Effect of Government Regulation on Business

Effect of Government Regulation on Business (A Case Study of N.B.L. Plc)

GOVERNMENT REGULATION BY STATUS – A business environment is made up of government who stipulates the dos and don’ts’ in a society the different levels of government (local, state, and federal) all have considerable influence on an organization.

According to Marxian (1978) economics of Industrial World ran into the worst disaster in the late 1920’s and early 1930’s. that was the era of the great depressing when life became very miserable for both the households and the firms.

Lord Maynard Keyness, advocated the intervention of the government as an arbiter or moderator. It was meant to check the excesses of either of the traditional and naturally opposing camps-households and firms.

Samuelsen (1980) outline three roles in which supposed to be played by the government in the business or economic affairs of the nation.

These include

1. Welfare Minima: The government her the duty to see that its citizens enjoy the minimum needs of man to ensure that life continues with minimum of strain. These basis needs include other things, good water, food, shelter, health care employment, security, education etc.

The government needs to ensure that these item are available in the right quantities to the people in the right quantities to the people and at affordable prices.

The government can adopt various strategies in the attempt to get these minimum needs across to the people. It can encourage the private person to set up the various agencies that can provide these basic needs. It could make policies that allow such entrepreneurs to gain easy access to the relevant factors needed for the setting up of such enterprises.

2. Public Services and Taxes: The private sector operators are unable to provide certain commodities in the society. Such commodities may be too unprofitable to attract the attention of the private enterprises or the cost of providing such items may be beyond the reach of such enterprises. Example defence, rail roads, motor roads etc.

Government must necessarily get involved in these areas. The industrialists and other producers need them for their effective performance. The house holds also required them in order to maximize the use of their incomes.

For the government to successfully set-up and maintain such vital infrastructure, it must raise the appropriate fund. An important source of this fund is taxes. They are compulsory payments that must be made by private individuals and groups to the government in either cash or kind at given intervals or circumstances.

3. Legal Commands: It has been observed that there is an inbuilt conflict between the household and the firms as they pursue their narrow interests of utility maximization and profit maximization respectively. The propensity to engage in malpractices in order to achieve the parochial goal is very high in these two agents.

Numerous laws-exist in Nigeria to guide the various economic activities of the society. There are laws guiding what items should be produced, imported or exported. Laws are enacted to set the standards that must be met by various products in order to make them fit for use in the society.

• THE PRICE CONTROL ACT

According to the price control Act of 1970 government aim was to control prices and also reduce the rate of inflation.

It provides the following principles: section 7 of the act made hoarding illegal and punishable by a fine.

The private sector is still very undeveloped in Nigeria. Most of the notable private concerns in the country hitherto are all foreign owned. Government has therefore to play a major role in the attempt to save the economy from undesirable foreign domination.

Moreover, this issue deals with the relations strength of the government and private economic agents in the control of price on business in Nigeria. The question on whether government presence is superior to that of the private person in Nigeria as regards economic activities is a matter that can be debated.

The guiding question is why government activities or influences are more pronounced than those of the private people in Nigeria as regards to the operation of the nations economy.

The plausible explanation is that government is the law-making body for the country. It uses that vantage ground to assign roles to itself, the firms and the house hold, most of the time it appropriate the cardinal function in the running of the business.

THE ACT (PRICE CONTROL ACT) AIMED AT THE FOLLOWING ASPECTS

1. The establishment of a price control board, the setting up of a price control committee for each state to assist and advice the price control board.
2. The imposition of price control over a list of twenty-three items and authorized the control board to add to or delete from this list.
3. Section 7 of the Act made hoarding illegal and punishable by a fine or imprisonment for a period of time, including for fitting the hoard goods or to or to both time and imprisonment.

The ambiguities and inadequacies in the 1970 Act necessitate a series of amendment from 1971 till data some Acts provided stoffer penalties than others for all types of infringement of the Act.

• NIGERIAN ENTERPRISES PROMOTION DECREE

The Nigerian enterprise promotion Act of 1977 re-enacted the principal Act of 1972 in order to introduce certain provisions necessary for the effective implementation of the indigenization programme. This act reclassified business enterprises in Nigeria into 3 instead of two-schedules with Nigerian equity participation rate hundred percent (60) for schedule 2 enterprises and forty percentages (40) for schedule 3 enterprises.

This in essence means that enterprises in schedule 1 of the Act are reserved exclusively for indigenes of Nigeria or association only.

There was about 40 businesses in the list, which can be carried out by Nigerians. It was specified in section 4 (1) and (b) of the that no alien will be allowed to participate in such business either in partnerships or co-ownership with Nigerians from June 30, 1977 nor can an alien establish such business after that date.

