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Improving subnational ease of doing business rankings to unlock regional prosperity

Improving subnational ease of doing business rankings to unlock regional prosperity

Nigeria, like the rest of the world, grapples with escalating economic challenges stemming from the lingering effects of the COVID-19 pandemic, heightened geopolitical tensions in Europe and the Middle East, as well as the strains on global supply chains. Compounded by the impacts of climate change, particularly extreme weather events, Nigeria’s economy, heavily reliant on primary production, faces heightened vulnerabilities. While the global economy has been slow to adapt to the challenges, Nigerian economic growth has shown some level of resilience in the face of these headwinds. Nigeria’s economic growth, albeit positive, has not been strong enough to improve the living standard of the average Nigerian in a meaningful way. This strong economic growth is further hindered by negative perceptions of the nation’s business environment. Therefore, fostering shared prosperity hinges on substantial improvements in the ease of doing business across the subcontinent, with a keen focus on micro, small, and medium enterprises (MSMEs).

Nigeria boasts a vast MSME sector, housing over 39.6 million businesses, which make up 96.7 percent of all enterprises in the country. Notably, 67 percent of these businesses are owned by young entrepreneurs. In 2023, MSMEs significantly contributed to Nigeria’s GDP, accounting for over 43 percent. Particularly noteworthy is the micro-segment, which represents 96.9 percent of these businesses and generates nearly 90 percent of the country’s employment opportunities. As MSMEs thrive, they not only foster inclusive growth but also create pathways to prosperity for many, contributing to inclusive growth nationwide. So, the right environment must be created for them to thrive. To this end, the ease of doing business at Nigeria’s subnational level will continue to be a topic of interest to investors and entrepreneurs in 2024 as a way of meandering through the harsh economic realities.

“This strong economic growth is further hindered by negative perceptions of the nation’s business environment. Therefore, fostering shared prosperity hinges on substantial improvements in the ease of doing business across the subcontinent, with a keen focus on micro, small, and medium enterprises (MSMEs).”

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Assessing the business environment in Nigeria’s subnational.

The “Ease of Doing Business” (EoDB) report, conducted annually by the World Bank, assesses a country’s attractiveness for entrepreneurial ventures and investment. Covering approximately 190 countries and selected cities at sub-national and regional levels, the report measures the costs to firms of business regulations. This study has become a flagship programme of the World Bank Group in private sector development, focusing on domestic micro, small, and medium-sized enterprises (MSMEs). It evaluates regulations across various stages of a business’s lifecycle, including starting a business, obtaining construction permits, getting electricity, property registration, getting credit, investor protection, tax compliance, trading across borders, enforcing contracts, and resolving insolvency. The EoDB report provides quantitative indicators to capture essential aspects of the regulatory environment, offering insights into areas where reforms may be necessary to improve the ethos of doing business.

Since 2015, Nigeria’s Federal Government has recognised the importance of monitoring the subnational Ease of Doing Business (EoDB) performance and has implemented measures to enhance it. This includes establishing the Presidential Enabling Business Environment Council (PEBEC) to address bureaucratic constraints and improve stakeholders’ perceptions of Nigeria’s business environment. Since 2017, PEBEC’s framework has extended to the sub-national level, encompassing all states in Nigeria.

To improve the business environment, it needs to first be rigorously assessed against the challenges identified. Our analysis aimed to provide a comprehensive overview of the business environment in selected subnationals across the nation, focusing on regulation, tax policies, infrastructure, and access to finance.

Government regulations

Lagos State: The state has been very proactive in implementing business-friendly regulations, such as streamlining the process for business registration and obtaining construction permits. The state government’s efforts to digitise services have significantly reduced bureaucratic bottlenecks.

Kano State: This is another state that has made significant strides in simplifying the property registration process, but challenges persist in contract enforcement and obtaining electricity connections. The state government is urged to triage improvements in these areas to enhance the business environment.

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Tax Policies:

Rivers State: The state has implemented several tax incentives to attract investment, particularly in the agriculture and manufacturing sectors. The state’s investment in tax administration technology has further improved compliance and transparency.

Anambra State: The state has been well commended for its efforts in simplifying tax processes and reducing tax burdens on small businesses. The state’s progressive tax policies have contributed to a more favourable environment for investors and entrepreneurs.

Infrastructure

Ogun State: The state has made a substantial investment in infrastructure, particularly in transportation and energy. The construction of new roads and bridges has enhanced connectivity and logistics, benefiting businesses operating in the state.

Akwa Ibom State: Akwa Ibom has seen notable progress in expanding access to reliable power supplies, a critical factor for businesses. The state government’s focus on improving infrastructure has positively impacted the ease of doing business in the state.

Access to Capital

Abuja (Federal Capital Territory): The FCT has witnessed an increase in the availability of financing options for businesses, supported by the preponderance of financial institutions and investment firms, further bolstering entrepreneurship in the area. More so, the government initiative to facilitate access to credit has further stimulated innovation and enterprises.

Enugu State: The state’s efforts in boosting financial inclusion and supporting small and medium-scale enterprises through targeted loan programmes and partnerships with financial service providers have accelerated the state’s performance on the subnational doing business ranking.

Improving Nigeria’s business and investment climate

While progress has been made in various regions, challenges still persist in different aspects of the subnational business landscape. Improving the subnational EoDB and investment climate is crucial for economic growth and attracting investment. Some considerable strategies that can be deployed include

Regulatory reforms: The government at the centre needed to collaborate with the subnational to implement business-friendly reforms that will help streamline administrative processes, reduce red tape and bureaucracy, and simplify licensing procedures. This will enhance transparency and accountability across subnational regulatory agencies.

Infrastructure development: Given the importance of infrastructure in driving overall satisfaction with subnational ease of doing business, critical investment in infrastructure should be a key priority for all levels of government. Reliable infrastructure attracts investors and facilitates seamless business operations.

Access to finance: Facilitating access to credit for MSMEs through robust and inclusive financial systems.

Sector-specific initiatives: We need to tailor policies to specific sectors of strength, such as agriculture, manufacturing, and technology. By creating specialised economic zones, we will be able to attract investment and foster industrial growth.

Corruption mitigation: enforcing anti-corruption laws and regulations as well as strengthening the institutions responsible for combating corruption will provide the necessary boost for potential investors.

Local content development: By creating content that resonates with the local audience, businesses can thrive and contribute to a vibrant local ecosystem.

By implementing these strategies, Nigeria’s subnational entities can create an enabling environment for businesses, attract investments, and contribute to economic development. Continued efforts to streamline regulations, enhance infrastructure, and improve access to finance are crucial for fostering a more conducive environment for business growth and investment in the country.

About the authors:

Muhammad is a research and data analyst at BusinessDay Intelligence. He has over seven years of quality analytical experience on issues related to the economy, finance, and human capital development.

Chiamaka is a research and data analyst at BusinessDay Intelligence. She has a degree in Economics and over one year of cognate experience in data visualisation and handling.