The Nigerian Business Environment: Emerging Trends, Investment Opportunities, and Regulatory Reform

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By: Site Engineer, Staff

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The purpose of this article is to describe the major emerging trends in the Nigerian business activities. The intent is to provide some insights that could guide those who do or wish to do, business in Nigeria.

This article is divided into four broad parts. The first examines some structural characteristics of the business. In the second part, current trends in the environment are surveyed. The third and final parts examine entrepreneurial trends and management practices. In selecting the areas to focus on, we have been guided by two major criteria: relevance for business and adequacy of coverage in the existing literature.

Structural Characteristics

Nigerian businesses consist of sole proprietorships, partnerships, incorporated companies, public enterprises, and cooperatives. In terms of sheer numbers, the sole proprietorship is predominant, followed very distantly by incorporated private and public limited liability companies and public (government-owned) enterprises, partnerships and then cooperatives, in that order.

In both urban and rural areas, small one-man businesses engaged mainly in the distributive trade are found in large numbers. Especially in the urban areas, there is a shop in virtually every building; in some cases, there may be as many as four or five. For many of these businesses, the capital employed is somewhere between 50,000 and 100,000 naira.

The full-time staff strength is usually nil. In most cases, the business is run by the owner-manager, his spouse and children, none of whom may be a full-time employee. Whoever happens to be around during the business hours which stretch from 7 am to about 10 pm, runs the store. No-one is paid a salary or a commission. No records whatsoever are kept.

A majority of these shops go under the misnomer of supermarket or ‘mini-market’. In addition to these, there are innumerable kiosks, street traders and pedlars scattered all over the country. The kiosks have features similar to those of the shops just described, except for their much smaller sizes, smaller capital, and lower turnover. The street traders and are almost everywhere. While the street traders spread their articles on mats or tables along major streets, the pedlars carry their wares on trays, tricycles, bicycles or some other portable container and carriers.

In many cases, their business capital is between 50,000 and 100,000 naira. All these traders sell a variety of wares. While the shops deal mainly in toiletries, fresh fruits, kolanuts, ice cream, salt, sugar, and wristwatches. Most of the pedlars are women and primary or secondary school children, who take to trading after school hours and during the holidays.

The younger pedlers are found mainly at busy road junctions and traffic hold-ups, soliciting patronage from a passerby, pedestrians and motorists. The predominance of this variety of small businesses is attributed to widespread unemployment, underemployment, the need to supplement low incomes with the profits from these businesses, and the small capital required to establish such businesses.

The long distances to the city centers where the big ships and open markets are situated, and the difficulty of reaching these centers because of bad roads and poor public transport system, partly account for the omnipresence of these small-scale retail shops. In spite of their relatively small size, inefficiency and poor management the small businesses play a very vital role in the distribution of goods to every part of the country. Given this, their predominance is expected to endure for a very long time.

Partnerships are rare and largely limited to the professions, such as law and accountancy. Their paucity is due largely to mutual suspicion among Nigerians, particularly in financial matters, which is itself partly attributable to low incomes, ignorance of basic record-keeping and other accounting control systems that could reduce fraud.

Most of the incorporated companies are those that were previously owned and managed by foreigners, mainly British, American and Lebanese. With the Indigenization Acts of 1972 and 1977, most of them were transferred to Nigerians. A large number of the other private limited liability companies are so registered to avoid the disadvantage of unlimited liability.

In most other respects, they are run like sole proprietorships; the shares are invariably held by the Managing Director/Chairman, his wives, and his under-aged offspring. In most cases, all the capital is contributed by the chairman alone, since the wives and children are unlikely to participate in the management of the enterprise, and receive no direct remuneration or dividends whatsoever.

Particularly striking is the tendency for these small-scale indigenous business owners to claim to own a group of companies with many mushrooms or even non-existent divisions. Status and respect are attached to being addressed as the Chairman and Managing Director of XYZ Group of Companies.

