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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