TAKING EASE OF DOING BUSINESS REFORMS TO ALL

 There is a lot more to be done to improve the business environment in spite of the push by PEBEC and subnationals, contends Jumoke Oduwole    

Nigeria is home to over 39.6 million MSMEs, comprising 96.7% of all businesses in Nigeria. Some 67% of these businesses are youth-owned. In 2022, MSMEs contribute over 45% to the country’s gross domestic product (GDP). With 96.9% of these businesses in the micro cadre, they account for nearly 90% of the jobs made available nationwide. Therefore, as MSMEs grow, they create opportunities that lead to prosperity for more, and less insecurity across the country. Yet, Nigeria, along with the rest of the world, is facing challenging economic conditions. The effects of the COVID-19 pandemic are still being felt, the war in Ukraine has increased international tensions, and global supply chains are under pressure. The global economy has been slow to adapt to these challenging conditions, and while Nigeria has shown resilience in the face of these headwinds, the country’s economic growth, although positive, has not been strong enough to markedly improve the living standards of the average Nigerian. Indeed, there is a strong correlation between a country’s business environment and the amount of foreign direct investment (FDI) received. A poor business environment leads to reduced investor confidence, affecting the flow of investment capital into the country, further hampering economic growth.

Since its inception in July 2016, the PEBEC has partnered with stakeholders from all arms and levels of government and the private sector to reduce the cost and time of doing business by removing bureaucratic and legislative bottlenecks, facilitating access to justice and enhancing transparency, particularly through the use of technology. It is abundantly clear that there can be no meaningful progress in Nigeria’s business environment without the commitment of state governments to the implementation of ease of doing business reforms. This led to an intervention with the National Economic Council 2 (NEC) in July 2017 to cascade the reforms to the subnational level for the benefit of all Nigerians by jointly unlocking the constraints faced by businesses across the country and support them by making Nigeria a progressively easier place for them to start and grow their businesses to scale and thrive. With the nomination of State Reform Champions, the inauguration of Ease of Doing Business (EoDB) Councils and targeted reform agendas across states, the PEBEC-NEC collaboration has brought ease of doing business to the forefront of policy discussions and continues to provide an impetus for the implementation of coordinated business climate reforms at the subnational level.

In September 2017, the PEBEC-NEC Subnational Technical Working Group (TWG) comprising representation from six states in the six geopolitical zones, the PEBEC Secretariat, the NEC Secretariat, Nigeria Governors’:  Forum (NGF) Secretariat, the National Bureau of Statistics, the Nigerian Investment Promotion Commission, the Nigerian Export Promotion Council, the Nigerian Economic Summit Group, and other private sector representatives, was formed. The TWG conceptualized and developed a framework for Nigeria’s homegrown subnational ease of doing business survey, which was subsequently concretized as the initial methodology for the baseline survey. The survey is designed to provide empirical information on the attractiveness of states’ business climate primarily from the perspective of the private sector respondents, and to serve as a credible reference resource for businesses and investors. The first of its kind, Nigeria’s inaugural homegrown subnational report – the 2021 Nigeria Subnational Ease of Doing Business Baseline Survey Report – was released on March 18, 2021, and the rankings subsequently made public. The report captured a snapshot of each business environment at the subnational level, as well as existing economic realities of MSMEs doing business in Nigeria at the time, creating an empirical baseline for subnationals and MDAs to refine their reform agendas.

The second iteration of the report, the 2023 Nigeria Subnational Ease of Doing Business Report was released on March 27, 2023, in actualisation of our commitment to make this report a biennial resource. The 2023 report builds on the previous edition and improves it in several areas. It provides more nuanced information on the business climate across the 36 states and the Federal Capital Territory (FCT). It highlights improvements made since the release of the first report, and identifies the challenges that remain to be met, as well as the reforms that need to be implemented to make the business environment more conducive. We have enhanced the report’s methodology, deepening and expanding the indicators from the initial four to six – infrastructure; secure and stable environment; transparency and accessibility of information; regulatory environment; skills and labour and economic opportunity. Each state has been rated on a 10-point scale across the indicators, providing the basis for calculating the 2023 weighted EoDB score for each state.  