The successful illiterate business-owner some of whom have no known business premises or offices are recognized by their large mansions, a chain of long expensive cars, many wives and concubines, lavish weddings, expensive funerals in respect of long-departed parents, liberal gifts to girlfriends, and donations at party rallies and other ceremonial occasions. It does not matter that they have been unable to pay staff salaries. A chieftaincy title is also essential. A handful of their more educated counterparts, however, have more modest lifestyles.

With increasing education, large, incorporated, better-managed companies are fast springing up. This trend is expected to continue, while the empty but immodest proprietor is expected to fade away gradually.

Emerging Environmental Characteristics

The Nigerian economy is dominated by a large oil sector, which contributes over 90% of Nigeria’s foreign exchange, and which has dwarfed the erstwhile dominant agricultural sector. Various attempts have been made, in the recent past, to revive agriculture. The military regime introduced Operation Feed the Nation (OFN) in 1976.

This was replaced in 1979 by the Green Revolution, under which many River Basin Authorities were established all over the country. Huge sums of money and large quantities of fertilizer were invested in the revolution, with little or nothing to show for it by way of output, ostensibly because of mismanagement and misappropriation.

There are small but growing manufacturing and construction sectors, which together account for a small percentage of the GDP. Huge investments in iron and steel and petrochemical plants established during the Fourth National Development Plan (1981-1985) are expected to aid in the process of structurally transforming the economy. The development which quickened the pace of development all over the country was the creation of nineteen states in 1975, and the phenomenal increase in the number of educational institutions.

At present, there are over 150 universities, compared with the 1972 figure of six. At present, Nigeria has thirty-six states, including Abuja, the Federal Capital Territory. Industries are springing up in the new state capitals, while the educational institutions provide a steady source of trained manpower.

While many industries springing up rapidly and with a substantial increase in the number and variety of goods and services, what is essentially a seller’s market today is being gradually transformed into a buyers’ market. This has already happened in the footwear, beer, and soft drinks industries, to name a few.

Increasing consumer literacy and sophistication is expected to further quicken the pace of consumer-orientation on the part of producers. In spite of the promise which the economy has for business, several disturbing problems are, however, noticeable. First, there is a conspicuous lack of accurate data.

After over three decades of independence, Nigeria has been able to conduct only one reliable head-count. As a result of this, figures of the 1991 Census and projections based on them are the latest usable official population statistics in the country today. An attempt to conduct a census in 1973 yielded figures that were suspected to be highly inflated and were subsequently rejected.

Generally, data are either unavailable, outdated or inaccurate. Figures from the Federal Offices of Statistics are about five or more years in arrears. No figures for the number and distribution of business enterprises are available. Income data, the age distribution of the population and other demographic data are difficult to come by. The difficulty of obtaining accurate data was clearly illustrated during the 1983 General Elections.

In 1979, the estimated population of Nigeria was about 84 million. The number of voters registered in that year was 48.5 million (about 58 percent) but this rose inexplicably by 34.6 percent to 65.3 million in 1983. Assuming that the 1983 figure also represents 58 percent of the 1983 population, it follows that the Nigerian population grew at an alarming and unprecedented rate of 12 percent per annum.

Secondly, business research is fraught with difficulty; virtually all kinds of information are considered confidential by businesses and members of the public. Many business managers tend to regard sales figures, previous corporate strategies, profit data, cost information, and even plans as closely-guarded secrets. Researchers are often treated like espionage agents of competitors or government tax officials. Members of the public are no less secretive. They are often reluctant to disclose personal data such as income, salary, age, and level of education.

Thirdly, bureaucratic procedures and corruption in government ministries and departments are worth mentioning. Forms that are meant for members of the public free of charge are quite often not available in sufficient numbers. When they are, the clerk who should issue them out is either not in the office, or if he is, would expect, demand or extort a tip to part with them. Otherwise, the forms are said to be out of stock. A transaction in a government office that should take a few minutes could take hours, or even weeks, with no one raising an eyebrow. One could queue up for hours at a post office only to buy postage stamps or to register a letter.

