BusinessDay 11 Apr 2018

Wednesday 11 April 2018
10 BUSINESS DAY
C002D5556
COMMENT
SMALL BUSINESS HANDBOOK
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Corporate governance and the promise of SME
EMEKA OSUJI
Dr Emeka Osuji
School of Management and
Social Sciences
Pan Atlantic University
Lagos. eosuji@pau.edu.ng @Emyosuji
Small and Medium Enterprises
(SMEs) are very
simple organizations. Their
operating systems and
management processes
are not as complicated as those of
big corporates. Sometimes, this
simple nature of the management
and systems of SMEs makes some
think that corporate governance is
something for every other entity but
the SMEs. It is sometimes also felt
that the costs and time required to do
the right things in corporate governance
are too high for SMEs. And the
biggest culprits in this line of thinking
are actually the SMEs themselves.
They often wonder what corporate
governance has to do with a small,
especially family business in which,
quite often, the difference between
the owner and the business is highly
blurred. That feeling is not hard to
appreciate if we recognize that over
99 per cent of the 37 million SMEs
in the country in 2013, was of the
microenterprise category – mostly
unregistered sole traders. The truth
however is that good corporate governance
is as important to an SME
as it is to the mega corporation,
scale differences notwithstanding.
The only difference is that big
corporates may require to go the
full scale small enterprises find the
critical minimum that is good for
their survival.
Corporate governance has to do
with the system of management and
control established in a company.
These relate to the proper management
of the enterprise including
the relationship among members,
the board and stakeholders as well
as the company and its publics,
including creditors and customers.
It is also concerned with internal
control processes. Effective corporate
governance framework will
promote internal discipline, accountability
and transparency. No
matter how small a company may
be, corporate governance should
be taken seriously. The lack of it is
one of the reasons funding often
eludes SMEs. Lenders are not just
looking for companies with strong
cash flows, they are also interested
in the structure of a company. This
includes how company leadership
relates to the board, observes laid
down procedures and promotes
accountability. These elements are
more likely to found where good
corporate governance is a priority.
Therefore, proper corporate governance
is essential in resolving the
funding challenges faced by SMEs.
This has implications for the growth
of these small businesses and their
ability to contribute their quota to
We do not in any way
suggest that SMEs should
implement the full range
of corporate governance
regulations applicable to
big corporates. However, we
insist that they adopt and
implement basic governance
rules that are not just
appropriate but also take
account of their size, level
and stage of growth and
sophistication
the development of the country. Good
corporate governance is the first sign
of a well-managed enterprise because
it presupposes the existence of proper
systems and controls that ensure accountability
and transparency.
Companies may grow without
structures but growth may be unsustainable
without structures. It
is the structures in an organization
that support attempts to scale up operations
in response to growth. Part of
effective corporate governance is the
proper delineation of duties, which is
very important not just to directors,
managers and shareholders but also
to funding sources, such as banks
and other categories of fund providers.
A clear understanding of roles
is important for all classes of SMEs,
including owner-managed institutions.
By reducing the potential for
conflict, it improves trust and loyalty,
helping management to focus on its
corporate objectives. These elements
are important ingredients for the attainment
of the goals of SMEs as the
engine of economic growth, agents
of high employment and politicalsocial
stability in a country.
Strategic planning and such
forward-looking plans benefit immensely
form good corporate governance.
When boards meet regularly
and interact intensely with management,
they are able to marshal out
proper direction for an entity. This is
even more so effective when boards
contain independent directors who
can tell it as it is. Unfortunately,
independent directorship has not
gained the relevance it deserves as a
check on board-capture of companies
in Nigeria. However, properly
selected independent directors bring
extremely high value to organization
though their dispassionate and honest
contributions to board decisions
not tainted with vested interest. They
provide the SME with additional
skills, more balanced and objective
views on all issues, thereby bringing
improved transparency and objectivity
in management decisions.
We do not in any way suggest
that SMEs should implement the
full range of corporate governance
regulations applicable to big corporates.
However, we insist that
they adopt and implement basic
governance rules that are not just
appropriate but also take account of
their size, level and stage of growth
and sophistication. An effective
governance strategy does certain
basic things for an entity: it helps to
identify and manage risk; promotes
innovative thinking and new product
development and enhances organizational
reputation. No company is
too small to implement some modicum
of corporate governance best
practice, because all organizations
need leadership harmony, which
begins with clear and publicised
roles for the board, and channels
of delegated authority, including
delegated authority to commit the
company in expenditure. Wellgoverned
enterprises have properly
held and managed board meetings
where such critical issues as the
budget and financing are discussed,
documented and strategies for effective
monitoring are elaborated.
Companies, big and small are
in business to create value for the
shareholders. This happens through
effective market development, risk
recognition and management, including
effective disaster recovery
and continuity plans that ultimately
positively impact growth. Appropriate
levels of good corporate
governance suited to a company’s
stage of growth enhances corporate
reputation and patronage. Here lies
the colour of the bottom-line at the
end of the day.
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NONSO OBIKILI
Dr Nonso Obikili earned his Ph.D. in
economics from Binghamton University
in 2013. He is also a research associate
at Economic Research Southern Africa
and Stellenbosch University. He blogs at
nonsoobikili.wordpress.com and tweets
at @nonso2.
