ECONOMY - 07 AUG 2017

Business and State in Nigeria: In it together?

Business and State in Nigeria: In it together?
Minister of Industry, Trade and Investment at the WTO Nairobi Fourth China Round Table.

Entrepreneurs are everywhere in Nigeria. From bakeries to dry cleaning services, micro, small and medium enterprises (MSMEs) are the primary agents in our economy. These entreprises serve many benefits but their role in increasing employment, innovation, and competition deserves special attention.

In America's Silicon Valley, we see how the dynamism of small firms allows them to create and compete efficiently. For example, companies such as Airbnb and Uber have used new ideas and technologies to transform traditional industries. 

However, MSMEs can only be as productive as the policy environment they operate in allows them to be. Since policy and regulations are crucial in determining the nature and direction of any economic activity, the success of MSMEs is dependent on the interaction between business and state. More fruitful relationships will germinate more productive enterprises.

 

Innovate or die

In development circles, startups are seen as engines of economic growth. The role of MSMEs as employment creators cannot be overstated as they provide 84% of Nigerian jobs. This is a vital advantage considering Nigeria's fast-growing population, which places significant pressures on the formal white-collar job market.

Besides this, in an ideal setting, entrepreneurs as risk takers should bring innovation to the market so that older firms are forced to become efficient. The knock-on effect from this is a shift from traditional forms of production to more modern ones, resulting in a more diversified economy. With Nigerian policymakers attempting to revive a recession-hit economy, this is very important. However, for innovative entrepreneurs to bear any fruit, the conditions must be right.

One such condition is a highly competitive business environment, essential to separate unproductive enterprises from the productive ones. This way, not only is it easier for new entrants to break into new markets, but they can thrive there too. What makes this point so critical is the overwhelming evidence that suggests that MSMEs are usually confined to low productivity sectors in Nigeria; a result of policies that constantly favor established corporations.

Unfortunately, sectors that can offer greater value-add to potential producers come with substantial hurdles, which make it difficult for new entrants to come in and disrupt. So, in Nigeria, your average prospective entrepreneur is unlikely to tap into a market where a monopoly actor exists, no matter the profit prospects. 

 

Entrepreneurs for Development: hype or reality?

To unlock the full benefits of entrepreneurship, the state is expected to play a crucial role in helping entrepreneurs take advantage of previously undiscovered opportunities. For this to happen, it needs to understand the norms and needs of different private industries. Agreed, certain steps have already been made to ease the cost of doing business in Nigeria. In its Economic Recovery and Growth Plan, the Federal Government aims to support MSMEs by boosting development finance and providing common facilities to industrial clusters

But these objectives, though commendable, run the risk of being too broad, so that the real challenges facing private sector innovation are not tackled. In development planning, context always matters. The different sectors that MSMEs operate need to be better understood so that industry-specific policies can be drawn up. Naturally, there are common themes: both a smallholder farmer and a furniture making company require good roads and access to credit. Yet their respective needs are more nuanced and can only be properly realised if there is improved public-private dialogue.

For example, furniture manufacturers who favor more capital-intensive methods probably care more about trade policies that decide how easily they can get equipment into the country. Conversely, smallholder farmers are relatively less dependent on machines and are more affected by labor and land laws. Also, like in other parts of the world, Nigerian industries are constantly evolving. Therefore, policies need to change accordingly in order to accommodate new changes and support developing ideas.

The bottom-line is that every industry has its priority needs and understanding this is a prerequisite to truly creating an enabling environment for business in the country.

Ultimately, arms-length policies can only go so far in giving the private sector the spark it needs to be at the center of growth and development. In Bangladesh, MSMEs thrived through the combined effort of the state and private business actors. Here in Nigeria, the newly inaugurated advisory council for industrial policy and competitiveness could be a step towards replicating that. To be fully effective, council members must intentionally seek out ways to ensure innovative ideas thrive in a competitive environment.

 

Horrible bosses

Currently, MSMEs account for nearly half of Nigeria's GDP. The writing (or numbers) is on the wall; more can be done to support nascent businesses. For this to happen, the state and private sector need to work together to figure out expansion opportunities and decide how best to make them a reality. Failing to do so might make wider industrial policy efforts redundant. In South Korea, transforming small businesses into big players like Samsung involved policies that promoted innovation, at both a micro and macro level.

Surviving in Nigeria can be tough, and trying to do so while managing your own business, even tougher. To be truly developmental, Nigerian businesses require policies that prioritise engagement with the private sector to identify binding constraints. This not only serves to inform macro policies such as exchange rates but also microeconomic issues that are unique to different sectors. Through this, Nigeria may nurture entrepreneurs who can get down to business in a meaningful manner.

Fadekemi Abiru

Fadekemi Abiru

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