Quite often, bribes have to be offered, to induce public officials to do work for which they already earn a wage or salary. The situation in some private sector business establishments is nearly as bad.

Fourthly, Nigerians have a widespread preference for foreign goods and services. The common excuse is that locally made goods are of low quality and high cost. For example, in a study conducted in Kano metropolis in 1982, Oyegunle found that ninety-three percent of the 171 consumers interviewed thought that foreign-made textiles were superior to those made in Nigeria, fifty-four percent of the respondents further claimed that Nigerian textiles were more expensive than imported ones.

Consequently, smuggling is such a highly organized and lucrative business that customs officials are helpless, even in the few cases in which they may be unwilling to accept bribes to collude. This has had a crushing effect on several industries. Neither the frequent complaints and campaigns mounted by the Manufacturers Association of Nigeria (MAN), nor the concerted efforts of the Federal Administration, has succeeded in reversing the trend.

Fifthly, there appears to be a widespread disregard for the law. The police are ill-equipped, and in fact, many people, particularly the illiterate population are ignorant of their rights and obligations under the law. The result is that laws are hardly enforced. For example, the price and rent control laws enacted in the early seventies had to be repealed, because of the difficulty of enforcement. Traffic regulations, consumer protection laws, labor laws, and environmental sanitation bye-laws are flouted with impunity.

In 1979, the reversion to civilian rule changed the government businesses considerably. In their enthusiasm to implement their parties’ programs, the various governments awarded all sorts of contracts most of which were suspected to be highly inflated. A dominant consideration in such awards was party patronage, by which only members of the party in power benefited from the awards.

The features described above are by no means peculiar to Nigeria; many developing countries have more than their fair share of most of these problems. Although things are expected to change for the better in the future, it is doubtful, against the background of the gradual institutionalization of these ills, if such changes can occur in the next decade or two. After all, old habits hardly die so quickly.

Entrepreneurship

In spite of the vast number of Nigerians in every sector of the economy, several studies have shown that there is a general lack of entrepreneurial capacity among Nigerians. Entrepreneurial capacity is the ability and willingness of the individual to respond to business opportunities. It is observed that even though many Nigerians may be willing to undertake entrepreneurial activities, most cannot fulfill their ambitions. In addition to a lack of ability, several social institutions, values, and attitudes inhibit the emergence and performance of Nigerian entrepreneurs.

Ability is a function of the level of education, skills, attitudes, and experience of the individual. We have previously noted that Nigerian entrepreneurs are relatively deficient in almost all of these factors. The indicators, however, are that in the next decade, Nigerian entrepreneurs would be more educated, skilled and have varied experience in the management of complex organizations. The tendency to have a short-term approach to business is also likely to change.

The grounds for these projections are that in the last decade, enrolment at the primary and post-primary institutions has increased tremendously all over the country. The content of the programs of these institutions is also changing, with the emphasis being placed in the technical and vocational courses.

Several technical schools, polytechnics, and universities have been established to enhance the acquisition of technical skills by Nigerians. Also, several organizations provide opportunities for their employees to acquire skills within and outside Nigeria. In this respect, the Centre for Management Development, the Industrial Training Fund, and several professional bodies are engaged in the promotion and facilitation of the acquisition of various kinds of skills by Nigerians, in both private and public sectors.

Nigerians also now have every opportunity to acquire experience in every sector of the economy. In the early sixties, the government pursued a Nigerialization Policy, by which qualified Nigerians were placed in executive positions in government and industry. At the same time, the number of expatriates that could be employed in private business enterprises was placed under control by expatriate quota regulations. Above all, the indigenization policy provided several Nigerians the opportunity to own and manage business enterprises in different sectors of the economy.

The indigenization policy also provided opportunities for Nigerians to engage in small-scale and medium-scale manufacturing activities. Thus, the attitude of concentrating on distributive trade to the exclusion of manufacturing has started to change. The result of these policies is that several Nigerians now have the education, skills, experience, and attitude to establish and operate business enterprises.

