In early June this year, the Nigerian government reassumed control of the once divested state-owned telecoms giant NITEL, blaming unpaid debts and investment shortfalls. Abuja had sold a 51% stake in this national asset under former President OJ Obsanjo in 2006 as part of a massive reform and divestment process. Transcorp, the local firm that bought majority control for a fee of $500 million, was accused of defaulting on payment obligations to the tune of $60 million, as well as racking up debts totaling 17 billion naira1. NITEL suffered huge subscriber losses for both fixed line and mobile services since 2001. The development became another shocking national debacle, not only in terms of monetary losses, but also in terms of official economic policy and administrative forecasting. Since then, the current government has signaled the appointment of a technical board to manage NITEL until further investment occurs.

Judging by the fate of Nigeria Airways, he may be too optimistic. The 35-year-old national flag carrier with a history of failed mergers and service security issues underwent numerous revival attempts before it finally ceased operations in 2003. Fending off accusations of massive corruption and mismanagement that led to the undoing of the airline, the government managed to secure Virgin Atlantic Airways as a partner for a strategic relaunch. However, Virgin’s recently announced intention to withdraw its shareholding from Nigeria Airways may sound like the death knell of yet another public company that failed miserably.

For Nigeria, the failure is twofold. It symbolizes, first of all, unforgivable mismanagement that leads to the failure of potentially successful companies. More importantly, it questions the design and impact of Nigeria’s much-touted reform process, ironically launched to undo precisely the very economic setbacks it appears to be spawning.

The fate of the economy in general and big business in particular has been remarkably disappointing in this sub-Saharan nation rich in petrodollars and prodigious in natural resources. While decades of political turmoil and civil strife are partly to blame, rampant corruption and non-inclusive policies have added up to leave Nigeria with the worst economic indicators and human development indexes. In such a climate, and despite recent redirections in government policy, Nigeria’s Millennium Development Goals and its 2020 target of reaching the top 20 world economies present monumental challenges.

With the long-term repercussions and viability of recent divestments in oil, steel and port entities still in doubt, big business is obviously not the way to achieve these goals. What also convinces this line of thinking is the desperate collapse of numerous similar entities recently in various economic settings around the world, from Asia to Alaska. For a nation of 148 million people, more than half of whom live in extreme poverty, the micro, small and medium-sized enterprise (MSME) sector offers immense promise for sustainable development.

Of critical importance here is the fact that MSMEs offer a different macroeconomic profile and potential, and are not simply scaled-down versions of larger companies. The financial flexibility, employment potential and innovative capacity of MSMEs have contributed substantially to developed and developing economies around the world. According to the European Network for Economic and Social Research (ENSR), MSMEs with up to 250 employees created 68 million jobs in the European Union2. Indeed, Nigeria can look to similar inspiration closer to home, on the African continent itself. Comparable data for South Africa indicate that small businesses accounted for 55% of its total employment and 22% of GDP in 2003.

Taking into account local and conjunctural variables, MSMEs have shown greater profitability through national barriers due to greater efficiency of human capital and capacity for product transformation. While there is no determinable link between financial structure and profitability, calculating gross profits over capital employed has always worked to the benefit of MSMEs over large companies.

On the other hand, small businesses suffer from two basic disadvantages that, by definition, large businesses do not: high rates of employee costs and working capital requirements. Large companies have lower costs per billing unit and substantially higher cash flow capabilities. Furthermore, MSMEs represent a high risk factor in terms of debt repayment capacity, often due to inadequate financial knowledge and limited access to guidance and consultation. The long-term success of MSMEs depends more on a greater degree of financial flexibility that allows rapid adaptation to changing market needs.

Disappointment with large-scale, capital-intensive and often import-dependent businesses had been growing long before the current global economic downturn began. While Nigeria has much to blame for its experience with big business, reports of its diminishing impact on inclusive economic growth are unmistakably emerging around the world. In the European Union, for example, 99% of its 20 million businesses are small and medium-scale operations that currently account for two-thirds of total employment in the private sector3. As new economic realities slowly but surely begin to take hold, the practicality of giant companies running on gigantic turnover of employees and capital is fading.

MSMEs, by contrast, offer a multitude of short- and long-term benefits that are of particular relevance to Nigeria: increased utilization of natural and human resources, entrepreneurship and rural development, higher savings, and greater regional balance. . In the context of immediate and long-term goals, a policy shift in favor of rapidly promoting smaller businesses is perhaps the only political priority standing between Nigeria and a fast-growing economy.

* There are undoubtedly significant challenges in this direction, none more pressing than the need to create a mindset shift among Nigerians regarding grassroots entrepreneurship. Other practical problems manifest themselves in the form of a shortage of skilled labor, a worrying corporate mortality rate4 and devastating infrastructure deficiencies, especially in terms of security, energy and roads. Improving the availability and access to finance and capital remains by far the most critical challenge, in response to which Abuja launched a bank consolidation program in 2004 to strengthen financial institutions and improve access to private sector credit.

To ensure rapid business development, the Nigerian government needs to make rapid changes in fiscal, monetary and industrial policies to capitalize on its huge MSME potential. Much depends on the effective management of its human resource capital: its sizeable population that has traditionally relied on extremely small, subsistence-level businesses. It is a fact that the fate of Nigeria’s ambitious economic goals depends largely on its ability to turn this talent into tangible economic growth.