ECONOMY - 09 FEB 2021

Anti-business Lagos (Part 1): Losing investor confidence

Anti-business Lagos (Part 1): Losing investor confidence
Anti-Business. Source: Stears Business

Lagos has a vision to become a world-class metropolitan city. 

Former Governor Ambode said that the Lagos master plan is to compete with metropolitan cities like Singapore, Miami, and Dubai. When one thinks of these cities, we think of high-rise buildings, clean wide roads with nice cars, lovely beachfront, and so on. Lagos has been focused on delivering on that agenda but like we have seen with the Eko Atlantic project, development is not just constructing nice buildings and having a nice beachfront. That’s not what is going to spur economic growth. Clearly, other things play a role as well. 

To achieve economic growth, you need investment. If I am an investor, what is important for me is how the state treats businesses. Are they partners, or does the state adopt an authoritarian way of dealing with companies? A few recent events in Lagos would not give me that confidence as an investor that Lagos opts for the partnership approach. 

 

Exhibit 1: Aggressive ban on live music 

In 2017, many Lagosians were complaining that there was too much noise pollution from religious houses and small businesses like restaurants and beer parlours. If you were around in Lagos at the time, you might be aware that the bulk of the complaints were about the churches’ noise. So, what did Lagos do?

Two things. 

First, they warned religious houses to minimise the noise pollution. But, for the small businesses, it was a more aggressive stance. The government banned them from playing live band music. The state set a fine for defying that order at ₦500,000; a lot of money for a small company. Especially those in the food sector where profit margins are tight. 

That was the manner Lagos state took to deal with that situation. A more business-friendly state would have taken a different approach. 

They could have seen these businesses as partners. They could have appreciated the value these companies bring to the state and considered other options. For example, live music bands could be banned for restaurants in more residential areas, while the non-residential areas could have had fewer restrictions. Perhaps, live bands could only be allowed at certain hours. There were several ways to creatively deal with the problem.

But it gets worse.
 

Exhibit 2: Aggressive policies

When you talk about Lagos being anti-business, the one incident that comes to people’s minds in the tech ecosystem is the 2020 motorbike ban. Lagos had banned motorcycles at various times in the past, but this one struck a nerve. 

Why? Well, there had been an inflow of tech-enabled motorcycle-hailing businesses into Lagos. Businesses like Gokada, ORide, and Max.ng had come into Lagos with enthusiasm. They bet big, deploying millions and millions of dollars from foreign investors into Lagos. 

They were looking to tap into the Lagos market, which was a significant revenue-generator for these companies. But, it wasn’t just the money they brought in. They were providing platforms that employed thousands of riders. At the same time, these companies were meeting a need for the residents of Lagos. 

From a financial perspective, they were bringing in foreign direct investment (FDI) into Nigeria. FDI has been a challenge for Nigeria since 2011. It’s so bad now that Ghana has more FDI than Nigeria, despite having an economy roughly one-fifth the size of ours. 


 

And what would I do if I were Lagos? I would champion these ride-hailing businesses. This would ensure that the foreign investors and others in the international community know that these companies are betting on Lagos and are coming to do business here. The message would be that the state supports them, and they are going to thrive because that is the story of Lagos that needs to be sent out loud and clear to investors. 

But, what did Lagos state do? With a few days' notice, the state banned the motorcycles that Gokada and Max.ng use, from plying many major routes in Lagos. The ban applied to high profile areas such as Ikoyi, Ikeja, Victoria Island, and Surulere. Why? The government muttered vague words about security concerns. 

That directive effectively killed their business models overnight. No thought was spared for the millions of dollars these companies had poured into Lagos. What kind of message does that send to the global business community about how business-friendly the state is? 

These companies had to lay off workers and pivot to different business models. Gokada laid off 70% of its workers. Gokada and Max.ng started logistics business—a more fragmented industry than ride-hailing. OPay, the owners of ORide, shut down ORide completely even in states that had not imposed a motorcycle ban. They figured that if they couldn’t get the Lagos market, the business just wasn’t worth it. This was not a good advertisement for investing in Lagos. 

Let me give another example. 

 

Exhibit 3: Aggressive demolitions

Like I mentioned earlier, Lagos has a master plan of what it is trying to be. And that is fine and good. You can build the most beautiful city in the world, but at some point, you need businesses to make the city thrive. Let us use Dubai as a case study. Dubai has a fantastically built city but it is also being intentional about attracting businesses. 

It launched a website specifically dedicated to showing investors why they should choose Dubai. Its tax laws are also inviting. According to PwC, most businesses in Dubai are not required to file any corporate tax returns. Exceptions are for companies in oil and gas, mining, and a few other industries.

