Govt Agencies as Barriers to Ease of Doing Business in Nigeria

Tinapa Business & Leisure Resort

Nigeria at present is perhaps not one of the most attractive places to do business. The business landscape is dotted with innumerable gatekeepers, who are yet to understand that their mandate as regulators and enforcers, is to help businesses grow and thrive. As long as Nigeria remains lethargic in reforming its business environment for greater efficiency, it is unlikely that it will make any significant headway in attracting much-needed foreign direct and portfolio investments. Nosa James-Igbinadolor reports

The problem of location of economic activities is one of the critical economic questions. Indeed, pioneers in land economics viewed distance as a ‘social friction’ that needed to be overcome. Conceivably, the sole most significant factor that helps drive growth for any business is consumer accessibility and that is almost always driven by location; whether in the real world or the virtual world.

The competition by countries for scarce foreign direct investments as well as portfolio investments is quite intense with competing economies significantly influencing FDI flows up to a certain level by using fiscal policy instruments as strategic tools. However, it has often been stated that financial subsidies and tax reliefs cannot compensate for all the drawbacks of a given competing country. A 2000 study by the OECD found that competing governments tend to make efforts to modernise the infrastructure, increase local productivity-enhancing human-capital formation, and improve the overall business environment as parts of investment promotion policy. Such policies cannot only be a powerful means of attracting FDI, but also independently of the FDI flows, of promoting economic development, because such measures result in benefits for domestic producers as well.

The recent 2019 World Bank Ease of Doing Business annual report aptly noted that “an economy cannot thrive without a healthy private sector. When local businesses flourish, they create jobs and generate income that can be spent and invested domestically. Any rational government that cares about the economic well-being and advancement of its constituency pays special attention to laws and regulations affecting local small and medium size enterprises (SMEs). Effective business regulation affords micro and small firms the opportunity to grow, innovate and, when applicable, move from the informal to the formal sector of an economy.”

Nigeria is currently ranked 146 among 190 economies in the ease of doing business, according to the latest 2019 World Bank annual ratings. The ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operation and stronger protections of property rights with economies with a high rank from 1-20 having simpler and more friendly regulations for businesses. No doubt, improving the business regulatory environment across Nigeria will be key for the country’s economic growth and development.

Nigeria has consistently failed to rank well since the index was first released 15 years ago. Though the World Bank report noted some improvements in some indicator areas, including business registration, the improvements were obviously not significant enough to improve the ranking of the country from its 2018 dismal position, rather the country fell one notch down the ladder. As the World Bank Nigeria Country Director, Rachid Benmessaoud, noted in the earlier 2018 report, the country “continues to face the challenge of diversifying its economy and making the country more business-friendly across all sectors… Most Nigerian states are still far from the frontier of global good practices in all areas. All states have plenty of room for reform moving forward. The good news is that many solutions can be found within Nigeria.”

For these solutions to be found and implemented, there is a strong consensus among experts and business persons that institutions of government including ministries, departments and agencies need to be reformed to become effective drivers of better and easier means of doing business. As presently constituted, it is obvious that most institutions of government including the three arms of government are stoic barriers to an effective and efficient business environment.

Partner and Head of Tax Regulation at PWC Nigeria, Mr. Taiwo Oyedele,  recently asserted in a chat with CNBC that the efforts the Nigerian government has put in place with respect to easing the business environment “has largely been about plucking the low hanging fruits.” He noted further that “in the areas where we seem to be doing well like getting credits and protecting minority investors, getting credits is quite interesting, if you have the information that is required in Nigeria, you can actually get credit. The problem is always with the documentation and all the requirements and sometimes for the SMEs and the informal sector, it’s almost impossible to get this documentation. He added that while minority rights were reasonably well protected in the country, “we need to go beyond that. We need to simplify starting a business, we need to simplify registering property, enforcing contracts, paying taxes. Those things are very important. According to the World Bank report, the most reformed area around the world is starting a business and here in Nigeria, we have the CAMA bill which is some 30 years old and we are still celebrating it.”

For political analyst and businessman, Mr. Ese Idiegbe, many of the regulations with respect to doing business in the country aren’t well thought out. According to him, a lot of the requirements pushed forward and demanded by most government agencies do not make any rational and business sense at all. “There is no economic or legal justification for many of these requirements. The ministry of trade and investment needs to audit a lot of these requirements and see if they do not constitute a threat to the ease of doing business.”

