FACTORS THAT AFFECT THE NIGERIAN BUSINESS ENVIRONMENT
FACTORS THAT AFFECT THE NIGERIAN BUSINESS ENVIRONMENT
Department of Economics, University of Port Harcourt
A paper on the Nigerian business environment, which seek to identify the various elements or factors that affect the Nigerian business environment; stating whether this elements are static or dynamic, simple or complex and placed or turbulent in their nature.
The business environment is an aggregation of all conditions, events, circumstances and influences that surround and affect the business organizations.
In management, the environment does not necessarily mean physical surroundings, but it is used as a total forces, factors and influences that surrounds and affect business organizations as a separate entity. This means that organizations must interact with those forces or factors that influence its decisions, actions, size, health, profitability and performance of the business organization as a whole.
A good business environment entails well functioning and efficient public infrastructure, institutional systems and regulatory services. IT helps to reduce the cost of doing business and difficulties encountered in operating a business and providing this kind of business environment is a responsibility only the government can meaningfully undertake.
The business environment is often dynamic and very competitive. Thus, business firms irrespective of their size and objectives must take into consideration t his environmental constraints. Note that the effects of environmental factors on organizational performance vary from once situation to another. That is, the environment suitable for the growth of a particular business may be hostile to the survival of another business.
In this write – up/paper, we attempt to look out the various factors that affect the business environment in Nigeria. This factors or elements will be classified into/under five major groups/elements/factors. These are the physical factors, the political factors, the Economic factors, the social-cultural factors and the technological factors. Also, we will try to dete5rmine the mixture of this factors or elements, if they are static or dynamic, simple or complex and placed or turbulent.
The Physical Factors:
The physical elements or environments is very important or powerful in the sense that negative things affecting the planet can have long term negative consequences for the ability of the business firms to sustain their activities. The physical elements that affect the business environment in Nigeria include:
(1) The threat of the increasing size or the expansion of the Sahara desert, allegedly due to global warming which poses a direct threat to businesses because water is such a basic need.
(2) The availability of arable land has been a major factor that determines the total output of agricultural produce in the Nigerian agricultural sector.
(3) The inadequate and poor drainage system/facilities also has great effect on the agro-business industry in Nigeria.
(4) Mountains, Flat lands & weather conditions have effect on the transportation system, building or factory design. This all affect the operations and profit of business firms I Nigeria.
The physical factors affecting the Nigerian business environment are often dynamic and less static this is because they change frequently, and its only few, like the factors relating to mountains and flat lands that are relatively static in nature, but the policies that regulate their usage are dynamic. The physical elements are more complex and very turbulent in nature. Some are move and cannot be altered or influence by this business organizations that they affect.
The Political Factors:
The direction, stability or instability of the government or political activities in Nigeria has major influence on the Nigerian business environment. Political elements act as constraints on business firms through fair trade decisions, antitrust laws, tax programs and administrations, minimum wage legislation, pollution and pricing policies, administrative or bureaucratic bottlenecks and many other actions aimed at protecting employees, consumers, the general public and the environment. Since such laws are usually restrictive, they tend to reduce the potential profits of business firms. On the other hand, political actions can also protect and benefit business firms and affects the business environment positively. Such actions include patent laws, government subsidies & government sponsored product research.
In summary, business environment indeed, entails providing enabling conditions for effective, efficient & profitable enterprise development, and it is the primary responsibility of the government at all levels to provide the much needed environment. Indeed, the quality of business environment is directly linked to the quality of governance. For instance, the relative political stability in Nigeria since the return of democracy since 1999 has being a major factor in attracting foreign direct investment (FDI) to the Nigerian business environment.
Nature of the Political Factors:
The political elements affecting the Nigerian business environment are usually dynamic, in the sense that they change frequently. Each successive government comes with its own policies, regulatory and supervisory frameworks which all affect and change the business environment positively or otherwise. These elements are also complex in nature and they are also very turbulent. This is because they are many, influential in their effect on the business environment and they change frequently.
