Creating a better business environment

ON the surface, Nigeria’s business environment is showing promising signs of improvement. Foreign Direct Investment (N3.2 trillion in the last three years) is flowing in as the country has become one of the most open countries to foreign equity ownership. Yet, look closer; the business climate is as flabby and feeble as ever. This at least, is the verdict of the World Bank report entitled, Doing Business 2014. It ranks Nigeria’s operating terrain at 147 out of the 189 countries ranked, a decline from the 138th position of 2013.  What is wrong?

Long before the World Bank once more confirmed Nigeria’s lowly ranking late last month as an unpleasant place to do business, it has been glaring to investors that the country has a very difficult operating environment. In a country where electricity, access to finance and transport still constitute main obstacles to running a business, unemployment rate of 23 per cent, which rises to 50 per cent among youths, is an inescapable return.

Start with electricity. Nigeria ranks 185th out of 189 countries in “Getting Electricity.” The atrocious power situation is a fact of life in Nigeria, with total generating capacity fluctuating between 4,000 megawatts and 4,300MW, with the shortfall adding significantly to the cost of products and services. This is unacceptable in a country that boasts a population of 170 million and requires a minimum 15,000MW. Although the Federal Government has just taken the right decision by finally partly privatising the power sector, poor electricity supply remains the main hindrance to doing business in Nigeria.

As a result, the Nigerian Association of Chambers of Commerce, Industries, Mines and Agriculture said “at least 800 companies closed shop between 2009 and 2011, due to the harsh operating business environment.” Expressing frustration with the situation, NACCIMA rightly added, “The manufacturing industry as a whole operates on more than 70 per cent of energy it generates, using generators; and operating these generators greatly increases the cost of manufacturing goods.” This explains why FDI into Nigeria has been so poor in the productive sectors.

The United Nations Conference on Trade and Development said Nigeria achieved its highest FDI inflow of $9.92 billion in 2005, but this dropped to $6.1 billion in 2010. Although Finance Minister, Ngozi Okonjo-Iweala, stated that Nigeria attracted an FDI of $20 billion (or maximum of $7 billion per year) in the last three years, it is a trifle when compared with the annual global FDI figure of $1.24 trillion in 2010. Moreover, oil and gas, which typically employs less than other productive sectors, accounted for a large chunk.

In spite of the fact that it is now easier to register a business outfit with the Corporate Affairs Commission, the World Bank study puts Nigeria in the 122nd position for 2014 for “Starting a Business.” With land speculators hanging around everywhere and state and local government officials routinely demanding bribes to process files, it is easy to see why the country ranked so poorly. Other factors responsible for the unpleasant business milieu are difficulty in getting construction permits (151 out of 189); multiple taxation (170); registering property (185); and enforcing contracts (136). With kidnapping and armed robbery rife in the South, and the Boko Haram terror campaign in the North, insecurity is also a major drawback to doing business in the country. Things have got to change!

There are enormous challenges confronting us today as a nation, so says the Institute of Directors Nigeria. This should be of grave concern to Jonathan and his cabinet. Nigeria, mislabelled the “giant of Africa,” should do everything to attain the position of smaller African nations like Rwanda (32); South Africa (41); Tunisia (51); and Ghana (67) by reversing the negative indices with the right policies. The frustrating penchant for policy reversals, which is a disincentive to FDI, must stop. An example is the delay Manitoba, a Canadian firm, experienced in taking over the Transmission Company of Nigeria in spite of the fact that a management agreement had been signed between the firm and the Federal Government, as well as the recent sudden increase in import tariffs on cars.

The World Bank advises that for the economy to grow and create the much-needed jobs, FDI is critical, especially in railways, power, oil and gas, mining and road infrastructure. President Goodluck Jonathan’s main task is to reform the key areas of the economy such as agriculture, and make sure that the ongoing power sector reform process is followed through transparently and properly regulated like when the Nigerian Communications Commission superintended the liberalisation of the telecommunication sector in 2001. Nigeria should ease the pains of doing business by emulating countries like China, India, Brazil and Indonesia, who have converted their huge populations into an advantage that has helped launch them as major players in the global economy.

The government clearly still has plenty to do. Without playing politics with the report, Jonathan’s economic team has to dispassionately examine the critical issues raised in the report and proffer a way out of the mess. The major culprits responsible for the country’s harsh business climate are well known. As the economy’s minders are aware, it is private capital, both local and foreign, that can drive the economy. The real challenge will be how to tame the corruption dragon that has short-changed effective infrastructure development and shut out clean investors from the country’s crooked business milieu.

This is the way to reverse our poor rating in the area of doing business: having a liberalised, private-sector driven economy, while also cutting waste in government, firmly addressing endemic corruption and investing massively in infrastructure.