May 20, 2022


Accounting + Finance Blog

Meaning of Public Sector Entity and Key Explanations

Meaning of Public Sector Entity and Key Explanations

A Public Sector entity is a business that is owned and managed by the government in a country. Most of them don’t earn profit. However, a few are created for profit-making purposes.

Definition of Public Sector Entity

Public sector entity (PSE) means government-owned enterprises established with taxpayer money to provide essential services to the public.

Key Explanations

It is owned by the government. Each tier of government can own a public enterprise. The federal government usually owns the largest number of PSE. Followed by the state and local government. In Nigeria, they are referred to as ministries, departments, and agencies. Often, they are called parastatals.

The government established public sector entities for three reasons. One reason is that it is not proper to allow the private sector to run such a business. For example, the ministry of education cannot be allowed to be operated by individuals. This is true of a mixed economy model like Nigeria. The ministry of education is expected to control the educational activities in the country.

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Another reason is for security purposes. Allowing the private sector to establish that entity may leak out information that may damper the security of the country. A third reason is the large capital requirement. Some sections of the economy require a large capital outlay. And this might be difficult for a single individual or group to establish.

A good example is the building of roads and bridges. Another is the building of Airports and Seaports. This requires a huge amount of money. And it is either not possible to recover the money or it may take a longer time to do so.

Public sector enterprises are made to provide essential services. Therefore, profit is not the main goal. More so, the services serve as a dividend to the tax liabilities paid by the citizens of the country. The building of roads, bridges, low-cost estates, rail lines, airports, seaports, government-owned hospitals, primary health centers among others is important to service to the nation. And also serves as payment of dividends to taxpayers. This is because citizens pay nothing or very little money for using the aforementioned.

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How Public Sector Enterprises are Managed?

These entities are established and managed through taxpayers’ money. Then, the government will set up a management team to control the entity. This team is referred to as the board of trustees usually headed by a minister, director general (DG) among other names. Then, is the permanent secretary who remains in their position even though the government changes the minister or DG.

The government may also establish an enterprise with the goal of profit. Or change a previous non-profit entity to a profit-making one. This is referred to as the commercialization of public sector entities. Those established to make profits are referred to as government business enterprises (GBE).

A good example is the Nigerian Electric Power Authority (NEPA). Was established with the goal of rendering service. However, the federal government commercialized it in the year 2005. The year 2005 was when the government changed the name NEPA to PHCN (Power Holding Company of Nigeria). The goal was to make PHCN a government business entity to make a profit.

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In final words, a public sector entity is one established by the government to provide important services to the nation. They are usually referred to as MDAs or parastatals in Nigeria. And are controlled and managed by the government through a board of trustees managed by a political appointee.