Government Regulation and Control of Business in a Developing Economy

GOVERNMENT REGULATION AND CONTROL OF BUSINESS IN A DEVELOPING ECONOMY(A CASE STUDY OF SUNRISE FLOUR MILLS NI. LTD.)

Regulation refers to the prescribed rule; authoritative direction correct pattern used to moderate business activities in order to benefit both the  citizen of such nation.

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It has been defined in a various ways by different authors.

According to Samuelson (1985: 521) regulation consists of government rule laws issued to alter or control the operations of economic activities.

Bradly (1989. 62) defined regulation as a means to limit the use of market power to change the behaviour rather than the structure of markets.

Lindsay (1988: 4) said, regulation is government interception in the market for the purpose of influencing the production and distribution of particular goods and services.

No economic system leaves all decision to the market particularly the developed economy even in the most strongly capitalist system and developed economy. The government plays a major role in the decision of what, how and for whom (Basic economic problems of the society) to produce.

 

2.2     WHY GOVERNMENT REGULATES AND CONTROL BUSINESS IN A DEVELOPING ECONOMY?

Government action to regulate business in a developing economy inspired by many objectives. Some of these objectives are:

  • To create and maintain climate of confidence, stimulating the activity of the enterprises, to establish and have respect to the rules of completion

 

  • To achieve an environment permitting the business to exist, and to satisfy the external monetary and diplomatic of stability and cooperation.

 

  • To fix clearly national goods, of accepting global levels of wages and price increases, of credits and investments, and to act on directly in specific cases.
  • To promote permanently social progress and the maximum justice compatible with the level of economic activity strived for.

 

  • To fix and distribute public and social burdens in a supportable and equitable member, taking into consideration the differences in sizes of the various enterprises and the economic activity of the country.

 

  • To effect control of posterior with severe sanctions against violations, rather than to affect permanent control which are preventive only in name. Onuoha (1994: 201 – 202) other reasons in a developing economy are:

 

EXERCISE OF SOVEREIGN RIGHTS

Government has the right to exercise dominion over clearly defined geographical areas. The constitution empowers the government to exercise control over a wide spectrum of economic and national activities such as industrial and licensing printing of the monetary and fiscal policies including the minting and printing of the national currency import and export of the national relations policies, control and regulation of monopolies, policies regarding taxation, foreign exchange, employment national defense law and other, diplomacy, natural resources, education health and so on.

As a result of this constitutional (right) which came about because of sovereignty, government kept a close watch on the activities of business, especially foreigners.

 

REGULATION TO PROJECT CITIZEN

There are laws protecting the interest of consumers, for example – measure against the production and sales of dangerous and inferior goods, law against pollution and other business social responsibilities and so on. These group are the nations citizen and it is constitutional duty of government to protect them.


CONTROL AS REVENUE RAISING SOURCES

Business control in the form of company taxes, registration fees, import and excise duties licensing fees ethic is valuable sources of revenue for government.

 

REGULATION AS A MEANS OF KEEPING INTERNATIONAL OBLIGATION

Nigeria as a nation belongs to a member of international bodies. These bodies have rules and regulations which members have reciprocal agreement with some other countries on issues like copyright protecting expatriates from double taxation and so on enforcing these regulation on business enterprises in Nigeria is a means through which government furies its bilateral multilateral obligations.

Nigeria as a developing nation has need of an effective and efficient business operation in both her private and public establishment for her survival and to contribute to the social – economic gearing of the nation. It therefore means that coordination of maximum contribution from each basic function of the organization such as marketing, finance, personnel production and distribution, etc. The consistent government regulation and control in Nigeria as a developing country will also go a long way to stabilize the economy for rapid growth and development.

In fact, the importance of government regulation and control of businesses particularly in developing economies in the case of our nation Nigeria cannot be over-emphasized because most of manufacturing firms have turned to be producing unhygienic products, which are dangerous to the health of the citizen.

