Rethinking the purpose and practice of business regulation in Nigeria
Towards the end of last year, I participated in two forums where the issue of regulation and ease of doing business in Nigeria came under review. In one of the events, I was saddled with the responsibility of discussing a paper by a well-respected professor of Law and Senior Advocate of Nigeria, Paul Idornigie. The paper bordered on the legal and regulatory reforms to enhance the ease of doing business in Nigeria. The forum had particular interest in media and the discussions weighed more towards outdoor advertising.
The Outdoor Advertising Association of Nigeria (OAAN) had a paper on the regulatory challenges in the industry. One fact that came out clearly from the papers and discussions is that businesses, especially the SMEs, feel emasculated by the various layers of regulations and regulators they have to contend with in order to ply their lawful trades.
Participants had terrible tales of how they are made to pay all manner of fees for different licenses and permits with many of these payments being collected in opaque manners. They complained about how most government agencies at the different levels of governance have come to equate regulation with revenue generation. This narrative featured in the second forum where I was taking stakeholders through the provisions of the competition bill before the National Assembly. The stakeholders raised similar concerns about the multiplicity and untoward attitude of regulatory agencies.
My major takeaway from both forums is the need for a policy conversation around the purpose and practice of business regulation in Nigeria – if you like, towards a philosophy or policy of business regulation in Nigeria. We need to define what is the purpose of regulation and how do we carry out regulation? The present mantra of the government of the day is improving the ease of doing business in Nigeria. Perhaps, a little highlight of Nigeria’s performance in different global rankings on doing business and economic competitive would help put the need in perspective. For the latest World Bank’s Doing Business Report for 2017, Nigeria ranked 169 out of 190 countries ranked globally (same as in 2016, except that the number of countries ranked in 2016 was 189); and 40th out of the 52 African countries. In the World Economic Forum Global Competitiveness Index for 2016/17, Nigeria ranked 127 out of the 144 countries ranked. While the World Bank report focuses on the number of processes, documentation and costs associated with registering a business, obtaining permits, tax compliances, etc; the GCI focuses on the wider “set of institutions, policies, and factors that determine the level of productivity of an economy”, including education, health, infrastructure, etc.
It is obvious from the foregoing that Nigeria is performing poorly in terms of regulatory efficiency. But beyond these rankings, the daily reality of business people shows how unfriendly the business environment in Nigeria is. This has grave consequences for productivity, employment and growth. A hostile business environment discourages investment – both domestic and foreign. It drives business to the informal sector with the attendant loss of revenue to government. It is in this context that we propose re-evaluation of the principles and practice of regulation in Nigeria with the aim of fashioning out a new philosophy of business regulation.
Without delving deep into the ideological debate on whether and to what extent the government should intervene in economic activities, or what constitutes the rationale for government intervention in the form of regulation, I will just go ahead and make a few suggestions on how we can redefine the purpose and practice of business regulation. These suggestions are based on the understanding that markets do fail to deliver optimal value in certain circumstances, hence the need for some form of regulatory intervention.
Defining the purpose of business regulation
The first step in this process would be to properly define the reason for business regulation. In this context, I would suggest that regulation is only important for the purpose of:
(a) Protecting the health and safety of citizens (and the environment) – this would include regulations dealing with quality standards in food, drugs, chemicals, machines, etc. Regulator that could fall under this heading include National Agency for Foods, Drugs Administration and Control (NAFAC), Standard Organisation of Nigeria (SON), Consumer Protection Council (CPC) and other agencies at the national or sub-national levels performing similar functions;
(b) Protecting citizens from economic exploitation by suppliers of goods and services – this would include the work done by sector regulators in the areas of telecoms, electricity, banking and financial services, etc. also important are regulations towards preserving competition among suppliers in every market;
(c) Protecting certain industries from unfair import competition – this includes the use of measure such as import tariff, antidumping measure, etc.
(d) Protecting intellectual property – through the application of regulations relating to trade marks, patents and designs, trade secrets, etc.
(e) Protecting public morality and peace – such as film and music censorship, lottery and gaming regulations, etc
(f) Promoting access to essential services by underserved communities – for example, regulations in telecom sector for mandatory universal access, etc.
