What about the ease of doing business in Nigeria?

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In a previous article (November 1-4, Punch Newspaper), I gave the reasons why infrastructure spending is not working for the Nigerian economy. In this article, I put the spotlight on the much appreciated improvements in the ease of doing business ranking achieved by Nigeria. Nigeria won on the EDB World Index. From 145th position in 2019, it fell to 131st in 2020. This improvement was well presented by the government as a success. There has been steady progress in the country’s ratings over the past six years, given that we were ranked 170 and 169 in 2014 and 2015 respectively.

However, economic performance indices such as foreign investment, annual GDP growth rates, and diaspora remittances have steadily declined, just as our ranking of the ease of doing business has improved. What is responsible for this paradox? What is the point of improving the EDB ranking when companies refuse to come to Nigeria or leave the country for other neighboring countries? The sooner we find out what is responsible for this state of affairs, the better.

Come to think of it, I am inclined to believe that Nigeria has simply tried to “work on the response”. We are smart, we scanned the eleven categories used to rate a nation and looked for where immediate changes could be pursued with immediate results. In other words, go for the fruits at hand! They pinched rather than approach the problem holistically. Therefore, when the gains in the ease of doing business ranking are compared to the new policy directions chosen for the Nigerian economy with an administrative change, we begin to unravel the paradox.

Our current managers have taken over a seemingly failing economy and they needed to do something quickly to stem the tide. Investors did not go through the lengthy cabinet-building process and expected policy statements. Unfortunately, the first declarations of the regime of the president, Major General Muhammadu Buhari (retired), sent the wrong signals, hence the flight of capital. However, this regime did not learn from the first missteps and went from one bad policy to another. Other analysts have listed these policies but the administration will not budge despite negative results.

A brief list of some of the faux pas that negates the ease of doing business gains includes:. The subsidy has received a new nomenclature, “being recovered”. Second, for 16 years between 1999 and 2015, the value of the naira against the dollar was largely determined by the market. During this period, the naira depreciated by 100%. Enter this regime and the fiduciary determination of the value of the currency has been the new policy and the naira has lost 300% of its value in seven years! Third, ad hoc business disruptions such as border closures, ban on Twitter, including harassment of leading foreign companies for perceived tax offenses. All of these and more are the real messages that investors read, not the statements about making it easier to do business in Nigeria.

Through its various actions, this regime has repeatedly confirmed the philosophy that drives their policies and it is a philosophy of dirigisme, which believes that the government should do everything. I dare say that as long as there is no change in the head of business, international business investors will be reluctant to come to Nigeria. The underlying economic philosophies guide policy and this is what we have seen unfold over the past seven years. An interventionist attitude drives state policies and drives investors away en masse. This leadership philosophy is so ingrained in us that many actors see government as “the economy” and whenever government revenue goes down, they assume the economy is down, so for the economy to grow, government revenues must increase, not knowing that in many circumstances where government revenues increase it means the economy / businesses are faltering. This being the mindset of our bureaucrats and politicians in government, we could understand the poor performance of the economy despite increasing government intervention.

Needing something to celebrate, this administration called on EDB, but is EDB a tool for economic progress? It is more of a reflection of the economic philosophies that have guided a country’s business environment over time. What do I mean? A culture that sees government offices and regulations as a means of aggrandizement will struggle to rank while countries that believe businesses must thrive for the economy, nation, and citizens to thrive will perform well. on the ease of doing business index. Thus, we see the top ten positions of the EDB ranking occupied by countries very favorable to companies with liberal economic policies. When liberal economic policies were the order of the day in Nigeria, Nigeria had its best ranking at 120 in 2008 before falling back to 169th in 2014.

Unfortunately, this current statist philosophy is fueling the accelerating increase in Nigeria’s public debt. The best way to appreciate this is to consider where our national debt would be if the Dangote refinery and fertilizer plants were projects undertaken by the federal government. This would have singularly inflated our external debt by 33%! Also imagine that the previous telecommunications revolution was carried out by the old NITEL. I pray that the importance and lessons of our current choices will be learned before we fall into a deeper debt hole. The transition to a completely liberal economic philosophy will result in a reduction in the national debt.

What keeps business away and what to do about it? While the improvement in our ranking on the EDB Index is good, it should be regarded as the icing on the cake. The foundation should be based on liberal policies rather than state policies. This includes lower taxes, fees, duties, tariffs, etc. owed to the government rather than increasing rates.

A change in the mentality of our bureaucrats is also essential. Anti-business bureaucrats (a hangover from our pro-socialist past, expressed in social-democracy). Bureaucrats love more regulations, politicians love taxes, but both of these approaches drive companies where they are less numerous. With the African Continental Free Trade Area, the time to believe that our relatively huge market would hold future investments are over, which means it is time for a real change in mindset.

It is important to note that a move from 145 to 131 in the ranking is not going to change the investment world’s perception of doing business in Nigeria with the pathetic image of the Nigerian bureaucracy. To change perceptions, we have to go below 60 or 50. Ghana is at 60, Rwanda at under 40, and Botswana at 86. Only a quantum leap can change the world’s perceptions about us.

This will require a socio-cultural change in our leadership mentality to a more laissez-faire philosophy that should permeate society. This is what can deliver these quantum gains. An example of such a mental shift that spawned a system change is that of Chinese leader Deng Xiaoping (1978) that changed China’s fortunes, not a cosmetic dressing of the issues.

Once again, would a better ranking of the EDB on its own allow for the sustained economic growth that we so badly need? No, I don’t think so. It must be based on very sound, business-friendly policies. I fear this has been the missing circumstance for years and Nigeria’s appalling economic performance indices cannot be challenged.

Time is running out for Nigeria. Those who run the economy need to rethink and change direction. It was thought that the establishment of a new Economic Advisory Council in December 2019 would have brought about a change of course, but this is not the case. There is a saying that we should never let crises go bad, but the 2014/2015 crisis that caused an oil price crash has been ruined. Rather than addressing the main structural and socio-cultural challenges of the economy, we played the gallery for Nigerian citizens while foreign and local investors vote with their feet.

We are not opposed to increasing public revenue, but it should not be done to the detriment of businesses. To achieve this, we must grow the economy, especially the manufacturing sector. We must achieve this by reducing taxes and many other government costs, not increasing them. This attracts more businesses to Nigeria and offsets lower taxes while increasing employment. It has been shown to work elsewhere. Ghana adopted this policy a few years ago and many companies have moved to Ghana.

We are also aware of the serious shortcomings of the Nigerian economic space, such as the glaring lack of electricity, transport congestion, corruption and, most recently, insecurity. Each economic actor had accepted it as our share, but when the government imposes additional burdens on businesses when a respite was expected, we see businesses hemorrhaging.

Until recently, since 2015, economic growth has never exceeded population growth despite all kinds of government interventions. We had EDB improvements, an economic recovery and growth plan, an economic sustainability plan, etc. It’s time to change course, everything that has been tried just hasn’t worked, including “infrastructure spending”. The maxim of a physician is to do no harm or make a patient worse than he has encountered. I am not sure that the same can be said of the current managers of our economic development. Nor should we let the EDB’s gains distract us from fundamental failures elsewhere.

A cry on behalf of millions of impoverished people over the past 10 years! Let’s not make the next 10 years worse!

  • Dr Olugbenga Jaiyesimi writes from Sagamu, Ogun State

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