Ease of Doing Business: Turning the Searchlight on States

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The World Bank and some government agencies have begun the process of ranking Nigeria’s 36 states and the Federal Capital Territory based on an assessment of the ease of doing business within each setting. What could the classification mean for the economy? Vincent Obia writes

As in many kinds of innovation, necessity is the mother of invention. Nigeria is no exception. Recession has forced Nigerians to reinvent the way they do things. In the wake of the recession, which the country slipped into in the second quarter of last year, the federal government has adopted a number of measures to try to curb economic decline and engineer growth. One of the most remarkable is the effort to improve the ease of doing business.

 

Ease of Doing Business 

The Presidential Enabling Business Environment Council was set up in July last year by President Muhammadu Buhari to remove bottlenecks and bureaucratic constraints to the establishment and running of businesses in Nigeria. The council has Acting President Yemi Osinbajo as chairman, Minister of Industry, Trade and Investment, Dr. Okechukwu Enelamah, as vice chairman, and nine other ministers, the Head of the Civil Service of the Federation, Governor of the Central Bank of Nigeria, and representatives of the National Assembly and the private sector as members. The government also established the Enabling Business Environment Secretariat, which became operational in October last year and has Senior Special Assistant to the President on Industry, Trade and Investment, Dr. Jumoke Oduwole, who is also secretary to the PEBEC, as coordinator.

In February, the PEBEC approved a 60-day national action plan for implementation across its three priority areas, namely, entry and exit of goods, entry and exit of people, and government transparency and procurement. The action plan was aimed at delivering tangible improvements for small and medium scale enterprises in Nigeria. Importantly, it was meant to help improve the country’s awful 169th position (out of 190) on the World Bank Doing Business Index.

On May 18, Osinbajo issued three executive orders specifically targeting the removal of obstacles to private business, government budgeting, and movement of people and goods between Nigeria and other countries.

The federal government says its efforts to improve the national business environment are achieving their goals. It is now turning the light on the states.

 

Ease of Doing Business in States

 Enelamah and Oduwole disclosed penultimate Thursday that the 36 states of Nigeria and the Federal Capital Territory were being assessed on the basis of the ease of doing business in each location for the period 2014-2018. This is in preparation for rankings due to be released in the first half of next year.

According to them, the subnational rankings are being undertaken by the World Bank Group, in collaboration with the EBES and the Nigerian Investment Promotion Council. The EBES and NIPC would assist state governments in the implementation of their priority reforms.

The states and FCT will be ranked based on 11 indicator areas, which include four World Bank indicators and seven additional areas of interest that are governed or implemented by the state governments. The World Bank indicators are: starting a business, enforcing contract, registering property, and dealing with construction permits. 

The seven additional indicator areas comprise: trade/investment and marketing; infrastructure; access to landed property; regulatory environment; institutional support and business resources; transparency and accessibility to information; and security.

While the global World Bank Doing Business Rankings evaluate countries based on the performances of one or two major cities, generally using Lagos and Kano as representative centres for Nigeria, the subnational assessment would rank all the states and the FCT. The government says the aim is to bring out local peculiarities, help states to compete on the basis of their comparative advantage, and highlight good practices and success stories that can be replicated.

Motivation 

Nigeria’s economic priorities and the way they are pursued are, undoubtedly, in dire need of resetting. Many believe the ease of doing business rankings are a veritable means of using peer influence to reset the local economic environment. Experts hail the looming state-by-state rankings as an exercise that would engender healthy competition among the federating units.

“Such an exercise would engender competition among the federating states in terms of who would be the best in the ease of doing business,” says president of Manufacturers Association of Nigeria, Dr. Frank Jacobs. “If that happens, it will create a better business environment and it is going to increase the ease of doing business among the states. That will be to the benefit of the manufacturing sector.”

Jacobs explains, “We believe that it is a step in the right direction. It is something that should be encouraged, in fact, not just in the states alone, but also in the local governments. It will make the business environment attractive and more investment will go into business, thereby creating jobs and wealth for the country. That would improve the economy of the country.

“I wish it had been done even by our government, not just the World Bank. I wish there is a way such competition would be encouraged by the federal government for the federating states so that they can begin to see the relevance and importance of improving the ease of doing business.”

 

Impediment

 Like many entrepreneurs in Nigeria, the MAN president identifies wilful erection of obstacles to free movement of goods and services by subnational governments and multiple-taxation as major limitations that should be removed to free up the states for investment.