Schedule 2, contains a list of 57 enterprises. Mostly in the manufacturing or processing and service sectors. These enterprises required at least 60% equity participation by Nigerians and these enterprises were dominated by manufacturing enterprises that required extensive capital advanced technology and expertise.

In 1995, government promulgated decree no. 16 of Nigerian investment promotion commission this decree is the legal basis for creating a more conducive investment climate in Nigeria, its aims range from encouraging to promoting and co-ordinating of investment in the Nigerian economy. It also aimed at making are hundred percent (100), equity participation possible by non-Nigerians in any enterprise except petroleum enterprises and other enterprises defined under the decrees negative list.

On the whole, the NIPC decree has tried to remove most of the obvious impediment to the in flow of foreign investment in Nigeria as was opposed by the exchange control Act of 1962, the enterprises promotion Act 1977 and the enterprises promotion decree of 1989. It therefore has the potential for repositioning the country on the path of increase foreign investment thereby creating surplus commodity for home consumption.

Indigenization programmes in Nigeria are offer designed to control the excesses foreign investor. The aim of this Act is to give Nigerians greater opportunity in the ownership and management of their own economy. These regulatory measure, make it possible for foreign investors intending to do business in Nigeria to do it in partnership with Nigerians. This makes the provision of the Act to be extreme flexible.

• MONETARY POLICIES

Monetary policy is that part of economic policy that regulates the level of money or liquidity in the economy in order to achieve some desired policy objective. Such include the control of inflation, an improvement in the balance of payments, certain level of employment of growth in the Gross National Product (GNP). The monetary authorities of a nation are composed of the federal government and the nations central bank. In Nigeria, the Central Bank of Nigeria (CBN) is the agency, which the federal government of Nigeria has given he full responsibility of directing the nations monetary policy.

Therefore CBN has a great task of moderating the flow of different types of currencies or monies with which Nigeria carries out all forms of transactions domestic or foreign. It is obvious that CBN does not perform this task in isolation, rather it needs the co-operation of other active agents to get its work done properly. Such agents include financial institutions, private individuals or groups, merchants and manufacturing companies.

Monetary policy is divided into two types and they are expansionary policy and concretionary policy. Expansionary monetary policy is a strategy concerned with increasing the volume of money in circulation. This is used to solve economic depression in the nation. In this case the economy will be operating below its potential capacity. Concretionary monetary policy is a measure, which aimed at reducing the volume of money in circulation in the economy. The tempos of economic activities are too high for the available economic resources of the nation alone to cope with. In this case, two much money will be chasing very few goods. The resultant competition among the house hold trying to out bid the others to get the relatively small quantity of the available products pushes the average price up.

There are so many instructions and tools that can be employed by the central bank to achieve the desired expansion or contraction of money.

Supply in the economy. These instruments include:

 Open Market Operation (OMO): This is concern with the purchase and sale of financial assets like bonds by the central bank of a country. Under the contractionary securities such as bond to private individual sectors with surplus finds, the money spent in the purchasing of these securities will reduce the amount of money in circulation.

On the other hand, in the expansionary programme, CBN will purchase government securities from private dealer in turn will increase the amount of money on the economy.

 Required Reserve Ratio (RRR): This is the fraction of all the eligible liabilities of the commercial bank that must be held in the form of cash. It can be usually stated in percentage form. The custody of these cash remains principally with the central bank but reliable commercial bank are at times permitted by the central bank to keep a part of this overall resume in their strong room. The central bank is charged with the responsibility of fixing this ratio, which is a variable and open to the discretion of this apex financial institution.

Discount Rate: This is the rate of interest at which the central bank can make credits available to its member banks. This is because the central bank is the lender of last resort, so when commercial banks or other dependent banks that can meet their customers cash needs they will go to central bank and central bank will give them money base on its discount rate. This is one of the discretionary feels of monetary policy.

 Moral Suasion: This is a tool that involves the central bank no appealing to the good sense of concern of the commercial banks in the granting of credit. Depending on the mood of the economy, the governor of central bank may request the various member bank to either expand or contract the amount of loan. They provide to prospective private or public borrowers. This tool is not reliable as that discretion tools. If commercial banks do not depend very heavily on the central bank for support, the use of this form of appeal does not have much meaning in controlling their operations.

 Selective Credit Controls: Instead of tampering with the overall credit in all aspects of the economy, the central bank may merely engage in selecting what may be regarded as the preferred sectors of an economy. It then direct the lending institutions to step up their credit facilities to those choice areas and lesson the level of such credit to the less preferred sectors.

