Ease of doing business in Nigeria
Creating a regulatory environment that enables private enterprises, especially small firms, to function and be creative has a large positive impact on job creation and therefore good for the economy. Improvement of the regulatory environment in terms of quality and efficiency is particularly in the best interest of Nigeria, which sits on a demographic time-bomb or an anticipated demographic dividend. For the latter to result, the ease of doing business should improve.
Government has two distinct roles, one to administer the existing institutional frameworks, including the provision of infrastructure and the administration of laws and regulations, and the second to mobilise political power to bring about modernisation of those frameworks as circumstances and/or societal priorities change. For a capitalist system to evolve in an effective developmental sense through time, it must have two hands and not one: an invisible hand that is implicit in the pricing mechanism and a visible hand that is explicitly managed by government through a legislature and a bureaucracy. Inevitably the visible hand has a strategy, no matter how implicit, short sighted or incoherent that strategy may be.
Based on a 2016 PwC interview of foreign companies across Nigeria, four concerns stand out as challenges with the business environment: corruption, inadequate infrastructure, low skill levels and macroeconomic uncertainty.
The difficulty in doing business in Nigeria is creating a massive underground informal economy. The 2015 Chatham House Report, states, “at the end of 2014, Nigeria’s recorded external trade stood at ₦24,435.3 billion ($135.8 billion). Yet official statistics paint only part of the picture and cannot capture the massive volumes of informal export and import activity.”
Doing Business, a World Bank Group flagship report compares business regulation for domestic firms in 189 countries under 7 rubrics: starting a business, dealing with construction permits, getting electricity, registering property, trading across borders, enforcing contracts, and resolving insolvency.
Nigeria ranks towards the bottom end in international comparisons of the business environment. In the 2016 Ease of Doing Business ranking, Nigeria ranks 169th (2015:170th) out of 189 economies surveyed. Rankings dropped across: starting a business, getting electricity and getting credit. Interestingly, Rwanda jumped through the rankings from being 143rd in 2009 to 62nd in 2016. Over that same period, Nigeria’s ranking has worsened as it moved from 102nd to 169th. For instance, it takes 5 days to start a business in Rwanda relative to 28 days in Nigeria. Cost to export is around US$786 versus US$183 in Rwanda.
On dealing with construction permits, Nigeria stagnates at 175 (of 189) under this rubric with no reform executed in the bureaucracy surrounding construction permits. The 2016 report includes a new measure for building quality control. This evaluates the quality of building regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and professional certification requirements. Nigeria compares poorly with the rest of sub-Saharan Africa in the number of procedures and cost in obtaining construction permits. The cost involved in obtaining a permit from Lagos State Physical Planning Permit Authority (LASPPPA) currently stands at $35,184.732 on average and takes 42 days. In comparison, the highest procedure cost for Singapore and Mozambique, at any level, stands at $2,779.263 and $310.0284 respectively.
Mozambique made 5 key reforms from 2010 to 2015 in its internal processes at its Department of Construction and Urbanization. This increased the fees for building permits and occupancy permits but reduced the number of procedures and days from 13 procedures and 370 days to 10 procedures and 111 days. Mozambique leapt to become sub-Saharan Africa’s frontier country in dealing with construction permits. Lessons can also be learnt from Singapore where multiple procedures occur simultaneously to hasten dealing with construction permits.
The decline in the price of crude oil and consequently government revenue in Nigeria should spur the government to begin serious reforms to position the country as a competitive economy and an attractive business destination. The time to act is now