to performance outcomes. Promotions are often based on seniority rather than merit. This can cultivate a work culture lacking motivation or accountability.

Political Interference

Government-run businesses are vulnerable to political interference, like hiring underqualified candidates or making decisions to satisfy political donors or lobby groups rather than for sound business reasons. Their focus can shift to political interests rather than serving customers or taxpayers.

Inefficiency

Public enterprises are prone to inefficiency due to a lack of market competition. Without competitors to spur innovation or efficiency gains, these companies have little motivation to control costs or make improvements. They also don’t have the profit incentive that private companies do to optimize resources.

Difficulty Raising Capital

It can be challenging for public enterprises to raise funds for investment in new projects or infrastructure. They rely on government funding and taxpayer money rather than being able to raise funds from private investors or issue bonds. This makes them dependent on annual government budgets and voter approval for financing expansions or upgrades.

In summary, while public enterprises aim to benefit society as a whole, their organizational structure and relationship to government also introduce some disadvantages like inefficiency, bureaucracy, lack of motivation, political interference, and difficulty securing financing. Reforms may help address these downsides, but they remain inherent challenges of the public enterprise model.

What are the Examples of Public Enterprises in Nigeria?

Public enterprises are government-owned companies that provide goods and services to the public. Nigeria has many examples of public enterprises at both the federal and state level.

• The Nigerian National Petroleum Corporation (NNPC)is a major player in the petroleum industry and Nigeria’s largest public enterprise. It controls Nigeria’s petroleum resources and regulates the industry. The Nigerian Ports Authority operates ports along Nigeria’s coastline, facilitating maritime trade and commerce.
• The Power Holding Company of Nigeria (PHCN) generates, transmits, and distributes electricity to the public. The Nigerian Railway Corporation provides rail transport services for both passengers and freight. The Nigerian Postal Service (NIPOST) handles the country’s postal services.
• The Nigerian Television Authority (NTA) and the Federal Radio Corporation of Nigeria (FRCN) operate national TV and radio broadcasting services.
• The Nigerian Civil Aviation Authority (NCAA) regulates civil aviation and operates major airports.
• The Nigerian Communications Commission (NCC) regulates the telecommunications industry.
• The Nigerian Deposit Insurance Corporation (NDIC) insures bank deposits and promotes the stability of the financial system.
• The Nigerian Tourism Development Corporation (NTDC) promotes tourism in Nigeria.
• The Raw Materials Research and Development Council (RMRDC) promotes the development and utilization of Nigeria’s industrial raw materials.

Some states also have their own public enterprises like water boards, parks and recreation authorities, agricultural development programs, and housing corporations. Public enterprises play an important role in Nigeria’s economy by providing essential goods and services to the public as well as job opportunities. However, many suffer from mismanagement, inadequate funding, and political interference. Reforming public enterprises remains an important challenge.

What is the Difference Between Public and Private Enterprise?

Public enterprises are owned and operated by the government, while private enterprises are owned and operated privately by individuals or groups. Some key differences between public and private enterprises are:

Ownership and Control

Public enterprises are owned and controlled by the government, while private enterprises are owned and controlled by private individuals or groups. The government has full control over the management and operations of public enterprises. Private owners have full control over the management and operations of private enterprises.

Profit Motive

Public enterprises are not solely focused on making profits. Their objective is to provide goods and services for the benefit of the public. Private enterprises are mainly focused on making profits for their owners and shareholders. Generating revenue and increasing shareholder value are the primary goals.

Resource Allocation

Public enterprises get most of their funding from the government, so they have access to public funds and resources. Private enterprises have to generate their own funds through sales, investments, and business operations. They have to allocate resources efficiently to remain profitable.

Pricing of Goods and Services

Public enterprises can provide goods and services at subsidized rates or for free. Private enterprises have to price goods and services competitively based on market rates to cover costs and generate profits. They cannot provide highly subsidized or free goods and services.

In summary, the key differences between public and private enterprises boil down to ownership and control, profit objectives, resource allocation, and pricing of goods and services. Public enterprises operate to benefit the public good, while private enterprises operate to benefit private owners and shareholders. Both play an important role in a nation’s economy.

Conclusion

So there you have it: public enterprises come in many forms, and they serve important purposes when properly structured and managed. With the right leadership and incentives, these entities can drive progress and opportunity.