Most companies produce inferior goods hence expecting citizen to pay dearly for these goods. Also, the government intervention via regulation and control will reduce the fear of loosing money deposited in the banks by the citizen. Most banks have taught many people lessons via their lack of trust and inefficiency. People are running from keeping their money in the banks. Hence, this is affecting the development of our economy because they can never be any progress in any economy where financial institutions are not fully in operation.

 

2.3     TOOLS USED BY GOVERNMENT FOR EFFECTIVE AND EFFICIENT REGULATION AND CONTROL

A tax is a compulsory levy on the residents of a society by the government of that society. The essence of tax is to serve as one of the means used by government to regulate and control business government needs money to meets its social, economic and political obligations e.g. build roads, schools, hospitals and makes.

Meanwhile, the government can lay tax to discourage consumption of goods that are considered to be social indescribable like goods that are either inimical to health social welfare or these goods that appear to create room for ostentation, wrong investment priorities or class distinction on the economy. The procedure is that the tax will raise the price of the commodity the consumption of, which is being discouraged and given an elastic demand, the quality demanded will fall. The futility of using taxes to control such consumption however arises in situations whole demand is inelastic and quantity demanded will not so much vary with changes in pries. That is why government in real life resort or total been or other methods to rationing, like imports licensed to step up demand elasticity.

Tax could be used to control inflations and to meet other society and economical policies of the government. And also, it could be used for stimulate growth and development in an economy.

Therefore, there are two types of tax direct and indirect tax.

Direct tax is a tax on income or receipts and incidence of such tax fall directly on the payer in that it is possible for the person who pays the tax to shift the burden to someone else. While indirect tax is possible to shift the tax incidence (part or wholly) to some one else. Tax is therefore one of the tools which government emphasis to regulate and control businesses.

 

EXCHANGE CONTROL REGULATIONS

According to Agbo 1999: p.99) This is non-tariff barriers to business. The government uses this instrument to control the amount of foreign currency that could be bought, this tends to put a limit to the quantity of goods imported into the domestic economy. This strategy could be compared with the government policy in Nigeria from 1986 when the introduced second tire foreign exchange market (SFEM) and later  in 1987 it changed to foreign exchange market (FEM) with decree 13.

TARIFFS

Agbo (1999, p.99) Tariffs have often been used as a manipulative instrument to achieve some macro economic objective. It is a custom duty or tax imposed by government on the importation or exportation of goods. Tariff may be specific based on a tax per unit of the commodity, based on the value of the commodity.

 

IMPORT QUOTAS

AGBO (1999 p. 99) This instrument places a precise legal limit on the number of units of a commodity that may be imported during a given period into a domestic economy.

 

CORPORATE AFFAIRS COMMISSION (CAC) DECRESS 1,1990

Ani (1999 p.31). The corporate Affairs commission was established following the promulgation of the companies and Allied matters decree in 1990. The commission which was opened it’s registries for business on 11 February 1991 was established to administer, incorporate, manage and winding up of companies. It also through government helped to put things right as it concern business in Nigeria. The proliferation and emergence of fake and unregistered swindle business which publish a comprehensive up to date list of authentic and licensed business in Nigeria as a guide to prospective customers.
DEBT MANAGEMENT

Debt management is another tool used by the government to regulate and control businesses. Government normally raises internal and external loans for a number of reasons. Once a debt is raised, it becomes contractually obligatory for the payment of this interest and capital as and when due. The way these debts are managed have a lot of implications for government revenue and expenditure as the debts and these interest would have to be regard from current government revenue or through insurance of new debt instruments.

 

EXCHANGE RATE

Exchange rate as a tool for regulating business would for example, be raised against the domestic currency to stimulate external investment this ensuring balance of payment the price of one currency in turns of the other. In other words, it is the rate at which one currency will exchange for another, in an economy, that is dependent on international trade, the exchange rate will be the important price that it will determine virtually all other prices

 

INCOME POLICY

Income policy as a means of regulating business focus on both interpersonal and inter-factor distribution of incomes in the economy. Income policy provide a link between prices and income level thus protecting incomes against price rise at all times and helps to sustain the real level of wages as income policy help to ensure that income rises only with productivity, it helps to ensure greater contribution on the part of the income earners, thus increasing national output, it also seek to eliminate un-lean income through income policy, useful suggestion could be made to the government to provide the introduction of other fiscal and monetary policies which may be necessary as complimentary measure to achieve macroeconomic objective.

