Business and Economic Environment in Lagos | Analysis
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Published: Tue, 13 Mar 2018
Business is seen to operate within an environment. This environment could either present a threat or an opportunity to the organizations that operate in it. This essay aims to describe the business environment in the city where the researcher lives. The first section will give an overview of what business environment is all about. Furthermore, Lagos state will be used as a case study to examine the business environment where the researcher lives. Then, different forces or conditions that encourage or inhibit business activities in Lagos state will be discussed
2.0 AN OVERVIEW OF BUSINESS ENVIRONMENT
According to Nyandat (2013) Business environment can be defined as forces or surroundings that affect business operations. These forces may include customers, competitors, suppliers, distributors, industry trends, substitutes, regulations, government activities, and economy, social, political and cultural factors.
Ogunro (2014) explained business environment as the combination of all environmental conditions and influences that are capable of affecting or influencing business activities. Furthermore, Obiwuru et al (2011) also defined environment of business as the aggregation of the pattern of all the external and internal conditions and influences that affects the existence, growth and development of the business.
For the purpose of this essay, Lagos state in Nigeria will be used as a case study to analyze the business environment in the city where the researcher resides.
Lagos state is the former capital of Africa’s largest country, Nigeria; it is the most populated city in sub-Saharan region with more than 15 million people. Lagos is called center of excellence because of its reputation of housing the very best of Nigeria’s skilled workforce. It is also home to the country’s top industries and businesses with over 65% of imported goods passing through its ports and 80% of manufacturing being handled within or around its vicinity. With such massive economic facts, Lagos is the life-wire of the Nigerian economy. This is best explained by the fact that no macro-economic activity can ever succeed with Lagos being alienated.
There are forces or conditions that encourage or inhibit business activity in Lagos and these include:
2.1 Human Capital:
The population of Lagos is a very good advantage for business entrepreneurs because both skilled and unskilled workforce is available and very cheap. Lagos state has a population of more than 15 million people of which 75% of them are youths and eager to work in order to earn a living. The city has the best of skilled workforce from diverse regions including foreign experts. This has helped the business activity because you can get any expert you want at a very affordable price.
2. 2 Inadequate Power Supply: Inadequate power supply is one of the major challenges that affect the business activity in Lagos. Every company has a standby power generator which is being used when there is power failure .Firms expenditure on diesel and petrol (as the case may be) is unbearable and this is affecting the productivity. This development is impacting negatively on the business investment due to increased expenditure on diesel and petrol by enterprises. This also comes with the consequences of declining productivity and competitiveness. Many companies have been closed down due to inadequate power supply while some companies where forced to relocate to the nearby country.
Nigeria has lost very huge amount of money due to inadequate power. “In 1990, the World Bank estimated the economic loss to the country from power inefficiency, at about N1 billion” (Adenikinju, 2005, p.3).
Using telecom industry in Nigeria as an example; which is an Oligopolistic market where we have very few telecom industries; their major challenge is power which they use to power all the base stations across the country. Most of them spend an outrageous amount of money to power these base stations because they cannot afford to have network failure due to power outage. “Telecom Operators Spend N10 Billion Annually to Power BTS” (Nurudeen, 2014, p.1)
2.3 Security Situation
Insecurity is another major concern that affects businesses in Lagos, there is very high rate of insecurity in the city and this made some foreign investors to decline from investing in the country. The security agencies are trying to ensure a secure and peaceful society but the government still needs to do more in order to give the foreign investors courage to come in and invest. Using Oil and Gas sector as an example, where we have Oligopolistic market structure and the price is being controlled and regulated by the government, there is a lot of oil theft and pipeline vandalism in the downstream sector which affects the economy.
“The latest estimates by the Finance Minister, Dr Mrs. Ngozi Okonjo-Iweala put the oil theft at about 400,000 barrels per day; the environment of the affected communities also suffers serious degradation as a consequence of this problem”. (Ibru, 2014, p.2)
2.4 Poor Infrastructures
Lack of good infrastructure in the city is another major challenge; many companies have their industries located at the industrial layout which is quite far from the metropolis. Commuters find it very difficult to access some remote places to buy products due to bad roads. (Gilbert, 2009) Access to raw materials for the company use is a major challenge; also distribution of goods and services to the metropolis is also a big problem due to bad roads. There is a lot of traffic congestion in the metropolis and valuable hours are being lost due to traffic which is caused by bad roads. There is no good health care sector for the poor masses, many people could not have access to medical care because of widespread poverty in the country and this is causing very big negative impact to the country due to high mortality rate.
The economic environment in Lagos state has been facing a lot of challenges but despite all that, they were able to create jobs, wealth for individuals, as well as revenue for the government through employment and taxation.
Adenikinju, F. (2005) Analysis of the cost of infrastructure failures in a developing economy: the case of the electricity sector in Nigeria. Volume 148 of AERC research paper, African Economic Research Consortium.
