The question is often asked: should the Nigerian government be involved in business? The answer: it depends. There is neither a systematic nor an exact response. All too often, government start out with noble (good) intentions: playing effective, if not crucial role of catalysing a fledging sector, addressing market failure or simply meeting the basic needs of citizens. Over time, they outlive their usefulness and hamper the development of the very business they were promoting, or find themselves trapped, unable to extricate themselves from the costly endeavour.
For example, underwriting payment for subsidy (or under recovery as the NNPC prefer to call it) on imported refined petroleum products by the Federal Government of Nigeria. A times, government scurry along and leave before discharging its responsibilities to the fullness for fear of distorting normal market operations.
There is no need for our government to reinvent the wheel. Our political leaders and senior policy makers should study closely the experiences and models of others who have gone before us. Certain experiences are common, such as structuring or stewarding public enterprises, or the process of divesting investments. However, the greater lesson lies in understanding that no two countries are the same – be it size of economy, stage of growth, availability of natural resources, geopolitical landscape or history. What might work perfectly for one country could bring tremendous grief to us. The ultimate response has to be us asking the right questions and creating as many answers as possible, at each stage of economic growth and societal development.
The success of the Nigerian government can be judged by how vibrant the economy is, how sustainable growth is, how dynamic the business sectors are, how well citizens are faring and how our cohesive society is. Sustainability turns on good policy formulation and execution, to be complemented by an entrepreneurial private sector and committed citizens.
History has shown that the role of government vis-à-vis those of the private sectors cannot remain static. Are there guiding principles that can be helpful when responding to changing economic, political and social conditions? Here I propose three very important creeds that should prove useful to governments at all levels in Nigeria.
Government need not apologise for participation in business
If one resides in Nigeria in the mid-1980s and late1990s, one would get the feeling that it was somehow wrong for government at any level to have any interest in business. Of course, then multiple reasons were offered for selling off public enterprises – the proceeds would bolster public coffers and private interest would stimulate more competition, bring about commercial discipline and a more efficient use of capital. Fast-forward to today and one hears incessant calls for more government involvement in many aspects of the economy such as public transportation, airlines, and even in bailing out failing national icons.
Standardization is undoubtedly difficult but the bottom line is that the Nigerian government should not apologise for its involvement in business. Neither does it need to sprint towards the privatisation tape even when it has decided that there is no longer a strategic purpose to be served by remaining invested in a particular sector or industry.
A doctrinaire government can do more harm than good
Consistency has its virtues, but resoluteness to a certain public policy position or ideology can prevent moral hazards to governing for the long haul. In the extreme case, it may even cost a political leader or party the mandate to lead.
The greatest challenge for the government, over the years, lies in deciding who deserves subsidies for essential public goods and how much should be dished out. Many factors come into play in shaping public expectations such as affluence, perception of ability to offer greater public funding and changing values. A static response will bring grief to all concerned – a government which cannot comprehend why the same subsidies are no longer satisfactory despite the heavy fiscal burden, against a citizenry that bemoans how the government has lost touch with the current aspirations regarding living standards.
Take, for example public housing. Over time, with more hectic working lifestyles, Nigerians (people) may expect more privacy and a higher standard of living conditions. And many young couples want their flats or condo at their point of marriage unlike their parents, as is the trend in some major cities in Nigeria. Meeting such needs would no doubt ratchet up public expenditure; besides, where does one draw the line. Or for that matter, technological advances have rendered more medical diagnostic test readily available for the masses, albeit at a cost. Should public funding continue to be limited to only what is considered “basic”? Soon. Air-conditioning in subsidised wards would be given, never mind the additional cost.
Specific to Nigeria’s youthful population will be the need to review the entire suite of subsidies from public transportation to healthcare and education. Where financial sufficiency is in question, refinements have to be gradually woven in, and the source of funding contemplated. Unfortunately, refusing to relent because it will entail bigger budget spend, and insisting on familial responsibility, is frequently not a viable political solution. The government will come across as stubborn or hard-hearted.
