Is it now easy to do business in Nigeria?
After finishing his national youth service, Godwin set out to open an agro-processing plant.
He managed to pool together enough money from family and friends but found the formal business registration process less straightforward than anticipated. Still, he trudged on. Days after opening shop, Godwin was served with three separate levies from the local and state governments; he had been asked to pay levies for a business which had yet to commence production. By the third month of operation, Godwin had exhausted most of his cash flow, no thanks to the rising cost of diesel. Shortly afterwards, with no working capital and no family, friend or fool to give him more money, Godwin closed down his factory.
When Jessica, a luxury bead-maker, approached her bank for a medium-term loan to scale up her business, she was hastily turned away. Why? She had nothing the bank counted as collateral.
Godwin and Jessica’s experiences are just some of the many difficulties encountered while doing business in Nigeria. It will surprise few people that Nigeria has consistently ranked lowly on the Ease of Doing Business (EDB) index.
The World Bank set up the Ease of Doing Business index to score and rank countries based on how easy it is to set up and operate a business there. The EDB index tries to measure regulations directly affecting businesses by examining several factors including dealing with registering property, getting credit, getting electricity, enforcing contracts, resolving insolvency, etc.
To put it bluntly, it is not easy to do business in Nigeria, particularly if you run an SME. This is something we should all care about as many vibrant economies rely on SMEs for the bulk of their GDP and employment.
In Germany, SMEs contribute half of all economic output and provide over 60% of all formal jobs. Small businesses around the world are regarded as the engines of technological innovation and economic growth. So a country like Nigeria can ill afford to hamper the growth of small businesses.
And yet, we do.
However, in 2018, Nigeria scaled 24 spots to 145th out of 180 countries, our highest rank since 120th in 2008 and a far cry from the nadir of 170th in 2014.
For once, this step forward can be squarely attributed to government policy. Tired of languishing near the bottom of the EDB rankings year after year, President Muhammadu Buhari set up the Presidential Enabling Business Environment Council (PEBEC) in October 2016. Headed by the Vice President, PEBEC was tasked with improving the ease of doing business in Nigeria. The Presidency also appointed new leadership to the Nigerian Investment Promotion Commission (NIPC) among other reforms.
These reforms paid off, with PEBEC mostly responsible for pushing through changes to speed up business registration and the passage of two bills to boost SME credit access.
Despite the rise in the rankings, the reality on ground is that there remains a lot to do. Afterall, we are still 25 places short of our 2008 ranking. Furthermore, many businesses continue to suffer from crippling multiple taxation while the nation’s decrepit infrastructure ensures that human and trade logistics remain a tough nut to crack. Also, while the process of registering a business has improved, the country remains far behind many other African nations. For instance, it takes just 6 hours to register a business in Rwanda.
In addition, while the latest report indicates that Nigeria made significant strides in the area of accessing credit, high interest rates mean that real access to capital remains as difficult as ever. Improved access to credit was responsible for much of Nigeria’s progress in the latest Doing Business rankings, yet real access to credit remains a mirage. Our access to credit score improved so much because of the launch of a collateral registry which allows business owners to use movable collateral and the establishment of a proper credit bureau in the country. The collateral registry and credit bureau are the boxes the index likes to tick, but may not represent real change for Nigerians.
That paradox illustrates one of the major flaws of the World Bank's approach. The index tends to focus on specific indicators as opposed to measuring broader impact. In the case of Nigeria’s highly improved access to credit score, the evaluation typically focused on the legal and institutional framework behind accessing credit, which was quickly ‘rectified’ by promulgating a law and setting up a registry, and not the actual obtaining credit.
Thus, the stark reality is that a lot remains to be done to ease the process of doing business in Nigeria. Policy inconsistencies and multiple taxations at the various levels of government need to be addressed while there is an urgent need to strengthen the nation’s legal institutions to ensure contract enforcement, protect minority investors and resolve insolvency. Only then can the nation boldly claim to have eased the process of doing business in Nigeria.
While the EDB is not without its failings, from its susceptibility to being gamed (as Nigeria did) to the fact that it only looks at businesses in Lagos and Kano, the index remains a useful framework for measuring improvement. However, we must endeavour not to get carried away by any rankings (accurate or not), but instead focus on the actual experience of doing business in Nigeria.
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