THE
IMPACT OF PUBLIC POLICIES ON ENTREPRENEURSHIP DEVELOPMENT IN NIGERIA : AN
OVER-VIEW
Omorogbe O. Victor
Department Of Economics
Igbinedion University,
Okada, Edo State- Nigeria.
&
Woghiren Morgan
Department Of Business Administration
Igbinedion University,
Okada, Edo State- Nigeria.
&
Atu-Omimi Ejoor Kingsley
Department Of Accounting
Igbinedion University,
Okada, Edo State- Nigeria.
ABSTRACT
The objective of this paper is to
appraise the impact of public policies on entrepreneurship development in
Nigeria. The use of public policy to
increase private sector participation in economic development is not new. The economic policies of the Reagan
Administration dubbed “Reaganomics” popularized it. To focus the paper in the right perspective,
we began by giving our operational definition of the concepts of public policy
and entrepreneurship and reviewed the underlying theories of
entrepreneurship. The review of the
relevant policies comes under five phases: The post independence pre-war
period, the period of the Structural Adjustment Programme, the period of
Economic Reconstruction and Grass roots banks and the current period of
National Economic Empowerment and Development Strategy. The paper concludes
that there has been lack of policy co-ordination and consequently not much
impact has been made in entrepreneurship development by public policies.
INTRODUCTION
One of the goals of economic
development strategies pursued by successive Nigerian Governments has been the
reduction of poverty through job creation. Ipso
facto, many government policies over the years for the achievement of that
objective have been based on the development of indigenous entrepreneurship. Of
course, Nigeria is not along in pursuing this strategic option. The Reagan administration in the USA also
pursued similar policies in the 1980s “Reaganomics” as it was dubbed worked on
the supply side of the economy. This
entailed the reduction of government involvement in business, large budgets
cuts and deep tax reductions so that investment by the private sector will
create jobs, increase supplies, and ultimately push down inflation.
Job creation through the free market
and the empowerment of the private sector was taught by Milton Friedman of the
University of Chicago in 1953. Earlier
in 1936 John Maynard Keynes had postulated that unemployment was a function of
inadequate “aggregate demand”. He
emphasized that government spending, if need be by borrowing, (deficit
financing) was the magic wand since the private sector would not invest enough
in the gloomy saturated markets of the great depression of the 1930’s. Keynes
was proved right, in due course. However
over the years excessive government spending had over heated the economics and
fueled inflation in many countries.
Supply side economics has not only reduced inflation but it has also
reduced government involvement, misuse of resources and public debt
burden. It has also increased employment
in many counties China, India, Brazil and so on.
This paper, however, hypothesizes
that public policies in Nigeria have not impacted much on entrepreneurship
development in spite of government economic policy trusts in that direction.
OPERATIONAL DEFINITIONS OF CONCEPTS
Many definitions of public policy
abound. Dye (1965) and Jones (1977) agree that public policy is a public
decision to achieve a purpose. However,
policy only lays down the general directive rather than detailed instructions
or strategies on the line of action to follow to achieve the objective. Basically, public policies are formulated by
the three arms of government working in concert. But, policies can be initiated from para institutional sources and from
private persons. Ultimately all public
policies in Nigeria derive their legitimacy from the constitution (Uchendu,
1989). In this paper we are concerned
with policy as a guide for public action that defines government position on
issues affecting the people and matches finance to problems.
Entrepreneurship as used in this
paper refers to the activities of the entrepreneur as the initiator, organizer,
innovator and risk bearer in production or business. (See Kent, Sexton &
Vesper 1982). The entrepreneur is the
person whose activities create wealth and employment which can be measured
either directly on through economic growth rates. This definition is without prejudice to the
classification of entrepreneurs on a continuum from small craftsman
entrepreneurs to big time opportunistic entrepreneurs adopted by Inegbenebor
and Osaze (1999). Whether big or small
entrepreneurs are all in business to make profit and grow their enterprises
(Carland et al 1984). Their functions,
therefore, come under entrepreneurship as used in this paper.
THEORIES OF ENTREPRENEURSHIP
In this paper we shall examine
Schumpeter’s and McClelland’s theories of entrepreneurship on which many public
policies are based. In Schumpter’s
theory (1934). The supply of
entrepreneurship is a function of the rate of profit a emulation and the
“social climate.” By this theory a
vibrant profitable economy encourages people to venture into entrepreneurship
while any action tending to squeeze profit such as increased bargaining power
of trade unions, progressive income and corporate taxes, will discourage
enterprise. Schumpeter uses the concept
of “social climate” to describe the whole lot of social, political and
socio-psychological environment within which the entrepreneur operates namely:
educational system, social values, class structure, reward system etc. If these develop positively entrepreneurship
will strive (Higgins, 1968 p. 94).
