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How to Address the Missing Middle of Entrepreneurship in Nigeria

“Conformity is the jailer of freedom and the enemy of growth – John F. Kennedy”

In 2019, the Nigerian Bureau of Statistics (NBS) released the third edition of its Nationwide survey of MSMEs in Nigeria. The report revealed that there are about 41.5 million enterprises in Nigeria, a 12% increase from the figure reported in the previous survey in 2013. The survey however revealed that the number of medium-sized enterprises (businesses that employ between 50 – 199 people and have assets over ₦1 billion) reduced in the years between the 2nd and 3rd editions of the survey. 

The number of medium-sized enterprises declined by 62% to 1,793 enterprises in relation to the figures reported in the previous MSME survey. According to the report, not only did most formal small enterprises fail to scale up in the last 4 years, but also many medium-sized enterprises contracted in size. Interestingly, recent research shows that micro and small enterprises are no more being considered primary drivers of employment. Medium-sized enterprises are increasingly considered the primary creators of better-paying jobs and increased productivity in a growing society. Given these current realities, this article seeks to discuss the existence of a “missing middle of medium-sized enterprises in Nigeria”, and proffers possible solutions to this developing issue.

What is the missing middle and why is it important to discuss it?

The concept of the missing middle has existed for a while. In Nigeria, it means the absence/reduction of vibrant medium-sized companies that can bring dynamic and competitive pressure to expand the number of productive and well-paying jobs in the country. Given the necessity of their products and services, having a large population of medium-sized enterprises is crucial to building an economy’s self-sufficiency and reducing the dependence on costly imports. Medium-sized enterprises also create a significant demand for products produced by small enterprises, utilising them as inputs into their production activities. Additionally, they also stimulate the development of a middle-class population who drive consumer purchases and local demand

Why is there a missing middle of enterprises in Nigeria? 

There are various reasons why the missing middle currently exists in Nigeria. One reason, which will resonate with many policymakers, has to do with the negative impact that the recent economic recession had on the Nigerian economy. The slowdown in economic activity and unemployment rates that accompanied the recession made it difficult for many medium-sized enterprises to thrive. Another identified reason relates to the constraints on doing business in Nigeria. Challenges such as the difficulty in accessing finance, an unfavourable business and regulatory environment, and infrastructural issues are typical reasons why some medium and small-sized enterprises may experience decline or lack of growth respectively.

A third reason may simply be linked to the type of entrepreneurs that are present in Nigeria. Evidence from available research shows that entrepreneurs in developing countries (such as Nigeria) usually produce and sell products or services similar to their peers with no distinct value proposition to differentiate them. This stifles competition and makes growth difficult. In developed countries, entrepreneurs place a premium on their businesses by having a unique value proposition as a way to grow the business. 

How then do we address the challenge of the missing middle in Nigeria? 

Realistic efforts to address this challenge in Nigeria must recognise the long-standing issues (e.g. infrastructure, and access to finance) that plague the Nigerian business environment. In an increasingly competitive environment, entrepreneurs must begin to place a premium on selling differentiated products and services and focus on value addition. This is important as enterprises with a unique value proposition (e.g. quality, efficiency, speed, and customer service) are better equipped to compete both locally and internationally. These types of enterprises are also less susceptible to the effect of external shocks and thus, thrive better. 

Secondly, entrepreneurs must start to develop innovative solutions not limited by traditional business models. One solution worth considering is the adoption of business model innovation (BMI) by enterprises. Introducing new business models that limit the influence of constraints faced by entrepreneurs, whilst also accentuating their ability to achieve their goals, has been argued as a practical way for enterprises to thrive in difficult environments.

Within this context, small enterprises may look to target previously underserved segments of the market. These segments can provide an opportunity for small enterprises to acquire the scale and cost advantages needed to scale up. It can also provide medium enterprises with the advantages needed to thrive. 

To address these difficulties, stakeholders (both public and private institutions) have begun to introduce initiatives that address some of the challenges faced by small and medium-sized businesses. 

From the provision of physical interventions such as industrial parks to ease some of the infrastructural challenges; to incubation centres and tech hubs where start-ups can access subject-matter expertise on technology trends, knowledge transfer, strategic innovation management, and industry-specific insights. 

