Nigeria has long struggled with challenges around the ease of doing business, which has hindered economic growth and diversification. The country ranks 131 out of 190 countries in the World Bank’s 2020 Ease of Doing Business index. This poor performance hurts job creation, foreign direct investment (FDI) inflows, and the expansion of the private sector. However, the Nigerian government has recognized these problems and taken steps to implement reforms to improve the business environment.
Overview of Key Challenges for Businesses in Nigeria
Nigeria faces numerous difficulties in starting and operating businesses, which stem from factors like:
- Complex regulatory framework: Overlapping laws and regulations across federal, state, and local levels create headaches for companies. Requirements are often ambiguous and costly to meet.
- Access to credit: High lending rates and stringent collateral conditions impede SMEs from getting financing to grow their operations.
- Multiple taxes: Businesses face a multiplicity of taxes, charges, and fees from different government agencies. Tax administration is opaque and complex.
- Corruption: Routine demands for bribes and “facilitation payments” add to costs and delays.
- Inadequate infrastructure: epileptic power supply, poor roads, and freight logistics drive up operational expenses.
- Inefficient processes: bureaucracy and red tape cause delays in obtaining permits, licenses, and approvals to start and run businesses.
- Weak dispute resolution: Slow and inefficient courts hamper the enforcement of contracts and the resolution of commercial disputes.
Why Improving the Ease of Doing Business Matters
Creating a more business-friendly environment in Nigeria is critical for:
- Diversifying the economy: reducing dependence on oil and gas and encouraging growth in other sectors like agriculture, manufacturing, and services.
- Increasing investment: both domestic and foreign Ease of doing business drives investor confidence and capital inflows.
- Supporting entrepreneurship: Simplified regulations and processes empower startups and SMEs to grow, boosting job creation.
- Improving competitiveness: Nigeria currently lags behind regional peers like Ghana, Kenya, and South Africa. Reforms are key to catching up.
- Reducing inequality: A vibrant private sector expands opportunities for disadvantaged groups like women and youth.
- Raising government revenue: More registered businesses and the formalization of informal enterprises broaden the tax base.
Progress Made on Reforms and Initiatives
In recent years, the Nigerian authorities have undertaken a range of initiatives to tackle bottlenecks for businesses and improve the overall business environment.
Strengthening the Regulatory Framework
- The Companies and Allied Matters Act 2020 overhauled outdated corporate laws to promote greater transparency and ease requirements for company formation and operations.
- Creation of the National Action Plan on Ease of Doing Business to coordinate reform efforts across all levels of government
- Introduction of Executive Order 01/2021 on the Promotion of Transparency and Efficiency in the Business Environment Directs MDAs to streamline bureaucratic processes and timelines.
Improving access to credit
- Passage of the Secured Transactions in Movable Assets Act 2017 and the Credit Reporting Act 2017 to facilitate lending, especially to SMEs
- The CBN has pushed banks to allocate higher credit shares to productive sectors through policies like the Loan-to-Deposit Ratio.
- Launch of the National Collateral Registry to allow movable assets to be used as collateral for loans.
Formalization of Businesses
- The new CAMA 2020 allows for electronic filing and greater use of technology to ease business registration and compliance.
- The CAC has deployed initiatives like its Business Incentive Strategy to simplify registration processes and encourage formalization.
- Ongoing reforms around communication, coordination, and digitization between CAC, FIRS, CBN, and other agencies involved in business registration and compliance
- Introduction of the Transfer Pricing Regulations to ease the compliance burden of documentation and create a more transparent tax regime.
- Ongoing deployment of e-platforms by the FIRS, like TaxPro Max, for electronic tax filing and payment
- FIRS reforms revolve around improved taxpayer segmentation, dispute resolution, and engagement with taxpayer associations.
