Martins Hile, Editor, Financial Nigeria magazine
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Subjects of Interest
- Social Development
Is corporate winner-takes-it-all inevitable? 22 Jul 2019
Let's ask the question: "Is the winner-take-all world of the 21st century inevitable?" It isn’t. However, in his piece, "It’s a Winner-Take-All World, Whether You Like It or Not," published in The Atlantic last month, Neil Irwin seems to disagree with this answer. He forcefully makes the case that as corporations expand in size and dominate their sectors, they become more efficient and achieve positive returns to scale even as their products become more desirable.
This is a persuasive argument except that no one company can possibly have exclusive access to the innovation and technology required to achieve greater efficiency and produce high quality products in a particular market. Nevertheless, in order to perpetuate the idea that the ‘winner takes it all,’ access to factors of production is limited to and controlled by only a few corporate powers.
Former CEO of Stanbic IBTC Bank Plc, Atedo Peterside, spoke truth to power last month while giving a remark at the Central Bank of Nigeria’s Growth Consultative Forum Roundtable in Lagos. It was unusual for a Nigerian corporate titan to rock the boat the way he did at an event that had Lagos State Governor, Babajide Sanwo-Olu; CBN Governor, Godwin Emefiele; President, Dangote Group, Aliko Dangote; Founder, Zenith Bank, Jim Ovia; and Chairman, Honeywell Group, Oba Otudeko.
Peterside said the Nigerian economy favours the few corporate overlords, including Dangote whom Peterside did not shy away from mentioning the advantage the country's richest man has because of his connection with the government. The former banker criticised the government for not supporting upstart entrepreneurs, saying, "This economy is rigged against the youth."
Dangote's advantage gives him unbridled access to any government in Nigeria and elsewhere in the world where his businesses operate. His corporation has arguably been a beneficiary of more concessions than any other Nigerian business. According to a report by Quartz, Dangote Cement was charged a tax rate of only 1 percent between 2010 and 2015, a period in which the company earned around 1 trillion naira ($6 billion) in profits.
Dangote Cement's competitors have been chagrined by the company's exclusive access to concessions and tax breaks to the point that Abdulsamad Rabiu, Chairman of BUA Group, protested in a newspaper advertorial in 2016. Rabiu said, "It is rather ironic that a similar competitor in the same industry, who incidentally is the market leader, is allocated huge amount of Nigeria’s hard earned and scarce FX from the official market for its operation in Congo….It begs the question, “were other plants by that operator across Africa built with Nigeria’s money?""
Having conquered the cement manufacturing industry, Dangote is embarking on another major project to effectively end the importation of petroleum products in Nigeria. Touted as another showcase of Dangote's genius, the 650,000-barrels-per-day Dangote Refinery is also the beneficiary of preferential foreign exchange allocations. No doubt, the refinery would be a game changer in the downstream sector of the country’s oil and gas industry. But should it be a concern that the government is enabling the making of a virtual monopoly? That is what Dangote Refinery would be from day one.
Unfortunately, while companies like Dangote's enjoy incentives under the Pioneer Status – which grants between three to seven-year tax holiday to companies operating in some eligible industries – small and medium-scale enterprises (SMEs) don't enjoy such incentives. SMEs, which are the engine of the economy, are excluded from the Pioneer Status because of the prohibitive minimum capital expenditure investment requirement of N100 million.
If more entrepreneurs were to receive substantial support for their efforts and innovations, a winner-take-it-all world would not be inevitable because it would level the playing field. But beyond the unfair advantage the likes of Dangote Group have, sometimes corporate malpractice is what fosters winner-take-it-all. A classic example in this regard is the Microsoft antitrust case from which the world continues to draw valuable lessons.
Microsoft was accused of making it difficult for consumers to install software on personal computers (PC) that ran on Windows operating system. The technology company already dominated the PC market as users preferred its OS because of the ease and the convenience of installation. But Microsoft was behind in the then-emerging web browser market. Using strong-arm tactics, Microsoft made deals with PC manufacturers to make it difficult to uninstall the tech giant’s Internet Explorer (IE) and install other web browsers like Netscape Navigator.
The company was sued in 1998 by the US Department of Justice and an alliance of 20 state attorneys general for violating federal antitrust law. The case eventually led to a settlement requiring Microsoft to share its application programming interfaces (APIs) and protocols with third-party companies. If nobody had challenged Microsoft's monopoly or had it prevailed in courts, the company could have extended its control of the world wide web into the future. New entrants such as Google could have been outcompeted by Microsoft's Bing.
By conquering the software market and also the internet, Microsoft would have been the king of not only PCs but also mobile devices as its co-founder, Bill Gates, recently said: “In the software world, particularly for platforms, these are winner-take-all markets." Mozilla Firefox is the successor of Netscape Navigator. After Google Chrome, Firefox is the world's second most popular desktop browser by user share. Presumably, these browsers would not be ahead of IE today without the antitrust case.
Unfortunately, some of the new generation of tech companies that emerged following the antitrust case against Microsoft – such as Google and Facebook – are now cleaning up and acquiring competitors. But their unmitigated expansion should also be a cause for concern. Apart from the tendency among big companies to stifle competition, they often use their resources to leverage political power and steer policies in their favour.
To mitigate the depredation by corporate power, upstart entrepreneurs in Nigeria would have to find innovative ways of raising capital. SMEs certainly can’t afford to raise capital at the predatory lending rates of commercial banks. Options entrepreneurs can explore include peer-to-peer (P2P) lending or crowdfunding to raise financing and then scale up from there. Young people also need to increase their political consciousness and stop supporting visionless politicians during elections. Nigerian youth should be at the forefront of a galvanizing drive for new leadership across all levels of government.
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