Nigerian President Olusegun Obasanjo has set an ambitious goal: He wants the country to become one of the world’s top 20 economies during the next two decades. In order to hit that target by 2020, Nigeria will need to increasingly globalize education in two key areas: Information and communications technology, and entrepreneurship. In fact, President Obasanjo has mandated that all university students in Nigeria, regardless of their major, will need to study entrepreneurship.

That is one of the factors that brought Peter Bamkole, General Manager, Enterprise Development Services at Lagos Business School, to Wharton. He and a colleague, Olayinka David-West, a lecturer in information systems at Lagos Business School, recently spent time with The Wharton Small Business Development Center exploring how to set up an entrepreneurship program in Nigeria. Bamkole — who often goes by the more informal “Banky” — spoke with Knowledge at Wharton about the challenges that entrepreneurs face in his home country.

Knowledge at Wharton: The Nigerian economy, historically, has depended significantly on oil revenues. As the country tries to diversify away from dependence on oil, how important is entrepreneurship to the future of the Nigerian economy? 

Bamkole: Well, entrepreneurship is a must now, judging by the figures that are coming out of the Education Ministry. In the last few years, at least 60% of graduates are not able to get employment immediately. Because of that, people go into one entrepreneurial venture or another, but unfortunately they have not been adequately prepared to face the challenges of venturing. Now it has become necessary for us to put that into the curriculum in developing these graduates. So, I think that has probably informed the Nigerian Investing Commission’s decision to introduce entrepreneur development programs in our universities.

Knowledge at Wharton: What are some of the areas these students could go into? What fields of entrepreneurship, what industries, what projects?

Bamkole: I think basically it would be just to start, first of all, with the basic level process of venturing. So, without necessarily saying [something] like, “Here, you will go into high tech,” we are just looking at the basic, simple process, starting from opportunity recognition, idea generation, and then taking it all through. It could be anything. So that is the kind of thing we are looking at.

Knowledge at Wharton: You would help them write a business plan, teach them those kinds of skills, project costs?

Bamkole: Even that might be too high at the beginning. In my center, yes we do that, we actually help people develop their business plans and all that; but right now, what we are saying is let the people begin to think about the process of entrepreneurship as a first step. Then, after that, they can come to centers like mine, and then we can take it to another level.

Knowledge at Wharton: I wonder what some of the challenges are that you face in encouraging entrepreneurship in Nigeria. Let me just offer one specific example. In Nigeria, as in many other developing countries, there has been a legacy of corruption. In fact, as you may remember, the World Bank, some time ago, had estimated that as a result of corruption, 80% of oil revenues benefited only one percent of the population. Do you see that as a big obstacle, and how do you plan to tackle that?

Bamkole: Corruption is something that is relative, and it exists in virtually all economies, not necessarily developing economies or indeed Africa — although based on the structures in the more advanced countries, they are able to control or to curb these kinds of practices. I can tell you that in the last few years, in Nigeria, the EFCC, which is the economic crime and financial institution set up by the government, has been able to actually deal largely with corruption in Nigeria. They have made quite a substantial amount of investigation and recovery. [There has been talk of] something like five billion dollars recovered, even some of the money looted outside of the country coming back.

But that is not the real constraint that retards entrepreneurship in Nigeria, based on the research that I did about two or three years ago. I called it “The MISFIT Factor.” It is actually a six-pronged factor that tends to weigh down entrepreneurs. The first letter, ‘M, ‘ stands for “Markets.” The majority of our people don’t have access to markets, and in order for them to have access to markets they have to understand the requirements of the market. So this is one area where we are lacking –for instance, if you want to have access to the U.S. market, you must know of the regulations, what it takes, and all those things. Until we are able to create that very well and let people understand it, and produce to be able to meet the needs of the market, then we will not be able to move forward.

A major one, again, is “Infrastructure.” This is basically [true] in all developing countries, but more so in Nigeria. Thirty percent of our not being competitive is based on infrastructure. Power — just power, public supply and power. Interestingly enough, there has been a study which the World Bank has carried out in the last ten years or so, so if they are able to remove power as a bottleneck, Nigeria will at least gain 30% competitiveness in production.

Four years ago, we had a similar problem in telecoms, and in Nigeria we had not more than 400 lines, phone lines, about four or five years, out of which I’m sure not more than 300 or so were working. But in four years, based on the reform agenda of the government — two things are driving entrepreneurship in Nigeria are reforms and regulation, and we will come to that — they liberalized these sectors that were up until then being controlled by government, so there is more transparency in it, and entrepreneurs are able to venture into these sectors that the government controlled up until then.

Today we have maybe about 10 million lines, the majority of which are either mobiles or fixed wireless. So we are able to cross the bridge of infrastructure and all that, even though it still rears its head in different ways, because we still need to power the substations, etc. And power is still a problem, so we have to invest in generators and use diesel and all that. But largely it has broken down a lot of barriers for us in transacting businesses across Nigeria.

Knowledge at Wharton: One of the biggest challenges for any entrepreneur is access to capital. So, once you have gotten to the point where Nigerian youth, middle-aged people, whoever, are actually seriously considering a venture–it’s viable, they have a business plan, they have done all the studies–how are they going to fund it?