Air travel in Africa can be
notoriously difficult relative
to most other parts of the
world. Tickets are significantly
more costly for similar flight
times and distances. The historical
reasons for this air travel difficulty
in Africa are numerous. From governments
which restricted market
access for private participation while
trying to protect inefficient state-run
airlines, to the requirement for difficult
and costly agreements to expand
to new destinations. The difficulty in
air travel also has other unforeseen
costs most notably in reduced links
between countries, lost trade and investment,
reduced tourism, and the
associated jobs that are not created.
Notwithstanding these challenges,
the continent is witnessing
a steady growth in its air traffic. According
to the 2017 passenger traffic
results released by International Air
Transport Association (IATA) in
February, African traffic rose by 7.5
percent compared to 2016. Given
the rise in air passenger traffic, it
will be short-sighted for airports
to rely solely on income from airport
charges. Lower airfare can be
achieved if they paid more attention
to what in aviation economics is
Thinking about aviation infrastructure in Africa
known as non-aeronautical assets
i.e. income from retail, car parks,
hotels etc. Sectors such as tourism
and hospitality would also benefit.
A 2012 report about South African
airports gives real life meaning
to this submission. The report
reveals that in 2010/11, non-aeronautical
revenue grew by 22 percent
to $185 billion, close to half of total
revenue generated by the country’s
aviation industry.
The challenges of interconnecting
flights and opportunities in nonaeronautical
revenue, are not news
to many governments. Over the last
few years there have been renewed
efforts to change the fortunes in Africa’s
airports through concessions
and public-private partnerships.
These efforts would be a win-win
situation at best.
If the passenger numbers rise,
necessary investments will need to
be made to expand and improve
Africa’s air transport infrastructure.
This will require investments not
just from governments but from the
private sector as well.
It is in this context that the Airports
Council International (ACI)
Africa hosts its annual conference.
This year’s conference is
appropriately themed “Business
Transformation and Sustainable
Development of African Airports”
and amongst other things hopes
to tackle key questions with regards
to investment, safety, and
environmental concerns around air
infrastructure.
Mind you, one key factor behind
the higher costs of tickets in Africa is
the relatively small number of passengers,
the costs of airport infrastructure,
and the difficulty in attracting long
term private sector investment.
Indeed, if a few passengers have
to indirectly pay for infrastructure
built using short term financing then
the burden can get quite large given
that more of the costs will need to be
included up front in ticket prices. For
instance, a $250m airport terminal
which handles one million passengers
a year and is financed with a tenyear
facility that charges eight percent
per year will result in an added cost of
about $36 per ticket for the financing
repayments alone. Increasing the
facility to twenty years reduces the
impact per ticket to about $25 per
passenger even at the same interest
rates. This will of course reduce ticket
prices which should positively influence
passenger numbers, triggering a
virtuous cycle.
The key strategy for private sector
investment therefore, involves
lengthening the financing terms for
airport infrastructure. Longer term
financing implies lower ticket costs as
infrastructure costs are more spread
out. Accessing long-term financing
will however require institutional
arrangements to deal with the risks
involved. Extra financing options
outside of ticket prices also play a
vital role in airport infrastructure
financing.
That is why issues on business
partnerships aimed at improving
extant services or creating new revenue
facilities and resources would
take the centre stage at the ACI 2018
conference. It is hoped that experts
and investors meeting at the event
would also look critically at the different
roles that partners can play
in the transformation and development
of the industry through business
innovation in airport retail and
other such avenues.
Of course, earlier versions of
such meetings have yielded desired
fruits, producing some of the current
growth experienced in the industry,
while creating enabling environments
for consolidation. Before the
issues of investments, safety standards
and environmental concerns
had been focus of deliberations,
especially as they interface with
infrastructure.
As a direct gain from previous
ACI conferences, Africa has made
significant strides in improving its
safety record with regards to aviation.
For instance, in 2016 there were
no fatal accidents in sub-Saharan
Africa according to the International
Civil Aviation Organization (ICAO),
the region’s best performance in a
decade. Certainly, there is still room
for improvement. As passenger
numbers increase, continued special
attention will have to be paid
to maintaining and improving the
safety records in African aviation.
I will be watching out for the
panel discussion on tax-free shopping
which is the first source of
non-aeronautical revenue in most
airports around the world. It is a
problematic issue as its future is
uncertain in many airports given the
new national and regional regulations
such as the ban on the sale of
cigarettes, and alcohol or the limitation
of transport of purchases by air
carriers.
I’ll very much like to see how
the panellists - Keith Spinks, Secretary
General, The European Travel
Retail Confederation and Mr SherifToulan,
Chief Executive Officer,
International Duty-Free Trading &
Agencies - would approach the topic
in the light of the present situation
and the future outlook of airport tax
free shopping which continues to be
one of the best supports for airports
sustainability.
The conference will hold in Lagos
from the 14th to the 20th of April at
the Lagos Oriental Hotel and will
hopefully result in ideas and solutions
for providing aviation infrastructure
for an expanding African
aviation sector.
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