It is instructive to note that I have not included revenue generation in this list. I shall return to the issue of revenue generation subsequently.
Understanding the impact of regulations
The second point in this proposed framework would be to entrench a system of understanding the impact of proposed regulations before they are introduced. This is where the concept of regulatory impact assessment (RIA) comes in handy. An RIA would help to lay out the cost and benefits of a proposed regulation with a view to optimising benefits and mitigating losses. Costs and benefits are not just in monetary terms but in terms of the factors listed in point (1) above. Also costs and benefits could accrue to different actors in the economy such as individuals, households or governments. These would have to be carefully considered. This tool is already well developed and used by a number of countries especially among the OECD members.
RIA can be used both before the introduction of a regulation and during the implementation – as a monitoring tool. Nigeria has had the uncanny experience of having regulations without a periodic review of their impacts on businesses or the citizens. This is most true in the area restrictive trade policy measures used to promote domestic industries. Sadly, these policies hardly come with any performance conditions or specific duration of implementation. The result is that resources are allocated without any commensurate impact on the economy and welfare of citizens. Worse still, the protected industries hardly attain competitiveness.
How many regulators do we need for a given issue?
We need to move towards rationalisation of regulatory agencies and their mandates. A situation where regulatory agencies have overlapping mandates makes it more burdensome for businesses to comply with regulations. Addressing this issue may mean amending some laws to better define mandates of agencies. We also face the peculiar situation where our federal constitution makes room for concurrent exercise of legislative powers by the different tiers of government.
The solution here would be to try and achieve some common standards to be applied by the sub-national governments in their own jurisdiction. We have that in the area of drivers and motor licensing at the moment, using the Joint Tax Board to cater for the revenue side and the Federal Road Safety Commission to cater for the production. We can explore this in areas of processes and fees for construction permits, business premises registration, etc. A harmonised standard would ensure that each state or local government is held up to the highest standard.
Recognising the role and interest of different stakeholders in developing and implementing regulations
The practice of simply pushing out regulations and demanding compliance is at best undemocratic. Unfortunately, this is a surviving relic of our history of military rule. Global best practices demand that all relevant stakeholders be consulted in the process of developing regulations. The value of this practice is that the interest of all stakeholders is considered and effort made to accommodate all. Also, the government can gain insights from the expertise or even practical challenges of the different stakeholders groups.
Perhaps, worse than not consulting any stakeholder is the practice where the government consults some segments of the stakeholders and ignores other. For example, a policy on increase of import tariff that only takes into account the position of manufacturers of the finished product while ignoring the position of those manufacturers that use the product as an input is faulty from design. This is also true where the policy goes ahead to ignore the position of consumers who may have to pay more for the products. While the manufactures of the finished products would benefit from the added protection availed by the increased tariff, those who used the product as input would incur most cost in their production. Similarly, the consumers would pay more for the finished products.
Equally important is the role of stakeholders in the implementation. There should be a mechanism for stakeholders to provide regular feedbacks on the implementation of regulations.
What should be the relationship between business regulation and revenue generation?
Perhaps, this is the hardest part of this framework. At the moment, most governments at different levels seem to equate business regulation with revenue generation. When they talk about internally generated revenue (IGR) especially at the state and local government levels, what comes to mind is how to get more money from business licenses and permits. I want to suggest, however, that government should rather focus on encouraging businesses by providing seamless services whether in terms of licenses and permits, infrastructure, etc. but this presents us with the question of how government services should be funded. To this, I would answer: TAXES. The issue here is: should government extract the maximum fees from business at the stage they are setting up (ex ante) or expanding their investments or assist business to flourish and then recover the cost of regulation through corporate and personal income taxes (ex post)? I call this the egg and chicken dilemma in business regulation. Should the government eat the egg at the onset or nurture the egg to develop into chicken?
The whole idea about improving business environment which has become a top agenda for most governments around the world is about attracting investment to create more value in the domestic economy. Also where government relies on ex post taxation for revenue, it has more incentive to ensure that businesses survive. We can’t say the same about the different levels of government in Nigeria today.
Leonard O. Ugbajah
Ugbajah is an Abuja-based lawyer working in the area of trade and economic regulation.