Bamkole: Actually, one of the constraints, again, is “F,” which is “Finance.” It is interesting that you mention that, but yes, capital is a major constraint in Nigeria. The government, about five years ago, tried to do something [about that] — they have been having one form of intervention or the other in the last, let’s say, 20 years, but the one that was done about five years ago was actually done by the Banker’s Committee. So the bankers themselves came together and said, “Hey, we need to do something for the small businesses.” So there were meetings ….

They arrived at a conclusion whereby 10% of their profits would be set aside as equity investments in small businesses, and everybody hailed that, and that was good; and the rate at which that was growing was incredible, because the banks were making huge profits, and it meant that 10% of it was growing at a very good rate. Unfortunately, the rate at which the money was being dispersed was lower — significantly lower — than the rate at which money was being stocked up. So why was this happening?

So many excuses. First of all, you have to understand the mind-set of the small businesses in Nigeria. They own their businesses, and they like to control it themselves. Unlike what I have seen in the last six weeks while I have been here in Philadelphia, most people wanting to start a business will look for a partner, somebody with equity. It’s like, “Let’s share the risk together. Let’s leverage on the knowledge of one another,” and things like that. But back in Nigeria, it is not the same. “I want to start it myself. I want to do it myself, at least up until the particular level that I know I have full control. Then, maybe I can sell part of it, but for now let me do all the sweating and let me do all the things that come with that sweating.” That is on one side.

The second side is that up until five, maybe not more than eight years ago, the financial services sector had been used to lending through debt, not equity, so the mind-set, again, is different. Most lending has to do with collateral, so if you default, they sell off your collateral. In this case, there is nothing to sell off, which means they have to do their homework a lot more to know the right type of businesses to invest in, whether they are growing businesses or not. They need to know all that, and that is where they can get their reward. So that has also become a challenge for them.

On both sides there are real challenges, and that slowed down the investments in equity. But for us, as an enterprise development center, we now have a responsibility to bridge these two, to say, “Hey, if we are not getting enough businesses to invest in, we can help them to refine their value proposition so that it becomes more reasonable for you to invest in these people. Then, if it works, the two of you are happy, and we are happy because we have been able to make the two of you come together.

So we do a lot of education — for the banks as well. It is also difficult for small businesses to have regular financial statements and things like that. It’s a common practice, but we have to show them why it is important for them to have their own financial records — even to know how their businesses are growing …. We help [the banks] and show them why it is important to do it for them.

Knowledge at Wharton: That’s really interesting, especially the involvement of the banks. What are some of the areas where you see entrepreneurs getting actively involved and building their companies? What do you see as growth areas, for example, for entrepreneurs in Nigeria?

Bamkole: Like I said before, there are two major areas that have driving influence for us in entrepreneurship. Reform is one of them, and regulation is the other.

Let me start with reforms. Reform, which basically led to the liberalization of some of the major sectors, allowed entrepreneurs to enter certain sectors which, up until then, they had no opportunity to enter. Telecoms was a major one, and the South African companies started entering, but we had local entrepreneurs in Nigeria that also took up the challenge. We had Globacom, which is a wholly Nigerian entrepreneur, Michael Adenuga, who started that, and then they grew into one of the big three telecoms in Nigeria today. We also had Dane V-Mobile. Now that has been brought over by Celltel, which, interestingly, is owned by a Sudanese entrepreneur, and now he operates in the whole of sub-Saharan Africa and also in the eastern part. When he wanted to come on board, he looked at where he had comparative advantage. It was only where the big boys refused to go, and that was in Africa. So then he set up there, in Sudan, in Zimbabwe, in — now I think they are in 15 countries, including Nigeria. And now, for us, it is Africans investing in Africa, and then creating that wealth within the continent, and that is good. That is what telecom has brought to Nigeria.

But that is at the higher level. If you now look at the value chain of the telecoms industry, you see right down to the level of what we call the “telephone lady,” who ordinarily would have been begging for money in order to eat, and all that. With an umbrella, because there is a lot of sun, a telephone, two or three handsets, immediately she is in business; from calls, she can earn income to feed and to support her family. In addition to that, we have fallout like young bright boys who now repair handsets, and we have a lot of them. So there are so many things that came with just that deregulation in just that industry.

Now, the same can be said of the financial services sector, where we have had major reform [and] consolidation. Now we have quite a number of Nigerians with increased knowledge in that sector. In fact, at the beginning of this year, the reserve had increased significantly: We were highly in debt before, and [with] a lot of financial engineering, and of course the luck of the oil prices, we were able to pay off the debts, and we built the reserve up to about $46 billion. Now, the issue of managing the reserves came up. We were saying, “These, our banks, local banks in Nigeria, can manage it, but they have to also work with the international financial services across the globe, the best, so they can learn from them, and then we can upgrade their skills.” That was what reform brought into Nigeria.

