Nigeria’s next president must take proactive steps on business environment

With the 2019 general elections around the corner, whoever becomes Nigeria’s next president must look at the ease of doing business again.

According to the 2019 World Bank’s Doing Business Index, Nigeria ranked 146th out of 190 countries, scoring 52.89 out of 100 points.

After the presidential election, investors will be looking at pronouncements from the next president and what he/ she has in stock for the country in terms of improving the business environment.

Realities of today show that the number of taxes paid by businesses in the country has increased from 37 to 54 in the last three years, owing to states’ new drive for internally generated revenue (IGR). Drop in monthly federal allocations due to oil price turmoil has pushed states into embarking on desperate revenue drive, but this is not without costs to businesses, especially the micro, small and medium enterprises (MSMEs).

Many taxes, levies and fees charged by the federal government are duplicated by states and local governments. Local governments in Lagos still ask businesses to pay television and radio taxes, which make little or no sense.

Also, the ports in Lagos are increasingly becoming a clog in the wheel of progress. A recent research report conducted by the Lagos Chamber of Commerce and Industry (LCCI) shows that at least 5,000 trucks seek access to Apapa and Tin Can ports in Lagos every day, despite that the two ports were originally meant to accommodate only 1,500 trucks.

The report shows that Nigeria loses N600 billion in customs revenue, $10 billion (N3.6trn) in non-oil export sector and N2.5 trillion in corporate earnings across various sectors on annual basis due to the poor state of Nigerian ports.

The LCCI report notes that 25 percent of cashew nuts exported from Lagos to Vietnam in 2017 went bad or were downgraded owing to delays at Lagos ports. Similarly, only 10 percent of cargoes are cleared within the set timeline of 48 hours, while the majority of cargoes take between five and 14 days to clear. The report further states that some cargoes take as many as 20 days to be cleared at the ports.

More so, the number of government agencies at the ports is now 12 rather than eight, with each demanding inspection and associated fees.

Speaking on these, Babatunde Paul Ruwase, president of the LCCI, advised the federal government to begin reforms on the ports.

“There is a need to extend reform action plans of   Presidential Enabling Business Environment Council (PEBEC) to Eastern ports, air and land ports,” Ruwase said at a press conference in Lagos.

“The concessioning of Onitsha seaport should be finalised, while government should improve the security situation along and within the Warri port in order to ward off militants and touts. Stakeholders request that government should approve and publicise a bouquet of incentives to importers and exports that patronise ports outside Lagos,” he added.

Many Nigerians may think that Apapa and Tin Can ports crises do not affect them, but the fact is that every Nigerians bears the cost in one way or another. First, raw materials arrive factories late, after manufacturers spend huge demurrage charges. These manufacturers, who are typical profit-driven enterprises, transfer the costs to the consumers. In some cases, the goods are not sold and are kept in  warehouse as inventories. Either of the two involves economic costs. Also, exporters, who should repatriate dollars into the economy, are frustrated by Apapa. This further narrows the contribution of the non-oil sector to the foreign exchange,   thereby weakening the Naira further.

Although Nigeria is Africa’s largest economy, it has not done well enough to attract investors.

Some investors are withdrawing their investments, taking them to other African countries. The exit of OXL, a trading website, earlier this year is still fresh on Nigerians’ memory. OLX, which had been operating in the country since 2012, offered Nigerians a platform to buy and sell second-hand items. The site had more than a million second-hand items posted on it in 2016, but it still struggled to remain profitable in the country’s difficult operating environment, forcing it to pull out.

Most businesses, especially MSMEs, are the worst hit as they are more susceptible to the vagaries of multiple taxation and regulatory gridlocks.

An entrepreneur told BusinessDay that she applied to register a product with theNational Agency for Food and Drug Administration and Control (NAFDAC) for over eight months but could not obtain any certification, owing to unnecessary demands by officials of the body. This is worsened by the fact that even the Standards Organisation of Nigeria (SON) will not accept tests done by NAFDAC and vice versa.

Although the Muhammadu Buhari/Yemi Osinbajo administration has given attention to the ease of doing business through various implemented reforms and policies, what it has done is not effective enough.

There are still various things that the federal government can do to improve the ease of doing business in Nigeria, say analysts. These include improving the infrastructure and transportation system as well as reforming the taxation system.

Infrastructure is one of the major drivers of any economy. Analysts say good infrastructure boosts businesses and raises the gross domestic product (GDP) , creating jobs and economic prosperity. However,  Nigeria lacks the necessary infrastructure needed to grow businesses, especially steady power supply and developed rail and water transport system.

According to USAID’s energy sector review, Nigeria’s growth and economic development is limited despite its large economy, which is  attributed to constraints in the power sector. Nigeria has the ability to generate 12,522 megawatts (MW) of electric power from existing plants, but it is only able to distribute around 4,000 MW. It is also yet to tap into other forms of energy.

According to the South Africa’s Ministry of Energy, the country’s total domestic electricity generation capacity is 51,309 megawatts (MW) from all sources. About 91.2 percent or 46,776 MW comes from thermal power stations, while 4,533 MW or 8.8 percent emanates from renewable energy. Much of this power is transmitted and distributed by Eskom.

South Africa has a population of 57 million while Nigeria is estimated at 198 million, according to the National Population Commission.

“It is no more news that manufacturers in Nigeria currently self-generate as much as 13,000MW through alternative sources of energy in order to stay afloat. In fact, cost of alternative electricity generation alone constitutes about 40 percent of our production cost. With such high costs, made-in-Nigeria products will hardly be competitive,” Frank Jacobs, immediate past president of MAN, said in Lagos in June 2018.

 In fact, manufacturers have given up on power distribution companies (DisCos), prompting them to form a corporation known as MAN Power Development Company to cater to their energy needs.

Many firms now generate power for themselves with the use of generators or solar energy, but these in turn erode their margins.

Despite having the largest road network in West Africa, Nigeria’s transport system is not encouraging as major transport systems are mostly in dilapidated condition with bad roads, non-functional rail systems, badly maintained boats, ferries and airplanes causing panic and prolonged movement. Poor infrastructure increases logistics costs of firms in the country, raising their cost of production and causing losses, especially in common cases of accidents and thefts.

Funding is also a major hiccup. Businesses require funding either in the form of loans or grants.  Nigerian banks are usually reluctant to lend to businesses especially MSMEs. Those willing to give out loans charge high interests that are usually difficult for firms to pay.

The results of survey conducted by MAN shows that the average interest rate banks charged manufacturers in the second half (H2) of 2017 was 23.05 percent as against 22.65 percent in first half (H1) of 2017 and 21.4 percent  in H1  of 2016.

Analysts say the next president must practically look into improving the ease of doing business in order to make the economy more attractive for investors.

Analysts are keenly watching the elections and weighing the impact of the result on portfolio and direct investors.

GBEMI FAMINU