Government-backed businesses undermine Nigeria's economy,

Nigeria's persistent reliance on state-backed commercial ventures has become a cautionary tale for policymakers and investors alike. The Alliance for Economic Research and Ethics (AERE) chairman Dele Oye recently reignited a critical debate at the Vanguard Economic Discourse in Lagos: should the Federal Government be in business at all?

His argument is anchored in decades of empirical failure. The Ajaokuta Steel Company—once envisioned as Africa's flagship steel producer—consumed billions in capital and political will before eventual abandonment. Concurrent refinery rehabilitation initiatives have similarly underperformed, with projects running over budget and behind schedule while private competitors globally deliver better returns. These are not isolated mishaps; they represent a systemic pattern.

## Why Do Nigeria's State Enterprises Consistently Underperform?

The root causes are structural. Government-run enterprises typically suffer from three critical deficiencies: weak corporate governance, political interference in operational decisions, and misaligned incentive structures. Unlike private firms that face bankruptcy discipline, state entities can survive indefinitely despite losses, creating no urgency to innovate or cut costs. Political patronage often trumps merit in hiring and procurement—a tax on efficiency that compounds over time. Additionally, state monopolies eliminate competitive pressure, the primary driver of productivity in market economies.

Ajaokuta's collapse illustrates this perfectly. The project faced repeated technology switches, managerial turnover, and corruption allegations that private management would have resolved or eliminated. Similarly, refineries under state control have underinvested in maintenance while importing finished products—a paradox that only makes sense when profit motive is absent.

## What Are the Macroeconomic Implications for Nigeria?

The costs ripple through the entire economy. Underperforming state enterprises drain the federal budget, crowding out public investment in education, healthcare, and infrastructure. They also create artificial scarcities—Nigeria refines less fuel than it should, necessitating imports that hemorrhage foreign exchange. Foreign investors observe chronic underperformance in state-owned competitors and adjust risk premiums upward across the board, raising borrowing costs for all Nigerian enterprises.

The International Monetary Fund (IMF) has repeatedly flagged Nigeria's fiscal drain from underperforming parastatals as a constraint on macroeconomic stability. Each percentage point of GDP lost to inefficient state enterprises represents productive capacity that could have driven growth, jobs, and tax revenue.

## How Can Nigeria Break This Cycle?

The evidence points toward privatization or strategic partnerships with proven operators. Dangote Refinery's recent operational success—processing at capacity while state refineries struggled—demonstrates that private capital and management deliver results in Nigeria's energy sector. Rather than attempting rehabilitation, policymakers should consider full divestiture of non-strategic assets, retaining only truly public goods like ports and grid infrastructure.

The broader lesson: government's comparative advantage lies in regulation and enabling markets, not production. When the state tries to be entrepreneur, it typically fails at both roles simultaneously. Nigeria's growth trajectory depends on redirecting scarce capital toward core competencies—rule of law, property rights enforcement, and competitive market infrastructure—and letting private capital drive commercial returns.

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