Ease of doing business as basis for enhancing return on investment
Business and investment environment in Nigeria is one of the most challenging in the world and, in more ways than one, this discourages investment and diminishes the bottomline of those who have invested in this country whose strong demographics makes it an irresistible destination. Though the federal and some state governments are working hard to improve on the stress associated with setting up and doing business, apparently in response to the low ranking of the country in the recent World Bank’s Ease of Doing Business Index, a lot more still needs to be done, especially in the areas of power, roads and rail transportation infrastructure, writes CHUKA UROKO.
When the World Bank in its latest Ease of Doing Business Index ranked Nigeria so low that it was only ahead of 20 out of 189 countries of the world, not many people were surprised with that development because the story of the country’s ranking by world bodies has never been any better.
The same World Bank Group had, in its Doing Business in Nigeria report, placed the country 185th out of 189 economies in ease of registering property and 129th out of 189 economies in ease of starting a business, lending support to an earlier ranking of the country 96 out of 97 – one above Sudan – in the Jones Lang Lassalle (JLL) 2012 global real estate transparency index.
Nigeria had also been ranked 171, 62, 140 and 187 out of 189 economies in ease of dealing with construction permit, protecting minority investors, enforcing contracts and getting electricity respectively, making it the 170th economy out of 189 in the overall ranking indices.
These, among other factors are major obstacles to investment and return on investment in Nigeria which is why, in the opinion of Hakeem Oguniran, MD, UPDC Plc, “the world’s largest and most established investors continue to steer clear of the country”, even though it has a property market that is seeing an increase in deals with high price tags from opportunistic funds willing to take a chance on its potential.
Whether it is about registering property to set up a new business or operate existing ones, Nigeria is a difficult place to do business as investors have to contend with an outdated land tenure system, high cost of land, very poor infrastructure base—terrible roads, high energy cost, multiple taxation, etc.
South Africa, Nigeria’s closest rival economy, is ahead of the country in almost all of this which is why, as against 80 inter-regional private equity firms looking to invest in South Africa’s real estate market, 30 in Egypt and 40 in Kenya, only 16 of such companies are interested in Nigerian market due.
Private equity investments in Africa has seen phenomenal increase from $151 million in 2002 to $3 billion in 2011 and, according to Emerging Markets Private Equity Association, South Africa accounted for the largest portion of these investments, leaving Nigeria with just 10 percent of the continent’s total.
Apparently concerned about these developments, especially with the latest World Bank ranking, governments at both federal and state levels in the country are making frantic commitments aimed at improving and enabling the business environment to attract more investments into the economy.
“We have to up our game in the way we do business in this country – in Lagos state in particular”, said Ademola Abass, Special Adviser, Lagos State Office of Overseas Affairs and Investment (Lagos Global), at a ‘Stakeholders’ Forum on Ease of Doing Business in Nigeria’ held in Lagos recently.
In compiling the latest index, Lagos and Kano states were used as pilot states with Lagos weighted 75 percent against Kano’s 25, and this was done in the belief that when Lagos gets it right, the rest of Nigeria will be good for it.
The Nigeria Investment Promotion Commission (NIPC) organised the stakeholders’ forum in collaboration with the Office of the Vice President in order to inform the public and the organized private sector of the efforts the ministries, departments and agencies (MDAs) were making to create an enabling business environment for investments.
“NIPC has always been a friend of the private sector; we are promoting local direct investment. We are trying to work with agencies to also be more investor-friendly. Facilitation is very important in investment promotion,” Ladi Katagum, the Acting Secretary of NIPC, noted.
“Our aspiration is to be among the top 50 in the Ease of Doing Business ranking globally by 2020,” Vice President Yemi Osinbajo, who was represented by Jumoke Oduwole, Special Assistant to the President on Industry & Investment (Office of the Vice President), disclosed, stressing that it was government’s desire to promote an enabling environment in which it was easier to do business.
