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Key Lessons From History and the Way Forward For Nigeria
Early in June this year, the Nigerian government reassumed control of the once divested state-run telecom giant NITEL, blaming unpaid debts and investment shortfalls. Abuja had sold off a 51% stake in this national asset during former president OJ Obsanjo’s tenure in 2006 as part of a massive reforms and disinvestment process. Transcorp, the local firm that bought majority control for a fee of $500 million was accused of failing to meet payment obligations to the tune of $60 million, besides accumulating debts totalling 17 billion naira1. NITEL suffered huge subscriber losses for both fixed line and mobile phone services since 2001. The development came as yet another shocking national debacle, not just in terms of monetary loss, but also official economic policy and administrative foresight. The current government has since signalled the appointment of a technical board to manage NITEL until new investment is forthcoming.
Going by the fate of Nigeria Airways, it is perhaps being too optimistic. The 35 year old flagship national carrier with a history of failed mergers and service safety concerns saw numerous resuscitation attempts before finally ceasing operations in 2003. Parrying allegations of massive corruption and mismanagement leading to the airline’s ruin, the government managed secure Virgin Atlantic Airways as a partner for a strategic re-launch. However, Virgin’s recently announced intention to withdraw its share holding from Nigeria Airways perhaps sounds the death knell to another miserably-failed public undertaking.
For Nigeria, the failure is two-fold. It symbolizes, first, inexcusable mismanagement leading to the failure of potentially successful ventures. More importantly, it questions the design and impact of the much vaunted Nigerian reforms process, ironically initiated to undo precisely the same economic reversals it appears to be engendering.
The fate of the economy in general and of large enterprises in particular has been remarkably disappointing in this petrodollar rich sub-Saharan nation of prodigious natural resources. While decades of political tumult and civil strife are partly to blame, rampant corruption and non-inclusive policies have added up to leave Nigeria at the nether rungs of economic indicators and human development indices. In such a climate, and despite recent redirections in government policy, Nigeria’s Millennium Development Goals and its 2020 target of making it to the top 20 world economies present monumental challenges.
With the long-term repercussions and viability of recent disinvestments in oil, steel and port entities still in question, large enterprises are obviously not the way to these goals. What persuades this line of thought additionally is the hopeless collapse of numerous similar entities recently in diverse economic environments around the world, from Asia to Alaska. For a nation of 148 million people – more than half of them living in extreme penury – the micro, small and medium enterprises (MSMEs) sector is one that holds out immense promise of durable development.
Of critical importance here is the fact that MSMEs offer a distinct macroeconomic profile and potential, and are not merely scaled-down versions of larger enterprises. The financial flexibility, employment potential and innovative capacity of MSMEs have contributed substantially to both developed and developing economies around the world. According to the European Network for Social and Economic Research (ENSR), MSMEs with up to 250 employees created 68 million jobs in the European Union2. Nigeria can in fact look for similar inspiration nearer home in the African continent itself. Comparable data for South Africa indicates that small enterprises accounted for 55% of its total employment and 22% of GDP in 2003.
Allowing for local and circumstantial variables, MSMEs have shown greater profitability across national barriers owing to higher human capital efficiency and product transformation capacity. Although there is no determinable link between financial structure and profitability, the calculation of gross profits over capital employed has always worked to the advantage of MSMEs over large enterprises.
On the flip side, small enterprises suffer two basic disadvantages that large enterprises by definition are without: elevated rates of employee costs as well as working capital requirements. Large enterprises have lower costs per unit turnover and substantially larger cash flow capacities. Moreover, MSMEs represent a high risk factor in terms of debt repayment capacity, often because of inadequate financial know-how and limited access to guidance and consultation. Long term success of MSMEs is additionally contingent upon a heightened degree of financial flexibility that enables rapid adaptation to changing market needs.
The disappointment with large scale, capital intensive and often import-dependent businesses had been growing long before the current global economic downturn set in. While Nigeria has a lot to blame on itself for its experience with large enterprises, reports of their diminishing impact on inclusive economic growth is emerging unmistakably from across the globe. In the European Union for instance, 99% of its 20 million enterprises are small and medium scale operations that currently account for two-thirds of total employment in the private sector3. As new economic realities begin to hold sway, slowly but surely the practicality of mammoth ventures running on gigantic employee and capital turnovers is slipping away.
MSMEs, contrarily, hold out a multitude of short and long term benefits that are of especial relevance to Nigeria – wider utilization of natural and human resources, entrepreneurship and rural development, increased savings and greater regional balance. In the context of both immediate and long term goals, a policy shift in favor of rapid promotion of smaller enterprises is perhaps the only policy priority standing between Nigeria and a rapidly prospering economy.
* For sure there are significant challenges in this direction, none more pressing than the need to create a mindset change among Nigerians with regards to grassroots entrepreneurship. Further practical problems are in the form of skilled manpower shortage, a disturbing enterprise mortality rate4 and devastating infrastructural deficiencies, especially in terms of security, power and roads. Improving availability and access to finance and equity remains the most critical challenge by far, in response to which Abuja initiated a bank consolidation program in 2004 to fortify financial institutions and enhance credit access to the private sector.
In order to ensure rapid entrepreneurship development, the Nigerian government must effect swift fiscal, monetary and industrial policy changes in order to capitalize on its huge MSME potential. A lot depends on the effective management of its human resource capital – its sizeable population that has been traditionally dependent on extremely small, subsistence-level enterprises. It is a matter of fact that the fate of Nigeria’s ambitious economic goals rests largely on its ability to convert this talent into tangible economic growth.
About the Author
Peter Osalor is a multi-skilled director, chairman of trusts, proprietor and consultant. Peter Osalor has been a successful entrepreneur since 1992 when he formed Peter Osalor & Co and which has since grown to a very large client base with a turnover of millions. He is currently a fellow of the Association of Chartered Certified Accountants (ACCA) and the Institute of Chartered Accountants in Nigeria (ICAN). Peter is also a member of the Chartered Tax Advisors and the Chartered Institute of Taxation in Nigeria (CITN).
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