Gilbert, C. (2009). Nigeria’s Bad Roads Are Getting Worse. Available: http://www.voanews.com/content/nigerias-bad-roads-are-getting-worse-74805987/415952.html. [Accessed 4th June 2014]
Ibru, G. (2013) Press conference on the economy by the Lagos chamber of commerce and industry. 2nd Quarter [Online] Available from: [Accessed 27th May 2014].
Neyandat, C. (2013) how do you analyze the business environment? Gakus, 21st Oct. Available from: http://www.gaksu.com/allpdf/140_notes.pdf [Accessed 4th June 2014]
Nurudeen, A. (2014) Interview with the C.E.O of Airtel Nigeria, Daily Trust, [Online] 10th February.p.1. Available from: http://allafrica.com/stories/201402100424.html?viewall=1 [Accessed 28th May 2014]
Obiwuru T. Oluwalaiye, B. Okwu, T. (2011) External and Internal Environments of Businesses in Nigeria: An Appraisal in International Bulletin of Business Administration (12)
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Macroeconomics can be defined as study of economics that is more concerned with government structures, behavior and decision making which affects the country as a whole. It deals more with the country’s economy which includes; gross domestic product (GDP), unemployment rate, price indices, exchange rate, Inflation. When a country is experiencing macroeconomic stability, it means that the country’s economy is very stable; the Gross Domestic Product (GDP) is very good, unemployment is reduced to the minimal rate and low inflation. The aim of this essay is to examine the effectiveness of various approaches that may be used to reduce macroeconomic instability; while exploring different policies which a country’s government could use to achieve macroeconomic goals
2.0 AN OVERVIEW OF MACROECONOMICS:
Macroeconomics is concerned with government economic performance, it focuses on the economic trend of a nation. Macroeconomics deals with factors that that affect the country’s economy. Macroeconomic instability is major concern to any government and all possible measure must be taken to ensure that economic stability is maintained. Any country that suffers macroeconomic instability will possibly have a high rate of inflation, unemployment, low GDP or total recession. Different kinds of measure are taking by different countries to ensure that they maintained a stable economy. Below are some highlighted measures/policies which can be used to ensure that macroeconomic instability is reduced.
Privatization can be defined as a process by which some inefficient and ineffective sector is being transferred to be managed by more efficient private sector for the benefit of economic growth. This will allow the government to perform its primary functions, that is administration of law and order thereby leaving the actual running of business enterprise to private sectors.
Nwoye (2012) defined privatization as the transfer of ownership and control of enterprise from state to the private sector.
The main reason why government privatize the public sector is because of economic stability and this could be explained below:
- To enhance efficiency in the public sector: there are so many inefficiency in public sector due to nonchalant attitude of the workers. Most of the public servants believe that government are for the people, so they can do whatever they want without being fired and this affect the governments economy, there are so many ghost workers being paid by the government which affects the expenditure. But when handed over to private sector, they become more efficient and generate more revenue for the government because the private sector cannot afford to lose money like the government, they will cut down the cost overhead to the barest minimum to be able to generate revenue which will help in the economic growth of the country.
- To decontrol the economic system by reducing unnecessary administrative controls of the government : deregulating the economic system helps the government to focus more on the administration of the nation by implementing law and order and good policies that will help in the economic growth. The government handing over the business management to the private sector will reduce their cost overhead and also increase efficiency in the administration of the nation.
- To decrease the volume of unproductive instruments in the public sector: as mentioned earlier, there are a lot of unproductive people and instrument in the public sector, nepotism and godfathers has contributed to inefficiency in the public sector where round peg is been put in a square hole. But when these sectors are being privatized, all these unproductive people and instrument will be removed and replaced with more productive instrument which will increase the employment and delivering of the goods and services thereby generating sufficient revenue for the government.
- To fortify the role of the private sector in the economy which will warranty employment and higher capacity utilization: Fortification of the role of the private sector in the economy is very important as this will help in decreasing the level of unemployment in the country and which helps in economic stability.
- Reduction of political interference in the public sector: politicial interference in the public sector increases the rate of corruption which affects the economy, but without the interference of the politicians when privatized, the sectors will be more productive with less corrupt practices.
2.2 Public Private Partnership (PPP)
Omoh (2012) confirmed that government across the globe have come to terms with the fact that public sector cannot provide the needed infrastructure and have come to the conclusion that private sector participation in the provision of infrastructure in inevitable. Public private partnership is where the government and private sector goes into partnership to bring economic growth through building and construction of infrastructures, managing them for a shot term or long term and finally hand them over to the government after a stipulated period as agreed. This partnership helps to increase the gross domestic product and it can be done is so many ways; it could take the form of Build-Operate-Transfer (BOT), Build-Operate-Own (BOO), Build-Own-Operate-Transfer (BOOT), Design-Build-Operate-Transfer (DBOT), Design-Build-Finance and Operate (DBFO). Other less common ones are; Build-Rent/Lease-Transfer (BRT or BLT) Build-Transfer and Operate (BTO). Omoh (2012)
The Scope for the public private partnership ranges from Power generation plant and transmission, roads and bridges, ports, airports, railways, inland container depots and logistics hubs, gas and petroleum, water supply, housing, educational facilities (e.g. Schools, Universities) and healthcare facilities. This helps the government to spend less money on these areas while the partners will finance and manage these sectors for some time to recover their invested money.