Sometimes, when regulation comes, it comes hard, and we feel the pain a lot more, but if we sit back it might actually be to our own interests in the long run. In 2003, the federal government banned the importation of fruit juices into Nigeria. Now, fruit juices, as of 2002, was a $600-, maybe $700-million market in Nigeria, and one of my small business customers was also in that business, and 70% of his income was actually from the importation and sale of fruit juices. Ten years prior to that, he had developed a nationwide distribution chain that was very strong, and he could move products very quickly through that. Now, with the ban, that poses a dilemma for him, because all of a sudden his livelihood was wiped out, just by one act of government.

But then he had a choice, as at that time the local production of fruit juices was just 15%. The remaining 85% were imported. Then, the government created incentives for local manufacturers, and [for] whoever wanted to go into local manufacturing, to be able to develop local production of fruit juices. After all, we have oranges, we have apples, why should we import all these things? So now we have gone through a period of three years, and within those three years, our production has actually — well, they don’t import anymore, but in terms of volume we have actually made up that through local production. The two local companies that were doing 15% up until then had stepped up, and they are doing nothing less than 40%. Then we had new and bigger entrepreneurs enter that particular segment, and they are producing more.

And the little guys, like the one I was talking about, [we have transformed] from what I call a “trader” into a local manufacturer. It has been a very rough road. It was very tough for him. At a point he almost just gave up everything; but because he had us, and we were mentoring him, we were helping him, we were managing him, we were begging him, we were praying for him, he was able to weather the storm. In fact, that is one of the case studies we have written which has now been published by the ACCH. It is a very, very interesting case study because it brings out all the elements of what entrepreneurs in Nigeria go through, from government intervention, to opportunity recognition, to why you must be tenacious.

Knowledge at Wharton: That’s actually an interesting story, but I have one other question about a growth area in Nigeria. What exactly is “Nollywood?”

Bamkole: Ah, okay.

Knowledge at Wharton: We just learned that word today.

Bamkole: You know, in the last maybe five or six years, this is an industry that has been growing significantly in Nigeria. It is named after Hollywood and Bollywood, so I understand that Nigeria’s Nollywood is now the third-fastest growing entertainment industry in the world. It is actually very interesting that [this] is now becoming a major area of focus for us, so much so that early this year, actually at the Lagos Business School, we organized a one-week program for those in the industry, and by next year we are actually going to get a lot more involved in the area of scripting. Maybe not production, but content-making, so scripting is an area that we want to be part of, because it is a way of telling the whole world about who you are, and shifting the minds of people. So we see it as a tool, just like the government, too, has been seeing it as a tool.

The image of Nigerians can naturally be managed through this type of thing, and if you go to the U.K., everywhere you will see … that [the] demand is there. You can see it, you can feel it. Now, I believe the demand has largely been driven by the Nigerians in diaspora, followed by the Africans in diaspora. [For about two to three years there has been] a DSTV channel, the cable channel, that is actually dedicated to African movies, and I can tell you about maybe 60-70% of it comes from Nigeria.

Knowledge at Wharton: Well, I think maybe we’ll wrap this up with one question: What has been your experience here at Wharton, and what information, knowledge, etc., will you take back with you to Nigeria?

Bamkole: When we look back at our sojourn here, we’ll actually refer to it as an academic retreat, because it has given us the opportunity to sit back and reflect on what I call the “fast-moving train” that we have gotten ourselves into about three years ago. Entrepreneurship, development, was something new in Nigeria, but very common in Western countries, and about two years ago, we went to the major universities with enterprise centers, and Wharton was one of them. We went to Stanford, we went to MIT, we went to London Business School, we went to Switzerland, we went all over the place. Coming out of that we felt that the model that exists in Wharton is what we wanted to choose, and that was what informed our coming back here for six weeks to study more in detail how they operate and how they connect with the business community.

For me, the major thing that I see, going across the campus, is the fact that what is being taught in class is brought down to reality in the lives of the students and what they do, and that is where you see students being consultants at the SBDC (Small Business Development Center), for instance. They are able to connect their management [classes] with what is happening in a small business, and they can recognize quickly that this guy, the way he is going, is going to have cash flow problems. And cash flow is no longer theoretical paperwork in class anymore, but they can actually see the implication in the life of a small-businessperson that they are working with. So that, for me, was something major.

Secondly, they are very careful about documenting processes and outcomes. I think the outcomes one is likely due to SBA requirements, which we don’t have, but beyond the SBA requirements, the fact that you are able to document your processes helps you to consistently control the outcome. That is one learning point that I am taking away from here, because we have been largely entrepreneurial in what we have done, and we now need to start documenting some of the processes which we have.

We have also used the opportunity to rewrite our own strategic plan, and going forward from here there is another challenge or burden that we carry. We need to take entrepreneurship to Africa, not just Nigeria, but to Africa. Because we have been working with the World Bank, and our model now is sustainable, we don’t get grants from government, we don’t get grants from anywhere, so it is basically fee-for-service that we do, and our relationship with the business community that keeps us going. So, we want to now replicate this across some selected African countries, and let them also see how entrepreneurship can develop, not just in Nigeria, but also Africa, and that hopefully will be accomplished by an African casebook.