The direction of legal and social policy in Nigeria also favors the growth of entrepreneurship. The Constitution of the Federal Republic of Nigeria guarantees individual freedom and protection of private property. This implies that an individual may engage in all lawful activities to acquire wealth for himself and his family.

The pursuit of wealth is not only socially recognized and accepted, but it is also in fact honored. For example, in several Nigerian communities, the acquisition of wealth is a primary qualification for the award of chieftaincy titles and other social recognition. Therefore, a primary ingredient for entrepreneurship is present in the Nigerian social structure.

By deliberate policy, economic opportunities have been made available to Nigerian entrepreneurs. For example, one of the objectives of the Second National Development Plan and other subsequent Development Plans was to ensure that Nigerians controlled the commanding heights of the Nigerian economy.

This objective has been translated into action by the indigenization laws, which not only reserved certain sectors of the Nigerian economy to Nigerians but also made it mandatory for foreign entrepreneurs to involve Nigerians in the ownership and management of their enterprises.

Among the social institutions and values which tend to inhibit the emergence of entrepreneurs are the extended family system, expensive burial rites and other ceremonies, aversion of partnership and short-term attitude to entrepreneurship.

By compelling successful individuals to share their resources with less fortunate distant relations, the extended family system tends to inhibit savings and investment. This system is bound to be discarded in the next decade when the fruits of the current education program in the country start to emerge. Similarly, urbanization is bound to result in the gradual breakdown of the traditional mechanisms by which the extended family system is held together.

Expensive burial rites and ceremonies also result in massive consumption and dissipation of savings. At the moment, both educated and uneducated, urban and rural dwellers, rich and poor, engage in these ceremonies. There is, therefore, no reason to believe that the practice will decline shortly.

Aversion to partnership arises from mutual suspicion that could be traced to inadequate record-keeping, lack of familiarity with accounting practices, lack of faith in or inability to utilize accounting information. With education and greater exposure to accounting methods and practices, it is expected that the situation might improve.

Most of the problems of entrepreneurs in Nigeria are either imposed on them by environmental problems such as lack of social and physical infrastructure. These are being tackled by all the governments of the Federation. With time, these problems are bound to be reduced. The problems that arise from internal sources are however more enduring. For example, poor organization, shortage of working capital, lack of suitable manpower, inadequate maintenance of equipment, etc., are problems that an improved management capacity can eliminate. What are the prospects for improved management capacity of Nigeria entrepreneurs? Since it is expected that skilled and experienced entrepreneurs are likely to be available in the next decade, and the general level of trained manpower is also likely to improve one can safely conclude that most of the problems of Nigerian entrepreneurs will probably be eliminated in the next decade.

Management Practices

Management practices in Nigerian organizations have attracted a lot of attention in the last decade. Evidence of poor management practices abounds in our public and private enterprises, deplorable attitude to work, the number and frequency of strikes and lockouts, low productivity, the avoidable waste of scare resources and other similar problems which seem to be endemic in the Nigerian society.

Most of those who observe these problems conclude that they exist because Nigerians are naively attempting to practice management philosophies that reflect the culture and belief systems of advanced countries. They claim that appropriate management practices are those that correspond to the experience, beliefs, and culture of the people, rather than the so-called modern management practices, which have not relevance to the Nigerian environment. Therefore, successful management of organizations in Nigerian would require the development or adaptation of management practices that are unique to the Nigerian society.

Others, who subscribe to the notion of the universality of management, believe that the problems will eventually diminish as Nigerians become trained and experienced in the art of modern management. What is required is simply time. Whilst the controversy rages on, let us examine some of the factors that currently dominate management practices in Nigeria, which, perhaps, give rise to the problems highlighted above. Among these factors are inadequate attention to planning and control, neglect of marketing (consumer satisfaction), favoritism, attitude to work, paternalism, etc.

