January 15, 2019 11:27 AM/By Emuesiri Agbeyi of PwC Nigeria
The Family Business Survey is an annual global market survey among key decision makers in family businesses within a number of PwC's key territories. The goal of the survey is to get an understanding of what family businesses are thinking on the key issues of the day. The theme of this year's publication is “The values effect: how to build a lasting competitive advantage through your values and purpose in a digital age.” The fundamental philosophy behind this year's theme is that family businesses – built around strong values and with an aspirational purpose – have a competitive advantage in disruptive times. There is an enormous opportunity for family businesses to start generating real gains from their values and purpose by adopting an active approach that turns these into their most valuable asset. Our headline survey findings are referenced below with details to be provided in subsequent publications.
Growth among Nigerian family businesses over the last 12 months is lower than the global average. 53% experienced growth (including 20% who witnessed double digit growth of their businesses). Globally, 69% of family businesses grew. In spite of this, 87% of family businesses in Nigeria expect to grow over the next two years, which is slightly higher than the global average (84%).
According to the National Bureau of Statistics (NBS), Nigeria's economy is in recovery reflected by GDP growth in 2017 and the first 2 quarters of 2018. The country fully exited its first recession in more than a decade in 2017. Since then, the economy remains fragile and growth is way below the pre-2015 levels when annual GDP growth averaged 6%. Subsequently, the economic environment continues to be a source for concern for family businesses.
Growth prospects and challenges
Growth prospects and challenges Family businesses in Nigeria are more likely than the global average to cite the economic environment and corruption as key challenges over the next two years. In addition to the fragile economy, corruption remains a pressing issue in Nigeria. The phenomenon affects public finances, business investment, as well as overall living standards. PwC's report, “Impact of Corruption on Nigeria's Economy”, estimates corruption in Nigeria could cost up to 37% of GDP by 2030, if it is not dealt with decisively. Regulation is mentioned by more than half. Nigeria moved up 24 places in the 2018 World Bank's Ease of Doing Business (EoDB) index to the 145th position from 169th. Despite record improvement, the business environment will remain challenging in the absence of structural reforms. The country dropped one spot on the 2019 EoDB index.
In terms of important personal and business goals, profitability is crucial (93% cite this), along with the maintenance of the best talent (via recruitment and retention) and contributing to the community.
Globally, family business leaders reported robust health, with levels of growth at their highest level since 2007. Revenues are expected to continue growing for the vast majority of businesses (84%), with 16% saying it will be “quick” and “aggressive”.
Regionally businesses in the Middle East and Africa were the most optimistic, with 28% expecting aggressive growth. They are followed by those in Asia Pacific (24%), Eastern Europe (17%), North America (16%), Central/South America (12%) and Western Europe (11%).
Values of the business
Globally, 80% say they have a clear sense of company and/or family values. 67% of Nigerian family businesses have a clear sense of agreed values and purpose as a company, but only 43% have these values or a company mission in a written format (the global average is 49%). When asked to describe what these values are, however, the answers tend to be rather thin and somewhat generic. 70% express a commitment to Corporate Social Responsibility. In Nigeria, majority are engaged in some form of philanthropic activity; for most this goes beyond giving money to good causes and the local community. Over the longer term, 93% seek to create a legacy. More than three-quarters aim to create employment for the wider community.
Globally, continuity is key to legacy hopes of the business, family involvement and community support. Many family businesses define success not just in terms of financial wealth but in less tangible elements of personal growth/development, community/employee support and the upholding of core values. The first step in this regard is for the founder and family members to explore, agree and write down the values critical to themselves and their business.
10% of businesses have a robust, documented and communicated succession plan in place (slightly lower than the global average of 15%). 77% of family businesses in Nigeria plan to pass on management and/or ownership to the next generation.
While there is a strong intent to pass businesses to the next generation, appropriate structures for ensuring this happens may not fully exist in Nigeria. Some of these include defining how ownership and leadership is transferred. There are several options ranging from intra family succession to a combination involving parties external to the family (management buy outs, private equity investments etc.). Each comes with its pros and cons and planning properly ahead ensures the family business stays ahead of the game. One must also quickly realise that not all children know there is a family business or even want a part of it. However, with proper integration at an early age through next generation education and mentorship success could be had.
73% of Nigerian family businesses feel they will have made significant steps in terms of digital capabilities in the next two years (higher than the 57% who say this globally). Nigerian family businesses have a slightly lower level of perceived vulnerability to digital disruption (23%) or a cyberattack (33%) compared with the global average.
In terms of gender, 80% of the business owners are male. Women average 30% of board members in Nigerian family businesses (vs. a global average of 21%) and 27% of people on the management team (24% globally). 70% of Nigerian family businesses allow spouses/partners to work in the business; fewer than half can own shares but two-thirds can take up governance roles.
33% say they have a formal mid-term strategic plan in place (the global average is 49%). More than half (53%) of Nigerian family businesses expect to change their business model (vs. 20% globally) and approaching half (47%) will earn the majority of revenues from new products and services (vs. 18% globally). There is a lower level of diversification in Nigeria than average with only 7% operating in multiple sectors and markets (the global average is 26%).
PwC's survey report on Nigeria's family businesses will be launched in 2019. The comprehensive report contains sections on organisation performance, challenges, family involvement & succession planning, values and legacy, gender equality, among others.
Family businesses dominate the economic landscape. According to 2017 data from the Family Firm Institute, family firms account for two thirds of all businesses around the world, generate around 70-90% of annual global GDP, and create 50-80 percent of jobs in the majority of countries worldwide. It is important that these businesses grow and outperform global average if Nigeria must exceed.
Survey background and methods This year, PwC surveyed 2953 companies in 53 countries including Nigeria, covering a wide range of sectors from agriculture to technology. Survey methods used included questionnaires, face-to-face interviews, data modeling and text analysis. The founders, first and second generation (in some instances) over various industries participated in the survey. Their sharing and insights have helped give a full picture of the opportunities and challenges faced by family businesses, as well as their mid- and long-term strategic plans.
About The Author
Esiri is a partner and head of Private Wealth Services at PwC Nigeria. She can be contacted on firstname.lastname@example.org