Policy inconsistency, corruption crippling Nigerian start-ups
Nigerian start-ups, micro, small and medium enterprises (MSMEs) have persistently been stymied by corruption and lack of policy direction from governments at various levels, as businesses in this category continue to struggle amid growth capacity.
The Economist, a multinational media company, in its recent report entitled, ‘Enabling a more productive Nigeria: Powering SMEs,” gave a graphic but lurid picture of the state of Nigerian businesses. Start-Up Digest, on June 8, analysed the report’s findings on two critical issues affecting businesses in this category: tax and customs.
Today, we are taking a look at the report’s findings on corruption of government officials and policy inconsistency emanating from lack of direction from economic managers.
According to The Economist Intelligence Unit, one of the country’s policy problems relates to regulations and costs of imports.
There is no gainsaying that Nigeria is an import- dependent economy, where even toothpicks are imported. This, to Godwin Emefiele, Nigeria’s Central Bank governor, is shameful. But the private sector attributes the import problem to the harsh business environment, which has continued to impede local production and large-scale investments.
While it has been accepted that Nigeria is import-dependent, The Economist’s findings show that tariff policies in the country appear to be serving no development strategy.
In 2014, for instance, the Federal Government imposed a 62.5 percent tariff on imported books. Intended to protect local printing companies, this also threatened to destroy flourishing publishing businesses that had been forced to import books due to the low quality of domestically produced ones. This, of course, underscores the need to ensure that local products are domestically and internationally competitive before policies on import bans are implemented.
The research report cited Bibi Bakare-Yusuf, founder of publishing house Cassava Republic, based in Abuja, having to dispose of 20,000 books printed in Nigeria because of their poor quality.
According to Bakare-Yusuf, with lobbying and contestation, the government reversed this back to the previous zero duty on books.
The report admonishes that if Nigerian policymakers wish to nurture their homegrown industries by protecting them from import competition, a far better option would be to crackdown on illegal smuggling and pirating of goods from abroad. Bakare-Yusuf claimed that pirated books from India and China are entering Nigeria through a vast distribution network.
Due to inconsistent policy on imports, greedy importers often brought in Chinese-made fabrics illegally, imitating Nigeria’s signature prints, which some customs officials would turn a blind eye to.
The report shows that imports of such fabrics comprised 85 percent of the market, despite the fact that importing such textiles had been illegal.
Inconsistent policy has whittled down the number of textile firms in Nigeria from over 150 in 1980s to about 10 currently. The World Bank estimates that textiles smuggled into Nigeria through Benin every year are worth $2.2bn, compared with local Nigerian production, which has dropped to US$40m annually. About three weeks ago, the Economic Community of West African States (ECOWAS) began a Common External Tariff policy. This has now lifted the ban on textiles moving into Nigeria as importers now pay 35 percent duty as well as levy as agreed by the 15 countries of ECOWAS.
Next is deep-seated corruption, which has become a big disincentive to start-ups and MSMEs. The report examines the experience of Jason Njoku, founder of iRoko Partners, one of the largest online distributors of African movies and music.
Njoku attempted to bring IT equipment into Lagos International Airport from London, whereupon a customs official sought to impose a $4,000 spot customs fee. It was so sad that there was no online resource through which Njoku could establish the actual duty and customs charges owed, and the official made an exchange-rate calculation on a mobile phone.
“Such events are a serious burden for a company that is now one of Nigeria’s SME success stories, in the heart of its most exciting sector: the creative industry,” says The Economist.
According to Njoku, his firm is now growing its video editing team and is pondering on bringing 20 of the machines into Nigeria.
‘But it is a nightmare to think about how to do that. The availability of technical equipment is non-existent here,’ he was reported saying.
The report urges the Nigerian government to crack down on petty corruption among customs officials in the country’s airports, some of whom extort MSME owners that bring in goods such as technologies into the country in their luggage but are illegally charged random fees.
“The Nigerian government has shown it can tackle deep-seated corruption when there is sufficient political will,” the report says.
“The banking clean-up after 2009 was unprecedented in boldness and scale. The reform to the agricultural fertiliser subsidy scheme, which distributed vital subsidies directly to farmers through their mobiles, hit back at powerful vested interests that had abused the system and siphoned off subsidies for decades,” the report observes.
“This gives reason to believe that the new administration could take on the petty corruption and poor governance
that are holding back SMEs,” it says.
ODINAKA ANUDU