Nigeria’s critical sectors at risk from poor regulation – expert

Unless the Nigerian government radically innovate regulatory frameworks by ensuring that regulations are responsive to changes in the economic, social and technical conditions surrounding them and take into account linkages between regulation and innovation, growth will continue to be the casualty of weak oversight.

This is because disruptive innovations required to generate growth in a world where technology is causing untold disruptions and rendering obsolete, rules once held as sacrosanct as dogma, is usually stifled when stern regulations are applied to undeveloped markets.

Efosa Ojomo, senior researcher, Forum for Growth and Innovation, shared this view in his address at the 2016 edition of BusinessDay CEO Forum that held at Eko Hotels and Suites, Victoria Island, Lagos recently, with the theme ‘Innovation and the CEO’s Dilemma: How we can create economic growth’.

Comparing the United States model where regulations follow developed markets and act as powerful stimulus to further innovation, as exemplified in the case of Ford T model vehicle where the need to enlarge markets and achieve growth necessitated regulation, he said that Nigeria has a case of firm regulations before developed markets getting in the way of innovation.

 “This is why regulations continue to fail in Nigeria, because you have regulators who don’t even have a developed market to regulate. Nigerian Electricity Regulatory Commission (NERC) is trying to improve capacity where there is no power,” he said.

Analysts have long called for streamlining regulation of the upstream sector of the Nigerian oil and gas sector where the Department of Petroleum Resources, Federal and state ministries of environment, commerce,  the Nigerian Nuclear Regulatory Authority (NNRA) and Nigerian National Petroleum Corporation (NNPC) and Nigerian Maritime Agency all pose as regulators giving conflicting rules and stifling the sector.

In 2013 a protracted dispute over statutory charges and levies led NIMASA to block the Bonny River channel and detain the vessels belonging to Nigerian LNG (NLNG) Company leading to a loss of $525 million to NLNG as a result of blockade of shipment of LNG from its export terminal.

Experts say that Nigeria’s banking, aviation, health, transport, education construction sectors require better regulation as highly regulated areas rarely achieve growth.

“Heavily regulated fields like transportation, health care, and energy have been much slower to progress,” said Peter Thiel, president of Clarium Capital, a hedge fund management firm.

Ojomo said there are two types of disruptive innovations: low-end disruptive innovation and new-market disruptive innovation. Market disruptive innovations, which are targeted at non-consumption, a circumstance where a majority of people in a society are unable to afford a particular product due to cost, time, or skill constraints has become the major driver of economic sustainability.

“These innovations transform the existing complicated and expensive products to simple use, more affordable products, thereby making them more accessible to a larger set of people in society, such as M-PESA, the mobile money platform in Kenya.”

Along with poor infrastructure, the difficulty of doing business, and the very low incomes on the continent, Ojomo stated that poor regulation makes it easy to discount the possibility of executing disruptive innovations in Africa.

“But when these obstacles are framed as opportunities, innovators can build truly disruptive companies,”

He cited the examples of Indomie Noodles and Hypo as brands that have achieved significant progress regardless of obstacles. He counseled the private sector leaders to prioritise patient capital, focus on non-consumers rather than the elite and build human capital to improve capabilities.

“We can create innovation in Nigeria if we focus on the non-consumer rather than the elite. Hypo moved from 2percent to 30percent growth rate by developing a technology that allowed them to put bleach in satchets,” Ojomo said.

He said that when Tolaram entered the Nigerian market in 1998, it took it 20 years to gross $100million.

 “The company was patient for growth, but impatient for profit, that is what you need too,” Ojomo counseled the over 120 business leaders gathered at the event.

The 2016 edition of the BusinessDay CEO Forum had over 100 business leaders from the private sectors and government representatives who discussed ideas on how to cope with trends in a fast-changing world.