OPS and Worsening Ease of Doing Business in Nigeria

Industry

The deteriorating ease of doing business in Nigeria has accentuated the urgency of the need for the federal government’s intervention in the private sector as operators make case for policies to bolster investor confidence, writes Dike Onwuamaeze

The Ease of Doing Business (EoDB) in Nigeria is deteriorating. This is also worsening the productivity of the private sector, which has been declining progressively since the second quarter (Q2) of 2021.  

The GDP report of the National Bureau of Statistics (NBS) between Q2, 2021 and Q1, 2022 vividly illustrated how the degenerating EoDB is putting a strain on the productivity of the country’s economy. According to the NBS, Nigeria’s growth rate declined from 5.01 in Q2, 2021 to 4.03 in Q3, 2021. It further declined to 3.98 and 3.11 in Q4, 2021, and Q1, 2022 respectively.

The current state of EoDB has virtually wiped out the initial gains Nigeria made in 2019 when, according to the World Bank, the country was ranked 131 globally on the Ease of Doing Business and moved up by 15 places from its previous spot. Nigeria was also named among the top 10 most improved economies in the world in terms of doing business. However, this is no longer the situation.

Currently, operators in the private sector are daily lamenting the deteriorating EoDB in Nigeria due to poor infrastructure, multiple exchange rates, multiple taxations, policy inconsistencies, scarcity of foreign exchange, unfavourable port tariffs, discouraging actions of public servants who interface with businesses, palpable insecurity level, and the dearth of useful incentives for businesses. 

These whittle away growth potentials, crush underlying business profitability, and diminish investor confidence in the economy. 

The Purchasing Manager Index (PMI), a report of the Stanbic IBTC for June 2022, for instance, showed that the productivity of the Nigerian private sector declined from 53.9 in May to 50.9 in June 2022.  

The Head of Equity Research West Africa at Stanbic IBTC Bank, Mr. Muyiwa Oni, said: “Private sector output fell during the period. Indeed, overall input costs reached a four-month high in June” and would continue to threaten output and add further pressures on inflation. “Rising diesel cost, petrol scarcity, domestic insecurity, and supply-chain challenges in the global space still serve as an upside risk to inflation in the coming months,” he said.

NACCIMA

Speaking in the same vein, the National President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Mr. John C. Udeagbala, said: “We emphasise this slight but continuous drop in growth rate even as we acknowledge that the Nigerian economy bounced back from the COVID-19 pandemic in the fourth quarter of the year 2020 to reach the peak growth rate for the period, of 5.01 per cent by mid-2021. 

“This declining trend is most concerning to us as we consider that statistics on GDP. It is the position of our association that there is a very urgent need for policy implementation to avert a third recession of this decade by the end of 2022. The Nigerian economy is operating below its productive capacity.”  

Indeed, the environment can either impact positively or negatively on businesses depending on whether it is conducive or not. For instance, power supply has remained a major challenge for manufacturers in Nigeria, constraining them to rely on diesel for most of their power requirements. But the situation currently is becoming scary to business people because of the incessant scarcity and price increase for diesel.  

The President of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Michael Olawale-Cole, who reviewed the state of the economy on Tuesday, June 5, noted “the rising energy costs with diesel above N800/litre, Jet-A1 at N710 per litre, and PMS selling above the government-regulated price of N165/litre. These price levels will continue to aggravate production costs which may lead to restrained manufacturing and eventual job losses.” 

Olawale-Cole also observed that “the national grid has collapsed six times this year alone. The national grid cannot supply sufficient power to meet the electricity demand of Nigerians. With the cost of diesel at record levels and persisting poor power supply, businesses are running on unsustainable costs and producing at uncompetitive prices.”   

Similarly, the Director-General of the Manufacturers Association of Nigeria (MAN), Mr. Segun Ajayi-Kadir, recently bemoaned the increase of the Monetary Policy Rate by the Central Bank of Nigeria. Ajayi-Kadir said that it would have implications for the economy and manufacturing sector.  

He said: “It will spur upward review of existing lending rates dependent obligations of manufacturing concerns, which will drive costs northward.”  

