Ideally, most governments work hard to provide good social welfare, economic empowerment, and good governance to their citizens. However, successfully delivering these subcomponents of prosperity depends on the imaginations of those manning the statecraft. While some delivery approaches can be ad hoc and not recommended, it is much better to package and drive them primarily as development plans or other strategic initiatives. Of course, in articulating these forward-looking lines of action, adequate considerations of the existing natural advantages serve as a buffer. For instance, although natural economic endowments can speed up the attainment of prosperity, they cannot guarantee its actualization. That is why, despite the preponderance of natural attributes in Africa, we still need to rank highly in the committee of prosperous countries. To become successful, a subnational government must prioritise the large-scale competitiveness of industries within this jurisdiction. The more highly competitive or entrepreneurially successful business entities in state and local governments become, the more prosperous the state and local governments will be. Likewise, entrepreneurial success depends on alertness, discovery capacity, and speed in satisfying the gaps in economic agents’ demand and supply of goods and services. This alertness and attendant response is called innovation, which largely depends on knowledge and intuition. So, by strengthening a properly targeted knowledge economy, the capacity for innovation and its financing, state governments can robustly facilitate the competitive advantages required for solid IGR expansion on a sustainable basis.
Michael Porter’s diamond model presents an archetype of national competitiveness adaptable for subnational economies. The model has four determinants. The first explains the role of factor conditions [or the adequacy of factors of production] in enabling competitiveness. These factors include skilled labour, large deposits of minerals usable in production, infrastructure, etc. A subnational government with large numbers of highly qualified human resources will be more competitive than those who do not possess a similar advantage. That is also the case with natural resource endowments, which confers an automatic comparative advantage, all things being equal. For instance, a state economy reputed for cassava production will have a starch flour production advantage. The second determinant is the demand conditions in the home market. The size of the domestic market substantially determines how successful the businesses perform. With huge populations, states like Lagos and Kano provide substantially high-demand environments for many of their firms, particularly when their products sufficiently factor in domestic buyer preferences. The third determinant is the related and supporting industries. When most of the firms within the state have their input supply needs easily met by supplier industries that are internationally competitive but operate within the state, they are more than likely to be competitive. The final determinant is the firm strategies, structure and rivalry. Essentially, the nature of industry competition is critical in how competitive firms within that territory would be. For instance, an industry that is highly fragmented with a large number of players, none of which is dominant, will most likely be more price competitive than where there are only a few players and a few of them dominating.
Subnational governments’ quest for competitiveness is a derived aspiration. Among other goals, the two most important for all subnational governments are minimising unemployment and maximising independent revenue generation. Every other purpose is easily submersible within these two. For instance, crime rates will most likely decline significantly if the unemployment rate is less than 5%. Again, citizens’ well-being may heighten, and migration to other countries considerably reduces [all things being equal] if the government earns enough income to provide good governance. But to achieve low unemployment and high revenue generation levels, the government must ensure that the golden geese laying these golden eggs are well nurtured and cared for. The more strongly performing businesses in a state or local government, the more likely those willing to work will have access to jobs. That also means that the state and local governments hosting those businesses will derive a variety of incomes both from the corporates and individuals. Therefore, it is in the interest of subnational governments desirous of reaping these benefits to help strengthen the performance of these business organisations. Designing and implementing a subnational competitive advantage strategy aligns the government’s goal with the traditional aspirations of profit-making businesses. The outcome expectations from implementing this strategy include enabling firms within the state to become market leaders in their industries. Subnational governments can play a role by facilitating market access and investing in business-cost-reducing infrastructure such as electricity and logistics facilities. Depending on the understanding of most industries in the state, the government can intervene in large-scale capacity building to feed the firms within the state with suitable staffing. The second outcome expectation is the enhanced profitability and competitiveness of the firms in the state. By striving to make a minimum of 85% [a reasonable threshold] in the subnational ease of doing business indicators, states and local governments can indirectly curtail the costs of transacting and enhance the viability of businesses in their province.
