THE NIGERIAN BUSINESS ENVIRONMENT
Monday Editorial
There is need to pursue smart and business-friendly reforms
It should worry the authorities that the latest ranking on the “Ease of Doing Business” puts Nigeria at number 169 on the list of 185 countries assessed. The report, entitled “Doing Business 2016: Smarter Regulations for Small and Medium-Size Enterprises”, based the overall ranking on 10 key indicators: starting a business, dealing with construction permits, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and getting electricity.
The report analysed regulations that apply to a country’s businesses and allowed users to see both the gap between a particular country’s performance at any point in time and to assess the change in the regulatory environment over time. In the current assessment, Nigeria made improvement in the area of registering property and protecting minority investors but when compared with last year’s ranking, it retrogressed in three key indices: getting electricity, access to credit and starting a business. Much more significantly, the country recorded no improvement in five key indicators – trading across borders, dealing with construction permits, paying taxes, enforcing contracts, and resolving insolvency.
Against the background that the aim of the report is to provide an objective basis for understanding and improving the regulatory environment for business around the world, there are lessons to learn. Indeed, since its first report in 2004, the relevance of the report as a resource for business and its likely impact on the flow of foreign direct investment (FDI) cannot be over-emphasised. Yet, even though it is the largest economy in the sub-region and on the continent, whatever the yardstick applied, Nigeria has not done well in the rankings. At 68.89 per cent and 58.24 per cent respectively, South Africa and Kenya were ranked above Nigeria which, at 44.69 per cent, fell below the regional average of 49.66.
It is noteworthy that before the recent slump in oil prices which in turn led to the foreign exchange crisis, Nigeria was gradually improving on the ease of doing business ranking. For instance, the country had improved significantly in the area of access to credit ranking as it moved from 125 in 2014 to 52nd position last year. But all that seems to have changed dramatically. On the overall distance to frontier – which is the distance to the highest performance observed on each of the indicators across all economies – Nigeria did not fare well either. A look at one of the indicators would explain the differences in the ranking of Nigeria and, for instance, a country like Mauritius which continues to do well.
However, the report did not measure some aspects also critical to investors such as level of security, macroeconomic stability, labour skills of the population, underlying quality of institutions and infrastructure, or even the strength of the financial system. The focus was primarily on measuring the regulation and red tape relevant to the life cycle of a domestic small to medium-size firm. What this means is that we can determine our ranking in the next report if we put in place the necessary regulations and take concrete steps to remove the obstacles that hinder the growth of businesses. Two countries embodied how positive reforms could determine a nation’s ranking – Rwanda and Burundi, both of which have implemented such reforms with improvement in their rankings on a yearly basis.
As the largest economy on the continent, it is in our economic interest to facilitate trade across borders, improve the tax system, ease the process of starting a business, improve access to credit, enhance the process of securing construction permits and registering property, initiate regulations that would protect investors, enforce contracts, and resolve insolvency. What is required is the will to pursue these smart and business-friendly reforms.
