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Nigeria’s improving business climate

Nigeria’s improving business climate

A street scene in Lagos, Nigeria

Nigeria has risen rapidly in the World Bank’s Ease of Doing Business Index in recent years, but many challenges remain. Dianna Games examines the problems still holding the economy back

Nigeria rose 15 places on the World Bank’s 2020 Doing Business Index, making it one of the best performers in the world over that period, an achievement that has been hailed by government and business. 

It is now ranked 131 out of 190 countries, up from 146 in 2019 and up 39 places since 2006. President Muhammadu Buhari says the government’s goal is to reach 70 by 2023, when he steps down. Kano in the north and Lagos were the centres of research for the index.

In an effort to improve the business climate, the president established the Presidential Enabling Business Environment Council (PEBEC) in 2016 to facilitate reforms and remove bureaucratic constraints to doing business. 

It has focused on easing requirements and the time taken to register a business, improving the entry and exit of goods and people, and ensuring government transparency in dealing with and providing information to the private sector. The council prioritised many issues analysed in the Doing Business report and has made great strides in access to credit, enforcing contracts, and protecting minority investors. 

However, it still fares poorly on key measures such as trading across borders, getting electricity and paying taxes, highlighting how much work still needs to be done. 

Yewande Sadiku, executive secretary of the Nigerian Investment Promotion Council (NIPC) says there have undoubtedly been many improvements. The government is advancing in e-government, with online registration of companies and filing of taxes. Work is being done to improve access to electricity and to streamline requirements at the port.

Over the past two years, the government has reduced the number of agencies operating at the ports and aims to have all these institutions communicating with importers and exporters through a single portal. 

Government is receptive to business

Ahmed Mansur, the current president of the Manufacturers Association of Nigeria, says the government is receptive to inputs from industry bodies and there are extensive consultation mechanisms. “If the private sector is not fully engaging public policy makers, it means policy can be unpredictable and experimental.”

He says the economy has improved a lot over the years, with key interventions including banking consolidation, improvements in regulation, capacity building, and the advent of telecommunications and technology. 

Nigerian companies at the top end have become internationally competitive and have expanded into other countries. Regional economic body Ecowas has played a supporting role by opening up trade and the movement of people.

The Nigerian Economic Summit Group (NESG) is a key private sector stakeholder that has been engaging government since the 1990s on business climate issues. NESG CEO Laoye Jaiyeola says PEBEC is an important initiative, but a lot of work needs to be done to address the business environment and coordinate the activities of many public and private stakeholders. It is critical to build business confidence by building trust in the policy environment and ensuring consistency, Jaiyeola says. 

He cites business’s different – and often onerous – obligations to the three tiers of government as a major cost and constraint for companies. Each impose their own taxes, regulations and costs, with the various states often having different rules and requirements. Streamlining these should be a priority for the federal government, he says. 

Mansur agrees: “There is too much overlap and no coordination of taxation matters. Every regulator wants to charge a fee. The environment is financially onerous.” 

On the issue of regulatory uncertainty, often cited by business as a headache, he says there has been progress. However, a continuing challenge is that agencies tend to see themselves as revenue drivers and not enablers. 

Tax collection is also a problem for business, with the constant harassment of companies by tax officials, even those who are compliant. This, companies maintain, gets worse when the government is desperate for revenues, such as in a low oil price environment. 

Drawing SMEs into the value chain

The constraints and costs in the business environment are felt most keenly by small and medium enterprises, which government has prioritised as a building block of growth. 2017 NESG data shows that 85% of the 77m people employed are in SMEs, with most at the smaller end of the scale. The state tends to pay lip service to SMEs, Jaiyeola says, but they need more than capital to survive. They also need to be properly trained in running and expanding their businesses. 

Derisking this segment and drawing SMEs into the value chain could be an important driver of growth. 

Mansur raises the concerns of manufacturers about the ongoing power shortages, despite the privatisation of key grid operations. This, he says, is seriously undermining Nigeria’s competitiveness. Power deficits and the need for expensive generators add as much as 40% to the cost of production. “The national grid has now become a backup,” he says. 

This is made worse by the poor state of the ports where producers are paying hefty charges for delayed cargoes. 

Smuggling has been a serious issue for companies producing in Nigeria, both local and foreign, with illegal trade undermining demand for more expensive locally-made goods.

Many business people say they can plan for the big challenges companies face in Nigeria, pricing the risks into their operations. But their real challenges are often at a lower level, relating to the efficiency of bureaucracy for example, and the effectiveness of and access to government agencies. Skills shortages are also a headache, with company expansion often slowed down by training needs. Thin stock inventories and “just in time” operations by local suppliers are others.

In terms of the movement of people, business has hailed the introduction of visas on arrival, although foreign investors are concerned about the tightening of work permits. The improvement of facilities in the country’s airports, and the queuing system at the airport in Lagos in particular, are issues investors have raised. Getting in and out of the country with the minimum amount of fuss and stress is an important element of country branding, they say. 

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