Business activities on broad street, Lagos Island
As the Federal Government prepares to midwife improvement in the country’s business space and improve ease of doing business, stakeholders in the economy bare their minds on areas they believe require quick intervention by government, writes Olaseni Durojaiye
With its repeated poor ranking on the ease of doing business index of a few international rating agencies especially when compared with the performances of less endowed African countries on same index, players in the Nigerian economy have repeatedly called on governments at various levels to initiate policies and reforms that will improve the business operating environment. The call, it will be recalled reverberated all through the last Nigerian Economic Summit during which some of the discussants identified some areas in need of urgent reforms and various types of government interventions.
In what seemed a reflection of what operators in the nation’s economy have repeatedly lamented, between quarter four of 2015 and the first quarter of 2016, at least three international rating agencies have ranked Nigeria behind less endowed African countries. Besides, some of the rating organisations also identified a couple of sectors that if reformed will trigger growth, improve ease of doing business in the country and catapult the country into the list of top 100 countries to do business in the world. Of course, the advantages of such growth and rating on the country’s economy and Gross Domestic Product (GDP) cannot be underestimated.
Before the last ratings by the World Bank Group, assessing agencies that has rated the country’s business environment include Rand Merchant Bank’s (RMB) ‘Where to Invest in Africa 2015-2016 report’; “World Bank ease of Doing Business Report”, “Heritage Foundation’s Index of Economic Freedom,” “World Economic Forum’s (WEF) Global Competitiveness Report” and “Transparency International’s Corruption Perception Index” which the RMB’s rating relied on.
It will be recalled that the RMB where to invest in Africa report placed Nigeria fifth behind South Africa, Egypt, Morocco and Ghana. Interestingly, while South Africa continued to maintain its lead as the most attractive investment destination on the continent, Nigeria on the other hand slumped to fifth position as Egypt, Morocco and Ghana leapfrogged Africa’s largest economy.
The report finds Rwanda, Ghana and Zambia to be stand‐out countries based on continued improvements via reforms and accelerated growth. It also notes that Kenya, Tanzania, Uganda and Rwanda collectively are large and attractive adding that the notable North African economies are Tunisia and Morocco.
According to a Lagos-based economist Oye Makinde, “it speaks volume that it is the same Kenya that Nigeria is now trying to study and perhaps model its reforms after.” Makinde was reacting to reports credited to a Presidency source in which the source was quoted as saying “We’re looking keenly at the example of Kenya, which climbed 21 places on the ranking between 2014 and 2015 simply by focusing on a number of critical reforms ranging from access to electricity, to access to finance for businesses and property registration procedures.”
The RMB assessment rated countries from most to least attractive investment destinations. Scores are based on: market size, as measured by GDP at purchasing power parity: the market growth rate, as reflected in the International Monetary Fund’s forecast of real GDP growth; and an operating environment index, which looks at economic freedom, corruption, efficiency and business friendliness.
The World Bank Group Ease of Doing Business which is the latest of the rating agencies to release its report rank Nigeria 169 among 189 countries that were assessed. The 2016 edition which was released in February showed Kenya jumping from 129th in the previous report to 108, moving up 21 places. The report also showed that between 2010 and 2015, Rwanda went from 98th to 62nd on the ranking. It further showed that Zambia broke into the top 100 in 2011 and has remained within the range since then.
According to authors of the reports, World Bank Group, “the Economies are ranked on their ease of doing business, from 1–189. A high ease of doing business ranking means the regulatory environment is more conducive to the starting and operation of a local firm. The rankings are determined by sorting the aggregate distance to frontier scores on 10 topics, each consisting of several indicators, giving equal weight to each topic. The rankings for all economies are benchmarked to June 2015.
To arrive at the rating, the rating agency evaluated individual country’s performances in the areas of starting a business, getting electricity, paying taxes, trading across borders, dealing with construction permits, protecting minority investments, and getting credits. While Nigeria was rated 139 in the Starting a Business category, it was rated 181 in the Paying Taxes and Registering Property categories. The report went ahead to rate Nigeria 143 in the Trading across Borders enforcing Contracts categories. However, the country fell within the top 100 as it was rated 59 in the Getting Credit category.
Federal Government’s Intervention
Apparently miffed by the repeated poor rating of the country’s business environment and perhaps in response to various calls from different segments of the economy, the Federal Government appeared prepared to arrest and intervene in the economy and help improve the economic space. This explained the setting up of a presidential level initiative to address the country’s consistently poor global Competitiveness and Ease of Doing Business indices.
