Gboyega Atoyebi writes that government should create an enabling environment for businesses to thrive
The debate on the role of government in business is centuries old, ranging from the ideological differences between Adam Smith and Karl Marx to the more recent big government versus small government. However, when in dire straits, as rightly fabled, whether the cat is black or white, if it catches a mouse, it is a good cat. It is no gainsaying that Nigeria is in dire straits economically. Although its economic woes are not new, it however seems to be worsening as evidenced by unwanted titles such as “poverty capital of the world” (Nigeria is estimated to have over 90million people living in extreme poverty) and disturbing statistics such as 54% of her youth being either unemployed or underemployed as at first quarter 2020.
A 2019 McKinsey report on Nigeria titled, “Nigeria at crossroads”, gives an inkling to what can be done to reverse this trend. The report was a review of the economy from 1999-2019. The starting point of the review, 1999, was the beginning of the country’s 4th republic and had been preceded by 16 years of military rule which had led the country to becoming a pariah nation, neck deep in debt, a forbidden destination for foreign direct investment with her productive citizens in a “check out” (emigration) mode. The report however revealed that the next two decades between 1999 and 2019 became the most prosperous period in Nigerian history based on average annual GDP growth of 6.5% (1968-1998 was 2.6%). The average Nigerian may argue with the reality of this data based on nostalgia and personal experience while the economists might engage in the debate between growth and development. More surprisingly, this growth was not primarily driven by high crude prices particularly during the first decade of the period reviewed (1999-2009) when oil prices averaged $54 /barrel but by deliberate actions of the government. This brings to the fore the role of government in business which should be creating an enabling environment for businesses to thrive and galvanizing growth and development and not the direct participation in commercial activities.
Due to the level of underdevelopment in the country, the concept of “enabling environment” has been reduced to the provision of physical infrastructure such as power and roads but neglecting possibly the more important environment which is the regulatory and adjudication environment.
This was the focus of the Nigerian government during President Olusegun Obasanjo’s presidency (1999-2007) and it was no surprise that the major reason adduced for the pace of growth during this period and years after were reforms in three critical sectors namely: telecommunications, pension and banking sectors. These reforms and the creation of an appropriate regulatory framework (particularly in telecommunication and pension) led to the revitalization and exponential growth of hitherto comatose or underperforming sectors with the whole economy in tow.
Prior to the deregulation of the telecommunications sector that commenced in 2001 with the enactment of the Nigerian Communications Act, which established the Nigerian Communications Commission and subsequent auctioning of GSM licenses, the telecommunications sector was a government funded monopoly operated and regulated by Nigeria Telecommunications Limited (NITEL), boasting about 600,000 telephone users with an insignificant contribution to GDP. The deregulation of the sector saved the government millions of Naira in annual budgetary allocation, generated about $1billion in licensing fees, attracted billions of dollars in investment, 170million telephone users, 120million internet users and serving as a growth enabler to multiple industries such as banking, entertainment, trade, logistics, etc. The expanded sector currently accounts for about 14% of GDP. This was achieved without government building any physical infrastructure or making any financial investment.
Similarly, the pension sector as at 2004 was an inefficient, poorly regulated, public sector dominated industry with N2trillion funding deficit. The Pension Reform Act 2004 (and subsequent related acts) created a private sector managed, contributory pension scheme regulated by the National Pension Commission. Within 15 years of this initial major reform, the sector currently boasts of over nine million registered contributors and more than N10trillion in assets becoming the largest single investment pool in the country.
The last of the major reforms was the banking sector reform of 2004 supervised by the Central Bank of Nigeria. Before this intervention, there were 89 banks whose combined shareholders’ funds was less than that of a leading South African bank at that point. The Nigerian banking sector was incapable of funding or propelling a private sector-led economy. The reforms, pivoted on a 2400% increase in share capital, resulted in 25 relatively stronger banks able to withstand economic shocks, fund big ticket transactions, galvanise the economy and compete continentally. Further to this recapitalization, Nigerian banks were able to partake in financing the oil and gas industry, undertake big industrial project finance and access larger international credit lines which hitherto were mainly the exclusive preserve of international banks.
Based on the results of this approach, it is imperative that this government and subsequent governments consider sectoral or sub-sectoral reforms that can generate revenue for and save the country from subsisting colossal wastes such as the deregulation of electricity prices (while illegalizing estimated billing) and petrol pricing (this being different from the much desirable comprehensive petroleum industry reform) as diesel was deregulated some years ago. This could unlock billions of naira and help fund more socially beneficial sectors like health and education.
Atoyebi, FCA, is a Financial Services Executive and an alumnus of Lagos Business School