Economic Issues
Culture and Our Relatively High Business Mortality Rate -By Uddin Ifeanyi
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.
Unfortunately, the latter consideration is one of those
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.