While Schumpeter’s theory is
basically environmental –social political and economic –Mcclelland’s theory is
purely psychological. He hinges
entrepreneurship on the motive, the need for achievement. This motive is a personality trait which can
be acquired through appropriate interventions or altitudinal changes such as by
training and development. It is this
that unscores the success of the Indian Gujarat Model (Ekpenyong, 1989).
PUBLIC POLICIES AND ENTREPRENEURSHIP
Based on the above theories and
following the examples of other countries Nigeria has grappled with a number of
policies to promote entrepreneurship directly and indirectly. A number of these easily come to mind.
1. The indigenization Policy 1972/77
- Long –term credit delivery instructions.
2. The Structural Adjustment Programmes
1986.
- Directorate for Food, Road and Rural Infrastructure (DFFRI) 1986
- National Directorate of Employment (NDE) 1986
- Raw Material Research and Development Council 1987
- The Entrepreneurship Development Programme (EDP) 1987
- Export Promotion Council 1988
- Privatization, Commercialization and Deregulation Policies 1988
- National Industrial Policy 1988
- Economic Reconstruction Programmes 1988
- SMEII Loan Scheme 1989
- Monetary Policy Guidelines,
- On Lending Credit Institutions 1989
- The Establishment of Grass-Root Banks, EPZ decrees 34 of 1991 and 8 of 1996.
3. The Nigerian Economic Empowerment and
Development Strategies (NEEDS)
2004
- National Poverty Eradication Programmes (NAPEP)
- Bank Consolidation Exercise 2005.
- Federal Roads Maintenance Agency (FERMA)
The list is inexhaustible but as
Ekpu (1992) humorously observed some of these policies have been like changing
one structure for another much like ‘exchanging a monkey for a baboon,
recycling of ideas; a duplication of efforts (which) turn out to be of doubtful
relevance or simply a money –gazzling machine”,
The research question here is: what
has been the impact of these policies on entrepreneurship development as
measured by the rate of growth of the key sectors of the economy; what is the
correlation between the growth rates of manufacturing and agriculture as a
measure of the co-ordination of the public policy directives. For the rest this paper we shall attempt to
appraise the conception, implementation and achievement of the key policies in
order to answer the above questions.
THE NIGERIAN ENTERPRISES PROMOTION
DECREES (NEPD) 1972 AND 1977
During the colonial period the
development of indigenous entrepreneurship was not encouraged by the
colonialists who were content to see Nigerians as merely rural producers of raw
materials for the industries of the United Kingdom. At independence the above scenario was
unacceptable to policy makers. The
federal government took over the operations of the Industrial Development
Centres, which served as incubators for industrial enterprises. The Small Industries Credit Loan Scheme
(SICL) came into operation in 1966 to complement the IDCs but the civil war
disrupted everything. In the Second National Development Plan (1979-74) the
government saw the need for Nigerians to take over the commanding heights of
the economy. The objective was to be
achieved by the promulgation of the Nigerian Enterprises Promotion Decrees No 4
of 1972 and No 3 of 1977. By these
decrees certain enterprises were solely reserved for Nigerians and some were to
be run by both Nigerians and Aliens.
To provide the financial muscle
needed by Nigerians to buy over the enterprises which aliens were to sell the
government set up the Nigerian Bank for Commerce and Industries (NBCI) by
decree No 22 of 1973 and acquired 40% equity participation in the existing
expatriate banks in order to influence sectoral allocation of credit to
Nigerian businesses. The establishment
of NBCI was thought necessary because the existing Nigerian Industrial
Development Bank (NIDB) established in 1964 was up to this time under foreign
majority ownership and control and did not meet the aspirations of indigenous
entrepreneurs (Nwankwo, 1988). The
Nigerian Agricultural and Co-operative Bank (NACB) were also established in
1973 to transfer rural farmers to commercial agriculturists. The NEPD decree 1972 was amended in 1977 by
the Nigerian Enterprises promotion Decree No 3 of 1977 to make it more
meaningful.
Going by the fact that the
indigenization policy produced new generation of Nigerian Managers, business
executives and big time Nigerians shareholders it was a success. But observers (Biersteker, 1980) were worried
that buying over shares in existing companies as portfolio investors did not
transfer sophisticated technology nor brought innovation to business and
therefore did not make one an entrepreneur.
