Making Nigeria a Truly Entrepreneurial Economy

‘Tunde Popoola

My use of the concept of ‘entrepreneurial economy’ may not totally align with the definitions in the academic or economic literature. By an entrepreneurial economy, I wish to describe an economy that promotes entrepreneurship and business formation and growth. It is an economy where it is easy to start and run a business. It is characterised by a phenomenon where the factors of production are utilized, driven mostly by market forces, rule of law and confidence in the judicial system. It provides business-friendly policies and regulations. Socio-economic infrastructure that are enablers for business formation, growth and stability are available in an entrepreneurial economy. It can also be described as a free enterprise economy where people are free TO establish businesses in sectors of their choice, subject to laid-down requirements and regulations. People can stay in any part of the country to try their hands on what they know how to do best. As said by a motivational speaker, it is an environment where the son of nobody, can become somebody by dint of hardwork and the trade he plies, without knowing anybody. Such an economy fosters and guarantees a level-playing field for everyone. There are some countries that are good examples, including the United States and the United Kingdom. 

Economic growth and development are achieved faster under an entrepreneurial economy. This is because business creation and growth hold the key to economic growth and societal wealth in an entrepreneurial economy. It promotes entrepreneurship which helps improve the creation of new businesses with its attendant positive outcomes including new job opportunities and economic well-being of the population. Essentially, an entrepreneurial economy promotes entrepreneurial activities. 

Between 2012 and 2015, I was one of the Nigerian researchers who carried out a study on entrepreneurial activities in Nigeria, under the aegis, coordination and facilitation of the Global Entrepreneurship Monitor (GEM). GEM is a network consortium of national country teams of researchers that carries out survey-based research on entrepreneurship and entrepreneurship ecosystems across the globe. The Nigerian studies were carried out by Tomeb Foundation. Though the reports were released almost a decade ago, the findings are still valid and relevant for the Nigeria situation of today.

The GEM study empirically identified Nigeria as one of the most entrepreneurial countries in the world. The study showed that 35 out of every 100 Nigerians, representing over a third, are engaged in some kind of entrepreneurial activity or the other. This discovery should not be surprising. A typical Nigerian, singularly or in collaboration with others, would have tried his hand on a trade, business, or contract in his lifetime, for the purpose of wealth creation, no matter what he or she does for a living. Quite a lot of those who are not full-time entrepreneurs or in self-employment have one or two business initiatives running by the side. Some evidence have been established through research to corroborate this position. 

According to the GEM report, Nigeria led the world in terms of the desire to explore available opportunities for starting a business. The survey showed that Nigerians have high perceptions about the presence of good opportunities for starting a business and believe that they have the skills and knowledge necessary to start. The study confirmed that more Nigerians pursue entrepreneurial activities due to perceived opportunities than out of necessity. Nigeria also exhibited one of the lowest levels of fear of failure in the world indicating the readiness to start and run a business without fear of failure.

Another interesting finding by the research was about the youths. Nigerian youths are excited about entrepreneurship and entrepreneurial opportunities. About 82 per cent of Nigerian youths perceive a good opportunity for starting a business while 86 per cent believe that they have the skills and knowledge necessary to start a business.

The outcomes of the research activities are corroborated by data. The Small and Medium Enterprises Agency of Nigeria (SMEDAN) and the Nigerian Bureau of Statistics (NBS) stated that there are over 38 million businesses in Nigeria of which 36.9 million or 96.7 per cent are Micro, Small and Medium Enterprises (MSMEs). The startling characteristics of MSMEs are instructive. Over 98.8 per cent of them are micro enterprises employing not more than five persons. In addition, over 67 per cent of the MSMEs are youth-owned. The availability of about 38 million enterprises in a country of about 220 million people suggest that, on the average, one in every six Nigerians owns a business enterprise. 

There are many ironies to the Nigerian phenomenon. If a typical Nigerian is inclined towards starting and running a business, irrespective of his primary employment and is excited about entrepreneurship and has the relative confidence in starting and running a business, why is the unemployment rate so high and the poverty rate on the rise? Afterall, entrepreneurship and self-employment are meant to promote wealth creation and employment opportunities. Secondly, one would have thought that the high rate of unemployment especially among the youths should influence the high number of enterprises. About 67 per cent of MSMEs are owned by the youths. This would have supported the theoretical inclination that a high level of unemployment gives rise to the existence of ‘necessity entrepreneurs’ who establish businesses because they could not find paid employment. The fact from the GEM studies showed that the general level of entrepreneurial activity, and the more important high level of youth entrepreneurial activities arise from perceived opportunities and are rightly classified as ‘opportunity entrepreneurs’. Finally, as a country endowed with abundant natural resources, one would have expected a leaning towards the theoretical postulation that entrepreneurial efforts and activities tend to be low in a natural resource-abundance economy like Nigeria. Under such an economy, there is always no incentives to strive. But this seems not to be the case for Nigeria. 