This could be done in order to pursue the kind of development strategy called unbalanced development. In this approach, emphasis is initially laid on improving the productive performance of some key sectors while at the same time ignoring the others. When reasonable progress has been made in the first target areas, the suspended sectors will then received the next attention.

Nigeria as a developing country can engage in this type of strategy. She can start with the agricultural sector and the agro-allied industries. In order to achieve a desired response, there must be supervision and monitory of the degree of compliance by the concerned institutions.

 Ceiling on Interest Rate: The monetary authority can dictate the limits beyond which interest payment to depositors cannot go. They may decide to allow or disallow the payment of interest or even time deposit can be cancelled, as the authorities consider fit. When prospective fund users ceiled the interest rate at a lower level, usually below what the market rate of interest would be that is an invitation to increase demand for credit? This opportunity for softer loans will definitely expand the money supply in the economy.

• FISCAL POLICY

This is a macro-economic tool that involves the use of government spending and taxes in guiding the nation’s economy to aclyncine pre-determined economical goal. In accounting for the income of a nation, government expenditure (as is a component of the Gross Domestic Product. (GNP) or Gross Domestic Product (GDP) obtained using the output expenditure method. Here GNP is made up of C+1+G+ (X-M) (C = Consumption 1 = investment, G = Government Expenditure, X – M = Export minus import).

The nations wealth rises, if the government decides to reduce its expenditure at a particular time below what it had been before. Government can engage in transfer payment (TR) this is when the expenditure is made on items that are not current or on payment for services not currently rendered.

Although transfer payments are not currently made but they have some significant impact on the nation’s current economic performance and size. They have a way of eventually affecting the amount of wealth a nation acquire even in the period when the transfers are being made. When such transfer payment are made, they serve as income for those recipients which regarded as unearned income. That recipient form part of the nation’s personal income TPIS and after the appropriate personal income tax is deducted, the balance is the disposable income (yd). Hence, yd = P1 – PIT.

A notable distraction exists in the ways these two forms of government spending influence the nations income level.

Government expenditure (as has a direct impact on the gross national product but government transfer payment (TR) has an indirect or delayed impact. As soon as government expenditure (as is made it move into the income stream immediately without any further processing. But this does not exist in transfer payment, (TR) when transfer payment is made, it is first received as income for the recipient who then decides on what part of it would be devoted to consumption based on his marginal propensity to consumer (MPC) it is the decided level of consumption that can now move into the income stream for its nation.

Another tool of fiscal policy is tax (T) of all types. This is a compulsory payment that must be made to the government regularly by the taxable economic agents. Tax can be based on income or it can be a hump sum or autonomous tax, which does not depend on how much income the payer receivers, so the tax function or equation can be given as T = F0 + ti y. This can be explained thus: to is an autonomous tax plus ti y which is the induced or proportionate tax which depend on income, this as a result will give rise to tax (TS of the nation. Tax constitute a leakage in the circular flow of income. It usually affects, the disposable income (Yds of the households because Yd = Y – T. that is, disposable income (yd) will he get if we minns tax (T) from income (Y). tax give a negative effects to the economy because it reduces the people’s purchasing power either as a group or individual. Its effect on the income flow however is not as fast as government expenditure (G) because it goes through two stages like transfer payment (TS before it influence the nation’s income.

Fiscal policy can be based on two forms on how it is expected to influence the economy or the nature of the macro-economic problem, it is meant to combat. Hence, we have expansionary fiscal policy and contractionary fiscal policy.

When the economy is not functioning properly order the control of the price market forces of aggregate demand and supply, it becomes necessary that government will come into that economy.

Expansionary policy an economy will be need of this policy when there is depression in the economy. This is when the economy is resting at less than the full-employment level of income.

This characterized by rise in unemployment, decline in income level of the nation, fall in average price level and rise in glut.

Contractionary fiscal policy; an economy will be in need of this policy when it is suffering from inflationary trend. Here, there is excess demand over supply even at the full employment level of income. The economy cannot satisfy the needs of the people. This also is characterized by continuous rise in the average price level of both factors of production and commodities, scarcity of production resources, commodities and a general, fall in the people’s standard of living because of increase of cost living.

In responding to the need to expand the economy or contract it, the government can either use its expenditure (G) transfer payment (TR) or tax (T) or combination of them at a time.