There was no prior entrepreneurial development programme like the Indian
EDP -1 to prepare Nigerians for the take over of foreign businesses. This led to the liquidation of many
enterprises taken over. There was the Centre
for Management Development (CMD) that organized seminars for managers. This was not sufficient to develop the
entrepreneurial skills for the long-run strategic management of businesses. Again many Nigerians were not aware of the
credit delivery institutions and those who were aware did not benefit much as
the banks did not lend without good collateral securities which the bulk of the
people could not afford. The NEPD at
best stimulated entrepreneurial spirit and the capital issues commission established
also in 1973 paved the way for capital market development. That the decree was abrogated in 1996 meant
that NEPDA had not produced the needed crop of local entrepreneurs to exploit
available resources and create employment, hence the wooing of foreign
investors to come back.
THE STRUCTURAL ADJUSTMENT
PROGRAMME OF 1986
While Nigerians in the private
sector were encouraged to take over alien business the development plans – 1962
-68, 1970 -72, 1975 -78, 1981 -85 promoted the establishment of big government
owned import –substitution industrial (Big push theory). Between 1975 and 1995 over $100 billion was
spent to set up about 120 public enterprises that relied on foreign inputs
(Business Times Feb. 17, 2003 p. 1). The
private sector entrepreneurs instead of running their new businesses taken over
from aliens and developing new ones to provide food and intermediate capital
goods also became emergency contractors in the oil related business and
construction sites that mushroomed following post war reconstruction
programmes. The result was heavy
reliance on the oil revenue to finance importation of inputs as well as food
and drugs by the government. When oil
prices crashed in the 1980’s payment arrears piled up and created balance of
payment problems. The surplus of N2, 402.4 million in 1980 cascaded to a
deficit of N3,020.80 million in 1981 (Ogundipe 1989, p.8).
It was against the above ugly
scenario that the Structural Adjustment Programmes (SAP) of 1986 was conceived
to address the structural imbalances in the economy and lessen the reliance of
oil revenue. New policies under SAP were
now designed to promote small and medium enterprises (SMEs) that collectively
generate more equity capital and contribute more to G.D.P than a few big
enterprises. (Ogba,1991). Besides the
SMEs also collectively generate higher level of employment per unit of
investment. Government adopted the SAP
standard policy package (SSPP) of the IMF to reduce imports and promote
exports. It also favoured monetary and
fiscal policy adjustment, new exchange rate regime and trade policies, public
sector reforms, fiscal discipline and budget cuts. It also removed subsidies and adopted
reliance on price mechanism. These
encouraged local entrepreneurs to produce locally those goods that were hither
to imported from the world market. A
number of institutions were also established to promote SAP as follows.
1.
The Directorate for Food, Roads and
Rural Infrastructure (DFFRI) 1986 was to construct and rehabilitate federal
roads and rural feeder roads so that farmer can easily evacuate their
produce. But as Akpan (1992) aptly
described it DFFRI showed miles of performance on paper with only inches of
evidence in the field for the N2 billion it spent in its first 6 ½ years of
existence before it was scrapped off.
2.
National Directorate of Employment
(NDE) was to provides opportunities for youth employment and vocational skills
acquisition, small sale industries and graduate employment scheme as well as
special public woks programme.
3.
Raw Material Research and
Development Council 1987, was organise researches for the development of local
raw materials.
4.
The Entrepreneurship Development
Programme EDP 1987, was a programme mid-wifed by the federal ministry of
employment, labour and productivity.
Being organise by a government agency it turned out to be another
conduit pipe to embezzle tax payers money/government revenue.
5.
Nigeria Export Promotion Council
NEPC 1988 was to facilitate the development of export marketing by
entrepreneurs.
6.
Privatization entailed the selling
of inefficiently managed public business to private investors. Deregulation was to remove protective laws to
encourage competition.
A post mortem of SAP shows that it
turned out to be a double –edged sword.
The crawling peg devaluation of the naira made importation of needed
inputs by the small and medium enterprises very difficult. Their increased demand for bank loans to
square up production cost also increased the rate of interest and this resulted
in a spiral inflation that hit harder on both producers and consumers. Many producers carried excess capacity while
other simply went under. This dismal
situation is represented by table 1 below on the sectoral annual growth rates
(%) of agriculture and manufacturing industry from 1981 to 1990.
