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Effect of Business on Economic Development in Nigeria

Article in Journal of Business Economics and Management · May 2014

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Satope Bola Bosede Akanbi

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E3 Journal of Business Management and Economics Vol. 5(4). pp. 091-096, May, 2014
Available online http://www.e3journals.org
ISSN 2141-7482 © E3 Journals 2014

Full length research paper

Effect of business on economic development in Nigeria

Satope Bola F1* and Akanbi Bosede2
1
College of Business and Social Sciences, AdelekeUniversity, Ede, Osun State, Nigeria
2
Faculty of Social Sciences,Okuku Campus, Osun State University.

Accepted 12 April, 2014

The study examines the effect of the businesses in Nigeria on the economic development of the country. This is
with the desire to examine its ability to achieve the desired objectives in the country (Nigeria). Business has
contributed to changes in the level of development in the country through generation of employment; direct
creation of wealth and reduction of poverty by contributing to the Nigeria Gross National Product (GNP) and
GDP. Also, it contributes to provision of: technical innovation and competition for better services and meeting
needs of other businesses by providing products or raw materials needed for other businesses to survive. The
increase in economic output recorded in third quarter of 2013 was as a result of increases recorded in
agriculture, hotels and restaurants, building and construction and telecommunications sectors of the economy.
The contribution of the non-oil sector in the third quarter of 2013 was due to benign weather conditions that led
to bountiful harvests in the agricultural sector, increased investments by local and foreign investors and the
positive macroeconomic environment. The report however identified the privatization of the power sector,
agricultural transformation initiative among factors to drive the country’s growth. The study made
recommendation for further development.

Keywords: Business; Economic Development, Employment, Gdp, Privatization

INTRODUCTION

Business has the characteristics of being involved in companies, private limited liability companies and
transfer or exchange of goods and services, as well as partnerships, whereas the informal sector consists of
human activity directed towards the acquisition of wealth, peasant farmers, petty traders and artisans.
which will lead to growth by increasing the National Nigeria, which was one of the richest 50 countries in
income. Apart from this, business has the aims and the early 1970s: the sixth largest exporter of oil, turned to
objectives of earning profit, manufacture goods and or become one of the 25 poorest countries at the threshold
render services to the society, involving payment of taxes of the twenty first century; and also there is Poverty in
regularly to generate income for the government, provide Nigeria in the midst of plenty. Nigeria is among the 20
job opportunities for the public, improve the standard of countries in the world with the widest gap between the
living of everybody in the country thereby resulting in rich and the poor (Igbuzor, 2006). The World Bank in its
sustained growth or development. 2001 report titled ‘Attacking poverty’ proposed a strategy
In terms of size, the private sector in the Nigerian for attacking poverty in three ways: promoting
economy is substantial. There are two components: the opportunity; (by Encouraging effective private investment;
organized private sector and the informal sector. The Getting infrastructure etc); facilitating empowerment and
organized private sector comprises public limited liability enhancing security. All which are to increase business in
the country.
Nigeria, an Oil-rich country has been restricted by
political instability, corruption, inadequate infrastructure,
and poor macroeconomic management, but in 2008
*Corresponding E-mail- satopetito@yahoo.com began pursuing economic reforms. Lack of infrastructure

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092 E3 J. Bus. Manage. Econ.

