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Opinions of Wednesday, 17 November 2021

Columnist: Olugbenga Jaiyesimi

What is it about ease of doing business in Nigeria?

President, Major General Muhammadu Buhari (retd.) President, Major General Muhammadu Buhari (retd.)

In an earlier write up (November 1st and 4th, Punch Newspaper), I gave reasons infrastructure spending was not working for the Nigerian economy. In this article, I turn the searchlight on the much-acclaimed improvements in the Ease of Doing Business ranking attained by Nigeria. Nigeria has been gaining on the world index of EDB. From the 145th position in 2019, it dropped to 131st in 2020. This improvement has been well flaunted by the government as an achievement. There has been consistent progress in the country’s ratings over the last six years considering we were ranked 170 and 169 in 2014 and 2015 respectively.

However, economic performance indices such as foreign investments, GDP annual growth rates, and remittances from the diaspora have consistently waned just as our ease of doing business rankings improved. What is responsible for this paradox? Of what use is EDB ranking improvement when businesses are refusing to come to Nigeria or leaving the country for other nearby countries? The earlier we find out what is responsible for this state of affairs the better.

Thinking about it, I am inclined to believe Nigeria has simply tried to “work to the answer.” Smart alecs we are, we scanned the eleven categories used to assess a nation and sought where immediate changes could be pursued giving immediate results. In other words, going for the low hanging fruits! They nitpicked rather than address the problem holistically. Therefore when gains in ease of doing business ranking are placed against new policy directions chosen for the Nigerian economy with an administrative change, we start to unravel the paradox.

Our current managers took over an economy that appeared to be failing and they needed to do something fast to stem the tide. Investors sat out the stretched-out process of forming a cabinet and were expectant of policy pronouncements. Unfortunately, the first few pronouncements of the regime of the President, Major General Muhammadu Buhari (retd.), sent wrong signals hence capital flight ensued. However, this regime did not learn from the early missteps and moved from one wrong 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 missteps that negate gains in ease of doing business includes: This nation was primed for total deregulation and removal of subsidies on refined petroleum products in 2015 and there was enough political capital for the move, rather government’s role was deepened. Subsidy was given a new nomenclature, ‘Under Recovery’. Secondly, for 16 years between 1999 and 2015, the value of naira to the dollar was determined largely by the market. During this period the naira depreciated by 100%. Enter this regime and fiat determination of the currency value has been the new policy and the naira has lost 300% of its value in seven years! Thirdly, ad hoc disruptions of businesses such as border closures, Twitter ban, including harassment of prominent foreign businesses for perceived tax infractions. All these and many others are the real messages investors read, not the pronouncements on better ease of doing business in Nigeria.

By its various actions, this regime has time and again confirmed the philosophy that drives their policies and it’s a dirigisme philosophy, which believes government should do it all. I dare to say that until there is a change at the helm of affairs, international business investors are going to be reluctant to come to Nigeria. Underlying economic philosophies drive policies and that is what we have seen playing out in the last seven years. A dirigiste attitude is driving statist policies and that drives away investors in droves. This dirigisme philosophy is so embedded in us that many players view the government as ‘The Economy’ and whenever government revenue goes down, they assume the economy is down, so for the economy to rise, government revenues must rise, not knowing that in many circumstances government revenues rising means the economy/businesses are faltering. This being the mindset of our bureaucrats and politicians in government we might understand the lacklustre performance of the economy despite rising government interventions.

Needing something to cheer, this administration has brought in EDB, but is EDB an economic advancement tool? It is more a reflection of the economic philosophies that have driven a nation’s business environment over time. What do I mean? A culture that views government offices and regulations as means of aggrandisement will struggle with ranking while those countries that believe businesses must thrive for the economy, nation and citizens to thrive will do well on the Ease of Doing Business index. Hence we see the first ten positions on the EDB ranking occupied by very business-friendly countries 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 lapsing to 169th position in 2014.

Sadly, this current statist philosophy is fuelling 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 Fertiliser plants were projects undertaken by the Federal Government. It would have singularly swelled our foreign debt by 33%! Also, imagine the earlier telecom revolution was done by defunct NITEL. I pray the import and lessons of our current choices are learned before we run into a more serious debt hole. A change to a totally liberal economic philosophy will mean a lowering of the national debt.

What is keeping business away and what to do about it? While improving our ranking on the EDB index is good it should be viewed as the icing on the cake. The foundation should be based on liberal rather than statist policies. It includes lowering taxes, fees, duties, tariffs etc due to the government rather than increasing the rates.

A change in our bureaucrats’ mentality is also a must. From bureaucrats being anti-business (a hangover from our pro-socialist past, couched in Social Democracy). Bureaucrats love more regulations, politicians love taxes but these two approaches drive businesses away to where there are fewer of them. With the African Continental Free Trade Area, the time of believing our relatively huge market would keep investments coming is over, meaning it is time for a real mental change.

Important to note that a move from 145 to 131 on the ranking is not going to change perceptions of the investing world about doing business in Nigeria with the pathetic image of Nigerian bureaucracy. To change perceptions we have to go way down to below 60 or 50. Ghana is at 60, Rwanda at below 40 and Botswana is at 86. Only a quantum jump can change world perceptions about us.

This will need a sociocultural change from our dirigisme 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 change that fathered a system change is that by Chinese leader Deng Xiaoping (1978) that changed the fortunes of China, not a cosmetic dressing of issues.

Again, would a better EDB ranking on its own deliver much needed sustained economic growth? No, I don’t believe it would. It has to be premised on very sound business-friendly policies. I am afraid that’s been the missing circumstances for years now and Nigeria’s abysmal economic performance indices can’t be argued with.

Time is running out for Nigeria. Those directing the economy have to rethink and change direction. One thought that instituting a new Economic Advisory Council in December of 2019 would have brought a change in the course but it has not. There is a saying that we should never allow crises to go to waste but the crisis of 2014/2015 that brought on an oil price crash has been wasted. Rather than address the core structural and socio-cultural challenges of the economy we played to the gallery for the Nigerian citizenry while investors both foreign and local vote with their feet.

One is not averse to growing government revenues but it should not be achieved at the expense of businesses. To achieve it, we have to grow the economy, especially the manufacturing sector. We have to achieve it by reducing taxes and many other government fees, not by increasing them. This attracts more businesses to Nigeria and makes up for the lower taxes while at the same time increasing employment. This has been shown to work elsewhere. Ghana adopted this policy a few years back and droves of businesses moved into Ghana.

Neither is one unaware of severe shortcomings of the Nigerian economic space, such as gross power insufficiency, transportation gridlocks, corruption and, lately, insecurity. Every business player had accepted it as our portion, but when government places additional burdens on businesses when a respite was expected then we see the haemorrhaging of businesses.

Until lately, not in any quarter since 2015 has economic growth exceeded population growth despite all manner of government interventions. We have had EDB improvements, Economic Recovery and Growth Plan, Economic Sustainability Plan, etc. It’s time to change course, whatever has been tried has simply not worked including ‘infrastructure expenditures’. The maxim of a doctor is to do no harm and not make a patient worse than they met him or her. I am not sure this can be said of the current managers of our economic development. Neither should we allow gains in EDB to divert us from fundamental failings elsewhere.

A cry on behalf of millions being impoverished in the last 10 years! Don’t let’s make the next 10 years, worse!