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Stimulating investment, economy through family businesses

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With their significant impact on the global economy, family businesses are rarely viewed as a sector that could influence economic growth.

Being considered as Africa’s unexplored wealth, family businesses by nature, often build lasting relationships and valuable in any investment climate.

It is defined as a business in which two or more members of a family are involved, and the majority of ownership and control lies within the family.

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However, some family businesses are large multinational corporations that operate in many countries such as Ford Motors, Nestle, Cadbury, Mercedes Benz and a host of others, while indigenous family businesses that still exist and have passed through the second generation also abound in Nigeria.

Being one of the oldest forms of business organisations globally, they are recognised as one of the engines of the post-industrial growth process since they are given credit for developing across generations’ entrepreneurial talent, a sense of loyalty to the business’ success, long-term strategic commitment, and corporate independence.

It is estimated by a PwC Survey Report on Family Business that total economic impact of family businesses to global Gross Domestic Product (GDP) is over 70 per cent, with 750 of them employing more than 30 million people and have combined revenues of $9 trillion a year.

The 2021 PwC global family business survey report disclosed that family-owned businesses are now even more crucial to economic development especially within the context of the economic downturn precipitated by multiple challenges of a global pandemic, oil price downturn as well as the shocks of a national recession.

The informal sector, which is largely made up of small and medium family businesses, accounts for over 60 per cent of the country’s economy.

Typically, the role of family businesses in African economies includes creating and sustaining jobs as well as reducing poverty. Even during the COVID-19 pandemic, many businesses have continued to play this crucial role.

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Following its contributions to global GDP, it is also characterised by challenges, having a very low survival rate.

They are also bedeviled by certain unique threats and challenges, which tend to erode the gains of the work and efforts of the families behind them and threaten, in some instances, to make them close business.

For instance, a study by the Institute of Family Business in the United Kingdom, said about 30 per cent of family firms make it to the second generation, and only a third survive to the third generation.

Accordingly, family businesses in the start-up stage were characterised by informal organisational structures, owner-manager and more inclined to appointing family members as chief executives.

This, the study said, affects the overall performance, competitiveness and innovative development of the businesses.

Experts submitted that family businesses that refuse to engage professionals in their businesses tend to be smaller in size and market value, more risk-averse, less innovative, less productive, less international, less inclined to execute Corporate Social Responsibility, and they are also more characterised by poor management practices.

A report by Africa Investment Forum, which recognises family businesses as important players on the continent, said the past decade had seen African family-owned companies grow quickly.

It revealed that with increased Foreign Direct Investment (FDI) flows to Africa, and several factors, including the realisation of the African Continental Free Trade Area Agreement (AfCFTA), could boost this further.

According to the report, different management strategies have been highly successful in Latin America and the Middle East, where family businesses comprise about 70% of the top 100. Family businesses in Africa represent only 20% of the top 100.

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At a conference organised by Africa Investment Forum recently, families running business empires were given a platform to share their views on how Africa’s unexplored wealth can benefit all.

Second and third-generation members run the Elnefeidi Group, a family-owned business with more than 80 years of experience in various industries.

It is one of the businesses that believe start-ups can help turn around the continent’s economies if they are supported and nurtured.

The company’s representative, Hana Elnefeidi, at the forum said: “We need to take care of the youth, having money is not enough. Start-ups should be helped with business plans, helped to structure their business model and to position their businesses where there are opportunities.”

Elnefeidi, with businesses including agriculture, automotive, mining and real estate, located in several countries across the continent, believes families should not just share their money with start-up companies, but also their networks, knowledge and expertise.

The law of nature guarantees that those in the top echelon of leadership will retire someday. The report stressed the need to prepare for this and ensure that businesses do not lose key organisational memory.

The Group Managing Director of Dangote Industries Limited, Olakunle Alake, while delivering a paper entitled, ‘Corporate Governance and Succession Planning’ at a forum, said proper planning alone by most businesses and companies founded by Nigerians seems incapable of surviving beyond one generation.

He said great indigenous businesses collapsed partly because effective corporate governance structures and succession processes were not put in place to ensure that these businesses were sustained.

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According to him, for businesses with poor corporate governance structures, the founder is often the chairman and the chief executive and makes all decisions.

He said such owners believe in owning all without a thought for tomorrow, saying: “he alone had the vision, energy, strategy and ran the business. When the man died, the business died.”

However, Alake pointed out that with a good board, sound corporate governance structures, and proper succession planning, the founder can retire without looking back, and the company will continue to thrive because there would be transferred vision and goals.

Former President, Institute of Chartered Secretaries and Administrators of Nigeria (ICSAN), Samuel Kolawole, decried that the story of indigenous family businesses has been rather pathetic.

He said many of the businesses thrive during the lifetime of their founders, and disappear either immediately after their deaths or soon after.

Kolawole, who adduced many reasons for this problem said: “To my mind, the major problem is that these family businesses fail to evolve. There are different stages in the life of any organisation. Readiness to evolve as the company grows is key to survival.

“By evolution, I mean evolution in models, processes and general administration, sticking to the way they are used to doing business could lead to failure. For example, as a business grows, its requirements as to administrative expertise will change. When owners see it as “family business” and are not willing to let “outsiders” come in to participate in management, the business will gradually die.

“Another issue is the culture of fear. The fear that the trade secrets have to be kept within the family, and this cultural fear of trusting other people to participate in the business or fear of betrayal, shuts out good ideas that could ensure longevity.

“Related to this is the desire of many founders of family businesses in Nigeria to bequeath their businesses to their children. Even in the present age, you find owners of businesses appointing their children just finishing from school as directors.

“These children don’t grow through the ranks. It is erroneously believed that if you just send them to the best Business or Management Schools in the world, they can just go straight to the top and manage those companies.”

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Kolawole said where there is no succession plan, disagreement amongst the children after the founder’s death can ground the company.

“That is still happening today; especially where the late founder had more than one wife. But with the institution of good corporate governance practices, training and enlightenment, we can begin to see better, the survival rate of indigenous family businesses in Nigeria,” he said.

In his submission, the Director-General, Nigeria Employers Consultative Association (NECA), Timothy Olawale, said family businesses are rarely viewed as a sector, which could influence economic growth, even when they contribute to national development through the creation of jobs/employment, payment of taxes, and also play an important part in business value chain in the nation.

Arguably, he said the contribution of the group of businesses is reflectively evident in growth, which recorded a turnover of over $1billion, and regretted that most of these businesses do not last long in Nigeria compared with the developed countries.

Group Executive Director, BUA Group & ASR Africa, Kabiru Rabiu, who spoke on the issue of governance on family business said: “Family businesses must continue to improve their governance by ensuring that they have good audit mechanisms and the right people at management and trustee levels.”

Partner and Family Business Leader, PwC Nigeria, Esiri Agbeyi stated: “With global disruptions like COVID-19, there is the need to focus on factors that turn current businesses into legacies for generations to come. There is a big task for family businesses, especially in Nigeria to effectively manage emerging risks by adopting business resilience measures across all service lines – sales, production, human capital, technology and research.”

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