Lastly, several institutions now sponsor SME business and technical skills workshops, SME trade fairs, etc. which also enable these businesses to network and market their goods and services as well as exchange ideas. It is hoped that these initiatives will ease some of these challenges and grow the missing middle-sized enterprises in the country.

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Potentials, Possibilities & Realities of AfCFTA to Nigeria: A Critical Narrative

“While I believe firmly in open markets and free trade, I also believe an open market needs a level playing field.” – Philip Hammond 

On 21st March 2018, 44 African Heads of State gathered in Kigali, Rwanda, to sign the African Continental Free Trade Agreement (AfCFTA), a landmark treaty whose primary aim is to liberalise trade across Africa. AfCFTA is the African Union’s (AU’s) first step in implementing Agenda 2063, its vision for an integrated, prosperous, and peaceful Africa. 11 countries, however, did not sign the agreement, Nigeria was one of the more conspicuous holdouts. President Buhari cited the need for further consultations before committing Nigeria to an agreement that would have significant ramifications for its economy. 

The President’s last-minute withdrawal followed vocal opposition from trade union groups and private sector organisations to creating a single market over fears of job losses following trade liberalisation. Critics of the AfCFTA note that Nigeria’s infrastructural deficits and the uncertainty that characterises the country’s business environment already hinder Nigerian manufacturers, who cannot compete on even terms with manufacturers in other countries. A continent-wide consolidated market would make Nigeria a prime candidate for dumping goods.

The AfCFTA is expected to lead to the unification of the African community; following in the steps of the European Union, the AU aims to create a single continental market for goods and services by reducing (or possibly eliminating) trade barriers like tariffs and import duties. 

As a flagship Agenda 2063 project, the AfCFTA will administer a market economy of 1.2 billion people across 55 member states, with a combined GDP of $2.5 trillion. the treaty aims to boost regional business, integration, and growth by creating a “Single Africa Air Transport Market”. This involves a common currency, and free movement of goods, services, and people between member states. Businesses currently face higher tariffs (averaging 6.1%) for exports within Africa than for exports outside the continent. To facilitate continental trade for African businesses, the treaty will progressively eliminate tariffs on 90% of goods (with the last 10% of “sensitive items” to be accommodated later), thereby minimising delays at borders and liberalising trade. Proponents of implementing the AfCFTA cite important benefits, including boosting industrial exports and SME growth, driving income generation, and promoting job creation, especially for youth.  Assessing the impact of the AfCFTA on any one nation, however, is dependent on an understanding of the economic realities of that nation. 

Consequently, any analysis of the AfCFTA’s impact on Nigeria must consider how it aids the achievement of goals defined in the country’s Economic Recovery and Growth Plan (ERGP). In theory, the shared focus of the AfCFTA and ERGP on promoting industrialisation, encouraging export orientation, and fostering economic competitiveness demonstrates harmony between both plans. However, this congruence is not seamless in practice and requires certain conditions for Nigeria to fully maximise the benefits of ratifying the AfCFTA. Nigeria has seen historical success in fuel export and primary agricultural production; However, the nation’s path to becoming a continental trading power has been hindered by gaping infrastructural deficits, an unpredictable business environment, weak institutional mechanisms, etc. This has contributed to high production costs and limited competitiveness of national exports. While implementation of the AfCFTA would lead to cheaper inputs for enterprises that would otherwise pay import duties and taxes on these inputs, it would also lead to unfettered competition from imported cheaper finished goods. This would certainly weaken local value-adding sectors.  Hence, while the implementation of the AfCFTA has its advantages, it must be tempered with careful strategies and initiatives that guarantee that Nigeria’s developmental objectives are not lost in a sea of trade receipts. 

To ensure that a positive balance of payments translates to a more competitive economy, strategies that cater to the current realities of the Nigerian environment, as well as its future possibilities, must accompany and complement AfCFTA implementation.

Important strategies that will help safeguard Nigeria’s achievement of AfCFTA objectives include the clear operationalisation of short and long-term growth and developmental targets, a short-term trade approach that allows the country to leverage its comparative advantages, and a long-term trade strategy that is dependent on the conversion of such comparative advantages into competitive advantages. By implementing these strategies alongside concerted efforts to improve institutional and business environments and infrastructure, Nigeria may succeed in levelling the playing field for local enterprises.