Acknowledging public sector efforts at creating an environment that will not only be friendly, but also enabling for investment and enhanced returns, private sector operators have also canvassed collaboration between the federal and the various state governments.
Abass agrees, noting that “the problem of investment in Nigeria is like a dual carriageway requiring you to tackle it from the federal and state levels because, no matter what we do at the state level, if someone at the federal does not understand it, nothing will happen. Human beings drive offices, and
investment can only happen when the state and federal governments are working at the same pace.”
Laolu Jaiyeola, CEO, Nigeria Economic Summit Group (NESG) believes that the key determinants of an enabling environment should include not just creating relevant laws but administering the laws and, Tunde Irukera, a Partner at Simmons Cooper Partners, shares this view, adding that “reducing the stress of setting up and doing business in Nigeria is the number one PPP model that exists anywhere in the world”.
At the federal level, some innovations have been made in processes and procedures such that, aside from innovating independently, there have also been a lot of collaboration among government’s ministries, departments and agencies (MDAs).
For instance, the Corporate Affairs Commission (CAC) recently gave accommodation to the Federal Inland Revenue (FIRS) with the aim of ensuring that the stress that people usually go through moving from the CAC office to the FIRS is completely eliminated, making it easier for potential investors to accomplish company registration processes within the CAC in less time.
In Lagos, the state government is responding to the poor World Bank ranking in an aggressive manner with a comprehensive reform in its land administration. Land, an important factor of production, especially in a commercial city, is very scarce in Lagos and therefore attracts great demand and high values, making it an equivalent of gold or “oil well” in the state.
Apart from its tax processes beginning with the tax form which Olufolarin Ogunsanwo, an official of the Lagos State Inland Revenue Service (LIRS), said has been simplified by compressing the six-page form to two pages, the state has also reduced the processes leading to building approvals.
Building approvals for those who are ready to develop their plots or parcels of land in compliance with the law is now treated with utmost dispatch. The ministry of physical planning and urban development has put processes in place to ensure that these approvals are obtained within four weeks, provided all necessary documents are submitted.
Bode Agoro, Permanent Secretary, Lagos Land Bureau, disclosed recently that the Governor’s Consent fee has been reduced from 15 percent to 3 percent of the property value. “And to enhance performance, like other agencies, has invested in technology. Land application can now be done online and the applicant can track the progress online”, he assured.
Agoro also revealed that as part of a two-year projection for future development, the state government would be deploying integrated and automated system in its land administration and transactions to take effect from the third quarter of this year.
The state attributes difficulty in doing business in the state to service delivery issues and too many bureaucratic bottlenecks, hence the need to put in place systems and policies that will create one-stop shop to facilitate access to all factors of production including land, capital, labour and entrepreneur with land as chief factor.
Agoro explained that the integrated and automated system was a suite of technology modules that could conduct rapid inventory of land rights, automate and manage land records, create and maintain integrated geographic data accurately and fairly value any property.
“The system provides for a fully integrated and end-to-end land administration platform for a sustainable and automated land administration environment, effectively reducing silos of information that exist across departments and agencies; it eliminates problems associated with redundant data and increases accuracy by reducing manual entry errors.
“This in turn enhances transparency and, at the same time, increases public confidence. The intervention is designed to manage information and automate business activities related to property rights registration, transacting and contracting real property and digital preservation of land-related documents”, Agoro assured.
He added that with this automated system, in 14 days, an applicant gets his C-of-O, saying that the state hopes to reduce the Governor’s Consent fee to less than 3 percent, “and we are also looking at insurance companies coming in to guarantee the land titles”.
Though analysts commend efforts seen so far in improving business environment in the country, they nonetheless lament the deplorable state of both federal and state roads which impact negatively on companies’ bottom-line through long haulage hours, wear and tear on vehicles, breakdowns, etc.
This, coupled with poor power supply, increases production and construction cost for property investors by as high as 30 percent, and well over 40 percent for manufacturers, making the need for improved power supply, good roads and rail systems in the country absolutely necessary.