 

BUDGET

Budget is a statement of government expected revenue and intended expenditure over a given period of time. The focus of the national budget is much akin to that of any other economic entity but because of the size of funds involved and the complexities of the national economy, what is involved in the preparation of the national budget is far more than that of most economy entities.

Nowadays, the national budget is not just a mere estimate of income and expenditure; it has become a major instruments/tools of economic control, especially in countries where the pubic sector predominates.

Afobabi (1999:68) says the most important functions of the budget is its control function which achieved through proper monitoring of the budget. The monitoring helps to inject discipline in the civil servant as regards fund management. By comparing actual with projected and vise-a via the physical impact expected, the budget helps to ensure optimum use of resources.

 

GOVERNMENT EXPENDITURE

One other way by which the government regulates business is through its expenditure as reflected in the budgets and through permanent investments that are embodied in development plans and executed as capital expenditure in the budgets during the plan period. The control on government expenditure is always a political matter but the economist can be useful by advising on the likely effects of such expenditure. It is possible for the government to have surplus (excess of budget revenue over expenditure) or a deficit (excess of budgeted expenditure over income) in its budget, it could also be balanced budget where expected revenue is exactly equal to intended expenditure. These could be kept as reserves, could be used in some other ways, as the operators may deem it. The deficit on the other hand may be a blessing if it is cheated to finance capital investments, which will par off in the future.

 

NATIONAL AGENCY FOR FOODS AND DRUGS ADMINISTRATION AND CONTROL (NAFDAC).

NAFDAC was created in 1993 by the enabling decrees No 15 to take change of the implementation of the provisions of the 1974 Foods and Drugs Decrees and other related decrees (such as the foods and drugs cap. 150 laws of the federation and drugs and related products. (Registration, etc Decree No. 19 1993) NADAC is empowered to sanction any person or company manufacturing food drugs cosmetics, and packaged water that is normally called pure water, that fails to register with it or compel with the provisions of the various decree related to the manufacturing, importation, advertising and sale of foods, drugs, cosmetics and devices in the country. The agency has offices in al the state of the federation. To a very large extent, it has made its usefulness fact by the generality of the public in the country within the short times of its existence.

 

THE PRODUCTIVITY, PRICES AND INCOME BOARD (PPIB) DECREE OF 1977.

This decree was enacted in order to control the incomes of both wages earners and intermediate should e as a result of increase in contributions of productivity. The decree established for bodies to monitor the wages of workers and the prices of goods and services in the country.

These are as follows:-

  • The public service pay research unit (PSPRU)
  • The income analysis unit (IAU)
  • The wages ad productivity unit (WPU)
  • The price intelligence unit (PIU)

 

NATIONAL DRUG LAW ENFORCEMENT AGENCY (NDLEA)

This decree was promulgated during president Ibrahim Badamosi Babangida’s administration:- The essence of this decree is to confiscate offending material and prosecute offenders. This agency has done well so far to accommodate every person. That is caught in drug trafficking, drug addicts and other mal-practices in the country.

 

THE HIRE PURCHASE ACT OF 1965

The hire purchase act of 1965 was promulgated to control or regulate the hire purchase transaction. Carried out in the country. The act was to curb the activities of some trades who used to charge very exorbitant interests on the yet – to be paid parts of their hire purchase prices.

 

MONETARY POLICY

Monetary policy as a tool of regulating business refers to the combination of measure designed to regulate the value, supply and cost of money in the economy, in consonance with the expected level of economy activity.

 

As excess supply of money would result in our excess demand for goods and services which would cause rising, prices and/or a deterioration of the balance of payments position. On the other hand, an inadequate supply at money induce stagnation in the economy thereby retarding growth and development consequently, the monetary authority must attempt to keep the money ensure sustainable economic growth and maintain internal and external stability. The discretionary control of the money stock by the monetary authority this involves influencing interest rates to make money cheaper or mire expensive depending on the prevailing economy conditions and thrust of policy. Monetary policy is basically to control inflation, maintain a healthy balance of payments position for the country into order to safeguard the values of the national currency and promote adequate level of economy growth.