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Services, Productivity and Economic Transformation in Nigeria

“The globalisation of services provides alternative opportunities for developing countries to find niches beyond manufacturing where they can specialise, scale up and achieve explosive growth” – Ejaz Ghani 

We live in an era where globalisation, increasing customer sophistication, and advanced factor advantages are critical determinants to attaining global competitive advantage and economic Transformation. This makes it necessary for countries to take a critical look at their developmental plans and assess how it helps them map out a path to Economic Development. 

Economic transformation in Nigeria is placed upon the Nigerian Industrial Revolution Plan (NIRP) and the Economic Recovery and Growth Plan (ERGP), which identify the competition and the manufacturing sector as the key drivers of development in the country. These plans leveraged largely on the manufacturing-centric economic transformation framework used by China and other developed economies.

Ever since the industrial revolution, manufacturing has been the key driver of rapid economic transformation. The countries that caught up with and eventually surpassed Britain, such as Germany and the USA did so by building up their manufacturing industries. China, which has emerged as the archetype of this growth strategy since the 1970s, travelled a similar path.

In Africa, the success of the manufacturing sector in driving improved competition has been gradual. A new realisation has begun to emerge that developing countries will need to keep reviewing and updating their development model, to continuously reflect emerging economic realities and opportunities. Despite the long-established notion and emphasis on industrialisation as the main driver for structural change in the economy, recent evidence suggests the services sector’s ever-increasing role in economic transformation and development. Services currently account for more than 70% of yearly outputs in advanced economies and more than half in most developing countries.

Manufacturing today is not what it used to be.  It has become much more capital-intensive & skill-intensive, with greatly diminished potential to absorb large amounts of unskilled & semiskilled labour.  Consequently, this has affected job and productivity growth, especially in developing countries. It has also led to these countries looking elsewhere for ways to drive job growth, reduce poverty and ensure economic transformation. Recently, a case has been made for the service industry as a key driver of economic transformation in developing countries. Buoyed by the success of the industry playing a huge role in driving economic transformation in South Asian countries (e.g. India, Nepal, etc.), there is a developing argument that the adoption of a service-centric model may also be successful in Africa.

Given the current realities of the Nigerian environment, is there a role for the services sector to play in the Economic transformation narrative?

The services sector in Nigeria ─ includes areas such as ICT, Trade, Financial Services etc. ─ has been tagged as the engine for future economic growth. It is the largest sector in the economy, with its contribution to Gross Domestic Product (GDP) hovering around 50% on average. 

According to research by PwC, the sector is also purported to account for the largest proportion of employment at 57.4%. These values only tell part of the story as a huge part of the sector’s contribution to employment & GDP comes from less productive sub-sectors, such as transport and trade, rather than higher productive ones, such as financial services, real estate & professional services. The sector has been a key contributor to Nigeria’s growth but its influence on the development and transformation narrative has not been emphasized as much. However, with obvious challenges attributed to the slow pace of economic transformation in the manufacturing sector, and an increasingly growing youth population that is more inclined to service provision than goods production, an argument can be made that the reality for Nigeria’s transformation and development may rest on an increased focus on services.

Given these current realities, there is an urgent need for collective action by all stakeholders of development in Nigeria ─ Government, developmental agencies (including the Bank of Industry) and the private sector ─ to enhance key enablers for the service sector to thrive. The development of high-quality and efficient services can support productivity growth and competitiveness in other sectors, while also having important direct effects on growth, job creation and revenue generation. 

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The Fourth Industrial Revolution: What Lies Ahead for Nigeria?

“ In many cases, jobs that used to be done by people are going to be able to be done through automation. I don’t have an answer to that. That’s one of the more perplexing problems of society”- John Sculley

In our almost 60-year history, the call for Nigeria’s industrialisation has never been stronger than there is today. Indeed, Industrialisation is one of the current administration’s priorities given its acknowledged ability to bring prosperity, new jobs and better incomes for all. How can Nigeria transform from an import-led economy that also relies on imported manufactured goods, to a producer and exporter of finished goods and services? Historically, industrialisation has been relatively slow, taking centuries to evolve. 

The first industrial revolution began in the early 19th Century when the power of steam and water dramatically increased the productivity of human (physical) labour. 

The second revolution started almost 100 years later with electricity as its key driver. Mass industrial production led to productivity gains and opened the way for mass consumption. 

The third revolution followed 70 years after with information technology: the use of computing in industry and the development of PCs. 

Today, we are witnessing the rise of the Fourth Industrial Revolution.