and slow implementation of reforms are key impediments Consequently, the communication sub-sector was the
to growth in Nigeria. The government is working toward first to beprivatized with the licensing of many global
developing stronger public-private partnerships for roads, system for mobile (GSM) communication which led to the
agriculture, and power. Nigeria's financial sector was hurt telecommunication business revolution (Soludo, 2007).
by the global financial and economic crises, but the The deregulation of the downstream oil sector enhanced
Central Bank governor has taken measures to restructure private sector participation and put an end to the
and strengthen the sector by imposing mandatory higher incessant fuel crises that plagued the economy.
minimum capital requirements (Nigeria Economy Profile, Thus, with the various steps taken by the government
2013). this study therefore examines the relationship between
National Economic Empowerment and Development business and economic development in Nigeria to see
Strategy (NEEDS), was launched in 2003 as a major the effect of the businesses in Nigeria on the economic
initiative to reposition the economy of Nigeria in order to development of the country. This is with the desire to
meet the multifaceted challenges confronting the examine its ability to achieve the desired objectives in the
economy. The NEEDS is a home-grown economic country; Nigeria.
programme targeted towards achieving a stable, The paper is organized into five sections section 1
predictable and sustainable macroeconomic provides the introduction; section 2 the literature review;
environment; non-inflationary and non-oil GDP growth. It section 3 describe the methodology; section 4 discusses
is a medium term strategy which aims at poverty the results; while the final section provides the conclusion
reduction, wealth creation, employment generation and and recommendation.
value re-orientation. It is a nationally coordinated
framework of action in close collaboration with the State
and Local governments (with their State Economic LITERATURE REVIEW
Empowerment and Development Strategy (SEEDS) and Many scholars have written on the concept of
other stakeholders. The vision is to consolidate on the unemployment and other factors in Nigeria hindering
achievements in 1999-2003 and build a solid foundation development as well as the major issues of concern for
for the attainment of Nigeria as the largest and strongest economic development of the country. This study is
African economy. The NEEDS encompasses important considered necessary to examine the important effects of
structural reforms designed to enhance the transparency business on economic development.
and accountability of public sector policies and
institutions. The process was expected to address many Business: According to William et al. (2005) Business
of the deep-rooted macroeconomic and structural could be defined as an activity in which different persons
challenges in order to restore stability and promote rapid exchange something of value whether goods or services
and sustainable economic growth (development). The for mutual gain or profit. Business involves risk which is
NEEDS document implemented was to create conducive possibility of loss or gain as a result of investing capital.
environment for business and foreign investment so as to Risk is the chance an entrepreneur takes of losing time
ensure a government sector cum private sector and money on business that may not be profitable. In
partnership for growth. In particular, it focused on the reality, risk taking is the critical element for improving our
provision of basic services, empowering Nigerians and standard of living which may have important effects on
encouraging the private sector to become the engine of the growth and development of a country. According to
growth of the economy. The empowerment was focus on him, the business activities could be grouped into:
the areas of health, education, the environment, Education: Computer training centers, Primary Schools,
integrated rural development, employment, youth Secondary Schools, Universities. Colleges, Music
development and so on as well as a weapon to reduce Schools, Computer Hardware Dealers; Emergency:
poverty and underdevelopment in the country. Ambulance Services, Emergency Rescue, Fire Brigade,
Weak infrastructure has been a driver of rising cost of Hospitals; and Entertainment: Art Galleries, Night Clubs,
doing business in Nigeria. In order to tackle this problem, Cinema Hall, Live Bands, Fashion (Fashion Designers,
government embarked on massive rehabilitation and Modeling Agencies, Boutiques, Clothing Accessories,
construction of new infrastructure reinforced by the Barbing Salon) and Agriculture, hotels and restaurants,
privatization and deregulation policy for increased building and construction and telecommunications
participation of the private sector in infrastructure sectors of the economy). William et al. (2005)
development.
National Council on Privatisation was set up to ensure Concept of Economic Development: Economic
proper implementation of the privatization programme. development could be viewed simply as implying
The policy of deregulation of major sectors of the increased output, greater efficiency in output generation
economy which had been putin place since the Structural and changes in the technical and institutional
Adjustment Programme (SAP) in 1986 was sustained. arrangements by which it is produced and distributed.

