Nigeria’s Institutionalised Prejudice against Small Businesses
First published in THISDAY Newspaper of 17th February 2016
“I believe in the dignity of labour whether with the hand, or with the head; and that the world owes no man a living, but that it owes every man the opportunity to earn a living” - John D. Rockefeller
In 2013, the Small Business Administration (SBA) announced that the US Federal Government, after eight years of persistence, had met and even surpassed its goal of awarding at least twenty-three percent of all its prime contracts to small businesses. This, according to the SBA, was a very significant milestone, as it further reinforced the US President’s promise to lead the way in small business support and promotion. The US Federal government proved that this feat was not a one-off accomplishment when, in 2014, the SBA annual small business procurement scorecard showed that the US Federal Government awarded 24.99% of its contracts to small businesses, translating to around $91.7bn worth of projects and creating approximately 550,000 jobs in the process. Interestingly, within this remit, the US Federal government has also created further ring-fenced provisions for certain categories of small business, such as women-owned businesses (with a target of 5% of contracts), small disadvantaged businesses (5%), service-based veteran owned businesses (3%), and ‘Historically Underutilized Business Zones’ or ‘HUBZONEs’ (again at 3%). These ‘set-aside’ provisions ensure that even amongst small businesses, the interests of certain disadvantaged demographics are amply catered for.
The US government isn’t alone in opening up the contract space for small businesses; in the UK, new reforms have seen the central government relax the conditions for contract pre-qualification hitherto set for small businesses. Examples include the abolition of certain pre-qualification requirements like the POQ — a more than 40-page-long questionnaire used as screening for certain categories of government contracts — so as to help small businesses more easily secure government contracts. The UK Central government reported that between 2013 and 2014 it spent £11.4 billion doing business with small and medium-scale enterprises. This figure represents 26% of the total value of all UK central government contracts awarded within that period. Subsequently, the UK Minister for Cabinet Office, Matt Hancock, also announced in August 2015 an ambitious target for the UK government of spending at least £1 in every £3 doing business with small and medium-scale businesses by the year 2020.
Here in Nigeria, small business promotion has been on the lips of government at all levels, for as far back as one can recall. Through its different agencies the federal government has, over the years, designed a handful of intervention programs to assist small and medium scale businesses, amongst them programmes such as YOUWIN, SMEDAN, and MSME Funds. Through these interventions, the government selectively distributes micro-credit facilities to small and medium scale enterprises. These interventions, though helpful in their own way, have not exactly translated into long-term successes across the board for small businesses. This is because these programmes have very limited reach and scope, and poor implementation strategies; furthermore, they only partially address the root cause of the under-performance of small businesses in Nigeria.
Consequently, while some of these interventions might work for certain categories of small business, they won’t work for others, because not all small businesses require massive start-up capital — especially those in the service sector. For instance, professional businesses that provide services such as auditing, accounting, legal, actuarial, translation, and architectural and design consultancy, typically do not require much in the way of physical or tangible inventory to ‘set up shop’ — more likely just a few office consumables. They can run on their own right from day one, hence they do not need government loans or grants; they need only patronage to become profitable in their very first year of business. They are so flexible that they could be run from home offices or even virtual offices until they gain traction and, as their businesses grow, move into permanent offices. Their core expertise is typically built around the skill-set of their principals; the rest might run entirely on an indirect and transient workforce. Hence, such businesses will most often initially not require a full staff, at least until its work load increases.
Ironically, in spite of the posturing and the heavy ‘small business’ rhetoric espoused by the various tiers of government over the years, they have consistently refused to trade with small enterprises, whom they have in fact systematically excluded from the award of government contracts. A typical pre-qualification requirement for government contracts in Nigeria reads like a well-curated ‘litany of exclusion’ for small businesses. These contract award criteria effectively decimate the chances of small businesses clinching government contracts, and only those who bribe officials and falsify documents ever get through the process. It is sad to note that in spite of the supposed stringent conditions attached to government contracts, a good number still end up in the portmanteau of charlatans and their briefcase companies, some of whom are not even registered with the Corporate Affairs Commission. Sadly, this is not a one-off incident but in fact is gradually becoming very standard practice across the country. In some cases, those who win these contracts go ahead and resell the contract award papers to third parties, who themselves in turn resell them without ever setting foot on the project site; with each group pinching huge chunks off the stated contract sum, the final executor (who will most likely be a small business) is left with peanuts to execute the contract, thereby emerging with wafer-thin profit margins.
Consequently, by its refusal to patronize small businesses, the federal government has set a very bad precedent for the state governments to follow; most of whom have also adopted the same draconian pre-qualification contract requirements often requested of small businesses. If government does not trust small businesses enough to patronize them, why should anyone expect private entities to do so? Sadly, the discrimination and bias against small businesses in Nigeria have become so firmly entrenched that they have been institutionalized across every tier and arm of government. Some of the requirements — such as participation in contributory pensions, or contribution to Industrial Training Funds — are such that most small businesses cannot meet them: they don’t do enough business to cover these costs.
