In this post, we will discus the Impact of Business Environment on Business Practices in Nigeria. Here, we will highlight the effect of environmental factors on the performance of business especially in Nigerian settings.
The Nigerian economy is undoubtedly the biggest in Sub-Saharan African and one of the biggest in Africa with a healthy competition from South Africa in the South and Morocco in North Africa.
Nigeria’s economy is firmly established on the exportation of crude oil which accounts for over 50% of her gross domestic product (GDP) ,followed closely by, telecommunications and an ailing agricultural sector.
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In 2018, a weak performance by the non-oil sectors drove an economic slowdown which was only slightly offset by an expansion in the oil sector.
A business is an organized effort of an enterprise created by a singular or many individuals to supply goods or services for a profit.
There are mainly two types of business in Nigeria, the small and medium scale enterprises (SME) and large scale businesses.
The Central Bank of Nigeria defines small enterprises in Nigeria according to the asset base and number of staff employed.
The criteria being an asset base between 5 million and 500 million and a staff strength between 20-300 employees.
Medium scale business on the other hand results from the growth of a small scale business. A major feature of business of this kind in Nigeria will include low startup costs; portability; single ownership etc. Small scale businesses account for a significant proportion of the businesses in Nigeria.
The inverse is the definition of large scale business in Nigeria. These are usually major national corporations or multinational companies capable of employing thousands of individuals.
Businesses do not operate in a vacuum, their ability to thrive is largely dependent on the conduciveness or otherwise of the business environment.
A business environment can be classified into internal and external environment with the former comprising of factors within the control and manipulation of the firm while the latter comprises of factors beyond the control and manipulation of the firm. The success of any business will depend on its ability to adapt to the environment where it functions.
It is worthy of note that internal business environment refers to things such as products, organizational culture, manufacturing quality, value system, bad resource, poor staff quality etc.
External business environment on the other hand refers to factors which may affect business growth and are independent of the workings of a specific organization.
The relationship between a business and its environment is usually symbiotic i.e. it is influenced by the environment and influences the environment also.
It must also be noted that a business environment is not static and the dynamism is one which constantly elicits a proportional reaction from the business also.
There are various types of external business environments which must be considered albeit briefly in this article:
Technological Environment: This is the systematic application of scientific tools to practical tasks. The ability to constructively use technology may improve the marketability of a product.
This is the influence of politics and policies of government in the shaping of business endeavors. A stable political atmosphere is essential for business growth
Social and Cultural environment
This mainly refers to the attitude of the people and the culture which exists where a business is located. Its preferences and priorities like the buying and consumption pattern, educational background etc.
This includes economic decisions and policies which have considerable impact on the business. Example includes growth rate, inflation, restrictive trade practices etc.
There are peculiar challenges to doing business in Nigeria which has generally affected the ease of doing business in Nigeria.
It is safe to say that it is for this reason Nigeria currently ranks low at 145 on the World Bank rating on ease of doing business which covers 190 countries.
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Some of the challenges include but are not limited to the following:
a. Lack of essential infrastructures and amenities such as power supply, water supply, fast and efficient modes transportation such as light trains which are available in many countries.
b. Restrictive Trade Policies
c. Slow and ineffective judicial system. A matter can be before the court for over a decade before reaching the Supreme Court.
d. Insecurity which poses a problem particularly in the South-South part of the country where expatriate workers for oil companies are usually kidnapped for a ransom.
e. Pervasive Corruption. Every Bureaucratic office may require a bribe or compensation before carrying out their duly constituted functions.
f. 3% inflation rate at 2017.
The result of a study carried out in recent times shows that majority of small scale businesses in Nigeria suffer from the challenges of Nigeria’s external business environment and therefore do not grow.
Beyond this, it is important to interrogate the possibility of survival of any business in light of the aforementioned challenges.
Power, water supply and transportation are essential for the growth of businesses in any part of the world. Despite the abundant resources and opportunities for businesses in Nigeria, the absence of these is sufficient grounds for investors to reconsider establishing businesses in Nigeria.
Indeed several multinational companies such as Michelin and Dunlop which had established offices in Nigeria have moved to neighboring Ghana where the business environment is more conducive for growth and profit making. Companies like Patterson Zochonies (PZ), Cadbury Nigeria plc and Unilever are allegedly making plans to move also.
It is logical to argue that one if not the only factor which prompts business migration to Nigeria is her human capital which is the largest in Africa.
Other factors such as poor regulatory measures are also sufficient grounds for business emigration to Nigeria. Unfortunately the latter form of emigration may be for the sole purpose of exploiting the lacunas of law and lack of business regulation for maximal profit.
Nigeria is a country with enormous potentials. Her large number of human and other resources and strategic position in Africa should suffice to make her a centre of trade, tourism and investment comparable to none other on the African continent.
It is unfortunate however that the crippling business environment of Nigeria has done the exact opposite i.e. grinding to a halt home based small and medium scale enterprises and driving off investors.
Indeed, it is safe to say that the impact of the Nigeria’s business environment on businesses in the country is negative.
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