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 Satope and Akanbi. 093

According to Olajide (2004) Economic development is Development of Technology: In the long run
the process whereby the real per capita income development of new technology is a key factor in
increases over a long period of time. Also, Dudley Seers enabling improved productivity and higher economic
(1982 cited in Olajide, 2004) however sees development growth.
from the standpoint of what has been happening to Other Factors that Can Affect Growth in the Short Term
poverty, unemployment and inequality over time. Where (Tejvan, 2011) are: Commodity Prices- A rise in
there is reduction in the three variables in an economy commodity prices such as a rise in oil prices can cause a
from high level, then the country could be said to be shock to growth. It causes SRAS to reduce leading to
experiencing development (Olajide, 2004). The higher inflation and lower growth; Political Instability-
consideration of economic development emphasised the which can provide a negative shock to growth; Weather-
sources of growth. the exceptionally cold weather can lead to a shock fall in
Economic development generally refers to the GDP and Interest rates- while higher interest rates can
sustained, concerted actions of policy makers and have negative effect on growth by reducing borrowing
communities that promote the standard of living and and same effect as lower government spending (tight
economic health of a specific area. Economic fiscal policy); High economic growth can be caused by
development can also be referred to as the quantitative relatively low real interest rates, Rising wages and rising
and qualitative changes in the economy. The actions can consumer confidence (Tejvan,2011). Economic growth is
involve development of human capital, critical an increase in real GDP. It means an increase in the
infrastructure, regional competitiveness, environmental value of goods and services; it is one aspect of the
sustainability, social inclusion, health, safety, literacy and process of economic development.
other initiatives. Development has to do with and improving human
Economic development differs from economic growth. welfare which essentially involve increasing the amount
Growth on a general term could be confined to increase of goods and service available to people. The more the
in output (per unit of input) while development implies output produced the more the wealth and benefit.
increase in output together with a change in technical and Development is therefore basically about increasing the
institutional arrangement involved in production. Growth volume of business turnover, i.e. the volume of
can take place without development but, a nation cannot production for sale.
achieve economic development without having achieved
economic growth. Thus, economic growth is a subset of Role of Business: Economists expect business
economic development as economic development is not companies to improve the economy by improving the
purely an economic phenomenon. According to Tejvan quality of goods and services produced through
(2011), in economics, Economic growth is an increase in competition, thereby contributing to Gross National
real GDP which means an increase in the value of goods Product (GNP) and a country's level of economic
and services produced in an economy. The rate of development is determined by its GNP. Also, businesses
economic growth measures the annual percentage are expected to encourage Innovations by seeking to
increase in real GDP. In the long run, economic growth is improve their Products and services (William et al., 2005;
determined by factors which influence the growth of Long Karen, 2008)
Run Aggregate Supply (LRAS) (the PPF of the
economy). If there is no increase in LRAS, then a rise in
Aggregate Demand will just be inflationary (Tejvan, METHODOLOGY
2011). LRAS can be influenced by:
The statistical analysis in this study relied on secondary
Levels of infrastructure: Investment in roads, transport data from the National Bureau of Statistics (NBS) and
and communication can help in reducing firms’ costs and Statistical Bulleting of Central Bank and World Bank
expand production. Without the needed infrastructure it information on the growth rate of the economy provided
may be difficult for firms’ competitiveness in the in Tables 1, and 2.The study also used survey research
international markets. The lack of infrastructure is mostly design through a survey of some of the business
a factor holding back some developing countries like companies in Nigeria. The survey of the business
Nigeria. companies revealed some of the established businesses
in the country with specific examples mainly from Lagos
State being the business headquarter of Nigeria
Human Capital: Human capital refers to the productivity
of workers which will be determined by levels of
education, training and motivation. Increased labour FINDINGS
productivity can assist the efficiency of firms and enable
them to take on more sophisticated production (Tejvan, According to Akinbogun (2003) many small-scale
2011). businesses or ceramic enterprises like ceramic industry,

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 094 E3 J. Bus. Manage. Econ.

Table 1. Nigeria Gross Domestic Product (GDP)

Year GDP- per capita (PPP) 2012 US dollars GDP- real growth rate GDP - per capita Inflation
2009 12.5%
2010 est. $2,600 8% $2,500 13.7%
2011 est. $2,700 7.4%. $2,600 10.7%
2012 est. $2,800 7.1% $2,700 11,2%
GDP - composition by GDP - composition by
sector (2012) sector (2011)
Agriculture 30.9% 35.4%
Industry 43% 33.6%
Services 26% 31%
GDP - composition by sector: http://www.gfmag.com/gdp-data-country-reports/207-nigeria-gdp-country-
report.html#axzz2u6RA1ORmhttp://www.indexmundi.com/nigeria/economy_profile.html(2013)

Table 2. List of Nigerian states by GDP

PPP GDP (2010; in PPP GDP (2010;in PPP GDP (2010; in

Rank State Rank State Rank State
millions of USD) millions of USD) millions of USD)
[3]
1 Lagos US$74,674 13 Ondo US$8,414 25 Enugu US$4,396
2 Rivers US$21,073 14 Osun US$7,280 26 Bayelsa US$4,337
3 Delta US$16,749 15 Benue US$6,864 27 Zamfara US$4,123
4 Oyo US$16,121 16 Anambra US$6,764 28 Kwara US$3,841
5 Imo US$14,212 17 Katsina US$6,022 29 Taraba US$3,397
6 Kano US$12,393 18 Niger US$6,002 30 Kebbi US$3,290
7 Edo US$11,888 19 Borno US$5,175 31 Nassarawa US$3,022
8 AkwaIbom US$11,179 20 Plateau US$5,154 32 Jigawa US$2,988
9 Ogun US$10,470 21 Sokoto US$4,818 33 Ekiti US$2,848
10 Kaduna US$10,334 22 Bauchi US$4,713 34 Ebonyi US$2,732
11 Cross River US$9,292 23 Kogi US$4,642 35 Gombe US$2,501
12 Abia US$8,687 24 Adamawa US$4,582 36 Yobe US$2,011
http://en.wikipedia.org/wiki/List_of_Nigerian_states_by_GDP From Wikipedia, the free encyclopedia

