Business Insight

I’m a Private business, why should I care who wins the upcoming elections?

Startups all over the world are typically known to have a rebellious attitude towards politics and government. The confidence to be rebellious comes from the fact that a successful company can thrive even better without some of the bottlenecks the system creates. The government believes the systems will check excesses and create a fair playing ground. Entrepreneurs on the other hand see the bureaucracies of government as a hindrance to disruption. The fact of the matter is disruption comes with responsibilities.

Just last year, we witnessed how the disdain showed by investors and innovators to government policies created one of the most horrendous cases of privacy violation in world history. the Facebook saga.

On the local scene, we witnessed how MTN was slapped with heavy fines for illegal repatriation of profits out of Nigeria.

Indeed, the private sector cannot avoid government. Therefore, as a private business, you shouldn’t even think about not being on the side of the government because that will precisely put you out of the position for opportunities in your market.

So let’s get into the crux of the matter

The next 4 years in Nigeria presents mainly two options to Private businesses; Option one is the dilemma of our current realities and option two is the promise of what is to come

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THE DILEMMA OF OUR CURRENT REALITIES

It can be said that the current government showed commitment to the growth of the local economy in the last four years. Policies that are supposed to encourage local production were enacted. However, if the dream, as we were told, is a diversified economy, then much of the results from these policies are still too little to brag about. The local economy is still very precarious and private businesses are not having a field day. The effect of some of these policies may have backfired, causing inflation.

This administration was somewhat firm on Income taxes, VATs, custom and excise duties. This was no surprise as the government made its intentions known from the word, go. The government was bent on reducing our reliance on crude Oil. To be fair, the gains from taxes have been realized from a mixed approach of adding more tax payers to the tax base and increments in tax levies, mostly on products. Private businesses have not really seen increments in company income tax. The evidence is that company Income taxes have been generating less revenue for government since it took office in 2015. As for VATs they have increased and decreased in the last four years. Excise and Import duties have pretty much increased since the government took office.

In terms of socio-economic impact, the current administration unveiled a social investment programme for youth empowerment, entrepreneurship and employment. This government intervention has 4 components; A feeding programme for public primary schools, cash transfer to the less privileged, N power for unemployed graduates and Government enterprises entrepreneurship programme (GEEP) for Artisans and traders. Much of the intervention feels like a socialist approach to easing the economic woes of the masses. The overarching effects on the macroeconomic environment are being felt in the short term through indicators such as; poverty, unemployment, recession (As of 2017) and a dwindling consumer confidence levels. Undoubtedly, there have been cases of venture-type funding and support here and there under the N Power initiative, much of the initiative, however, still holds little hope and promise for a super-charged economic environment brimming with innovation and groundbreaking entrepreneurial successes.

In terms of technology and innovation, a sector of the economy that has made great strides under the current administration is the financial sector. This is partly owing to the administration’s stance on financial inclusion, accountability and transparency. The effect of this stance on the environment is an influx of Private businesses that are leveraging on financial technology to provide credit, savings and other financial services. Much of this is evident in the technology and innovation currently being offered by Fintech Startups; and with policies like the financial inclusion 2020 goal of the CBN, we are bound to see more collaborations between the banking sectors, Tele communication operators and financial technology innovators, under the current regime.

In summary, if the current administration won the election, the following may be the realities facing private businesses

  • More fiscal policies that may see a progressive increase in tax levies and duties on private businesses
  • More opportunities for entrepreneurs and disruptors in the Agricultural sector, particularly those trying to solve the problems of logistics and end-to-end distribution chain in the country
  • More effort to diversify the economy by encouraging local production and Entrepreneurship.
  • More consolidations across industries to provide financial services.

 

 

THE PROMISE OF WHAT IS TO COME

Elections and promises go hand in hand. A lot of promises have been made by the opposition parties. From the downright impossible, to promises that inspires the cynicism in you. Even though the promises of politicians are to be taken with a pinch of salt, their words give an insight into the kind of policies we can expect if they are elected into office. You can expect that if any of the opposition wins, they will do everything in their power to go off the beaten path. If for nothing else, to be able to clearly differentiate their tenure from that of the incumbent which has been criticized as one of the worst we have had since 1999.

So let us get into the crux of the matter. What have the opposition parties been promising Nigerians?

Improvement of our Foreign Direct Investment (FDI)

Our FDI has been plunging over the last four years and this has inspired a lot of debate from the opposition parties. In 2018, we had the worst year yet in terms of attracting foreign investment. We are currently not even the top investment destination in West Africa, how much more the continent.

The opposition parties have all promised to return Nigeria to its days of being the giant of Africa- a title we earned because of our large population, abundant resources, and the ability to attract huge foreign direct investment. We are talking about the days of averaging $3bn per quarter in foreign investments compared to what we currently attract—$438mn. Keep in mind that even at 3 billion per quarter, we were still far below our capacity when it comes to foreign investment. Experts believe that Nigeria can accommodate at least $14bn/quarter in FDI.