Most of the problems in Nigerian organizations, particularly public corporations, arise from inadequate attention to the detailed planning and control of projects. The building of large-scale projects, such as water schemes, road networks, iron, and steel mills, etc., demands careful consideration of the present and future needs of the community, social and financial implications of the project, careful design and faithful execution of the projects.

All these require a high level of discipline, painstaking attention to minute details and detached evaluation of contrary views. Most Nigerian managers do not possess these characteristics. Nigerian executives, especially those in the public sector, announce project plans and proposals with fanfare ever before they crystalize on the drawing board. The result, of course, is that there is a tendency to rush the planning and execution of projects whose completion dates are set for realizing personal objectives. Invariably, the plans are altered significantly in the course of execution, with disastrous financial consequences. On many occasions, the projects become uneconomical and are abandoned.

The satisfaction of the consumer has a low priority-rating in Nigerian organizations. Since most goods and services are in short supply, the tendency is for managers to believe that the situation will continue to exist. Standard services are eliminated to reduce costs. Goods are hoarded and later sold at inflated prices through agents. Consumers are compelled to waive their rights, in return for continued patronage. These practices are however limited to sectors where shortages are most acute, and to business enterprises where managers having short-term profitability dominate operations.

The problem of poor attitude to work among Nigerians has also become proverbial. While discussions on this problem usually focus on the junior employee, it is by no means limited to them. Indeed, the problem exists because of managers’ supervisory styles. Most managers turn a blind eye to subordinates ‘failure to meet work schedules or enforce discipline because they do not wish to be held accountable by the offending employees for the disciplinary measures that may be taken against them. It is attributed to the fact that reward is usually not based on performance in most Nigerian organizations, or, as in some ethnic groups, it is culturally unacceptable to speak in plain terms about the behavior of another individual. Occasionally, the unwillingness to enforce discipline is due to unwieldy disciplinary procedures or the presence of a ‘godfather’ who is not only in a position to frustrate any disciplinary process against his favorite but who may victimize the manager for initiating the disciplinary procedure.

Favoritism may arise from nepotism, corruption, tribalism, sexual considerations, etc. We should emphasize that it is not usually practicable to apply the rules of an organization solely based on generally accepted criteria. The problem in Nigeria is simply the degree to which management practice deviates from the accepted criteria. Often, the selection of candidates for employment is heavily influenced by tribalism or nepotism, because the manager sees it as an opportunity to enhance his position among his kinsmen. Tribalism or nepotism may also lead to deliberate over-staffing of an organization, or the award of contracts against the known procedures and practices of the organization.

The concept of federal character is different from favoritism. The principle enjoins decision-makers and employers of labor to ensure equitable distribution of opportunities and resources of the organization, among the diverse groups of Nigeria. This means that as much as possible, the various ethnic groups in the country should be given a fair opportunity in appointment to senior positions in the organization, or that the location of branch offices and other resources should reflect the geographical spread of the country.

In most Nigerian organizations, the relationship between the manager and subordinate tends to extend beyond the requirements of the job itself. Most subordinates usually expect the manager to play a fatherly role in their relationship, within and outside the organization. Thus, for example, a subordinate may give some personal services in return for special favors in work assignments, lenient treatment in the event of an infraction of the rules, and even financial assistance in times of need.

Some of these practices are often thought to be products of the underdevelopment of the industrial culture. It is believed that with industrialization, a deeper understanding of the nature of the worker in the Nigeria setting, improved worker education, socialization into the norms of industry and professionalization of management, these practices will tend to diminish.

Already, trade unions are embarking on massive education of workers, and are insisting on the rationalization of management practices and procedures. With more education and higher incomes, consumers are more aware of their rights and are ready to insist on them. Several professional bodies in management have emerged to establish and control the standard of behavior of managers.