glass industry and textile industry among others, are Examples of business Companies are ‘’CORPORATE
facing difficult times. The survey of small-scale ceramic PLUS STANDARD COMPANY’’ found in: Alimosho,
enterprises established in south-western Nigeria from Lagos, Nigeria with products like: Computer Hardware
1960 to 2004, examined against the business and Accessories, Printers / Binders rendering services
environment in Nigeria revealed that the problem was like: Branding of any kind of gift item, handle sales of its
due to the unfavourable economic environment in terms equipment; ‘’MARKETING COMMUNICATIONS
of the facilities available for production and types of COMPANY’’ located in: Ikoyi, Eti Osa, Lagos, Nigeria
wares produced. producing: Female clothes, female shoes, male clothes;
The privatization and deregulation policies encouraged rendering services like: Advertisement services, brand
trade and investment as well as promoting growth of the reviews, event coverage and reportage. Also in Ikeja
economy. For instance, the liberalization of the service Area Office, Ikeja, Lagos, Products are: Accounting
sector yielded significant results. The total number of Outsourcing, Accounting Software Dealer, Grass cutting
hotel beds nearly tripled, from 12,900 in 1999 to 37,528 machine and rendering services like: Bank
in 2003. Room occupancy rate also increased, from 71 Reconciliation, Book Keeping services, computerization
percent in 1999 to 82.5 percent in 2003. The number of of accounting systems. In Dolphin Estate, Eti Osa, Lagos,
visiting foreign nationals nearly tripled, from 1,392 to Nigeria, providing Services like: Business Advisory
3,897, with an annual growth rate averaging 30.0 per Services, Business Representative, Human Resources
cent in 2002 and 2003. Management Agency And Recruitment; In Victoria Island,

4
 Satope and Akanbi. 095

Eti Osa, Lagos, Products are: Office Furniture, and the backbone of National development in Nigeria. The
Services provided are: Conference Rooms, Corporate organized private sector, even when it was small in size,
Event Planning And Management, Virtual Office. In Ikeja, is the source of technological advancement in the
Lagos, we have Services like: Estate Management, economy. The large informal segment, on the other hand,
Investment, Multi-Level Marketing; Also In Bariga, employs an estimated 70-80 per cent of the labour force
Shomolu, Lagos, Nigeria where Products are: Cement and represents a major source of capital formation,
Sales with Services: Cooperative Society, Sales And particularly in the rural areas. It also provides a cheap
Marketing, Travel Agency, Food: Bakery, Ice Cream source of low level technical manpower to the
Shops, Pizza Outlets, Restaurants, Fast Food Joints. organization. Some of the developmental roles played by
Also located in Victoria Island, Lagos Island, Lagos, business in the economy of Nigeria are as presented in
NigeriaareProducts:Computer Hardware, Microsoft Arc tables 1 and 2 which could be summarized as presented
Touch Mouse with Services: Business Consultancy below.
Services.
DANGOTE GROUP is one of the most diversified Employment Generation: Employment is created by
business conglomerates in Africa with a hard - earned businesses weather small, medium or large scale for the
reputation for excellent business practices and products’ citizens of Nigeria. Now the employment is created by
quality with its operational headquarters in the bustling both private and government businesses unlike the pre-
metropolis of Lagos, Nigeria in West Africa. The Group’s independence era when government was the major
activities encompass Cement - Manufacturing, Packing & employer. Thus businesses in Nigeria have helped to
Distribution. reduce the rate of unemployment in the country and
Because Lagos state has so many of these business thereby helped the businesses to achieve their aims and
companies it has been able to contribute more to the objectives. The ‘’Dangote Group’’ is the largest industrial
Nigerian GDP as presented in table 2. The survey also conglomerate in West Africa and one of the largest in
revealed that most graduates go to Lagos for Africa. It generated revenue in excess of US$2 billion in
employment because of the business companies there. 2011. The group is one of the leading diversified
The National Bureau of Statistics (NBS) data showed business conglomerates in Africa. It employs in excess of
that GDP growth rate was 6.81 per cent as at the third 21,000 people (http://en.wikipedia.org).
quarter of 2013. While the growth rate of the non-oil
sector stood at 7.95 per cent as at the third quarter of Direct Creation of Wealth and Reduction of Poverty:
2013, the highest quarterly growth as at the end of Business has helped in Contributing to the Nigeria Gross
September 2013 (Table 1). National Product (GNP) which is the total monetary value
The increase in the economic output recorded in the of all goods and services produced in a country within a
third quarter of 2013 was confirmed to be as a result of particular year by increasing output of goods and
increases recorded in the agriculture, hotels and services. Since a country's level of economic
restaurants, building and construction and development in determined by its growth rate from GNP it
telecommunications sectors of the economy. The has contributed to economic development of the country
contribution of the non-oil sector in the third quarter of (Table1).Statistics show that the incidence of poverty
2013 was due to benign weather conditions that led to using the rate of US $1 per day increased from 28.1
bountiful harvests in the agriculture sector, increased percent in 1980 to 46.3 percent in 1985 and declined to
investments by local and foreign investors and the 42.7 percent in 1992 but increased again to 65.6 percent
positive macroeconomic environment. in 1996. The incidence increased to 69.2 percent in 1997.
The report however identified the privatisation of the The 2004 report by the national Planning Commission
power sector, agricultural transformation initiative among indicates that poverty has decreased to 54.4 percent
factors to drive the country’s growth. It noted that the (Igbuzor, 2006). For Example, DANGOTE GROUP is
privatisation of the power generation and distribution one of the most diversified business conglomerates in
companies owned and operated by the Power Holding Africa with a hard - earned reputation for excellent
Company of Nigeria (PHCN) had set the tone for the business practices and products, it is the largest
eventual turn-around and increased growth in the output industrial conglomerate in West Africa and one of the
potential of the Nigerian economy in the medium-to-long largest in Africa it generated revenue in excess of US$2
term. billion in 2011.

