The Unease of doing business in Nigeria.
They say you have to be a little insane to venture into business anywhere in the world. This is even more true for doing business in Nigeria.
The success of the private sector should be a top priority for any government seeking to build a prosperous nation. Development and growth in the private sector lead to the creation of solutions, creation of jobs, generation of wealth, reduction in crime and a general improvement in the standard of living of citizens.
A little bit about the ease of doing business
Doing Business(DB) analyses the regulations that encourage efficiency and freedom to conduct business in a country. The ease of doing business index was created by Simeon Djankov and Gerhard Pohl of the world bank. It shows the performance of countries across 12 subindices and ranks them in relation to other nations. Countries with lower scores have a more favourable clime for conducting business than ones with higher scores. Historically, countries like New Zealand, Singapore, Hong Kong, Denmark and the United States have topped the list.
Countries with heavier regulation of entry have higher corruption and larger unofficial economies, but no better quality of public or private goods.
Since the publication of the doing business report, various countries have launched and implemented reforms to improve their ranking. It was observed that countries that show commitment to improving the ease of doing business benefited from higher levels of entrepreneurial activities, which lead to more employment, and increased revenue generation for the country. It’s no wonder that a lot of countries work to improve their ranking.
The 2020 Doing Business report shows that only two African countries rank in the top 50: Rwanda (38) and Mauritius (13).
Here’s what’s measured in the ease of doing business:
It is important to note that there are limitations to this research. For one, it only looks at the regulatory landscape, and even then, not all the regulations are assessed. It fails to consider other factors that affect a business such as the macroeconomic conditions or the financial system at play.
Nigeria’s performance so far…
Nigeria started out ranked at 94 out of 190 in 2006 when the first ease of doing business report was published. Nigeria continued to fall and reached an all-time low in 2015 where it ranked at 170. After that, conscious efforts were put in place to ensure that Nigeria improved.
A special council tagged the Presidential Enabling Business Council (PEBEC) was instituted in July 2016 and housed under the vice president’s office. To its credit, PEBEC took this job seriously and ran with its mandate to:
- To move Nigeria upwards in the World Bank Doing Business Rankings.
- To remove critical bottlenecks and constraints to doing business in the country and make Nigeria a progressively easier place to do business and thrive.
It identified key areas that needed to be improved on immediately as well as 6 MDAs that were prioritised as partners. Since its creation, Nigeria has seen its ranking improve to 169 in 2016 which it maintained in 2017. Currently, Nigeria ranks at 131.
Some of the activities carried out in 2020 to improve the ranking were:
- Making starting a business easier by improving online platforms and shortening the time to register a company.
- Eliminating the Infrastructure Development Charge (IDC) making it less costly to obtain a construction permit.
- Making getting electricity easier by allowing certified engineers to conduct inspections for new connections.
- Implementing a geographic system improving its land administration system.
- Improving its trading across borders by upgrading its electronic system and by launching e-payment of fees thereby reducing the time to import and export further.
- Making enforcing contracts easier by introducing a pretrial conference as part of the case management techniques used in court.
In general, PEBEC has tried to improve the performance of the government portal and remove necessary bottlenecks that make doing business cumbersome. Nigeria was one of 10 countries with the most notable improvements in 2020.
It is believed that the motivation for the commitment to improvement in Nigeria was spurred by the developmental achievements of its neighbours such as Rwanda, Kenya and Togo.
Are we measuring what matters?
The Doing Business (DB) index has its merit and definitely provides a methodological way of looking at the regulatory framework affecting business. It provides a map for countries to focus its efforts. In general, an improvement in ranking is associated with an improvement in the ease of conducting business. It also encourages Foreign Direct Investment (FDI) and aids in improving the economy.
However, It appears that despite the great milestones and ascension of Nigeria in the DB ranking, the reality of doing business seems to diverge. People still complain of bottlenecks and the destruction of their business by unfavourable regulations.
Bearing the limitations of the index in mind, It’s important to note that some countries have been able to discover and take advantage of the weakness of the DB index and score cheap wins.
In Nigeria, PEBEC has focused solely on the parameters measured by the doing business report and ignored other critical factors that affect business. It also appears that most of the progress made in the ease of doing business has been focused on Lagos and Kano.
The reality of doing business in Nigeria
Speak with any average entrepreneur in Nigeria about his experience of doing business in the country and she would be happy to tell you of all the challenges experienced. The uncertainty of conducting business in Nigeria is high. Policies and taxes can spring up overnight.
For example, with the lockdown and growth in the logistics sector, the Nigerian Postal Service (NIPOST) instituted a mandatory fee for small logistics companies that could be higher than the cost necessary for them to set up.
Lagos state is known to create policies that have negative effects on business. An example is the high operational license fee that was set for ride-hailing companies, and later the okada ban that saw thousands of people lose their jobs. Business policies are supposed to boost and support entrepreneurship, but some policies seem to deviate from achieving this.
There are stories of businesses that have spent 18 months trying to obtain a National Food and Drug Agency (NAFDAC) license. These delays were not due to ensuring due diligence and rigorous inspections, but just an example of breakdowns in a very bureaucratic and opaque process.
There are various instances of multiple taxations, and shadow collection done by corrupt officials in government offices. There are also cases of businesses being demolished with no prior warning.
Businesses need a level of stability to plan and succeed. This is made almost impossible in the Nigerian business environment where curveballs are continuously thrown at the whims of anyone who has power.
I wouldn’t want to mention the poor infrastructure needed to support businesses. Basic amenities like constant electricity, good and reliable connectivity, suitable road and transportation networks are lacking. All this deficit means that a business has to invest more to make them available to thrive.
But there’s more…
In all the uncertainties that surround doing business in Nigeria, there are lots of successes. There is an increase in the technology penetration and adoption of digital tools increasing the opportunity for tech-enabled businesses.
I would personally argue that ALL business environments have its uncertainties and risks involved in setting up and operating. The important thing is to be aware of the way the environment plays and create strategies that factor them in.
So in knowing the level of opacity in regulation, be prepared and create systems for your business. Understanding the demography of Nigeria and its spending habits and capacity would enable you to create and price your products in an attractive manner. Just look at the way the ‘sachet economy’ has boomed. This has increased the available market for a lot of brands by creating products in a form that is accessible to a majority of the population.
It’s no secret that lots of businesses and businessmen and women that succeed in Nigeria have a few fingers in government. Some even have both arms in government. Dangote is notoriously known for trying to influence policies to suit him and stifle competition. I believe this has been his competitive advantage. You didn’t hear it from me, but I’ll advise that you increase your network to include people in government.
I believe it is paramount that to succeed in doing business in Nigeria you must arm yourself with information on how policies are made and passed. You should be aware of the policy landscape as well as key players in your industry who could speak and support bills that increase the conduciveness of your business environment.
Business and politics do have to intersect. Forget the notion that you should not mix business and politics. History has shown that it is disadvantageous when policymakers create blind policies without and understanding of the businesses the policies are for. These insights must be provided by key players in the industry to ensure the design and implementation of favourable policies.
One final thing…
Do not be infatuated with the idea that you can copy and paste in foreign successes in Nigeria. Nigeria is not America, Lagos is not Silicon Valley. The market is different, the social behaviours are different, the demography is different.
Nigeria remains one of the top places to conduct business in Africa. There is an increasing emphasis on improving the conduciveness to do business in Nigeria. We hope that the intentions and policies designed translate to actual improvement in the business climate. Until then, continue to make the most of what you have, be innovative and stay gritty.