The Nigerian situation may be explained by its level of economic development as an emerging market economy. Development economists contend that entrepreneurial activity declines with the stages of development. When an economy is advanced, most people work for established businesses and organisations, and do not have the incentive to start and run their own business. Nigeria is an emerging economy, still in its growing phase, and with so many opportunities. It may therefore be the case that entrepreneurial activity is high because of our level and stage of development.

Our paradoxical circumstances of high unemployment and poverty rates, despite the large number of MSMEs may not be unconnected with the absence of enabling factors that make entrepreneurship to thrive. Nigerians are determined and rugged when it comes to the pursuit of entrepreneurial ambition. They normally give their all to fulfilling their ambition. However, there is absence of enabling factors that make entrepreneurship and business formation and growth to thrive. It is not sufficient that citizens are passionate about working for themselves and striving to be successful entrepreneurs. There are basic and minimum factors required to succeed as an entrepreneurial nation.

Nigeria is confronted with the challenges of its stage of development, poor state of socio-economic infrastructure, high level of corruption, and low quality of governance. Others include decreasing quality of human skills, low financial and credit penetration, and multiplicity of taxes, levies and charges. Our unacceptable low level of friendly environment in galvanizing entrepreneurship is captured by the reports of the Ease of Doing Business over the years, prominent among which are legal issues, access to capital, access to electricity, etc. All of these put together make it difficult for interested persons to successfully start and run their businesses. 

As an economy, we need to provide certain infrastructure and enable certain environment that would make entrepreneurship to thrive. It is a given that electricity and other forms of energy are required to drive a truly productive economy. With five thousand megawatts of electricity for a population of over 220 million people and 38 million businesses, productivity is severely constrained if not totally jeopardized. We currently generate only 15 per cent of our needs. According to the Association of Nigerian Electricity Distributors, Nigeria presently requires the generation of 33,000 megawatts to guarantee stable electricity. Whatever the government is doing, improving the generation and distribution of electricity supply must be in the front burner. This can be a game changer towards improved entrepreneurial activities and enhanced productivity in Nigeria.

Furthermore, though the GEM report indicated that most Nigerians have the confidence that they have the skills and all it takes to start and run a business, the reality of our experience does not support that assertion. Self confidence is one thing, capability s another thing altogether. Most business owners are not equipped and do not have what it takes to start and run a business. My experience as the pioneer Executive Director/CEO of the Abuja Enterprise Agency (AEA) confirmed this to me. Most business owners and aspiring business owners do not believe that they need any training and capacity development to start and run their business. Unfortunately, this may be one of the reasons why only 16 per cent of new businesses survive beyond forty-two months.

A fundamental requirement for individual prosperity is the level of skills and diligence exhibited in the production and delivery of goods and services. Skills and diligence promote quality delivery of products and services. The level, type, and quality of education, apprenticeship system and business acumen are central to production of quality output. The Igbo apprenticeship scheme has proven that the right skills in vocation and business management do help and can indeed improve business stability and growth. We can do a lot more on vocational skills and our apprenticeship training with our technical colleges, monotechnic, polytechnics, and universities.

Financial education and access to finance need to improve for Nigerians, especially the teeming entrepreneurs. Of the 38 million businesses in Nigeria, less than 3 million of them have enjoyed access to credit from formal financial institutions. This is an unacceptable low rate of credit penetration. However, businesses and business owners themselves need to put themselves and their businesses to bankable state to benefit from formal financial services. Though both the federal and the various state governments are doing a lot in financial support through various intervention funds, it is clear that such efforts are not yielding intended results and outcomes. The reasons for the gap between government intervention efforts and their outcomes must be identified and addressed.

We cannot over-flog the challenges that small businesses go through in unfriendly government regulations and policies, multiplicity of rates, taxes and other charges.  The Presidential Enabling Business Environment Council (PEBEC), Presidential Fiscal Policy and Tax Reforms Committee and the various state governments need to do more to improve on the environment in which business is done in Nigeria. Besides, government support and incentives for SMEs should focus on priority as well as high growth sectors capable of providing employment, improving exports of goods and services and creating innovative goods and services to meet the demands of today and the future.

Yes, Nigeria is an entrepreneurial economy in ambition. To attain this status, both the government and the people need to do a lot much more.

Dr. ‘Tunde Popoola,

Group Managing Director/CEO

CRC Credit Bureau…writes from Lagos