In Italy, for 30 years under the Borgias, they had warfare, terror, murder and bloodshed, but they produced Michelangelo, Leonardo da Vinci and the Renaissance. In Switzerland they had brotherly love, they had 500 years of democracy and peace – and what did that produce? The cuckoo clock.” – Orson Welles
Forgive me, but I would like to begin with a cliché: “it is difficult doing business in Nigeria.”
Nigerians may know this, but you don’t realise how dysfunctional your family is until you invite the neighbours over; so what do our neighbours think? Well, foreign direct investment (FDI), foreign investment in physical capital, was $7 billion in 2008 alone. We raked in that same amount of FDI in the last five years. In comparison, 2017 foreign portfolio inflows – investment in financial markets – was also $7 billion. There’s a clear appetite for investing in Nigeria, given the returns, but low FDI signals an aversion to doing business in the country.
It is with this in mind that we turn our attention – and praise – to the strides made by the Presidential Enabling Business Environment Council (PEBEC) set up in July 2016. PEBEC’s approach to improving the ease of doing business has been three-pronged: legislative, executive, and administrative. It has lobbied the National Assembly to pass critical legislature on credit access for SMEs, and recently, to amend the Companies & Allied Matters Act. Also, in his capacity as Acting President, PEBEC’s Head, Yemi Osinbajo signed an Executive Order to promote efficiency in the civil service. However, PEBEC’s activities have been dominated by its three National Action Plans (NAP) aimed at implementing specific reforms across key doing business criteria, most of which are defined by the World Bank.
The action plans have been reasonably successful, achieving 82%, 52%, and 68% completion rates, respectively. Furthermore, the first NAP hit the headlines in late 2017 for shooting Nigeria 24 places higher to 145th on the World Bank Doing Business Rankings, surpassing the Council’s target of 20 places, moving Nigeria to its highest rank in five years, and earning praise from the World Bank.
These developments, along with the World Bank vote of confidence, may suggest that Nigeria has made progress in improving the ease of doing business.However, closer scrutiny reveals that the World Bank Doing Business Rankings are a flawed measure, primarily because the indicators the World Bank observes are so narrowly and rigidly defined. While this helps create transitive measures and actionable policies, it means that a country can move up the rankings without materially changing the experience of doing business.
We see this in how the NAPs sometime become a box-ticking exercise that does not tally with reality. In Nigeria, there is often a significant divide between theory and experience, and this may be fatal for the World Bank/NAP approach, as it mostly assesses frameworks and systems and not outcomes, although we know the latter is the issue here. The best example of this is the “Getting Credit” criteria on the World Bank index. Nigeria rose to 6th place out of 190 countries in 2018. How? The World Bank assesses the legal and institutional framework for facilitating credit access – not how much credit SMEs actually get,or how easy it is for them to get credit – and Nigeria resolved the former by passing the National Collateral Registry Act and the Credit Reporting Act. Under the World Bank approach, it does not matter whether these have had any effect. This is no slight on the NAP, it is merely a reminder that we must be wary of obsessing over measures and scores, at the expense of what we initially set out to measure.
Despite these limitations, the NAP did make material changes to Nigeria’s business environment. NAP 1.0 set the tone by making it easier to register a business. Furthermore, the aforementioned credit legislation isa crucial milestone as we try and reduce the information and trust gap between lenders and borrowers – an underrated reason for low SME credit access in Nigeria. NAP 1.0 alsohighlighted what we are particularly bad at; very little progress was made in improving access to electricity or transforming the ports, an indication that these two issues need stronger policy ammunition. On the narrowness of World Bank indicators, subsequent NAPs circumvented this by including non-World Bank criteria. In particular, PEBEC accounts for the outsized importance of the public sector in Nigeria’s economy by driving initiatives that make it easier for SMEs to do business with the government.
Nigeria still has a long way to go. The soft wins of the NAPs are positive,but we are yet to address the primary concerns of SMEs – they rank access to finance (30%), power (27%) and corruption (13%) as the largest impediments.Legislative reform will always reign supreme.It is therefore good to see that PEBEC is currently working on the Omnibus Bill for passage as an executive bill by the National Assembly, as it contains several business reforms which will be institutionalised.
PEBEC has set its sights on breaking into the World Bank’s top 100 by 2020, and top 50 in 10 years. Steep targets perhaps, but the steepest challenge would be ensuring that success in the rankings translates into a smoother experience doing business in Nigeria.
Famoroti is Chief Economist at Vetiva Capital Management Limited
The views expressed in this article are personal to the author and may not reflect the opinion of Vetiva Capital Management Limited or any of its affiliates
