Culture and Our Relatively High Business Mortality Rate -By Uddin Ifeanyi

Filed under: Economic Issues |

There’s no question, but that the environment in which small businesses have had to operate in the country is a very difficult one. The shorthand description for this difficulty is a single word: “cost”. High enough to make these businesses uncompetitive domestically, even before cheaper imports are thrown into the mix. Of course, that means only a very small army of domestic businesses can compete internationally. High input costs include those from epileptic supply of electricity from the mains, and the sub-optimal, and relatively high costs of providing power from small generating sets.

At levels slightly higher than the sole proprietorship, businesses’ input charges comprise the provision of additional infrastructure, especially for water. For processors, especially in agriculture, the lack of standards and storage (inadequate electricity supply, once again) mean that product quality targets would always be met in the breach. To these woes, include the distrust premium from a tawdry criminal justice system. And for all small businesses, our sub-specification communication (an inefficient postal service is one big drawback), and decrepit transport infrastructure simply add several layers of costs.
It is within this context that successive governments’ commitments to ease the costs of doing business in the country should be interrogated. Still, by focusing too narrowly on the dataset with which the World Bank computes its annual “Doing Business” report, we may be missing a trick or two. For while there may be objective lets to doing business in the country, subjective impediments may be a more important consideration. In other words, aspects of our culture (and I use this word in its best acceptation) may matter just as much in the discussion of the problems confronting domestic entrepreneurship.

Ifeanyi Uddin

Unfortunately, the latter consideration is one of those instances where one want to argue that whereas a definition is hard to put together, I’d recognise the context when I encounter it. Thankfully, proxies there are aplenty. One of these is the fact that almost without fail, each generation of Nigerians (since the twilight of the colonial experience, at least) has celebrated its “richest man”. Epitomes of stupendous wealth, these individuals seem nearly always afflicted by the curse of how to spend their pots of cash. A handful then set up businesses, whose outward trappings are as formidable as their owners’ lifestyles. Almost without fail, none of these businesses succeed the death of their founders. A portmanteau of bank debts reveals itself, shortly after such founder’s death as the main source of the conspicuous consumption that ornamented the founder’s life.

You don’t have to walk to far through the decaying hulk of corporate Nigeria to ask, “Where are the Nigerian equivalents of Henry Ford, George Paterson and George Zochonis, William Hesketh Lever and James Darcy Lever, Anastasios George Leventis, etc?” Still, by the end of the walk-through, one fact is indisputable: the design of the Nigerian business runs a gamut from “fast” (as in put together and extinguished rapidly) to “this business will self-destruct six months after the death of its owner”.
“Why?”, you might ask.

The answers range from the banal (the Yoruba adage that insists that ahead of the child consuming 20 of anything, the parent would have gone through 30 of such), through the existential (“Here, now, O God, give us a foretaste of our heavenly reward!), to the conceptual (that Greek proverb, which says that “Society grows great when old men plant trees whose shade they know they shall never sit in”). Net effect, though, is that the Nigerian businessman, like a colony of termites, cleans out his business from the inside. Or that is what I used to think.

At a recent business lunch, conversation around this topic reached the question “Why would any rational businessman destroy his own business?” And one of the numbers at the table quickly reframed the problem. According to this reading, it isn’t so much that our entrepreneurs are autophagous. Rather, their businesses were set up to allow them reach deeper into the pockets of a diverse clientele. Sometimes, the latter is no more sophisticated than a government browbeaten into subsidising inefficient resource conversion processes as part of an argument around domestic self-sufficiency. At other times, it’s no more elaborate a scheme than a bank helping itself to customer deposits, which some cross-starred regulator will eventually get the bill for.
In this sense, then, as criminal enterprises (or poorly-disguised Ponzi schemes, if you will) these businesses were not designed to succeed beyond a generation. Thus, in the design of policies that aim to boost domestic productivity and output by driving private sector responses, we may continue to fret about business continuity in the country. But the bigger worry is how high enterprise mortality distorts resource allocation efficiency and destroys value across the economy.

Ultimately, the challenge this problem presents is one of improving the governance model of our domestic businesses. My lunch partners were loth to imagine a fix that would work without managers of the economy first addressing the many shortcomings in our political governance. For, in the end, governance problems of this vintage are a function of our collective regulatory competence.

Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.