- Efforts by the Joint Tax Board to harmonize tax collection across state and local governments, such as through unified revenue codes,
- Projects to expand power generation and grid capacity, including through private sector partnerships via the Nigeria Electrification Project
- Ongoing road, rail, and port projects to bolster freight logistics and transport infrastructure. Examples include the Lagos-Ibadan Expressway, the Second Niger Bridge, and the Lekki Deep Sea Port.
- Reforms at airports and seaports by FAAN and NPA to deploy technology and improve processes, helping cut delays and costs
Strengthening Public Institutional Capacity
- Ongoing civil service reforms are aimed at improving the efficiency, transparency, and service delivery of MDAs that interface with the private sector.
- capacity-building partnerships between MDAs and development partners like the World Bank to implement business climate reforms.
- Increased focus on monitoring and evaluating the effectiveness of policies, laws, and regulations governing the business environment.
Key Priority Areas for Further Reforms
While Nigeria has made strides, it still ranks low globally in many areas. Sustaining momentum for reforms is crucial. Some of the priority areas include:
Improving contract enforcement and dispute resolution
Lengthy delays and inefficient contract enforcement hold back business operations and dispute resolution. Further efforts are needed to:
- Streamline court rules, procedures, and use of technology under the National Judicial Council.
- Operationalize specialized commercial courts at the state level.
- Strengthen alternative dispute resolution mechanisms like arbitration and mediation.
- Improve the capacity of judicial officials in commercial and business law.
Deepening Regulatory Reforms
Despite recent progress, more work is required to eliminate overlapping regulations and simplify compliance across all levels of government. Priorities:
- Undertake a comprehensive diagnostic of regulations and business-related laws across MDAs.
- Eliminate contradictory, ambiguous, and burdensome regulations inhibiting business activity.
- Ensure consistency between national laws and regulations and sub-national practices.
- Institutionalize systematic review processes for new regulations.
Expanding digital governance
Wider adoption of digital platforms and online systems for business registration, licensing, payment of taxes and fees, imports and exports, etc. can significantly improve speed, transparency, and reduce corruption.
- Achieve full integration of platforms across CAC, FIRS, Customs, CBN, and other relevant agencies.
- Continue the transition from paper-based processes to electronic platforms.
- Roll out initiatives like the National Single Window for Trade and the unified company identification number system.
Increasing Investment in Infrastructure
More investment is desperately needed in power, transportation, broadband connectivity, etc. to reduce production costs and boost competitiveness.
- Create enabling policies and regulations to attract greater private sector involvement in infrastructure via PPP models.
- Address governance issues, corruption, and mismanagement within agencies responsible for infrastructure development.
- Improve procurement practices and project preparation and evaluation to ensure value-for-money in infrastructure spending.
Facilitating access to finance
Onerous collateral demands, high-interest rates, and credit constraints for SMEs impede business growth. Recommendations:
- Ensure effective implementation of secured lending reforms.
- Develop capital markets and alternative financing platforms like private equity and venture capital.
- Design targeted SME lending schemes and credit guarantee programs.
- Leverage technology and data for innovative lending models (e.g., fintech).
Strengthening public-private dialogue
Robust engagement between the government and private sector is required to build trust, secure buy-in for reforms, and address issues promptly.
- Formalize existing platforms like the Presidential Enabling Business Environment Council for structured policy dialogue.
- Enhance private sector participation in decision-making across MDAs and different levels of government.
- Incorporate mechanisms for investor grievance redressal.
In conclusion, Nigeria has many pressing challenges in its business environment that require coordinated efforts across the public and private sectors to address. Considerable progress has been achieved to date through reforms focused on governance, regulation, taxation, digitalization, and infrastructure. Sustaining commitment and momentum is critical, and further priorities include contract enforcement, reducing red tape, expanding e-governance, boosting infrastructure investment, and easing SME financing constraints. With continued engagement and collaboration amongst stakeholders, Nigeria can enhance its business climate to unlock investment, support entrepreneurship, and sustain inclusive growth.