The future looks very bleak for small businesses in Nigeria, and a casual observation reveals a current reality whereby most small service businesses in Nigeria will permanently remain small businesses, subsisting only on the few jobs they can scrounge from time to time from a very limited pool of private clientele. Others meanwhile will simply fold up, as their owners abandon their entrepreneurial (mis) adventure, dust off their CVs, and head back into the densely saturated labour market in search of nine-to-five jobs to keep body and soul together.
As Nigerian universities annually churn out tens of thousands of graduates trained for white collar jobs, it is important that the avenues for gainful employment are made available for them. I believe when a person goes through school and trains for several years to become a lawyer, an architect or engineer, it is not only imprudent, but indeed an aberration and a mockery of our educational system, for him to be told to go to the Bank of Industry and queue up for a business grant or loan, to start a laundry/dry cleaning business or go into grass-cutter farming. Yet, government won’t patronize small businesses that are willing to employ these professionals. I think every graduate professional deserves to be given the opportunity to work in the field of expertise that will make use of his professional skill-set and experience. This will not only give him/her professional fulfilment, but will also give Nigeria the opportunity to build and develop local manpower by encouraging professional specialization.
Whenever government preaches entrepreneurship, it is important that it also backs this up with the appropriate behaviour that honours this commitment. Small businesses in Nigeria have as much stake in the future of this country as do big corporations, and it is unfair and outrightly biased for government to continue to exclude small businesses from executing government contracts. The Federal government, as the biggest individual spender in the Nigerian economy, has the moral obligation to ensure that small businesses actually get the opportunity to do business. Therefore, it must patronize them: because it is not enough to provide handouts in the form of grants or loans for certain categories of small businesses, without creating the enabling climate for others to even exist. This exclusion goes against the principle of fairness and against that of equitable distribution of wealth. It is therefore not a coincidence that the gulf between the rich and the poor is widening by the day; it is this attitude of governments over the years that has bred and nurtured not just this disparity, but also the accompanying schadenfreude and class hatred that has ensued.
The advantages of promoting small businesses are innumerable. And with the current economic challenges the country is faced with, small businesses have the potential to give the government more value for its money. They have the capacity to stretch every kobo as far as possible; because unlike big corporations, small businesses do not have large overheads to pass on to the government when executing contracts; rather, they thrive on their thriftiness and lean organisational setup.
Small businesses have the inherent capacity to evenly redistribute wealth faster than big businesses, and the trickle-down effect will be felt sooner by the general populace. Small businesses also have the capacity to cumulatively create millions of white-collar jobs for Nigeria’s teeming graduates, because only small businesses typically take the risk of hiring inexperienced professionals and training them on the job. Small business owners can also work as allies with the tax authorities by helping to document and also bring under the tax net their employees, sub-contractors and artisans, who otherwise do not pay taxes and have no way of being tracked.
It must be stated that small business owners are not lazy people waiting on the government for their next meal, but hard-working Nigerians that have taken on the momentous and very intimidating challenge of setting up business in Nigeria, in spite of the massive odds stacked against them. Therefore, the very least the government can do is to patronize them sufficiently to get them on their feet. This will not only boost their confidence, but also compel the private sector to treat them better and pay appropriately for their services.
Government does not need to lower the bar just to accommodate small businesses, because most small businesses today have already met the very discriminating standards of the private sector; hence, they will no doubt surpass the current pedestrian standards government contracts are being executed by. Rather, the government should abolish all the red tapes and needless impediments that are currently precluding small businesses from bidding for some categories of government contracts. The government should also forget about any pre-qualification requirements besides expertise. Small businesses should in the first instance be encouraged to present themselves for government contracts before being asked to meet any other requirements.
I must concede that small businesses do not possess the requisite technical expertise to bid for all categories of government contracts, hence I suggest that rather than lump all government contracts together, the government should create dedicated contract categories for small businesses, giving them at least 15% (for a start) of all federal government contracts, and encouraging states and local governments to do same. For instance, no government agency needs to hire a law firm staffed by Senior Advocates of Nigeria (SANs) to draft a basic tenancy agreement on its behalf, when it can hire a small law firm of young lawyers, who most likely will be willing to do the job for a fraction of the fees the former would have collected. International donors and foreign embassies can also take a cue from this, by ensuring that a sizeable percentage of all donor-financed projects go to small businesses.
Until all this is done, most small businesses will remain ineligible to bid for government businesses, thereby denying the government of their rich repertoire of technical expertise — until such a time comes, small business owners will continue to siddon look.
Mathias Agbo Jr