What is the Fourth Industrial Revolution?

Also known as the digital revolution, the Fourth Industrial Revolution (4IR) combines technological and human capacities in an unprecedented way through self-learning algorithms, self-driving cars, human-machine interconnection, and big-data analytics. According to World Economic Forum (WEF), 4IR is characterised by the fusion of technologies that is blurring the lines between physical, digital and biological spheres collectively referred to as cyber-physical systems. But 4IR is more than technology, as it gradually shapes how we live and work (and even play). It also ushers in a revolution of experience. Contrary to the depiction of 4IR in popular movies such as The Terminator and I Robot, 4IR is expected to be largely positive. 

It will generate ideas never before considered and proffer solutions to problems that do not yet exist. From consumers to manufacturers to cities, 4IR advancements are more accessible and less costly than just a few years ago.

What are the Opportunities and Threats?

According to PwC, global GDP could increase by 14% in 2030 as a result of Artificial Intelligence (AI) which is an additional $15.7 trillion. The 4IR is rapidly disrupting by providing digital platforms for research, development, marketing, sales and distribution. These platforms could drive efficiency and productivity while also reducing logistics and communication costs. It is already creating new global supply chain channels. Yet, one opposing argument is that the 4IR can yield greater inequality to the economy as talent, not capital, will become the new factor of production. This will inevitably give rise to a job market that is segregated into ‘low-skill/ low-pay versus ‘high-skill/ high-pay. It will be crucial for workers to acquire new skills. Another area of concern by some is the loss of jobs as automation begins to replace the unskilled and semi-skilled workforce. The good news is that while new technology may cause the creative destruction of some jobs, it will also create many new jobs, some of which we can’t even imagine today. History shows that technology will always create more jobs than it wipes out.

How does Nigeria become 4IR-ready?

For Nigeria to fully harness the benefits of 4IR, we must boost the country’s digital development. A “Future Agenda” which promotes digital transformation, and addresses necessary policies relating to Education, Entrepreneurship, E-commerce and Infrastructure must be fully implemented. The educational curriculum must change rapidly in response to the increasing need for technical and “STEM” skills (science, technology, engineering, and mathematics). They are necessary for the jobs of tomorrow. The Nigerian entrepreneur will no longer compete just locally but against unknown entities in other parts of the world. Consequently, 4IR-compatible policies that promote entrepreneurial experimentation are essential to support the survival of technologically driven enterprises.

Opportunities for BOI in the 4IR.

Leveraging the opportunities of the 4IR will require a strategic and staged approach. This has a two-fold implication: redefining the service we provide and enhancing our staff and structure. As a DFI, BOI would lead the way in providing long-term finance to procure the equipment of the future as well as offering capacity-building programmes to equip entrepreneurs with the skills required to establish businesses that will thrive in the 4IR. Additionally, the bank would develop innovative methods of collecting and analysing data that will better understand patterns of consumer behaviour and needs to effectively inform product development and service offerings. 

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The Rising Influx Of Agritech For Smallholder Farming

“Science and Technology coupled with improved human capital have been powerful drivers of positive change in the performance and evolution of smallholder systems” – Food and Agriculture Organisation (FAO) 

Agriculture remains one of the most important economic sectors in Africa, accounting for 15% of GDP: more than $100 billion in revenue annually (McKinsey) and 52% of the continent’s workforce (Microsoft). Not only does the sector provide food for the continent’s large and growing population, but it also serves as an economic lifeline (through exports) for many African countries that are rich in agricultural resources. 

In the last decade, the African agricultural sector has evolved as traditional farming methods have been replaced by modern technology and equipment. According to a recent study by Microsoft, Africa’s agricultural sector is poised for exponential growth in the coming decade, with a projected value of US$1 trillion by 2030, driven by agritech. With a 44% year-on-year growth rate between 2016 and 2019, Africa is fast becoming a leader in the global agritech space which is currently estimated to be a $7.8 trillion industry (AgTech). 

We now live in an era where technology is disrupting old ways of doing things and driving a revolution across all sectors, including agriculture. This has created opportunities for entrepreneurs and innovators to solve problems related to food production and the preservation of natural resources. The adoption of agritech has the potential to address many structural challenges, as well as improve efficiency and profitability across the agricultural value chain.

What is Agritech and why it is the new wave of the Agricultural Revolution?

