BusinessDay
Nigeria's leading finance and market intelligence news report.

With the economy in ruins, business-killing regulations should go

The Nigerian economy has seen five years of negative per capita growth, shed millions of jobs and about half of the population now live in abject poverty. We must, as a matter of urgency rethink how businesses are regulated and hire sound people to plan this dying economy.

Poor regulation is now the most dangerous threat to businesses in Nigeria. Foreign Direct Investment (FDI) into the country now hovers around a paltry $1 billion yearly trailing smaller peers like Ghana. The Manufacturers Association of Nigeria (MAN) said about 272 firms were forced out of business in 2016.

Our regulations are dangerous because they are not responsive to changes in the economic, social and technical conditions surrounding them. In developed countries, regulations follow developed markets and act as powerful stimulus to further innovation. Our regulations shrink markets, deter investments and get in the way of innovation and growth.

For example, renewal of oil leases and organising licensing rounds are routine processes in other countries except Nigeria. Various government agencies and state governments enact overlapping and frankly dubious rules for operators. Oil companies suffer multiple and disjointed regulations which raises costs, creates ambiguity, distorts project timelines, stifles investments and fosters inefficiency. For the past ten years, we cannot pass the PIB meanwhile our neighbours now have oil and big oil companies are spoilt for choice.

Access to land, foreign exchange, electricity, port operation suffers needless complications because of meddlesome regulations. With the exception of a negligible few, the various governments in Nigeria have shown crass incompetence at enacting sensible policies that will drive the economy. The worst culprit is the federal government whose inept economic policies have provided the blueprint upon which various profligate state governments build poor economic plans.

Forward thinking governments have done away with price controls and sternly regulated markets. Even closed China opened its markets but we are doubling down. In 2020, we are still arguing about petrol subsidies and electricity tariffs. These days, governments are allowing for collaborative regulations with businesses, courting private capital and allowing entrepreneurs to give input in economic policies. The United States under President Donald Trump has seen tremendous economic growth due in part to deregulation and competitive tax policies that allowed businesses to thrive.

The rhetoric about protecting Nigerians from exploitation which provides justification for aberrant policies has done too great a damage. If anything, it is their ruinous governments Nigerians need protection from. Imagine if electricity tariffs were allowed to follow the rules created under the Multi Year Tariff Order which prescribed biannual tariff review, by now the market would have stabilised. Instead, the federal government interfered, prevented a tariff increase and has burnt over N1.7 trillion on subsidies. Yet, output remains at 3,500MW for over a decade, consumers still pay more because they depend on generators and the sector is messed up.

The lesson various governments need to learn is that businesses have to thrive to help the government generate the required revenue to protect consumers. Now more businesses are leaving the country due to the asphyxiating business environment. Shoprite Retail Ltd, is leaving as well as others.

We need to stop trumpeting the lunacy that we are a strong economy simply because there are supposedly over 200 million of us. Too many poor people have little economic value. This is why Shoprite is more profitable in a country with over 50 million people than with over 200 million. Nigeria’s Motor Vehicles Sales report recorded 9,800 units in December 2019, compared with 17,000 units in the previous year while sales in South Africa last year was over 300,000. is it any wonder that every consumer good is now sold in sachet? We are getting poorer!

The federal government has to lead the way in creating smarter regulations. Its officials should update their knowledge and eschew pedestrian considerations in regulating businesses, allocating resources, planning the economy or building infrastructure. Much noise has been made about this government’s rail infrastructure but what the country really needs are freight trains that connect industries, farms to major cities to cut post-harvest losses and bring goods quickly to market. Failure to dredge ports in other parts of the country is burying Lagos in a quicksand of chaos.

State governments need to stop emasculating businesses through ridiculous taxes and rein in their rascally officials who waylay businesses in local government areas. They charge ridiculous fees to lay fibre optic cables, erect masts or open shops. Unimaginative governors and local government officials keep their states poorer through a hostile business environment that forces out businesses and wonder why their young people are hawking soft-drinks in Lagos traffic. Formalise businesses, provide them a conducive environment, help them thrive, then tax them. If the civil service is the biggest employer in your state, you are a failure as a governor!

The days of plenty are gone. Crude oil sales accounted for 40 percent of the federal government’s revenue in 2019. It used to be 70 percent. Our debts to China are getting dangerously close to where they can auction the country. We can no longer afford the brigandage at the NDDC or the circus going on at the EFCC. The national assembly should wake up and smell the coffee, the country you all pretend to govern is imploding right before your eyes!

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