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE) Dr. Muda Yusuf, told THISDAY that the ease of doing business in the country currently is worse than in the days when the economy was acknowledged to be in recession. 

“Look at the key parameters that impact the ease of doing business like inflation. Has it been this bad? If you isolate what manufacturers are using as inputs and compute inflation on them at that micro-level, you will not be getting anything less than 30 to 50 per cent inflation if you take everything on average.

“Have you ever seen the frequency of grid collapse that we have been experiencing in recent times? Our trade policy has all manner of high tariffs. In other countries that have these kinds of crises, part of the things their government do is tweak the trade policy to moderate pressures on businesses. But our people are still chasing revenue with high tariffs that are creating space for customs to enforce things that are very difficult to enforce,” Yusuf said.

Industrial sources believed that local manufacturers are charged import tariffs/duties that did not align with stipulated regulatory arrangements. They viewed the Nigeria Customs Service (NCS) as a threat to the sustainability of local businesses, employment generation, and food security. They also alleged that the NCS no longer relies on the prices stipulated by the receipts of imported inputs to determine the duties. 

Rather, customs benchmark duty valuation against the retail price in the local market without taking into consideration the fact that the manufacturers might have secured their imported inputs at a discounted rate due to long business relationships with suppliers overseas or as benefits for guaranteed future transactions. The impact of this inconsiderate practice reverberates across the manufacturing sector which is already reeling under the burden of the prevailing import duty. 

A miller who spoke to THISDAY under anonymity said: “When the challenge of the customs’ pivot to consumer price index as a benchmark for import duty valuation is added to the global food supply chain issues confronting the millers, the ability of the businesses to stay afloat and maintain their impressive job-generating capacity will be impacted.”

He lamented that “the practice of the NCS is a threat to the sustainability of local businesses, employment generation, and food security. It hardly bodes well for the economy. The government should rise to tackle these threats by reviewing the unfavourable import tariff regime slapped on manufacturing inputs at the port.”   

Recently, the World Bank report titled Nigeria Development Update June 2022 and captioned “The Continuing Urgency of Business Unusual,” said that “Nigeria’s tariffs are among the highest in the world, especially for capital, intermediate and consumer goods.” It added: “Statutory tariffs, which is the sum of import duties, levies, and excise taxes, are above the global median for raw materials and near or at the top 10 per cent of countries globally for capital, intermediates, and consumer goods.”

The World Bank also decried the cumbersome customs procedures in Nigeria. Precisely, port practices in the country violate a key parameter of EoDB ranking, which is the ease of trading across the border. It also violates World Trade Organisation’s (WTO) agreement that seeks “individual countries’ commitments to lower customs tariffs and other trade barriers, and to open and keep open services markets.”  

THISDAY investigation revealed that local food manufacturers are some of the worst hit by the raging military actions between Russia and Ukraine. Most notably, flour millers, made up of local and foreign investors, are currently confronted by the challenges of accessing foreign exchange, depreciating currency value, and the scarcity/high cost of wheat in the global market. These are threats to Nigeria’s food security drive already.

More, the disruption in the global food supply chains and the alleged insensitivity of customs would reduce the millers’ ability to keep providing valuable wheat derivative foods such as bread which feeds millions of Nigerians daily at affordable prices. But without passing the extra cost of production to the consumers, the millers would not be able to sustain a robust production level. The government should rise to tackle these threats by reviewing the unfavourable import tariff regime slapped on manufacturing inputs at the port.

 Meanwhile, the Executive Secretary, ECOWAS Rice Observatory, Dr. Boladale Adebowale, has warned that over 19 million Nigerians are set to face hunger and nutrition crises by mid-2022.  This warranted that the federal government should step in to help the milling industry and make precious staple food such as bread, pasta, and noodles affordable to Nigerians. 

For instance, Thailand waived the usual surcharge on maize import to ensure maize is available at the right quantity and price to the animal feed industry. Similarly, South Korea announced recently that it is slashing import duty on wheat to forestall price hikes/shortage in the supply of animal mix due to the crisis in Ukraine. Niger should do the same.