FINANCE - 15 FEB 2018

Nigerians are not real entrepreneurs

Nigerians are not real entrepreneurs
Small business ownership is often equated with entrepreneurship. But the two show stark differences. Source: Seun Idowu/

Nigerians like to call themselves 'entrepreneurs'. You notice this as you come across profiles on social media with the word 'Entrepreneur' tucked in alongside 'Lawyer', 'Engineer' or 'Graphic Designer'.

It seems easy to be classified as an entrepreneur, in comparison to professions like law, medicine and accounting where are there are qualifications to complete. Entrepreneurship has no barrier to entry.

Or so we have been led to believe. 

It is difficult to agree on what an entrepreneur is, mainly because there is little consensus on how it should be defined in empirical research. Economists have routinely used definitions like the number of startups, small business activity and self-employment rate to define entrepreneurship. Measuring self-employment as entrepreneurship can lead to results that rank countries like Egypt, Zambia and Nigeria as more entrepreneurial than the United States. 

However, popular culture, powered by movements such as the Lean Startup and a burgeoning entrepreneurial drive has begun to diverge from this definition. The role of the entrepreneur is now characterised as that of an innovator whose aim is to disrupt existing industries. While this definition is found on the fringes of economic theory, it is backed by Joseph Schumpeter (1883–1950), one of the most influential microeconomists of all time. 


Is Innovation a Necessity?

Schumpeter's work on 'Capitalism, Socialism and Democracy (1942)' reveals his thoughts on economic growth. Schumpeter took as his assumption, a state of economic equilibrium where the economy is interconnected and remains in a 'circular flow'.

For this equilibrium to produce economic growth, he points to the role of the entrepreneur as the 'disruptive innovator'. He argues that the entrepreneur is the agent who creates a new combination of existing resources to produce new goods and services.

For Schumpeter, this sort of innovation from the entrepreneur disrupts economic equilibrium through 'creative destruction' and subsequently contributes to economic growth. What makes the entrepreneur is that ability to innovate beyond current realities.

This definition allows us to create two broad camps in our definition of entrepreneurs. One is the layman view of the entrepreneur as someone who runs his/her own company, is self-employed or those associated with small businesses. The other is the Schumpeterian view of the entrepreneurs as the agent of change and innovation.

What camp do you think most Nigerians fall into?


'Nigerians are entrepreneurs' 

Both kinds of entrepreneurs have roles in society; after all, almost anything beats being a Nigerian civil servant. However, it appears that most Nigerian entrepreneurs are really just imitators and small business people, looking to diversify their incomes. The idea of building to upset and disrupt the existing way of doing things is not so prevalent. In true Nigerian spirit, many may simply be hoping to exploit the status quo. 

In a 2014 paper by Magnus Henrekson and Tino Sanandaji, the mischaracterisation of these business imitators as 'entrepreneurs' is tackled head-on. They argue that many small businesses are at best described as permanently small businesses rather than 'nascent entrepreneurial firms'. Most are typically low expectation businesses with replicative founders who do not have high growth and scale as part of the agenda. 

In another paper titled 'What do small businesses do?', Hurst and Pugsley argue against the idea that 'self-employment' is synonymous with entrepreneurship. In their report, when new startups were asked about growth ambitions, 75% of respondents said: "I want a size I can manage myself or with a few key employees". This is not to say that these ambitions are not worthwhile, but followers of Schumpeter would be disappointed. 

According to Schumpeterians, entrepreneurship should redefine or disrupt the market. For instance, the growth of Walmart required the replacement of thousands of smaller retail operations. This pattern is not unique to Walmart, with firms such as H&M, Ikea and Amazon shifting their relevant markets in different directions, reducing small business ownership and self-employment. When entrepreneurial ventures become successful, they naturally create larger firms with high paying jobs that are offered to would-be entrepreneurs. 

This point is salient because it is well established that many Nigerian small businesses are products of 'necessity entrepreneurship' and therefore would not exist if there were more large-scale employers offering better salaries and raising the opportunity cost of self-employment.


The Nigerian Story

When we look at the typical Nigerian running side hustles, we see room for Schumpeterian ambitions. Many small business owners are victims of the peanut salaries that Nigerian employers pay and simply want to supplement their incomes.

In most cases, people start their own businesses because of the limited opportunities presented to them. Many of these businesses stay small because they are doing what other businesses do and have no barriers to entry. Any abnormal profits they earn is swiftly lost to the capitalist machine that incentivises more imitators to come into the market.

In the end, we see that the story of Nigerian entrepreneurship is not one that should create images of successful innovators. If we had more Schumpeterian entrepreneurs, perhaps they would have employed most of the people currently claiming to be entrepreneurs. 


You can follow this Editor on Twitter @TimeyinPI or subscribe to read more articles here.

Timeyin Preston Ideh

Timeyin Preston Ideh

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