In recent years, technology has proven to be capable of addressing challenges that affect smallholder farmers (SHF) and their ability to improve farm output. With the recent wave of the Agricultural Revolution, also known as Agriculture 4.0, the deployment of technological innovations requires agripreneurs to own internet-enabled mobile devices, use smart applications and develop skills to make informed decisions. This is essential for their overall productivity and efficiency from end to end. An example of agritech in action is the use of a soil sensor to measure the current soil moisture and for a holistic view of the quality of the soil. Sensors have also been integrated into various farm irrigation systems to efficiently schedule, supply and distribute water. As a result, agritech all over the world, particularly in Sub-Saharan Africa (SSA), has recognised an opportunity to adopt and design digital solutions aimed at reducing the challenges that affect smallholder farmers such as access to feeds and fertilizers, market linkages, funding, storage facilities, information on climate changes, etc. 

Prospects and Challenges of Agritech in SSA

Agritech plays an essential role in creating solutions that improve farm output and the livelihood of SHF. One of the promising prospects is access to real-time information, intelligence on high-quality seedlings and fertilizers, planting periods, information sharing on weather trends, access to market, transportation and storage of farm produce, and end-to-end insurance services. All of these will reduce input costs, boost harvest yield as well as reduce post-harvest losses. Agritech can also help improve access to financial support by connecting farmers with agro-investors. Since SHF are mostly situated in rural areas with little or no access to adequate funding, agritech can also be used to reach out to farmers to enable them to access funding without having to go through arduous loan documentation processes. In terms of information delivery, agritech can be used to store data to improve SHF’s efficiency, profitability, and long-term viability of its agricultural operations.

Despite these benefits, SSA still faces several challenges with integration, including a lack of technological infrastructure, financial resources, education, and digital skills. This is because the majority of SHF live in underserved areas with limited internet access. Because of the high-risk perception associated with start-up businesses, agritech entrepreneurs may be unable to obtain financing, particularly from local financial institutions. As a result, investors or financial institutions would prefer to invest in the marketing and distribution aspects of the value chain rather than core farming to reduce the risk of potential investment losses. Lack of education and digital skills will slow the adoption of agritech, particularly in rural farming communities, as they will find it difficult to use digital solutions.

How Agritech has improved Smallholder Farming in Africa

Many African start-ups led by youths are pioneering innovative solutions that have significantly increased agricultural investment. These innovations provide real-time information and advisory services to SHF through radio, text messages, and interactive voice messages in local languages delivered by designated leaders in farming communities. This enables farmers to obtain granular details about their crops, soil, pest control, farming equipment, or livestock, allowing them to devise effective farming strategies. 

One of the recent technological breakthroughs in agriculture was the use of drones to assist farmers in capturing images of crops, soil, and weeds for effective farm management. In Ghana, drones are being used to apply pest control and fertilizers, assess crop fertility, plan irrigation systems as well as address plant protection practices. This reduces labour hours and direct contact with pesticides. Farmers are also being trained on how to map their farms early in the planting season and how to help them identify problem areas and target them with the appropriate amounts of fertilizers and pesticides. 

In terms of finance, crowdfunding platforms have assisted SHF in raising funds to grow their businesses, as well as providing people with the opportunity to invest in agriculture without going through the stock market. This has helped to somewhat de-risk the agricultural sector, which does not enjoy adequate access to traditional financial institutions. Besides providing finance, these crowdfunding platforms also provide farm advisory support as well as linkages with off-takers, to facilitate economies of scale along the value chain. 

These agritech solutions have the potential to become a more attractive and viable employment option for youths in the coming years. It is estimated that over 330 million new entrants will join the labour force in Africa over the next 20 years, and about 70% of them will be engaged in SHF (World Bank, 2019). 

Way Forward 

Accelerating an agritech future requires increased investment in road infrastructure, network coverage, inputs, storage facilities, irrigation infrastructure and training in literacy and digital skills which Sub-Saharan African nations must actively participate in. SHF should also be involved in the development of policies and digital innovations in the sector for inclusivity.

In conclusion, a strong collaborative effort between SHF, agritech companies, investors, and the government is critical for moving this sector from its nascent stage to maturity. It is also needed to ensure that resources are efficiently deployed to support plans in the Agricultural Transformation Agenda and to contribute to the United Nation’s effort to end poverty and hunger in Africa.