Ease of doing business in Nigeria

Despite the harsh economic conditions in the country, there appears to be progress in one area of the economy at least: The ease of doing business. In 2015, Nigeria ranked 170th in World Bank’s ease of doing business. However, by 2017, Nigeria’s ranking has improved considerably to 145th.

However, despite the improvement, multinational companies operating in Nigeria and other businesses do not seem to share that optimism as they continue to close shop and leave Nigeria in droves with all of them citing the harsh business environment.

The shut-down of Procter & Gamble’s $300 million consumer goods plant in Agbara in July 2018 reflects the challenges of doing business in Nigeria.

In 2014, P&G set up a diaper line in Agbara, Ogun State, tapped as biggest US non-oil investment in Nigeria.

Four years down the line, the company packed up, citing unusually harsh operating business environment.

But P&G is not alone. According to Manufacturers Association of Nigeria, about 272 manufacturing plants were shut down across the country in 2016 alone.

Truth is: There has been near collapse of infrastructure in Nigeria and it is hurting businesses badly. For instance, many businesses now groan under intense pain due to overhead costs incurred in providing alternative infrastructure like power. According to data from the Manufacturers Association of Nigeria, manufacturers have spent N212.85 billion on alternative energy sources between the second half of 2016 and the first half of 2018. This is over 100 percent higher than what was incurred in the previous four halves.

Other challenges faced by companies operating in Nigeria are bad network of roads, rising logistics cost, multiplicity of taxes, high cost of funds and poor sales resulting from a stunted economy.

The roads across the country make it difficult for businesses to operate smoothly and efficiently. What is more, the three tiers of government in Nigeria are more interested in competing to impose multiple taxes on businesses than fixing the roads.

Manufacturers also told BusinessDay that logistics costs have risen by 50 to 100 percent in the last two years, owing to poor state of roads and lack of a good transport system.

Equally, tax experts have put the number of taxes payable by businesses across the country at 54 as against 37 in 2014.

President of the National Cashew Association of Nigeria, told BusinessDay that exporters shipping out 1,700 tons of cashew per day in 2014 now manage to ship between 100 and 250 tons. A reduction in export and sales increases cost per unit of product and raises inventory.

There is yet no respite in sight for low-cost-seeking manufacturers who would have seen their logistics costs fall had GE not exited a railway contract linking Apapa ports to Lagos mainland.

The combined administrative and distribution expenses of 24 largest manufacturers quoted on the floor of the bourse were up 7.59 percent to N196.61 billion between September 2017 and 2018, albeit lower than November inflation figure.

Manufacturers were unable to sell goods worth N149.23 billion in the first half of 2018 after producing goods worth N4.6 trillion.

Manufacturers are also not finding borrowing easy as interest rate charged them by banks in the first half of 2018 stood at 22.9 percent, 0.25 percentage point higher than 22.65 percent recorded in the same half of 2017.

Then in the midst of all these challenges, the government adds capriciousness, callousness and an extortionist’s attitude in dealing with businesses.

South Africa’s MTN Group Ltd, Africa’s largest telecommunications provider is currently in the process of resolving its stand-off with the Nigerian authorities following the CBN’s laughable order on them to cough out $10.1 billion in alleged unpaid taxes and illegal repatriation.

Editorial