There are many options from which the government can chose in order to eliminate the income gap or chose the inflationary gap. Among them are:

1. Government can increase its own expenditure as by a give amount. If this is properly done, the income gap will be closed.
2. Government can also reduce the tax people pay so that they can have more disposable income and raise their consumption.
3. The transfer payment (TR) by the government can be increased. This will add to the people’s disposable income although some will be charged on it but part of this additional income will be devoted to consumption. This also will help to achieve equilibrium at full employment income level since the deflationary gap has been closed.
4. The government may equally combine the three forces above in order to close the income gap will also disappeared.

These strategies will depression. That is to say, these are expansionary fiscal policy measures. If government wants to adopt contractionary fiscal policy measure, in order to solve inflatranary problem, the following tools will be used.

1. Reduction in government expenditure: If government reduce its spending properly, the aggregate demand curve will shift down until it intersect with income line. This will restore the economy to equilibrium, in order to achieve a full-employment level of income.
2. Government can also reduce the transfer payment to people. If this is done, the people’s spending power as measured by their disposable income will be reduced.
3. The government can as well increase tax paid by the public, so that their disposable, income will be reduced. If, this is adequately done, the aggregate demand will again coincide with the aggregate supply at full employment income level.
4. Government can equally find it necessary to apply the three tools simultaneously. If the government apply these tools sufficiently, the same objectives will be achieved.

GOVERNMENT COMPETITION

Nigeria like many developing countries of the world has became vigorously involved in the acceleration of the wheel of economic and industrial development of her economy. Government of Nigeria has become actively involved in the establishment of public enterprises.

Although some staff of Nigeria breweries Plc Enugu are against government ownership to some business because according to them the objective of government business is to subsidies services at the expense of profitability and despite that they do not achieve these objectives due to unprofessional management corruption and low output. There are still justifications why government should involve in business. This is because public enterprise which is established by government according to one school of thought is an institution which have responsibility for either general or some specific areas of a countries economic development. The responsibility includes industrial and agricultural development.

The contributions of public enterprises to economic development prevision of cheap services and equitable distribution of product and services.

• HISTORY OF NIGERIAN BREWERIES PLC

Nigerian breweries Plc which is the pioneer and largest brewing company in Nigeria was incorporated in 1946 and recorded a land mark when the first bottle of star large beer rolled off the bottling lines in its Lagos brewery in June 1949. This was followed by Aba brewery which was commissioned in 1957, Kaduna Brewery in 1963 and Ibadan Brewery in 1982. in September 1993, the company acquired its fifth brewery in Enugu. It can be seen that from this humble beginning in 1946, the company now has fine breweries from which its high quality products are distributed to all parts of this great country.

 Company Equity:         Nigerian breweries has about 55000 shareholders, the authorized share capital of this company is N762.5m 61% (sixty – one percent) of the share is held by Nigerians amongst whom are company turnover in 1998 was N9.196, out which the sum of N1.456 was paid to the federal and state government respectively as taxes and levies. Also in 1998, the company’s profit before tax was N3.26 and it paid a dividend of N1.236 (N1.35 per 50 kobo share). In addition, a scrip issue of two new shares for every three share held by existing shareholder as at June 1998 was declared.

Brand Portfolio:  Nigeria breweries Plc has a rich portfolio of high quality brands and they include, star larger beer which was produced in 1949, Guilder larger beer which was produced in 1970, Maltina 1976, Legend Extra Stout was 1992, Amstel malta was produced in 1994, Schweppes range of carbonated soft drink (Schweppes Soda Water), was launched in December 1996. This was followed in November 1997 with the introduction of crush orange, in 1988. The company launched Heineken large into the Nigeria market. The company is rich with seven high quality products.

Export:      Nigerian breweries Plc has also an increasing export business that dates back to 1986. Currently, the company exports to many parts of the world such countries include, united state of America, United Kingdom Italy, Netherlands, Germany and Kenya.

Research and Development:  This great company keeps pace with key international developments, thus, ensuring hat its systems, processes and operational procedures are always in conformity with proven best practices in most parts of the world. It is in line with the policy that the company established a research and development centre in 1987. This is to enhance its research activities on all aspects of the brewing operation. The company also Establishes ancillary industries that will provide some of the services needed by the company. These industries include bottle manufacturers, crown corks, labels manufacturer, cartons and plastic crates manufacturer. They also render service as hotel/clubs services and direct customers service.

Social Responsibility:   This company is a society responsible corporate citizen with an enviable record of rendering corporate plilourthropy in the country. Some of the areas, which they have help include education; health and sports to mention to a few. The company in 1984v established an education trust fund of N100m to take more active part in the finding of educational and research facilities in some higher institution in the country.

This article was extracted from a Project Research Work Topic

“EFFECT OF GOVERNMENT REGULATION ON BUSINESS

(A CASE STUDY OF N.B.L. PLC)”

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