Doing Business In Nigeria And The Way Forward
Doing Business In Nigeria And The Way Forward
Various studies have shown with empirical evidence, that business environment creates a disparity in the level of private sector participation, between the developed and developing economies. Prominent in the discourse is the role of the government as a regulator. A regulation is efficient when it reflects responsiveness, transparency, enablement, productiveness, and citizens’ participation. In Nigeria, several issues have been raised concerning business regulations and the impact on business environment.
Yearly, the World Bank in its Doing Business Report ranks 190 economies according to the conduciveness of the regulatory environment in starting and running a business. The report covers 10 – 12 benchmarks (each comprising several indicators) which span the life cycle of a local enterprise, from starting to insolvency. Specifically, the benchmarks include starting a business, getting electricity, registering a property, getting credit, trading across borders, enforcing contracts, paying taxes, protecting minority investors, resolving insolvency, employing workers and contracting with the government. Usually, enterprises from the two largest commercial cities of an economy are used as case studies. For Nigeria the cities are Lagos and Kano.
In Doing Business 2020, which covered the period May 2018 to April 2019; Nigeria scaled 15 places ranking 131st with a 56.9% score from 149th position the previous year. Nigeria also featured for the second consecutive time among the 10 economies with the most notable reforms/improvements. Specifically, these improvements were recorded in the areas of starting a business, dealing with construction permits, getting electricity, registering property, trading across borders, and enforcing contracts. However, despite the overall improvement in ranking, Nigeria’s overall score of 56.9%, remains far below the global average and OECD high – income – economy averages of 63.0% and 78.4% respectively. Additionally, Nigeria was ranked the least among the top ten improvers.
Against this backdrop, the aim is to underscore the areas of businesses regulations which render doing business in Nigeria less easy, and proffer solutions. These are areas where performance scores were below 50%. Categorically score of 29.9% was recorded in trading across borders, 29.5% in property registration, 30.6% in resolving insolvency; and 47.4% in getting electricity.
Nigeria’s low score in trading across borders suggests that the time and cost of border and documentary compliance are relatively high. For instance, it takes 128 hours, given regulatory compliance to export in both Kano and Lagos against sub–Sahara Africa’s average of 197.1 hours and OECD high-income economies average of just 12.7 hours. Similarly, it takes 242 hours to import into Nigeria, against the averages of 126.2 hours for Sub–Saharan Africa and only 8.5 hours for OECD high-income economies. Other indicators under this benchmark also reflect performances below Sub – Saharan Africa average. Apparently, conditions prevalent in the country, lend credence to the report as business owners had severally registered their dissatisfaction with the border administration. The numerous agencies charged with responsibilities relating to trading across border contribute to the associated long line of procedures, resulting to unnecessary protocols which cause unnecessary delays. At the ports, random fees are collected by both legal and illegal officials, and often times, businesses are coerced to pay fees above the statutory rate or risk being delayed. Moreover, the country’s deficit in road infrastructure equally delay the logistics process. Currently, report from the World Bank World Development Indicator reveals that only 19% of Nigerian roads are tarred.
The sad story continues with property registration. To think that Nigeria ranked 183 out of 190 economies under this benchmark is appalling. The process of registering a business in Lagos and Kano takes 105 days and 47 days respectively. This is against Sub – Saharan Africa average of 51.6 days. On the quality of land administration index, Lagos and Kano were able to score just 9.0 and 4.5 respectively against the 23.2 score of OECD high economies. In a nutshell, it takes relatively longer hours, procedures, and higher cost to register a property in Nigeria. Over the years, the widely used access to land administration had always been through direct contact. There are also challenges such as inefficient registration process, inadequate skilled workforce and the fact that information regarding land registration is hardly wholly available for public consumption. Whether or not this is a deliberate act or the lack of facilities for information dissemination is still unclear.
On getting electricity, the reliability of supply and transparency of tariff indicator had the worst impact on the benchmark. Both Lagos and Kano scored 0 (0ut of 8). This calls for attention, given the country’s estimated 176 trillion cubic feet of natural gas reserve, the largest in Africa. More disheartening is the fact that the country, given the number of existing plants, has the potential of producing up to 12,000 megawatts but rather settles for 4,000 megawatts. Since the privatization of electricity distribution, electricity tariff has continued to rise, with little or no improvement in the power situation. Unfortunately, this falls far below the expectation that the private sector deemed more efficient will deliver and curtail the incidences of power outages, low voltage supplies, etc. The state installed infrastructure which has succumbed to wears, but still used by the private electricity distributors is probably one of the reasons things are the way they are.
Globally, Nigeria is also far behind under the resolving insolvency benchmark. In Lagos, only 27.8% of financially distressed businesses are recovered. This is a little above Sub – Sahara Africa average of 20.5%, 70.2% average for OECD high income economies and an impressive 92.9% in Norway. In Nigeria, the Company and Allied Matters Act (CAMA) stipulate the options available to financially distressed enterprises to be agreement, compromise and liquidation. However, in usage, liquidation is the most common. The strength of Nigeria’s insolvency framework in both Lagos and Kano, on a scale of 0 – 16 was recorded to be just 5.0, against Sub – Saharan Africa average of 6.5 and 11.9 for OECD high income economies. Over the years, there has been a growing concern among legal practitioners, about the insolvency system being unduly creditor friendly and liquidation focused. Issues had also been raised concerning the inadequacies of CAMA especially with respect to the communication of information on insolvency and the coordination of concurrent proceedings.
A holistic approach to solving a larger part of the regulatory challenges in Nigeria would be the widespread use of electronic means in implementing regulatory compliance, just as it is with the high ranking economies. It has been established already that inadequate regulation is a problem, but then a bigger part of the problem lies in implementation. The pursuit of personal interest and the corruption that follow, often undermine proper implementation. Implementing a compulsory use of online platforms in incorporating businesses, transferring property, filling tax, construction permitting, etc. will enhance transparency, and curb the extortion of enterprises by corrupt officials. The best performing economies on corruption perception index, also happen to be ranking quite high in doing business. The use of online platforms will not only enhance transparency, but will also reduce cost, transaction time, and the number of procedures required. There is equally the need to streamline property registration process; reduce and monitor the cost of land documentation and further develop the man power needed for efficient implementation of the land registration reforms.
Additionally, the harmonization of Nigeria Customs standards with international standards, the automation of international trade logistics, better road network, and trade liberalization will improve trading across the Nigerian borders. To make getting electricity easier, it will be a good thing for the government to see what other countries have done. To start with, the electricity utility personnel should be adequately trained; the electric infrastructure should be modernized; and there should be concerted effort towards the reduction of electricity connection time. Quite important, the entire business regulation should be re – evaluated and updated as the need arises.
The benefits a developing economy like Nigeria could derive from enacting efficient business regulations are just too numerous and pervasive to take likely. There is the potential to attract foreign direct investment, higher government tax revenue, increase in the rate of employment, personal income increase, improved standard of living, etc. Given also that inefficient regulation is closely associated with rent seeking, regulatory reforms in the right direction will significantly curb corruption in the regulatory system.