Banks in many African countries still favour lending to governments and large companies, resulting in less finance for small and medium-sized enterprises (SMEs), according to Banking in Africa, published by the European Investment Bank on February 27.
Nigeria’s World Bank business ranking conceals obstacles on the ground
Nigeria has made some progress in the World Bank’s Ease of Doing Business ranking for 2020, moving up 15 places to be ranked 131 globally out of 190 countries in the world.
The country improved its ranking from 146 in 2019, but the risk is that the improvement exists on paper rather than on the ground.
Nigeria was among the top 10 improving economies for implementing regulatory reforms in six of 10 indicators in the report.
- Yet the World Bank mostly focuses on the regulatory environment and not on the realities of doing business.
- Nigeria’s informal sector accounts for up to 65% of the economy, but attracts little attention in the report.
- Lagos and Kano are the only areas where the realities of business are surveyed.
Nigeria has seen improvements in the process of starting businesses. In 2016, the country’s Corporate Affairs Commission (CAC) cut the cost of registering a business by 50% and also reduced the red tape involved in business registration.
- The new process was transferred to an online portal where business name searches that took weeks have now been reduced to days. It now takes 25 days or fewer to register.
Aspiring business owners no longer need professional help to register. Instead, they can simply walk into CAC offices.
- “You don’t need a lawyer to register your business for you anymore,” said Bello Mahmud, the registrar-general of the CAC. “You can now do it yourself. The process is easy now.”
In the past, it often took months to fully register and obtain documents for a new company. Proposed business names took weeks to be vetted, and if a name was already taken, the process had to be restarted from scratch.
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But for local small businesses, the index is more of a vanity metric than a reflection of what is happening on the ground.
- Nigeria still has electricity generation and distribution problems, with the national grid frequently crashing. Businesses are left to generate electricity for themselves. Internet speeds are low, data costs high and the road networks poor.
“The bulk of business time in Nigeria is often wasted in traffic. Productive time is spent doing trivial things and is effectively wasted,” says Oluyomi Ojo, the CEO of Lagos-based online print provider Printivo.
Businesses in Nigeria are having to adapt to survive. “Because there are so many hidden costs that affect the ability to run and the business overhead, to remain competitive a lot of other business processes need to be cut,” Ojo explains.
Businesses, especially in Lagos, also find themselves vulnerable to hoodlums who have the ability to stop operations with impunity.
When Opera entered the Nigerian market with OPay – an application with services like Oride and Ofood and a $50m war chest to conquer the Nigerian market, it was expected to be able to beat other competitors.
- But Oride riders in Lagos often find themselves in conflict with the National Union of Road Transport Workers (NURTW). Oride riders are frequently declining trips to certain parts of Lagos for fear of harassment.
- An agreement brokered by the Lagos State government on behalf of bike-hailing start-ups and the NURTW introduced a N500 ($1.40) daily ticket to allow them to operate anywhere in the state without such fears.
The Nigerian government is looking to ramp up efforts to collect taxes via new revenue streams such as an increase in VAT and a 5% tax on both domestic and international online transactions.
- An amendment to the 1993 Deep Offshore and Inland Basin Production Sharing Contract (PSC) threatens further investment in the oil and gas industry, as it looks very likely to increase the operating costs of oil and gas companies operating under PSC arrangements.
The danger is that the Nigerian government’s focus is on improving regulation to score high rankings to present the illusion of development, rather than improving real business environments.
Rather than chasing PR wins from the World Bank, the Nigerian federal government needs to work on the bottlenecks that businesses face – including its own shortcomings.