The Economic Factors:
The economic factors is concern with the nature and direction of the Nigerian economy which this business firms operates in. therefore, this business firms must consider economic factors like general availability of credit facilities, the level of disposable income, the people’s propensity to spend, prevailing interest rates, availability of trained & Skillful workforce etc.
The lack of basic socio-economic infrastructure and logistics to support business firms is one major factor affecting the operations and profit of business in Nigeria. Thus, if you are going to run a successful business in Nigeria, you must have adequate financial capital to provide your own infrastructure.
Note that infrastructural challenges like inadequate power supply, water supply, factory, good transportation system, training facilities, security, access to funds or credit facilities etc, will directly or indirectly increase your start-up overhead cost and general day to day running cost thus, you have to properly consider this economic constraints in your business plan to smoothens your business operations.
The economic factors or elements affecting the Nigerian business environment are generally dynamic in nature because they change frequently. One economic policy of the government can yield undesirable or unintended outcome, when this is noticed, immediate steps will be taken reverse such policy or actions thus, the economic factors are subject to frequent change. They are also complex and turbulent, reasons is that in the Nigerian business environment, this various economic elements are move, their effect on the operations of business firms are very strong, sometimes they rendered this business powerless thus, the need for government intervention.
The Socio-Cultural Factors:
The socio-cultural elements have an influential effect on the Nigerian business environment due to the multi-cultural and multi-ethnic nature of the Nigerian society.
Social elements are dynamic, with constant changes resulting from the efforts of individuals to satisfy their desires and needs by controlling and adapting to environmental factors.
Social elements that affect the business environment in Nigeria include beliefs, values, attitudes, opinions, life styles, religion, education, social order (either peaceful or tense) and the ethnic conditioning of the people.
Also, the regular occurrence of violence and conflict that has characterized the Nigerian society since independence has affected business investment sentiments to a very great extent. This is because business activities/operations cannot thrive in an environment or society characterized by incessant communal crisis, social violence, general insecurity and other social instabilities or disorder like we have in most part of Nigeria today. This social condition is a serious disincentive to investment in the Nigerian business environment.
Also, as socio-cultural attitudes and conditions change, so also the demand for various types of goods & services of business firms operating in Nigeria changes too. Therefore, the effects of socio-cultural elements on the Nigerian business environment are enormous.
The socio-cultural elements affecting the Nigerian business environment are very (they are subject to frequent change). This is because the socio-cultural settings of any society are naturally dynamic, there is hardly anything static in the social system. These elements are also complex and turbulent in nature; in that they are more or broad, sometimes, the business environment and it stakeholders are just at the mercy of these various social events or elements.
Technological advances are another major factor that affects the Nigerian business environment. Therefore, business firms operating in Nigeria must be aware of technological changes that might influence their individual industry.
The recent technological breakthrough in business operation in Nigeria (albeit, mostly imported or foreign technologies) have suddenly and dramatically affected the business landscape in Nigeria. It has spawned sophisticated new workers and products, and has significantly shortened the anticipated duration of manufacturing activities. Therefore, all firms in the Nigerian business must strive for an understanding, acquisition and efficient utilization of both the existing technological advances and the probable future advances that can affect the product and services.
Some of these technologies that are important to the activities of business firms include internet services, high speed communication facilities, electronic payment facilities. Etc.
The technological elements are of cause dynamic in nature, in that they change frequently as effort is always made invent better version of this technological facilities. They are also complex and turbulent in their presence and influence or effect on the Nigerian business environment.
Summary & Conclusion:
From our discussion or write –up, we have identified some major physical, political, economical, socio-cultural & technological factors that affect the Nigerian business environment. We also try to determine the nature of these factors. From our observation, this factors seems to have similar nature, they all seems to be dynamic, complex & turbulent in nature. Although it is worthy to point out that, our observation of the nature of these elements are not sacrosanct, they are thus, subject to criticism from any academic authority who thinks otherwise.
Also, the aforementioned factors are not the only factors that affect the Nigerian business environment, but we limit our self to them because of time and space constraints. There are other factors like the international political and economic factors, ecological factors, international Economic organizations, (e.g. World Bank …) etc, that affect have great effect on the Nigerian business environment.