LEGISLATIONS AS TOOLOF REGULATION AND CONTROL OF BUSINESSES IN A DEVELOPING ECONOMY

The government at the level (Federal, state and local) in the country is actively involved in the promulgation of laws. That affects the practice of business in the developing economy. However, it needs to be pointed out; that’s why some of these legislation are called acts, others are called  decrees, while the acts were promulgated by civilian governments. During military regimes all laws were promulgated as decrees.

Some of these legislations for regulation of business in the developing economy are;

  • The standards organization of Nigeria (SON) Decree No 56 of 1970

 

  • National Agency for foods and Drugs Administration and Control (NAFDAC)
  • National Drug Laws Enforcement Agency (NDLEA)
  • The Hire purchase Act of 1965.

 

THE STANDARDS ORGANIZATION OF NIGERIA (SON) DECREE NO 56 OF 1970

This decree formally known as the Nigeria standard Organization Decree was promulgated in order to standardize the methods processes and products produces and distributed in Nigeria.

According to section 3 – 1 of the decrees, the aim function of the Nigeria standard council establishes by it, are as follows;-

(a)     To advice the federal government generally on the national policy on standard specification, quality control and metrology

 

  • To provide the necessary measures for quality control of raw materials and products in conformity with the standard specification.
  • To carry out these function imposed on it under this decree or way other writing law.

Also, the organization (SON) has the following functions or activities as stipulates in section 4 – 1 of the decree.

  • To organize tests and to do everything necessary to ensure compliance with standards designated and approved by the council.
  • To undertake investigation as necessary into the quality of facility, materials and products in Nigeria and establish the quantity assurance system, including certificate of factors, products and laboratories.
  • To complete Nigerian standards specification.
  • To develop methods for testing of materials, supplies and equipments: including items purchasing for use of developments of the government of the federation on the state and the private establishments.

 

2.4     HOW GOVERNMENT REGULATES SUNRISE FLOUR MILLS LTD AND UAC FOODS NIGERIA PLC

Government regulates sunrise flour mills Ltd and UAC foods Nigeria Plc through some  of her agencies, such as standard organization of Nigerian (SON) NAFDAC, Ministry of Commerce and Industries, Health Management Board, Environment Protection Agencies etc. government therefore regulate through;

  • Inspection
  • Products identification numbers
  • Through moral suasion
  • Constants examination of Raw materials used in production
  • Products prescriptions.

INSPECTION

Government Agencies came to inspect sunrise flour mills Ltd and UAC foods Nigeria Plc products from time to time so as to ensure that the company in a set standards, keep the factory clean and hygienic, ensuring standard and good raw materials, also to make sure that expired and contaminated products are not sold to the general public consumption.

 

PRODUCTS IDENTIFICATION NUMBERS

Through NAFDAC, SON, etc the Government Issue out numbers to industries that produce various products. And in the case of these, Government Issue product identification numbers used to know their products in the market for the purpose of measuring the product standard and state.

 

THROUGH MORAL SUASION

Sunrise flour mills Ltd and UAC foods Nigeria Plc are expected to produce her foods to conform with the laid down guideline, rules and regulations of government standard for foods and drugs administration and control, health boards etc. advices them from time to time to make sure that their products are hygienic, up to the set standard, in line with the national law and at affordable prices for public.

 

CONSTANT EXAMINATION OF RAW MATERIALS USED IN PRODUCTION

Government agencies examine the raw materials used for the further production of goods in sunrise flour mills and UAC foods so as to verify if the raw materials used to produce their products are the right one.

 

PRODUCTS PRESCRIPTIONS

The standard organization of Nigeria order sunrise flour mills and UAC foods to label their products accordingly with their brand name, logo address that as, factory addresses the content of the products, weight and the materials or ingredients used to produce such products.

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