Here is a concise perspective of how foreign direct investment has been entering Nigeria over the last four years;

China: We have attracted funding and investment into Nigeria from china, mainly for infrastructure development. There have also been bilateral trade agreements between both countries and partnership to bolster our oil and gas industry with help from the Chinese.

Europe: Nigeria’s biggest Ally in Europe is Britain, and relationship with Britain allows us enjoy investments and developmental funding from the EU. Foreign investment from the UK into Nigeria has been mostly attracted by the professional service industry and our agricultural sector.

United States: With over 70 US companies currently operating in Nigeria, Foreign investment from the United States comes into Nigeria and mostly goes into the petroleum/mining and wholesale trade sectors.

Despite the inflows from these regions of the world, Nigeria remains one of the least favorite places to conduct business. The obvious question is how will the opposition attract investment? What will be the policy moves and if we were to change directions from where the current administration is heading, how will this affect private businesses? Are we likely to see more partnership with Europe? Recall that the incumbent refused to sign the EPA (economic partnership agreement) with other African countries and the European Union in 2018 on the account that our local industry does not have the competitive edge to withstand such an agreement. With a change in government, are we likely to see foreign investments that will compete heavily with our local industries? These are some of the pertinent areas to analyze from.

Privatization:

The presidential candidates for at least two of the opposition parties have called for the privatization of State-owned enterprises, and concessions of Nigeria’s sea ports and Airports. The argument for privatization did not start in this election even though the reasons being touted by those in favor are things we have heard over and over again; if the private sector were to control the country’s assets, it could revitalize the economy, after all, Profit would be the motive and this will drive competition, efficiency, and the list goes on. If we are going by history, we should all be wary of Privatization. However, Let us assume that those touting privatization as the solution have learnt from our history, and know that government cannot pass the buck of running public corporations to the capitalists.

I believe for privatization to be successful, the government has to get the middle class involved in the ownership of assets.

Creation of millions of Jobs through entrepreneurship:

There has been so much talk around venture-type of funding for the new-age, tech savvy, innovation-driven youths of Nigeria. All those vying for the number one position in the country have sounded formal and informal paths to bolstering entrepreneurship that would then create jobs in millions.

This sounds very promising but the questions to ask are; how exactly will a trillion dollar venture fund trickle down to create jobs in the millions? Or how will we get the private sector to drive economic growth without widening the gap between the rich and poor?

It is worthy of note that the current administration was only able to create about 1.1 million jobs since it took office in 2015, and here we have the opposition promising us millions of Jobs annually from entrepreneurial funding alone. I would let you decide if something smells fishy about these promises.

Minimum wage going from N 30,000 to N 100,000

Nigeria currently employs over 11 million civil workers. The current debate is to make the new minimum wage N 30,000 (Still waiting to be passed into law), an increase of about N 12,000. This increase will see the government spend 160 billion Naira. To ensure that there are no inflationary impacts as a result of this increase, the government is setting up several advisory committees.

Now, there is a presidential candidate proposing to make minimum wage N 100,000. I believe this proposal is very ambitious. Let us even assume that this will somehow be assented by the national assembly, you still have to wonder how the country will fund such spending without exorbitant borrowings?

Then there is the concern of how a 300% increase in minimum wage will affect the economy in terms of inflation.

You also have to worry about how the private sector will take this. How many Private businesses in Nigeria can comfortably pay the minimum wage of 100k without seriously risking liquidation?

It is easy to compare Nigeria with other foreign counterparts who pay their workers very high wages and conclude that we should be doing the same thing. However, the fact of the matter is, a 300% increase in wages will cause more harm than good in the long run.

In summary, if the opposition parties wins the election, here are some of the realities that may face private businesses based on all that has been said on the campaign trail;

1)     A lot of effort to open up the economy to foreign investment and to supplement domestic investment across different sectors of the economy.

2)     A more flexible foreign exchange regime that may see an end to the multiple value of naira against the US dollars.

3)     A keen focus on youth empowerment by way of entrepreneurial funding to foster more tech innovation.

4)     Privatization of state-owned assets, Private sector participation for our seaports and Airports

 

This Article was written by Olojede Samuel, a business and finance consultant, and co-founder of Sam&Wright Consulting. The views shared in this article are the personal opinions of the writer. The writer doesn’t in any way endorse any of the presidential candidates in the upcoming elections. This article is a non-partisan piece that employs the subjective reasoning of the writer in order to provide readers with an unbiased analysis of what to expect from the presidential candidates based on all that has been said during their campaigns.

For more information, you can reach the writer through the following channels;

LinkedIn: https://www.linkedin.com/in/olojede-samuel-8720a5133/

Email: Sam@samandwright.com

Phone number: +234 817 316 8042

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