Table 1:
Sectoral Annual Growth Rates of Agriculture and Manufacturing Industry
|
Year
|
1981
|
1982
|
1983
|
1984
|
1985
|
1986
|
1987
|
1988
|
1989
|
1990
|
|
Agric
|
-16.5
|
2.5
|
0.3
|
-4.8
|
16.8
|
9.2
|
-3.2
|
9.8
|
4.9
|
4.2
|
|
Manuf.
|
15.1
|
12.9
|
-29.4
|
-11.2
|
19.9
|
-3.9
|
5.1
|
12.8
|
1.6
|
7.6
|
|
Manuf.
|
15.1
|
12.9
|
-29.4
|
-11.2
|
19.9
|
-3.9
|
5.1
|
12.8
|
1.6
|
7.6
|
Source:
World Bank 1999 World Development Indicators Washington D.C.
Adapted
from: Iyoha MA &Itsede C.O. (2002) Nigerian Economy: Structure, Growth and
Development., Benin: Mindex Publishing Co. p.23.
The above statistics are revealing,
the table shows that there is a zero correlation between the rate of growth of
agriculture and manufacturing industry over the period of SAP. If SAP had made
an impact we would have a positive correlation and a simple linear regression
line with a positive slope; as agriculture increased, manufacturing also
increased since manufacturing received inputs from agriculture, all thing being
equal. The zero correlation is therefore
evidence of uncoordinated policy directive.
The conclusion is that all the funding initiated by SAP went down the
drains.
ECONOMIC RECONSTRUCTION PROGRAMMES
OF 1988
To ameliorate the harsh economic
conditions of SAP the concept of Economic Reconstruction Programmes was
conceived. The cardinal trust of the
programmes was the establishment of on-lending credit delivery institutions to
assist SMEs on danger-list to retool, restructure and refocus to their core
businesses before SAP. The institutions
were to compliment the SMEII loan scheme also introduced. The on-lending institutions were the
following:
1.
The National Economic Reconstruction
Fund (NERFUND) (Decree 28 1989)
2.
The World Bank Facility, 1991
3.
The Nigerian Export-Import Bank
(NEXIM).
These institutions used a number of
participating banks as intermediaries.
This reduced this cost of lending. High cost of lending was the bane of
earlier development banks. However,
because of further devaluation of the naira by over 70% in 1992, the
institutions experienced massive loan default and eventually became distressed
(Mbaegbu 2006).
THE GRASS ROOT BANKS OF 1989
The grass root banks were the Peoples
Bank and the Community Banks.
They were to meet the credit needs
of the craft men- entrepreneurs. The
Peoples Bank took off in 1989. It was later accused of corruption before it was
merged with the NACB to form the new Agricultural, Rural and Co-operative
Development Bank.
The Community banks were expected to
carry out banking businesses at the local community level. however, many had overtime become distressed
because of bad management because many CBs drew their managers from former
employees of distressed banks who carried on with their dysfunctional and
unprofessional banking habits.
THE NATIONAL ECONOMIC EMPOWERMENT
AND DEVELOPMENT STRATEGY (NEEDS)
One of the cardinal points of NEEDS
is the promotion of private enterprise through improved infrastructure,
promoting industry, agriculture and other sectors such as information and
communication technology. Not much
evidence is available to access the impact of NEEDS save for the banks
consolidation exercise it has put in place to encourage financial deepening and
also the introduction of the GSM telephones.
Conclusion
Public policies aimed at promoting
entrepreneurship in Nigeria appear under five phases in this paper:
1.
Post independence era 1960 -66
2.
Post war, Nigeria Enterprises
Promotion Period, 1972 – 77
3.
Period of Structural Adjustment
Programme 1986 -88
4.
Period of Economic Reconstruction
and Grassroots Banks 1988 -1990
5.
Current NEEDS period 2004 to date.
Analysts believe that the policy
programmes were mere duplication of efforts given different names. They provided miles of performance on paper
but inches of evidence on ground. Given
the statistical evidence of lack of co-ordination of efforts particularly
during the SAP era; we uphold the null hypothesis that public policies have not
impacted much on entrepreneurship development in Nigeria. Resources were just being poured into
programmes without any econometric model being developed to measure outputs
against inputs within a certain time period at the end of which a feed back on
performance would be provided to reappraise the policy direction and chart a
new course.
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J.W., Hoy F., Boulton W & Carland J.C. (1984). Differentiating
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T.R. (1965). Understanding Public Policy Engle
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Banker
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