The initiative which is being championed by the Ministry of Industry, Trade and Investment (MITI) will be headed by the Vice President, Professor Yemi Osinbajo and will have the Minister of Industry, Trade and Investments, Dr. Okey Enelamah, as vice chairman. It is expected to be an inter-ministerial committee to facilitate cooperation across the ministries.
The committee, according to media reports will also have substantial private sector input in terms of membership and will be saddled with resolving challenges inhibiting against industrialization, cross border trade as well as local and foreign investments.
The planned quick intervention by the Federal Government has received a welcome nod from a cross section of operators in the economy as responses to THISDAY enquiries revealed with some of the respondents highlighting areas in need of urgent intervention by government.
Speaking with THISDAY in an interview, President, Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, and the Director General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, were in agreement that Infrastructure, policy reform and access to finance are three key areas where urgent government intervention is needed. In calling for a reform of the entire spectrum of the oil and gas industry, Yusuf noted that “government’s hold on that sector is too much” adding that it is affecting efficiency.”
On his part, Dr. Jacobs called for a re-introduction of export Expansion Grant (EEG). According to him doing so will serve as incentive to non-oil exporters adding that the drop in oil price has reinforced the need to diversify the economy which will in-turn increase non-oil exports.
According to Yusuf, “The issue of improving the economic environment and ease of doing business in the country can be categorised into three, the short term, medium term and long term. Regarding what can be done immediately from an economist perspective, I will say it is power situation, policy reform in the oil and gas sector and issues of logistics.
“There has to be a model that will make power generation and distribution work well than what we have now. Every other thing rides on the back of power; if that is done other services can then pick up. Again, there is the need for policy reform in the oil and gas sector. As it is at the moment government’s hold on the sector is too much and it is affecting efficiency in the sector and, the kind of value that the sector can bring as well as the amount of jobs that the sector can deliver,” he stated.
Continuing, Yusuf added: “Issues of logistics also require government’s urgent intervention. Nigeria is a large country, to take advantage of our size our transportation system needs to be affordable and efficient; cost of transportation is impeding domestic economic integration. Government should look at the road and rail transportation as a way to address issues of logistics, if this is done other services including agriculture and manufacturing can move easily within the country. The way it is now, cost of transportation is too high and it is making the business environment rather unfriendly,” he stressed.
In his own submission, Jacobs who said infrastructure to include power, roads and rail system, agreed with Yusuf on the need for government to improve on power generation and distribution, as well as work on road and rail transportation to ease movement of goods and services around the country.
According to him, “cost of finance is another area where government needs to intervene. Interest rate which currently hovers around 25 per cent does not help business.
Government can help to make it come down to as low as five per cent by enacting a policy in that direction; if that is done, it will help business, including small and medium scale enterprises and large scale manufacturers to grow.”
Speaking further, he stated that, “there is need for a deliberate policy to encourage non-oil export. The fall in oil price and the country’s current forex challenge has further reinforced the need to encourage non-oil exports. Government should revisit the issue of Export Expansion Grant which was suspended by the previous government. If this is done it will serve as incentive for people to want to export, this would boost foreign exchange earnings for the country as well,” he stressed.
Meanwhile, Chief Executive Officer of Nigeria Economic Summit Group, Laoye Jaiyeola, insisted that improving ease of doing business in the country required a concerted effort among the different tiers of government and the legislators. While noting that Nigeria’s ranking is not good both on the World Bank Group’s ease of doing business and the World Economic Index, he harped on the issue of multiple taxation.
He also noted that it was encouraging that the National Assembly has also indicated interest in helping to improve the ease of doing business in the country.
Jacobs aligned with Jaiyeola on the problem that multiple taxation pose to business operating in the country.
According to him, “another issue is multiple taxations; government needs to harmonise taxation among the three tiers of government. As it is, if you are delivering goods from one state to another, you will end up paying in all the local governments that you pass through.
This doesn’t help business to grow in any way. Government can ensure that what you pay in one local government covers for all others that the goods pass through,” he posited.
Besides the issue of multiple taxations, Jaiyeola also noted the complexities in registering properties adding that in Lagos, people pay to multiple government agencies to register property and wondered, “Why can’t I pay it once and the various agencies share it among themselves.” Incidentally, it is one of the yardsticks by which the World Bank Group Ease of Doing Business index arrived at its ranking.