₦airaland Forum

How Nigeria made monopolists instead of innovators

The developed nations of today were built on fair competition, where every citizen had a chance to thrive, not by government hand-picking a few to benefit from state-crafted policies.

As Feyi Fawehinmi, an author, noted in his review of Femi Otedola’s memoir “Making It Big”, in Nigeria, “you need not invent anything to become a billionaire. That is a waste of precious time.” This stands in stark contrast to wealth creation in other climes. In the United States, billionaires rose on the back of inventions, protected by patents.

“Many made fortunes based on their patents. Take Thomas Edison, the inventor of the phonograph and the light bulb and the founder of General Electric, still one of the world’s largest companies,” wrote Daron Acemoglu and James Robinson.


Nigeria, however, tells a different story. In the 1980s, when the government banned the importation of lighting products, Chief Beyioku Adebowale, a late industrialist, launched a venture to manufacture fluorescent lamps. Sir Michael Otedola invested N2 million in the enterprise. But the government soon undermined its own policy, granting import licences to Indian competitors. Sir Michael lost everything he invested in the invention of Adebowale.


The lesson is glaring: Nigeria offers almost no incentives for innovation. Instead, it prioritises licences, waivers and protection for the politically connected, enriching a few at the expense of the many.

The monopoly model

Monopoly enriches a select few while throwing the rest into poverty. The American government understood this long ago, which is why it established antitrust law, designed to protect both consumers and businesses from the stranglehold of monopolies and cartels. Giants such as John D. Rockefeller and J.P. Morgan lost their monopolies to the sword of antitrust legislation.

Nigeria, by contrast, entrenched monopoly through state backing. This gave a handful of businessmen unrivalled access to bank credit, while shutting out potential innovators.

Femi Otedola’s career is instructive. Government policy once gave him control of 93 percent of the diesel market, making him the darling of Nigerian banks. “When the going was good, Access Bank did everything to court me, practically begging to do business with me,” he recalls.


But when the 2008 financial crisis struck, oil prices collapsed and the naira depreciated; his $500 million diesel consignment was reduced in value to just $37. He became Nigeria’s largest debtor, owing around N222 billion, an amount so vast it nearly wrecked the nation’s financial sector.

The dangerous cost of crony lending

The figures reveal the fragility of Nigeria’s banking system. In 2010, Access Bank reported gross earnings of N91 billion, profit after tax of N11 billion, and total assets of N800 billion. Yet its exposure to Otedola alone was N25 billion, 14 percent of its net assets.


GTBank was no different. With assets of N1.2 trillion, it still had N38 billion tied up in Otedola, 18 percent of its net assets. As finance expert Abdulrauf Bello observed, “those were crazy exposures.”

Contrast this with the United States. During the nineteenth century, America experienced an extraordinary expansion of financial intermediation. By 1818, 338 banks held assets worth $160 million; by 1914, nearly 28,000 banks managed $27.3 billion. This intense competition meant inventors had easy access to affordable capital, fuelling industrialisation.

Nigeria, by contrast, channelled credit to a few state-backed monopolists rather than to innovators. Instead of financing the next Edison or Ford, Nigerian banks bet their balance sheets on a single oil trader’s gamble.

lawani:
Innovators too can look for investors by themselves. Tesla, Space X etc were private companies initially before Elon Musk became an investor and then they became public.

Pro force has FG shares in it of the defense industry company. I think it is the foremost Nigerian company using a patent to produce.

Then companies need to learn the culture of taking their problems to the academia. The academia can solve any problem

Then we don't really have monopolies in the country again

CoronaVirusPro:
What exactly is the monopoly we talking about here!

Every nation supports the best businesses that support the country workforce and also generate revenue.

What leveled playing ground are we talking about here? That the government should give every Nigeria a billion dollars for start up?

It doesn’t work way. In any country, big businesses are ALWAYS supported in various forms through low interest loans, tax exemptions and even direct investment.

Let me use the crude oil refining licenses as a case study. If I am. It wrong, over 10 licenses were issued and less than 3 hit the ground. Do we call those 3 monopolist dice others could not?

Nothing like the government is creating monopolist. Nigeria is doing same thing every government in the world does.

Gina does not support all the businesses in its country but heavily invested on the front runners like Huawei, BYD and ByteDance.

Yes, creating enabling environment is a valid point, but supporting and creating a leveled playing ground for ALL businesses to thrive is outrightly impossible.

Mr. A who needs one million Naira loan and employs 10 people cannot have same interest and tax exemptions like Mr. B who needs one billion dollars and employs a thousand hands.

There is no leveled playing grounds anywhere on Earth.

Hussein052:
Nigeria was never made to work for the masses, even those in government are using nepotism and corruption to recycle the nation wealth within their generation.

lawani:
Innovators too can look for investors by themselves. Tesla, Space X etc were private companies initially before Elon Musk became an investor and then they became public.

Pro force has FG shares in it of the defense industry company. I think it is the foremost Nigerian company using a patent to produce.

Then companies need to learn the culture of taking their problems to the academia. The academia can solve any problem

Then we don't really have monopolies in the country again

Fiscus105:
Abi ooooo, America given money to few individuals who are great minds and enterprise, but in Nigeria, wen someone rise, they do everything to bring him down.

Be as I be syndrome.

CoronaVirusPro:
It’s absurd that Baba Tunde expects the Federal government to accord him same business grounds as Dangote.

Do these people really tend to realize and appreciate the work these people put into their businesses before they start getting incentives.

If it was that easy, all of us on Nairaland should be multi billionaires

Softmirror:
What is your status? Are you among the masses? Or the elite?

PigTormentor:
This write up is inaccurate and full of false narratives.
First, most US billionaires are no5 investors. The billionaire investors are just more well known because they are in most in tech.
Secondly, even the US tech Billionaires have a lot of govt backed money. Do you know how much Elon and Larry Ellion are making from US givt monopoly contracts?
Oh and you failed you mentioned the most obvious Govt backed monopoly in Nigeria which is Air Peace. That's a complete monopoly that is truly backed and sponsored by the govt.
Other businesses can have competition, Air Peace cannot have any competition on any route that the Nigerian givt has given to them period. None.

Morbeta11:
https://businessday.ng/business-economy/article/how-nigeria-made-monopolists-instead-of-innovators/

youngsahito:
Dangote is also enjoying this monopoly in the petroleum industry. The govt refused to fix state owned refiember

GloriousGbola:
Femi otedola does not mention in his book that the real reason he got rich selling diesel was because Obj gave him an unfair insane competitive advantage.

Any vessel bringing in product has to discharge at the jetty. Every day you are at the jetty you incur parking fees. These are in dollars, are called demurrage and significantly impact on your product price

Under Obj otedolas vessels discharged immediately no matter where they were in the queue.

This was the real reason for his cheap diesel. Yardua put a stop to that and that is actually why otedola almost went bankrupt.

That is why after gej became president, otedola was glued to him. It was a joke back then because the gumbody was so obvious