Provision of Technical Innovation: Innovations have

EFFECT OF BUSINESS ON ECONOMIC
been initiated by establishment of businesses that will
DEVELOPMENT IN NIGERIA
bring new ideas to the country and also engineered by
businesses seeking to improve their products and
Business or entrepreneurship has played very important
services. These innovations have brought tremendous
role in economic development in Nigeria and also forms
5
096 E3 J. Bus. Manage. Econ.

improvement in the economy of Nigeria for example there adequate and consistent electricity in the country would
is reform in the Nigeria banking with the introduction of help to galvanize activities in both the formal and informal
computer and internet services by certain business units. sectors of the economy.
We expect GDP to grow further during 2014 there is
Provision of Competition for better services: therefore the need for import substitution policy and other
Competition helps in better performance of various fiscal measures of the federal government aimed at
Business units. In the banking and education system, encouraging the development of the agriculture sector
many units there have created competition among them and agro-allied activities to boost output of the sector.
for better performance. The competition has helped in Also Nigerian Government should pursue the goal of
improving the quality of goods and services produced by helping Nigerian entrepreneurs through motivation. To
these sectors and thereby improved the economy. make it happen, there is need for a thorough business
plan—and plenty of patience as suggested previously in
Meeting Needs of other Businesses: Businesses 2008. Also, the Entrepreneurship Education course which
provide for each other. Certain business render services, is a new course in the university system should be
provides products or raw materials needed for other supported by the government by providing a king of
businesses to survive. This has indirectly helped in support for the graduates to put what they have learnt
promotion of business establishment in Nigeria and the into practice.
economy at large. To increase production there must be investment, in
According to report the non-oil sector of the Nigerian production, plant and infrastructures which is impossible
economy was the main driver of the country’s real Gross without capital. Therefore it is necessary to borrow within
Domestic Product (GDP) growth in 2013; also report has the country, seek aid, save from earnings, and welcome
indicated that ongoing reforms in the key sectors of the foreign investment. Capital is regarded as the key to
economy also aided output of the non-oil sector as stated development and the best way to accumulate capital is to
by FSDH Merchant Bank Limited. The National Bureau of export to rich countries. It is crucial to facilitate growth of
Statistics (NBS) data revealed that GDP growth rate export capacity. The more that production increases the
stood at 6.81 per cent as at the third quarter of 2013 more the tax income the government will have to spend
while the growth rate of the non-oil sector stood at 7.95 on education, health, welfare, public facilities, and the
per cent which is the highest quarterly growth as at the environment.
end of September 2013.
The increase in the economic output recorded in the
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