Entrepreneurial Interdependence and Enterprise Revolution in Nigeria
The Nigerian economy is overwhelmingly dependent on oil, which accounts for 81% of government revenue and more than 97% of export earnings1. Myopic policies pursued by successive military regimes in the final decades of the last century devastated the traditional agrarian economy and crippled growth in non-oil sectors. Consequently, Abuja’s growing oil wealth corresponded with a simultaneous decline of human development indicators and widening urban-rural divides. Massive imbalances in the economy spawned a thriving informal sector that continues to sustain most of Nigeria’s 148 million people. Although they contribute over 40% of the combined Western African GDP, Nigerians rank among the poorest people on the planet.
The fundamental problem with the Nigerian economy is its failure to diversify. Instead of investing oil revenues in multi-sector economic growth or poverty alleviation, past governments frittered away national profits through unsustainable import reliance and corruption. The resulting fragility has been clearly evident over the last year as the global economic downturn severely impacted every aspect of the Nigerian economy – from banking and foreign exchange reserves to the capital market and the mortgage sector. Reforms introduced since 1999 have produced encouraging results – most prominently, the revival of agriculture which now contributes 42% of GDP2. However, and although an estimated two-thirds of the population are dependent on it for primary livelihood, Nigerian agriculture, like many other potentially high-growth sectors, continues to be a labour-intensive and low productivity operation.
Curiously, Nigeria is better placed to develop a well-diversified economy than possibly any other country in Western Africa. The abundance of natural resources, mineral deposits and fertile land it enjoys is unrivalled, as is its substantial human resource pool. A range of initiatives devoted to promoting other sectors of the economy is already in place as part of the government’s extensive reforms programme. The non-oil economy saw two-fold growth to 7% between 2001 and 2006, an encouraging sign in view of Nigeria’s Vision 2020 goal of accelerated growth and economic consolidation. Optimising resource and raw material utilisation by developing a mass base of interlinked enterprises is central to this scheme of things.
Given past experiences and present realities, Nigeria’s resurgence is inseparably tied to business expansion in the small and medium sector. SMEs have proved reliable vehicles of economic transformation across the developing world because of the wide scope of their benefits – employment generation, foreign exchange conservation, optimal resource utilisation and equitable wealth distribution. The most convincing benefit of all, however, is the interdependence among businesses that SMEs foster – a critical consideration in the context of Nigeria’s long term ambition.
Recent efforts by Abuja to promote a more interlinked enterprise economy include:
* Reinforcing the financial sector with the 2004 bank consolidation programme to improve credit access to the private sector, specifically, small businesses.
* Privatising major public sector entities in oil production and marketing, construction, mining and ports to promote private participation and downstream enterprise development.
* Reduction of government expenditure and involvement in direct economic production through commercialisation, disinvestment and strategic mergers.
* Encouraging venture capital over debt by providing extensive tax relief and financial incentives to foreign private equity investors in key areas.
* Increasing focus on traditional activities like fishing, mining and agriculture that have considerable potential for entrepreneurial growth.
* Improving business skills and vocational training, most notably by making entrepreneurship education mandatory at the college level.
While it may be too early yet to discuss the extent of success these measure have met with, it is clear that the Nigerian economy has not diversified to expected levels. This is convincingly borne out by the fact that even after a decade of multifarious reforms, more than half of all industrial raw material and consumer goods continue to be imported. Non-oil exports remain marginal while growth in potential boom sectors like tourism and textiles is sluggish. The dynamic economy running on rapid enterprise development that Nigeria is desperate for remains patently unachieved.
Some of the major hindrances on the way to a more interlinked entrepreneurial economy are:
* Low productivity in small-scale operations due to the wide prevalence of outdated technologies and business practices.
* Lack of socially relevant diversification models that optimise locally available resources and raw material.
* Predominance of stand-alone industries with little or no backward links to the local economy.
* The presence of a huge and thriving informal sector that operates outside the domain of government regulation.
* Massive infrastructure shortfalls in power and transportation that severely deter the evolution of small businesses.
* Rooted popular mindset against equity partnership and the overriding insistence on debt finance.
* Poverty, social unrest and violence that suffocate financial aspirations and blight market innovation.
The challenge of economic diversification is not limited to the developing world. Prosperous nations too have been forced to come up with creative policies designed to reduce dependence on traditional sectors. The oil-rich emirate of Saudi Arabia, which is well on the way to reinventing itself as a luxury tourist destination, is a striking example. Norway, the world’s top crude producer after Saudi Arabia and Russia, has likewise expanded its economy out of petrochemicals by establishing successful supply and service industries. These examples serve to bring out the heightened imperative for diversification that rests on oil-dependent economies, irrespective of their size.
If a British Petroleum report is to be believed, Nigeria’s oil reserves are set to run out before the end of 20303. Even if further reserves are explored over the coming years, the eventual decline of oil-driven economic might is without doubt. Nigeria’s future standing on the world stage is therefore unquestionably dependent on developing a flourishing, multi-faceted and interdependent enterprise economy.