He says, “The major challenge in the states and local governments is extortion by revenue agencies and touts on the roads, which impede the free flow of goods and humans. Most times it costs a lot of money to transport goods from one state to another because as you transit from one state to the other, you come across various local governments and each would charge you one levy and tax or the other, which would not be applicable in the next state. If you go to the next state they would ask you to pay the same thing.”

Jacobs believes, “The multiplicity of taxes is one issue that should be addressed at the state and local government levels. Those are part of the issues that affect the ease of doing business. If goods cannot be moved freely from one point to the other as a result of these revenue agencies and touts that stop you on the roads, that means many people won’t be interested in doing business in that state.

“That is one major issue. The other ones are national in nature.”

 

Remedy

 Timely clearance of goods at ports and the removal of obstacles to free movement of goods and persons across the country are a critical part of the ease of doing business initiative of the federal government. They are also the main intention of the three Executive Orders issued by Osinbajo in May.

In line with the above objective, last week, Comptroller-general of Customs, Col. Hamid Ali (rtd), directed the immediate removal of all illegal Customs checkpoints across the country. A circular issued on Monday in Abuja said any checkpoint beyond 40 kilometres from the borders was illegal.

“The 40 km radius applies only to the borders. Consequently, there should be no checkpoints with the ports,” the circular stated. It is also restricted information patrols beyond the 40 kilometres point from the borders.

The Customs boss would be expected to give an update on the removal of the illegal checks and other obstacles at the next PEBEC meeting on August 15.

Similarly, in April, the Inspector-general of Police, Ibrahim Idris, ordered the dismantling of all illegal roadblocks mounted by revenue collectors, road transport unions, labour and trade unions on highways across the country. A statement on April 16 by the Force spokesman, Jimoh Moshood, said “The Taxes and Levies Act, Laws of the Federation of Nigeria 2004, section 2 (2) disallowed any person, including a tax authority, from mounting a roadblock in any part of the federation for the purposes of collecting any tax or levy.”

The police advised state and local governments and other affected bodies to desist from mounting such road blockades, saying that apart from inhibiting traffic, they have also served as avenues for armed robbery, kidnapping, and other criminal activities.   

On the question of double-taxation, the Voluntary Assets and Income Declaration Scheme, which is a collaborative effort by the federal and state governments to encourage tax compliance through a time-limited amnesty, is expected to help to streamline the taxing powers of the various tiers of government.

But successful implementation of the various measures have remained problematic, as many business owners still complain about unremitting extortion and other avoidable hindrances on the roads.

It is expected that the ranking of states based on ease of doing business would put pressure on the subnational governments to remove the impediments to free flow of business and investment in their territories.

 

Structural Limitation

 But experts say there are serious structural issues that need to be addressed before the intentions of the state-by-state ease of doing business rankings can really be realised.

Last week, at its meeting in Abuja, the Monetary Policy Committee retained the Monetary Policy Rate of 14 per cent, which has been operational since July last year, “alongside all other policy parameters,” saying it is, “In consideration of the headwinds confronting the domestic economy and the uncertainties in the global environment.” The MPC also retained its cash reserve ratio at 22.5 per cent and liquidity ratio at 30 per cent, with inflation remaining at a high rate of 16.1 per cent.

The position of the monetary committee contradicts that of many experts, who have maintained that lowering the interest rate would reduce the cost of funds and give both government and private investors more access to loans to expand infrastructure and production.

Economist Henry Boyo accuses the federal government of “leaving the critical things and chasing shadows.” Boyo says the high cost of funds, double-digit inflation rate, and CBN’s monopoly of the foreign exchange market are problems that must be addressed before Nigeria can truly attract both local and foreign investment.

Many have also said that the pseudo-federal nature of Nigeria, which is anchored on a unitary-style central sharing of revenues, would always neutralise any pressure on the state governments to take concrete steps to encourage ease of doing business within their territories.

 

Revenue Insufficiency 

Nevertheless, indications are that the harsh economic realities characterised by dwindling federal revenues would put enormous pressure on the states to worry about their business environment.

Nigeria went into recession in the second quarter of last year, when figures released by the National Bureau of Statistics officially confirmed two consecutive quarters of declining growth. In its report published August 31 last year, the NBS said Gross Domestic Product declined by -2.06 per cent between April and June. Record fall in crude oil prices, from about $112 per barrel in 2014 to less than $50 per barrel in 2016, inflation, and high cost of imports all combined to create the contractions that pushed Nigeria into recession.

The federal government feels removing bureaucratic bottlenecks that burden investors at the national and subnational levels would boost business and growth. Time will tell how far the ease of doing business initiative can go at the various levels.