The need for improved public-private dialogue

MANY developing countries have the potential to become economic leaders, but have failed to exploit their natural advantages. Nigeria is blessed with vast mineral resources, good land for agriculture and a population that is incredibly entrepreneurial. At present, however, Nigeria only exploits its oil reserves, which generate easy money and thus provide much of the government's income but also drive much of the country's corruption. The World Bank has estimated, based purely on the explosive growth of mobile phones, that as much as two-thirds of the economy could be in the informal sector so there would be merit in stimulating and supporting entrepreneurship in Nigeria.

So what is it that holds back countries like Nigeria? It is very easy to lay much of the blame on poor infrastructure (including power, water and roads), rampant corruption, political patronage and over burdensome regulation. These do indeed make it difficult to 'do business' as clearly shown in the World Bank's Doing Business reports. Poor infrastructure raises the costs sometimes to the point where it is no longer worthwhile staying in business, or remaining in a particular location. See, for example, the flight of the textiles industry from Kaduna to Lagos. And I never cease to be amazed when I see fruit and vegetables from South Africa on the streets of Lagos that look far more appetising that locally grown produce. Corruption, and the often capricious nature of enforcement of an overly complex tax regime, makes it difficult to calculate costs accurately - in turn making it difficult to price to be both competitive and profitable.

The approach to regulation tends to be precautionary based for example on ex ante licensing (requiring people to do something, such as applying for a licence, just in case) rather than relying on ex post control (where regulation requires businesses to behave in a particular way, but the only control comes through prosecuting offenders for 'misbehaving'). Together these encourage entrepreneurs to work informally rather than joining the formal economy - making it more difficult to borrow, more difficult to find and hire qualified staff, and thus more difficult to grow. Precautionary regulation also creates more opportunities for corruption. It makes it more difficult to trade: businesses that don't trust each other demand cash from rather than offering credit - yet for many businesses in many parts of the world, trade credit is their biggest source of working capital. A worldwide reputation for corruption makes it more difficult for businesses to trade internationally and makes it harder to attract inward investment.

It is too easy for external observers to identify the problems, but it is rather harder to spot the solutions. What the observers see however are symptoms rather than causes. There seems to be a consensus that finding oil was part of the problem in that many other sectors, particularly agriculture, were seen by policy makers to be less important and thus not given the attention that they deserved. Early on, much of the population was led to believe that oil was the answer to all their prayers and that they could stop working in their existing businesses and simply rely on profits from oil for their income. That perception is changing - and agriculture is again seen to be important, but it seems that more effort is required to put in place the infrastructure and regulatory regime that encourages investment in agriculture. The structure of government finance, with its high dependence on oil taxation, has resulted in a disconnect between voters and elected politicians. Government is not dependent on taxpayers who are also voters; rather government has access to funds, for which it seems little accountability is exercised, and use this to buy votes, not through supporting popular investment but through simple bribery.

One consequence is a mutual suspicion and lack of trust between public and private sectors. The private sector believes that the public sector is there to relieve them of as much as possible through legal and corrupt payments and certainly not there to improve the enabling environment. The public sector doesn't think seriously about the private sector and the impact that a vibrant private sector could make on the economy and on poverty alleviation through creating wealth and creating jobs. Few people transfer their employment from one sector to the other so views become entrenched and neither sector understands enough of the other to challenge the views.

When the private sector, or a particular trade association, feels very strongly about the issue, they advocate. Too often the advocacy is based on emotion or on patronage rather than rooted in the evidence. The result does not always, therefore, improve the environment. Improving trade associations' access to information and building their research and advocacy skills can make a difference. But it is likely that a far bigger difference would result from improved public private dialogue. Advocacy is often necessary, but it implies an adversarial relationship; public private dialogue implies a partnership and can be an effective way of ensuring that the views of the private sector are taken into account by policy makers. Dialogue is not a substitute for advocacy, but is an effective prerequisite.

Creating mechanisms that bring together public and private sectors in formal and informal arrangements would increase the contact between public and private sectors. Providing training and personal development would lead to higher levels of skill in research, dialogue and advocacy. Short secondments, even for periods as short as a week, of civil servants to private businesses could lead to massive increases in understanding. Improved research would provide better evidence on which to base decisions. The objectives of this activity would be:


to build understanding within the public sector that sustainable, wealth creating, economic growth is driven by the private sector and that the vast majority of entrepreneurs are honest, hard-working and responsible - and that helping them to "do business" more easily will lead to more jobs and a bigger economy and thus greater tax revenue in which all can share;

to build understanding within the private sector that the public sector is not there simply to take advantage of the private sector but rather to ensure a fair balance of interests between the private sector and other groups such as consumers, employees, etc and to deliver much-needed public services such as health and education to the population at large.
As noted earlier, improved dialogue is a prerequisite for effective advocacy but could also reduce the need for overtly public fighting as improved understanding should lead to better regulation and thus reduce the need for the advocacy.

If this is to happen, it requires a lead right from the top. Recent statements by state governors in response to the World Bank's Policy Advocacy and Nigeria Learning (PANL) project suggest that the time is right to make renewed efforts. The lack of resources and expertise in many trade associations, particularly at state level, means however that pump priming is necessary and that is where initiatives such as PANL and DFID's Nigeria Growth Challenge Fund could make an enormous difference - building the capacity of private sector representatives to engage effectively in dialogue and advocacy, providing resources to access, gather industry information, and supporting new dialogue mechanisms.

Cynics believe that nothing will change; realists recognise that much effort will be needed but starting small and building confidence could lead ultimately to a public private partnership determined to lead Nigeria to his rightful place in the world economy. Let's all be realists - and all work together to make a difference.