Priority attention is being given by the government to management research, education and training through the agency of the Centre for Management Development (CDM), and Industrial Training Fund (ITF) while several organizations are investing more funds in manpower development. All of these are bound to result in a radical shift in management practices in the next decade.

Industrial Relations Policy

The framework of industrial relations policy in Nigeria is free, collective bargaining, as a means of resolving the inevitable conflicts that arise in work organizations. All the parties concerned – government, employers and workers, etc., subscribe to this policy and stress their commitment to its principles and ideals. However, the implementation of the policy has witnessed the readiness by all to circumvent or discountenance the policy whenever it was expedient to do so.

Several reasons account for this state of affairs.

It is argued that a developing economy desiring to rapidly transform its economy ought not to be saddled with such a leisurely structure as free, collective bargaining. Therefore, the constraining principles of collective bargaining can be set aside in the interest of development. The adopting of free collective bargaining in Nigeria has also been criticized because the institutions necessary for its operation are themselves underdeveloped.

It is pointed out that trade unionism was, until recently, very weak and unorganized. As such, it was not in a position to deal effectively with a better-prepared employer. These and similar arguments have formed the basis of continued government involvement in industrial relations in this country. This interventionist policy is evidenced by the Trade Disputes Decree (now Act) of 1976, which introduced a cumbersome and compulsory procedure for the settlement of trade disputes, and practically banned the use of strikes and lockouts.

The spate of legislation in the last decades have not succeeded in ensuring industrial peace. Rather, disputes and strikes, which have assumed different forms, have been on the increase. With the restructuring of trade unions into industrial unions and the return to a freely-elected democratic government, the interventionist policy needs close examination, to return to a less-restrained collective bargaining system in Nigeria.

Unionization of Management Staff

A trade union is any combination of workers and employees, whether temporary or permanent. From this definition, any employee, whether junior or senior, can combine to form a trade union. However, trade unionism has often been associated with junior workers and employees, and unions of senior or management staff have been very few.

In the last two decades, several unions of management and supervisory staff have emerged on the Nigerian industrial relations scene. On the 70 unions that make up the new industrial unions, 15 are senior staff associations, and two have already affiliated to the Nigerian Labor Congress.

Senior Staff Associations have recently tended to adopt more militant postures than other trade unions. These developments would have been regarded as normal, except that in most large organizations where they exist, senior staff are the representatives of employers, and invariably assume a leading role in deciding the terms and conditions of employment. Thus, the senior staff is at the same time employees and members of the management group.

The growth of senior staff associations has significant implications for loyalty, the balance of power in the industry, as well as industrial peace. Membership of senior staff associations will naturally result in a conflict of loyalty to management which they represent, and the association of which they are members.

Alignment of an articulate staff association with a reformed, financially strong trade union of junior employees is bound to fill the balance of power in Nigerian organizations to the advantage of Labor. Similarly, the affiliation of senior staff associations to the Nigerian Labor Congress is bound to encourage class consciousness in Nigeria. Consequently, the government and employers would need to be more adaptive, to ensure industrial harmony.

Trade Unions and Politics

There has been a continuous debate on the extent to which trade unions should involve themselves in politics. On one hand, some argue that trade unions have no business with party politics, and should restrict their activities to purely industrial relations matters and utilize their funds for such purposes only.

Proponents of this school of thought believe that the fragile unions might crack under the burden of party politics, and in any case, a few union leaders could use union resources to promote political parties for their selfish ends, rather than the interest of the generality of unions’ members.

The rank and file are known to be apathetic in union activities; therefore, union officials may not be promoting the general will of the people. Finally, it is argued that the involvement of trade unions in party politics might weaken and destroy the solidarity that is needed for the growth and development of the newly created industrial unions.

The arguments for the involvement of trade unions in politics are that one cannot distinguish economics from politics and that it is legitimate to use political processes to further economic interests. Therefore, trade unions should be free to promote their political party or put their weight behind a party that can promote the interest of the unions in government and legislative forums. Nevertheless, individual members should be free to support political parties of their choice.

 

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