One crucial point is that no state or local government can be competitive in all areas regardless of how much effort they put into it. Applying Porter’s diamond randomly across all critical sectors and industries in the state or local government will not likely guarantee such a subnational competitive advantage. Recognizing this fact justifies the need for subnational governments to identify areas of interest and strengths to focus on at every point in the longer-term implementation of the competitive advantage programme. Ideally, programme development and implementation should be in sequenced phases depending on the peculiarities of the state. Let us hypothetically assume that Enugu State has enormous prospects of becoming the cassava capital of Nigeria or Africa. Again, we can further define prospective cassava capital as possessing the capacity to be the most cost-efficient and the largest producer of high-quality cassava among African subnational economies. To develop a competitive advantage in this area, the Enugu State government must sequence the programmes to attain the objective. These stages will comprise the phase ensuring the achievement of the output size, placing it as a leader. Another phase will also focus on facilitating sufficient demand for the produced quantities. Perhaps a final phase will ensure the replication of value chains, further strengthening the continuous production capacity. For maximum effectiveness and impactful outcomes, subnational governments need not focus on more than five areas within a seven-year timeframe within which they would have developed and consolidated the advantage. And although we used cassava as an example, factor conditions are usually a critical stepping stone to creating a competitive advantage in virtually all areas and industries.
Four criteria may help identify areas a subnational government should focus on to achieve competitive advantage. The first is the speed of growth criterion. Industry profitability is the biggest driver of growth and expansion. Therefore, the subnational government must set a minimum threshold for industry profitability and growth and pre-qualify industries based on their performance against this indicator. The specified growth threshold must be based on properly thought-out considerations or benchmarked against the performance of the same industry/sector in jurisdictions where they also give subnational governments competitive advantages. Throwing taxpayers’ income on industries that do not possess growth potential that meets or exceeds the specified threshold may yield far less than desirable outcomes. The second criterion is the financing required to meet target industry output levels. Again, sub-national governments striving to develop this competitive advantage will have to set a maximum financing threshold and use the same to sift out industries that meet the criteria from the list of pre-qualified industries. The implication of satisfying the first and second criteria is that those industries can deliver rapid growth within a given budget. The third criterion is the ease of firm set-up. This criterion comprises the skill availability, ease of technology acquisition and the supportive environment for industry development. Without the right technology and availability of skilled human resources, it may be challenging to facilitate the industry’s massive growth regardless of how much finance is available. Again from the list of industries that satisfied the first and second criteria, the subnational government should identify industries that also meet the ease of firm set-up. The fourth criterion is the political will or government’s disposition to attract investors that would set up firms in the identified industries. Apart from facilitating the ease of doing business, subnational governments need to unroll properly targeted incentives that would make it juicy for investors to come in droves in the identified industries or sectors.
Once a subnational government interested in developing competitive advantage identifies the target industries through the suggested process, the next stage is programme implementation and performance management. Effective programme implementation will involve setting and vigorously driving the targets for the ease of doing business and creating incentives to attract investors in those identified target industries. These efforts must focus on enabling firms operating within the target industries in the state to become low-cost suppliers and develop differentiated and innovative products and services. Continuously achieving enviable performance on these parameters confers the subnational government a competitive advantage in each target industry. To ensure sustainability, the government and other critical stakeholders must agree on adequate key performance indicators to measure how it fares on each of the parameters of success or failure. And consistent with sound performance management systems, there should be clarity on persons and offices with responsibility for the level of performance [success and failure] on each of those indicators.
Finally, it is never too late or early to start designing and implementing strategies for achieving subnational competitive advantage. It is a perfect time with the entry of new sets of governors and other political officeholders in various states. While new governors can initiate this at the onset of their administration, those already in the office can start the programme and hand it over to a new administration as a legacy. Creating competitive advantages is one deliberate and impactful way in which the government can get involved in the lives and successes of corporates, which also benefits it massively. A state with a significant presence of highly profitable and fast-growing firms will invariably reap large amounts of independent revenue.
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