Earlier this year, a Federal High Court in Abuja awarded damages of over N5.5billion against the Nigerian Customs Service (NCS) and the chairman of its board over the unlawful seizure of 90 containers of rice imported by a firm, Maggpiy Trading TFZE. Maggpiy, in its suit had stated that officials of the NCS invaded and sealed up its warehouse in the Tinapa Free Trade Zone (TFTZ), Calabar on March 18, 2017. Justice Inyang Ekwo rejected the defence raised by the customs and the Customs Board chairman, and their attempt to justify their actions. He faulted their claim that they acted under the Federal Ministry of Finance Import Guidelines, Procedures and Documentation Requirements under the Destination Inspection Scheme in Nigeria. Justice Ekwo said not only were the documents inadmissible and worthless, having not been signed; there was no provision in the document that made it applicable to Free Trade Zones. “I have studied the document, I cannot find anywhere it is made applicable to Free Trade Zones, which both parties have agreed, is a country within a country,” the Judge noted.

Tinapa is a classic example of how the Nigeria Customs Service, a government agency constituted itself as a barrier to ease of doing business. The N60 billion project was designed to be a world-class destination for tourists and businesses and had been concieved and built by the Cross River State government, under the former governor Donald Duke. It was expected to generate employment opportunities and be a veritable source of revenue for the state and the country at large. It is located within the Tinapa Free Zone and Resort and adjacent to the Calabar Port and the Calabar Free Trade Zone. The location was to ensure easy access to the port and to take direct delivery of manufactured products from the CFTZ. Its financial viability was to be driven primarily by import, export and trading activities in addition to services offered by the leisure and tourism components of the project.

Mudiaga Affe and Tunde Ajala, in their analysis of the failure of the Tinapa project noted that the intervention of the Nigerian Customs Service has been adduced as the major reason behind the demise of this gargantuan investment.

According to a business owner who had a shop within the premises of the free trade zone, “This place had been in existence since 2009, but business boomed until around 2012 when Customs officials started disturbing customers. No matter what you buy, once it is above N30,000, you must pay duties when leaving. It became inconvenient for customers and many of them stopped coming. This made us to start having old stock and they would remain there until they expired, and so investors started pulling out because the influx of buyers dropped greatly. People even perceived goods in the premises as more expensive than what they would get outside.”

Ese Idiegbe in an interview with THISDAY, agreed that there was a need to streamline the documentation process needed for business registration. He noted that as long as government institutions continue to demand for impossible documentation, businesses will look to other environments to thrive. “It is as if government agencies responsible for regulating businesses equate their mandate to frustrating those who seek to do genuine business. They are always creating red flags where none exists. The MDAs see every investor as a suspect and that isn’t good for business at all.”

A classic example of seeing every potential investor as first a suspect before a legitimate investor is the unnecessary demand by the Economic and Financial Crimes Commission (EFCC) for businesses that require SCUML certification from the agency to provide professional certificate of business owners even after such businesses had been registered by the Corporate Affairs Commission (CAC). SCUML which is charged with the responsibility of monitoring, supervising and regulating the activities of Designated Non-Financial Institutions (DNFIs) in line with the Money Laundering (Prohibition) Act ML(P) Act 2011 and the Prevention of Terrorism Act (PTA) 2011, does not on its website advertise the presentation of professional certification as a sine qua non for the acquisition of the SCUML certificate, yet it constantly demands for such from businesses before availing them of its clearance certificate. The SCUML certificate is issued by the EFCC as a proof that a bank account is not being used for money laundering activities and is issued after a thorough background check. If the ease of doing business is to be improved upon, one wonders if certificates and other documents such as SCUML are necessary especially when business owners and their accounts can easily be monitored through their biometric verification number (BVN).

From the Nigeria Ports Authority to the Customs, EFCC, Police and across virtually all ministries, departments and agencies of government in the country, there is a prevalent attempt at bureaucratising every economic challenge and seeing every mandate as economic gatekeeping that should limit entrée to activities that are very much liberalised and easy to access in other countries.

While the Presidential Enabling Business Environment Council (PEBEC) and the Enabling Business Environment secretariat are keen to look at the positive side of the World Bank report, the reality is that the country is lagging behind in liberalising the business environment for efficient start-to-finish commercial activities.