According to the World Bank’s Doing Business 2016 report, Nigeria ranked 169 out of 189 countries surveyed on the Ease of Doing Business. The report examined the business economic conditions of 189 countries across all continents with focus on regulations for starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Although this year’s ranking represents a marginal improvement over last year’s ranking which placed the country in the 170th position, Nigeria trails behind a number of other African countries such as Mauritius (32), Rwanda (62), Botswana (72), South Africa (73) and Ghana (114) – all competing for foreign direct investments.
The current ranking implies that the regulatory environment leaves much to be desired with respect to starting and operating businesses in Nigeria. Not a few owners of Micro, Small and Medium Enterprises would corroborate this view. Available data from the Central Bank of Nigeria show that the Purchasing Managers’ Index, an indicator of the economic health of the manufacturing sector, has been below 50 on the average this year- an indication that the sector has been on the decline. The most recent figure indicates that the PMI dropped to 43.7 per cent in April, compared to 45.9 per cent in the preceding month.
In recognition of this challenge, the Federal Government, as a priority area this fiscal year, is reported to have set a target of moving 20 places up the World Bank’s Doing Business ranking from 169th to the 149th position. A major strategy towards achieving this target should be to direct attention at improving critical regulatory areas that recorded declines in the Doing Business ranking especially in the areas of ease of starting a business, getting electricity and access to credit. In this year’s report, while the rankings in some other areas remained unchanged from those of last year, ranking for starting business dropped eight places from 131st position in 2015 to 139th. Also, the country fell in ranking from the 181st position to 182nd with respect to getting electricity while a drop in ranking from 52nd to the 59th position was recorded with regard to access to credit.
To achieve a dramatic improvement in the ranking for ease of starting a business would entail having a seamless registration of business entities in the country. In this regard, the Corporate Affairs Commission should deploy relevant technology for online transactions as well as embark on training of its staff to be able to deliver prompt and efficient services with respect to registration of companies, processing of post-incorporation filings and providing other assistance as required under the Companies and Allied Matters Act, 2004.
As one of its major priorities this year, the Federal Government plans “to optimise up to 7,000 megawatts installed capacity with the associated infrastructure in order to enhance productivity and employment.” This effort will surely count in improving the country’s ranking in the area of getting electricity. Equally important is the need to ensure that electricity consumers are protected from exploitation by service providers. In fact, the Consumer Protection Council had acknowledged that the complaints coming from consumers in the power sector were the highest in the country. The high number of the complaints is a clear indication of customers’ increasing dissatisfaction with the Nigerian Electricity Supply Industry. The Nigerian Electricity Regulatory Commission has a major role to play in this regard.
Another target set by the Federal Government this fiscal year is to achieve a single digit lending to the real sector in order to increase output. This will certainly ease access to credit especially to micro and small businesses. The CBN and the Bankers’ Committee should cooperate to make this a reality. Also, the establishment, by the CBN, of a centralised collateral registry which broadens the range of assets that can be used as collateral will also improve access to credit. When fully deployed, the collateral registry will enable individuals to obtain loans from financial institutions using movable assets such as cars, inventories and equipment as well as and intellectual property as collateral and will facilitate access to finance to the MSMEs.
Furthermore, a recent development that will facilitate access to credit is the reported plan by the Asset Management Corporation of Nigeria to appoint Asset Management Partners to help with debt recovery and resolution of non-performing loans in the banking sector. Available data from the CBN indicate that the NPLs in the banking system rose sharply by 78 per cent year-on-year to N649.63bn in 2015. The AMPs would, among other things, work with the AMCON in tracing, identifying and locating obligors with a view to resolving their outstanding indebtedness. Reduction in non-performing loans is expected to translate to lower interest charges on loans. This is consistent with a study by Visaria which revealed that the establishment of debt recovery tribunals in India reduced non-performing loans by 28 per cent and lowered interest rates on larger loans, implying that faster processing of debt recovery cases reduces the cost of credit.
Although the ranking for paying taxes was unchanged at the 181st position from that of last year, it shows that Nigeria is one of the worst performing in this regard — 8th position from the rear. Consequently, there is the need to look into the frequent complaints by businesses of paying similar taxes on the same or substantially similar tax base or what is technically referred to as multiple taxes. These taxes as listed by Pricewaterhouse Coopers include Companies Income Tax, Information Technology Tax, Education Tax, Nigerian Content Development Levy all of which are based on income or profits and Value Added Tax, Sales Tax and Hotel Consumption Tax all based on sales.
In order to address the problem of multiple taxes, approved list of taxes should be streamlined and adhered to by all tiers of government. Efforts should be made to reduce the financial burden of taxes on businesses to encourage development of the private sector. This is particularly important for MSMEs, which contribute to growth and job creation but do not add significantly to tax revenue. To protect government revenue, the focus should be on broadening the tax base and widening the tax net.
To achieve the target of climbing 20 places up the World Bank’s Doing Business ranking will require giant strides towards better and more efficient business regulation. Kenya climbed 21 places between 2014 and 2015 by making critical reforms leading to improved electricity supply and access to credit. No less is expected of Nigeria.
Concerned about Nigeria’s low ranking in the current World Bank index on Ease of Doing Business, the Federal Government is reported to have set up an Inter-ministerial Committee having the Vice President as chairman to recommend measures for improving the business environment in Nigeria. It is also gratifying to note that the National Assembly, according to recent reports, has compiled over 250 laws that may have been stifling the growth of business in Nigeria since independence with a view to making them more business friendly. With significant improvements in business regulation, Nigeria could in fact move up several steps above the set target in the World Bank’s Doing Business report for 2017.