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Managing business in a recessed economy (1)

By Obadiah Mailafia

GOOD morning. I feel highly honoured to have been invited to address this Old Boys Association of St. John Chrysostom Junior Seminary, Osina, Imo State. For reasons I cannot fully explain, I feel deep love and rapport with Imo people. There is no doubt that your school has fulfilled its mission: I see before me distinguished alumni from all walks of life; men of sterling quality; men distinguished not only by intellect but also by character and virtue. I salute you all!

I can also reveal that I am a devotee of the Apostolic Church Fathers, many of whom were Africans of Egyptian and North African extraction; among them Clement, Origen, Athanasius and the holy fathers of Alexandria; Cyprian of Carthage; Augustine of Hippo and, of course, Saint John Chrysostom, for whom your alma mater has been named. Floreat, I say!

Economists often refer to the phenomenon of ‘path-dependence’. It derives from the idiom of Newtonian mechanics, whereby a body is said to continue in a state of motion, until an equal and opposite force compels it to stop or change direction. For decades, oil had been the mainstay of the economy, accounting for as much as 50 percent of GDP and over 90 percent of foreign earnings. We continued on a path-dependent trajectory anchored on a rentier oil political economy. It was based on extracting rent from multinational oil companies; sitting every month  within the FAAC like villagers sharing an elephant under a tree — distributing the funds among the three tiers of government based on an agreed formula.

While the oil sector currently accounts for only about 11% of GDP, it still accounts for more than 50% of government revenue and a staggering 94 percent of total foreign earnings.  Albert Einstein famously defined insanity as the habit of doing the same thing over and over again while expecting a different outcome. That model of the rentier petrodollar political economy might have worked while oil prices were heading north. At a time when we face the prospects of permanent oil price lows, however, pursuing the same trajectory while expecting our economic prospects to improve is clearly a mark of consummate folly.

There is no doubt that the recession has had a severe impact on Nigerian businesses. Due to devaluation of the naira, inflation has reached more than 19%, although it has recently come down to 15 percent. The cost of imports of essential raw materials and machinery has increased dramatically. This is compounded by infrastructural decay, especially in our roads, power and ports facilities. There has been capital flight. Companies have moved to Ghana and our other neighbouring ECOWAS countries. Access to credit and loans has become more difficult than ever, as banks prefer to invest in FGN bonds and treasury bills that are literally risk-free investments as compared to dodgy private debtor-obligors. The manufacturing sector has undergone severe capacity-underutilisation. Falling stocks and dividends affect the income of pensioners, savers and other investors in the capital markets.

Coupled with massive layoffs, worsening unemployment and deepening poverty, aggregate demand is severely impacted. This in turn leads to a crisis of confidence, as people with high net worth withdraw their savings in naira deposits in preference for dollar domiciliary accounts. This, in addition to speculators, leads to additional pressure on the naira. It becomes a vicious cycle of a downward secular spiral.

The good news is that we have been recently informed by the National Bureau of Statistics, NBS, that growth has attained 0.55% during the last quarter. This signals that Nigeria is officially out of recession. But I must warn that these are only the first green shoots of recovery. It is a very delicate recovery.

For private firms and business people, what does it take to survive and even flourish, in a recession?

First, let me emphasise the fact that recessions are not altogether bad, especially for the most astute of business people. As a matter of fact, they offer new opportunities for others. The great economist Joseph Schumpeter invented the concept of “creative destruction” in reference to the rise and fall of firms as a result of technological change and innovation. The recent recession may have seen the decline of some old firms; but it is surely leading to the emergence of new business opportunities, particularly in exports, solid minerals and agribusiness.

One word that has been used in reference to the ability of firms to survive in turbulent times is “organisational agility”. Organisational agility refers to the ability to use new information and technologies to quickly adapt to changing realities. Organisationally agile firms are never content with the status quo. They are always attentive to new threats as well as opportunities and able to device effective mechanisms of adaptation. This entails ability to “whittle away at inefficiency and regroup around what is truly core to the business”.

One of the best illustrations of the concept of organisational agility derives from the boxing match between George Foreman and Mohammed Ali on October 30, 1974 in Kinshasa in what is today Democratic Republic of the Congo. That historic fight became famously known as “the rumble in the jungle”.  While Foreman’s strategy was that of “absorption” based on his sheer weight and physical strength; that of Mohammad Ali, on the other hand, was based on a more  nimble quest for opportunities that utilised his flexibility and bounciness. Ali’s approach apparently prevailed, as he won by a knockout on the eighth round of the match, which has been described as “arguably the greatest sporting event of the 20th century”.

From that metaphor we learn success requires both ability to absorb existing shocks while maintaining nimbleness and flexibility in confronting new challenges.

Three elements are key to survival in turbulent times: first, ability to optimise critical business processes while minimising excess spending on non-core business programmes, focusing on those critical elements that maintain customer expectations in difficult times; avoiding information silos within the organisation by widening the scope of internal communication and information sharing to enhance overall organisational performance; deepening business process reengineering involving updating technologies that enhance productivity and quality while reducing inefficiencies within the organisation.

(Being Text of an Address to the National Convention of the St. John Chrysostom Seminary Osina Old Boys Association, Held at Best Way Hotels, Abuja, on Saturday 28 September 2017)

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