2.3 Fiscal Policy
Heakal (2013) defines fiscal policy as the means by which a government adjust its spending activity and tax rates in order to monitor and influence a nation’s economy.
Heakal (2003) also confirms that fiscal policy is based on the renowned British economist, John Mynard Keynes, who is known as Keynesian economics; his theory shows that government can influence macroeconomic stability / productivity level by increasing or decreasing tax levels and public spending. This influence will in turn curb inflation, increase employment and maintain a healthy value of money.
Gbosi (2008) says that fiscal policy entails the government’s management of the economy through the controlling of its income and spending power in order to achieve certain desired macroeconomics objectives in which economic growth and stability is among them.
Jhingan (2006) also acknowledges the power of fiscal policy as an instrument of macroeconomic stabilization.
Iyeli & Ijomah (2013) also established that if fiscal policy is used with circumspection and synchronized with other measures, it will possibly smoothen out business cycle which leads to economic growth and stability.
Based on the above explanations, it could be said that Fiscal policy is a way or method the government is using to control economic goals in order to maintain stability in the nation’s economy. Fiscal policy can come as increase in taxation or government expenditure in order to influence aggregate demand (AD) and level of economic activity. AD can be defined as the total level of planned expenditure in an economy (AD= C+ I + G + X – M) where C= Consumer spending, I= Investment, G=Government Spending, X= export, M= Imports)
The government might implement the fiscal policy in order to stimulate economic growth in a period of a recession, the government can also use fiscal policy to keep inflation low. Mainly, fiscal policy aims to stabilize economic growth in order to avoid boom and bust economic cycle.
Anyanwu (1997) defined taxation as the compulsory transfer or payment from private individuals, institutions or groups to the government.
Nzotta (2007) stated the four key issues that must be understood for taxation to play its function in the society; first, a tax is a compulsory contribution made by citizens to the government and this contributions is for general common use. Secondly, a tax imposes a general obligation on the taxpayer. Thirdly, there is a presumption that the contribution to the public revenue made by taxpayer may not be equivalent to the benefits received. Finally, a tax is not imposed on a citizen by government because it has rendered specific services to him or his family
Anyanwu (1993) also pointed out that there are three basic objectives of taxation; these are to raise revenue for the government, to regulate economic activities and to control income and employment.
Nzotta (2007) also confirmed that taxes generally have allocation, distribution and stabilization functions.
The allocation function of taxes talks about determination of the pattern of production, the goods that should be produced, who produces them, the distribution function of taxes relates to the manner in which the effective demand over economic goods is divided among the individuals in the society while the stabilization function of taxes deals with attaining high level of employment, a reasonable level of price stability and appropriate rate of economic growth, with allowances for effects on trade.
The above listed methods/ policies has been used by so many countries to maintain economic stability and Nigeria as a country has introduced these policies which is now helping the government to stabilize the economy.
Anyanwu, J.C., 1993. Monetary Economics: Theory, Policy and Institutions. Hybrid Publishers, Onitsha
Anyanwu, J.C., 1997. Nigerian Public Finance. Joanne Educational Publishers, Onitsha
Gbosi, A.N (2008) Contemporary Macroeconomic problems and stabilization policies, Portharcourt, Automatic Ventures.
Heakal. R. (2013) Investopedia. What is fiscal policy? [Online] Available rom: http://www.investopedia.com/articles/04/051904.asp [accessed 2nd June 2014].
Iyeli I.I & Ijomah M.A (2013) A Re-examination of fiscal policy applicability in Nigeria’s economic growth process: An econometric policy evaluation from empirical evidence. Vol 3. (4 July 2013) P.180 – 188
Jhingan, M.L (2006) Macroeconomic Theory. New Delhi. Vrinda Publishers.
Nwoye .I. 2013, Privatization of Public Enterprises in Nigeria: The views and counterviews. [Online] Available from: http://www.globalizacija.com/doc_en/e0062pri.htm [Accessed 3rd June 2014]
Nzotta, S.M., 2007. Tax evasion problems in Nigeria: A critique. Niger. Account. 40(2): 40-43
Omoh G. (2012) Public Private Partnership: The new way to infrastructural provision, Vanguard, [Online] 17th December. P.7. Available from: www.vanguardngr.com/2012/12/public-private-partnershi-the-new-way-to-infrastructural-provision [Accessed 30th May 2014]
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