The release of the Doing Business 2015 rankings last week by the World Bank Group provided a token boost for the authorities because Nigeria rose five places in the league table to number 170 out of 189 countries surveyed. We may struggle to reconcile this lowly position with the honeymoon being taken by the international investor in Africa, notably its largest economy (Nigeria).
Firstly, however, we should acknowledge that selective league tables such as Doing Business have their merits when they drill down into the chosen subject. (Some tables are little more than vehicles for think tanks and accountancy firms to raise their profiles through headlines in the medias and on the wire services, journalists being fond of free copy provided to them.) This process reinforces the impressions of those who track the rankings. In two of the categories, Nigeria stands in the top one-third of countries surveyed.
For getting credit, Nigeria has a number 52 slot. This reflects the work of the CBN and other agencies in improving the quality and availability of credit information. For protecting minority investors, Nigeria has a number 62 ranking. Shareholder governance has been strengthened due to the efforts of the regulators. The opposition of minority shareholders in GSK Nigeria to a restructuring proposed by the parent company in mid-2013 was ultimately successful even if the turning point was the airing of their grievances in the Financial Timesof London. The NSE is unrecognisable from its sorry condition under its previous management.
The three categories with the lowest rankings for Nigeria are predictable. For getting electricity, it lies third bottom of the table at number 187. Output is uneven, still subject to marked dips of up to 1,000 megawatts and only a fraction of assumed demand. Given the time taken in the compilation of the rankings, the findings cannot allow for recent reforms and developments in the industry. The NNPC insists that the national integrated power projects (NIPPs) in the eastern Niger Delta will receive their gas requirements in full within four months, and those in the western delta by mid-2015 as result of the building of the necessary pipelines and associate infrastructure. We might be sceptical about these claims on the basis of their source but we cannot deny that there is more movement in the industry than at any point in the past three decades.
For registering property, Nigeria has a position of number 185. An industrialist may find an investor-friendly state government and secure the land for a plantation or a factory. In the vast majority of cases, however, the process is tortuous. Doing Business reports an average of 70 days for registration. We suspect that the figure would be much higher if the respondents had been small business owners.
For paying taxes, the country ranking is number 179. Among the many reasons, we would highlight poor pay for officials, the large number of different taxes and overlapping responsibilities between collection agencies. Until recently, the authorities did not channel their energies into taxing the non-oil economy since there are low-hanging fruit to pick in the oil industry. An average of 47 payments is made per year and the exercise consumes an average of 908 hours. The ideal is the rapid and transparent payment of taxes rather than their deferment or evasion, so Norway, which follows Nigeria alphabetically in the rankings, has averages of four payments and 83 hours.
This disconnect between Nigeria’s ranking of 170 and its seeming popularity among actual and potential investors can be explained by the size of its economy and by its perceived reform momentum. Size does matter, and the $503bn equivalent economy (per the new national accounts for 2013 from the NBS) is “too big to ignore”. The cliché holds. The vast majority of companies have bought into the rising middle class story (it is the most plausible explanation of those healthy growth rates in town). Despite the challenges of a frontier market, Nigeria is the pre-eminent investment story in Africa. Unlike, for example, Kenya, it is not an entry point into a sub-region but a huge domestic market with large unmet needs in practically every sector of the economy.
The other explanation for the disconnect is the forward-looking nature of investors. Doing Business provides a good snapshot, and its drilling down highlights the strengths and weaknesses of the country in the context. The investor has bought into the size argument and may additionally buy into the reform programme. If we take the categories which make up the overall ranking, we can identity work in progress on the power sector roadmap, on non-oil revenue collection at the federal level (and in some states) and on regulation in capital markets.
If we look for challenges beyond these narrow categories, we would highlight the remaining fuel price subsidies, the Petroleum Industry Bill and the stalled migration from excess crude account to sovereign wealth fund. We are looking for a pick-up in the reform programme at the end of the current electoral cycle.
Gregory Kronsten