Responding to such changing needs is not rocket science, but neither is it straightforward or solved by using an algorithm. Suffice it to say, that a public sector that holds firm to rules and policies already laid down, without taking into account the practicalities, will constantly be on the defensive. This is one major reason why it is difficult for the Federal Government of Nigeria (and some states), to balance their budget. They are under even greater pressure to cut down or totally do away subsidies in line with changing expectations or circumstances. Rather than be pushed into a corner, or worse still be held hostage politically to demands, our political leaders and policy makers must be proactive and pre-empt calls for greater public funding support.
Nigerian businesses on the other hand must analyse trends in shifts in behavior and offer solutions. For example, business operators – ABC Transport or The Young Shall Grow – can conceive new or revised concession schemes for young people and recommend them to the federal (or state) government for adoption. The pressure is likely to be on greater public spending on essential goods, but private sector operators will have to carefully assess the ability of the government concerned to afford new initiatives.
There exist many levers of influence beyond ownership
Every Nigerian political leader and policy maker instinctively falls back on ownership control to exert influence, particularly over the provision or regulation of strategic goods and services. Examples abound of such behaviour – the re-nationalisation of key businesses or the imposition of more ownership-related regulations.
Does intervention always need to be limited to assumption or resumption of ownership? Are there no other levers available via the roles that government can play? As a regulator, government can count on the imposition of tighter operational rules or law to shape behavior without having to own any bit of the underlying businesses. This is most evident in financial services; scores of new rules or laws being promulgated in the wake of every economic downturn or banking crisis. This obviously introduces regulatory risk, but often, it is the lesser of the two evils. Nonetheless, it should not be undertaken lightly, especially since there are no conclusive indications that heavier regulatory burden leads to the desired outcomes of better corporate behavior.
In essence, Nigerian businesses need to be alive to the various possibilities by government to wield influence and mitigate risks accordingly. In the worst-case scenario, an expropriation of interest may occur.
Hence, recognition of the need for, and acting in a dynamic fashion would be key to continued progress. Unfortunately, the federal government of Nigeria and governments at the lower tiers are found wanting, sometimes not from lack of trying. Often, it’s the inability to restructure or lethargy to adapt to changes that trips them up.
Time for government to ask the right questions
The Nigerian government must diligently ask itself a series of questions when mulling over the extent of participation in a new business, especially when it relates to areas that can affect political sensitivity or societal well-being of citizens. For existing involvement, a regular assessment should be made to determine if previous assumptions are still valid. This will avoid problems of overstaying its welcome and distorting market operations.
Questions generally fall under the following four broad categories:
- What is the state of the economy? – stage of growth and size of the economy
- What is the state of the government? – health of the public sector in fiscal terms, political climate, and responsible for job creation or composed of a fragmentation of local entrepreneurs
- What is the state of the market? – is there market failure? Does business involve the provision of public good?
- What should be the mode of engagement? – how should government get involved? What are its exit options when participating as shareholders? What stewardship and accountability measures are or will be in place? How will moral hazard be avoided.
The responses to the set of questions provided above will inevitably change over time. It is advisable for government to adhere to the articulated three guiding principles when adapting its responses. It does not have to be defensive or apologetic. It does not have to be wedded to a particular policy position, however well it may have served the country in the past. It must be prepared to consider all options for exerting influence beyond ownership.
On a final note, looking ahead, globalization and technological advances would combine to present the Government of Nigeria with challenges that will take on a greater scale, with the commensurate contagion effects, and which will demand a much faster response time. Therefore, government must strive to be nimble, and yet be able to act credibly.
We must remember that government and business are inextricably linked, thus, in the long run, an incompetent and weak public sector will adversely affect the fate of our dear country and the people at large. By the same argument, a proactive, responsive and competent government will constitute a real asset not just to the private sector but also to the society it serves.
So, the debate should be focused less on philosophically how much government should be involved in business, than on how to build a market-oriented, society-sensitive and competent government that is capable for a dynamic response. This is a necessary but insufficient condition. In other words, our government should always endeavour to be a partner to business. But without the ability to respond in a dynamic fashion, Nigeria’s potential and therefore her citizens’ dreams cannot be realised. In such an instance, the government turns into a dreadful adversary. My proposition is that with conscious efforts, the government can always aspire to be a partner to business