Ease of doing business 2018: How easy was it in Nigeria?

The World Bank (WB) brought a soothing relief to the Nigerian economy with its Ease of Doing Business 2018 Report. Each year, WB releases this report which compares business regulation for local firms in 190 economies. Nigeria’s ranking soared from 169 to 145 thus representing the country’s highest annual progress (14.2 percent) over a decade. The country improved its rank in 7 parameters while moving closer to global best practices in 2 parameters.

Also, WB recognized Nigeria as the ten most improved economies, thanks to 10 distinct reform push by the Presidential Enabling Business Environment Council (PEBEC). PEBEC collaborated with different stakeholders to implement a 60-day plan for improving Nigeria’s business environment by at least 20 positions. Certainly, PEBEC has surpassed this target within a year. No wonder this impressive result attracted numerous accolades from the government and other stakeholders.

Despite Nigeria’s remarkable growth, a 4-year historical review of distance to frontier (DTF) score indicates that entrepreneurs experienced difficult business regulations from 2015 to 2017 while 2018 heralded a neutral regulatory environment (52.33) for the private sector.

dtf score

Furthermore, a 10-year historical review of ranking shows how Nigeria gradually grew from a pleasant place to conduct business in 2009 (118) to the least attractive places to do business globally in 2015 (170).

NGN ranking

The country’s rank was extremely lower than its fellow MINT countries (Mexico, Indonesia, Nigeria, and Turkey). MINTs have been classified based on population size, favorable demographics, and emerging economies. Mexico (49) topped the MINT, followed by Turkey (60) and Indonesia (72). Nevertheless, Nigeria was the most improved economy in comparison with other MINT members. Nigeria was outranked by a host of Sub Saharan Africa countries. Mauritius (25), Rwanda (41), Kenya (80), South Africa (82) all feature in the top 100 spots. Other lower-middle-income economies like Lesotho (104), Swaziland (112) and Ghana (120) also outranked Nigeria.

Comparing Nigeria with Indonesia

BRC compares Nigeria’s performance in the last 5 years with Indonesia, a lower-middle-income economy under the MINT classification. Data is a population-weighted average for the two biggest commercial states.

start biz
days to get electricity
register property
pay taxes
enforce contract
trade across borders

The findings accentuate the importance of government initiatives. Relatively, Nigeria lags in parameters where government interference is very high: trading across borders (181), registering a property (179), getting electricity (172), and paying taxes (171).

1.    Trading across borders:

Nigeria implemented no reform to electronic systems, customs administration, risk-based inspections, and infrastructure. Consequently, the country witnessed a constant duration of 723.2 hours (almost 30 days) to comply with documentary and border regulations. Reforms on trade policies and transparent regulatory practices that are cost-effective and time-efficient would facilitate international trade. On the other hand, Indonesia enhanced its electronic billing system for tax, customs, and excise as well as non-tax revenue. Documentation cycle when importing lessened by 14 hours to 119 hours. This has yielded a positive impact on the total compliance hours as it takes 323.2 hours to complete documentary and border compliance.

2.     Registering a property:

Even though Nigeria has increased transparency of information and administrative efficiency in property registration, it takes 68.9 days to register a property. Conversely, Indonesia has reduced transfer tax to 8.3 percent of property value which contributed to a steady tenor of 27.6 days.

3.     Getting electricity:

This is another parameter with zero reform. Hence, the number of days to get an electric connection remained the same at 149.4 days whereas it took 34 days to get electricity in Indonesia. Indonesia improved the approval process for new connections and lowering connection and internal wiring certification fees. Currently, the cost of getting electricity stands at 276 percent of income per capita rather than last year’s rate at 357 percent.

4.     Paying taxes:

Nigeria has simplified tax compliance processes and yet it takes 360.4 hours (15 days) to pay taxes. The reason is not far-fetched — the simplified process only fulfilled one out of seven categories for complete reform. Nevertheless, the introduction of a risk-based tax audit approach and electronic filing system could yield a positive impact in the short term to medium term. Meanwhile, a taxable person in Indonesia requires 207.5 hours to pay taxes.

As a result, Nigeria’s performance in these four parameters drifted from Indonesia and the world average. This beckons on the government to continuously pursue long-term policies that would eliminate administrative bottlenecks and reinforce laws that nurture entrepreneurship. So if PEBEC wants to achieve President Buhari’s goal of being the top 100 economies by 2019, then it needs to introduce valuable reforms to international trade, property law, electricity and tax laws.

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