Dubai shows that development is not just about having nice infrastructure. What works for them is being intentional about attracting and retaining businesses. They focus on sending a clear and unambiguous message to the international community that they are ready for business. Lagos, in trying to build a Dubai, is sending the wrong messages to the business community. 

Let’s reflect on what happened at the Oshodi market in 2017. 

In Lagos, the Oshodi market is known for two things. The size, diversity of the marketplace, and its rowdy crime-prone nature. The government attempted to solve the latter. Now, how does one solve that problem? 

There’s one attitude that sees the retail businesses there as inconsequential. Another way considers these businesses' value and wants to partner with them to solve the problem. No brownie points for guessing which approach the Lagos state government chose. 

They used the authoritarian way. They demolished shops in Oshodi while these shops still had goods in them. The 14-building plazas housing 368 units of shops, 144 open stores, and 129 small units stores became dust. Traders lost goods worth several millions of naira. Investors were looking at that as well. 

It’s not just Oshodi. The same thing happened in Ikoyi in 2016. Nigerian Twitter, at the time, was livid. Ikoyi is one of the most affluent neighbourhoods in Lagos. That didn’t stop the Lagos state government from demolishing a building on Rumens road that housed six businesses. Nuli Juice, a venture capital-backed beverage startup, was one of the businesses in that building. 

Unfortunately, they were not allowed to collect their equipment before the demolition. The CEO of Nuli Juice, Ada Osakwe, was not impressed. She tweeted “How do you show up at 8.30 a.m. with bulldozers and armed police to terrorise shop owners, and then proceed to level their stores and property to the ground with no prior notice? Even squatters have rights”.

Rights or no rights, property was lost, and businesses were affected by the government’s approach. 

I will give a final example.
 

Investment is already leaving

The Financial Times published an article a few weeks ago, and they mentioned something that should trouble every Lagosian and indeed, every Nigerian. They told a story of a hospital that was deciding whether to open in Lagos or Accra and chose Accra. 

For context, Lagos has 18 million people, while Accra has about three million. But, it is not just the cities. Nigeria has 200 million people. Ghana barely has 30 million. Even using the GDP numbers, Lagos is still superior.  Lagos has a GDP of over $84 billion, more than the GDP of the entire country of Ghana ($70 billion). 

Why, then, did the business choose Accra? 

Luckily, we do not have to conjecture. The company told us why they made that decision: Accra was more inviting. Accra saw the business as a partner. It offered tax holidays while Lagos was lamenting that its hands were tied with regards to tax holidays as the Federal Government controlled corporate taxes. With tied hands, Lagos watched the business go to Accra instead.

Yet, another business lost by Lagos. It is anyone’s guess how many more businesses the state has lost that have not made it to a news story on a publication like the Financial Times.
 

Cost and standard of living challenges

To add to all this, Lagos is not a nirvana to live in. Africa’s most populous city has a security challenge. Businesses are forced to spend on providing their own security. People close from work early to avoid getting robbed. Some get robbed and are traumatised by the incident, so they leave Lagos. 

I spoke with a doctor friend the other day who had relocated to Abuja after getting robbed on the Eko Bridge in Lagos. Within a month after that incident, she moved out of the city. She has now set up a business in Abuja and is working as a doctor there. Another example of a business that Lagos has lost. 

To be fair, Lagos has made efforts to address the security challenge. The Rapid Response Squad (RRS) was carved out with more specific objectives than the regular Nigerian Police Force. But, the reality is that Lagos still has a security challenge that is driving talent and businesses away. 

Something else that is driving talent and businesses away is the high cost of living. Let’s look at it. A young professional in Lagos who works in Victoria Island would fork out over a million naira to rent a one-bedroom apartment in Lekki. The same type of property could be rented for half that amount in cities such as Benin and Ibadan.

The ongoing pandemic has accelerated the push towards remote working for many people. This is especially clear in the software engineering community. These workers increasingly realise that they do not need to suffer a high cost of living if their jobs allow them to work remotely. So, they consider other cities like Ibadan, Ile-Ife, and even, Abakaliki. 

One startup that has generated some buzz recently is talent sourcing and incubator company, TalentQL. The founders had set up businesses in Lagos previously, but they decided that they did not need to be in Lagos any longer. They chose to start their new venture in Ile-Ife. Yet, another business that Lagos has lost. 

To end the first half of this piece, I will borrow a quote from the General Secretary of the Federation of Informal Workers Association of Nigeria (FIWAN). He says “Development is not about high rise buildings and flyover bridges”.

Businesses are the grease that lubricates and sustains that infrastructure.
 

Read part 2 of this story: How other states can reposition to win
Osato Guobadia

Osato Guobadia

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