Further to the feedback received from MSMEs and going by global best practice, we carved out secure and stable environment from the infrastructure indicator, making it a standalone indicator. We introduced a new indicator – access to economic opportunity. The survey sample size of the latest edition increased from 998 companies to 2,852 companies, enhancing the statistical power and relevance of the survey. This represents an improvement over the statistically relevance but relatively smaller sample size of the baseline survey. At the country-wide level, the 2023 report shows a marginal increase in Nigeria’s overall EoDB satisfaction score to 5.69 on a 10-point scale from 5.45 recorded in the inaugural report. While acknowledging this improvement, we recognise that there is a lot more to be done to improve the business environment in spite of the sustained push by PEBEC and subnationals in this regard. We see an increase in ranking for 16 subnational governments, while 18 states recorded a reduction, with three states maintaining their rank from the baseline survey report. The result of the survey lends credence to what we had learnt from anecdotal sources, that on average there is no significant variation in MSMEs’ perceptions of the Nigerian business environment regarding the satisfaction with the ease of doing business.

The case is, however, different when we examine the satisfaction score across the sectors. From the report, we see that businesses in agriculture, transportation, and construction are more satisfied being above the national average while businesses in health, entertainment, and tourism are the least satisfied with their satisfaction score, all below the national average. Unsurprisingly, two of the six indicators – infrastructure and secure and stable environment account for the biggest pain points for MSMEs at a combined 41.1% of MSME dissatisfaction, indicating areas where policymakers can achieve some of the greatest impact in the business environment. In particular, report analysis shows that where businesses are satisfied with electricity, there is a high likelihood that their overall satisfaction with the ease of doing business would be high and vice versa. Increasing the daily power supply by five hours could translate to a 1.5 – 2-point increase in EoDB satisfaction score. The recent assent by President Muhammadu Busari to the Fifth Alteration Bill No. 33, Devolution of Powers (National Grid System), is a constitutional amendment allowing states to generate, transmit and distribute electricity in areas covered by the national grid. This is a long-awaited development that has been welcomed by stakeholders. The score movements further reinforce the need for continuous improvement in states and active engagement with MSMEs. Implementing reforms is only part of the work.

Importantly, subnationals must ensure that they are implementing the right reforms and communicating these reforms to the MSMEs. It is, therefore, imperative that state ease of doing business councils continue to ensure that there is a systematic approach to designing and implementing reforms, engaging stakeholders routinely to understand their pain points, and designing reforms to address these pain points. This vital loop must be strengthened in order to effect real change in the business environment. The latest report once again places Gombe at the top position with a weighted score of 7.15, and Jigawa State ranks second with a score of 6.79, followed by Sokoto State at 6.88. A breakdown of the report by geopolitical zones shows that the North West emerged as the most-friendly regional business environment with an average EoDB satisfaction score of 6.36, followed by the North East at 6.15 while the South East ranks third at 5.51. The South West at 5.45 is at fourth position, followed by the North Central at 5.35 and the SouthSouth region at 5.23. As part of next steps, the PEBEC Secretariat shall continue to engage MSMEs widely on the findings of the report with a view to encouraging them to actively partner with all arms and levels of government towards improving the business environment. It is our expectation that the 2023 report findings will shape reform priorities for participating subnationals as they implement their various State Action Plans in line with the State Actions for Business Enabling Reforms (SABER) program.

The SABER Program is a USD 750 million performance-based intervention for three years (2023-2025) jointly designed by the World Bank Technical team and the PEBEC Secretariat, with support from the Federal Ministry of Finance, Budget and National Planning Home Finance Department, and the Nigeria Governors’ Forum Secretariat, which is open to all states that meet the eligibility criteria, to incentivise and strengthen the implementation of business enabling reforms across Nigeria. In all these, our focus remains the same – to provide an “enabling environment” in which it is progressively easier to do business, where policies are predictable and consistent, with macro-economic stability, and where the Government acts as a partner to business and investment, not a competitor or adverse regulator. It is our sacred and collective responsibility to implement reforms that will contribute to the lifting of 100 million Nigerians out of poverty over the next decade. The next Administration is already committed to continuing and deepening the PEBEC’s mandate. The sustainability of existing reforms at all arms and levels of government, particularly this critical subnational intervention, will act as a springboard for catalytic interventions in this area as we cascade ease of doing business reforms to all Nigerians.

Dr Oduwole is Special Adviser to the President on Ease of Doing Business and Executive Secretary to the Presidential Enabling Business Environment Council (PEBEC)