The World Bank has revealed that it is tougher to do busi-ness in Nigeria now than it was in 2015. The Bank’s report, released yesterday, came hours after the International Monetary Fund (IMF) said Nigeria needed a substantial policy reset to reap sub-Saharan Africa’s strong potential. The global bank, in its 2016 ‘Doing Business Report’, noted that Nigeria went up the ease of doing business ranking, but doing business actually got tougher in the largest economy in Africa.
Doing Business, according to World Bank, sheds light on how easy or difficult it is for a locaentrepreneur to open and run a small to medium-size business when complying with relevant regulations. The report also measures and tracks changes in regulations affecting 11 areas in the life cycle of a business:
In 2015, Nigeria ranked 170 of 189 countries, with a distance to frontier (DTF) or ease of doing business score of 47.33, against Singapore’s 88.27 and Eritrea’s 33.16. In the 2016 version of the report, Nigeria climbed one rung of the ladder to the 169 position, but its ease of doing business score fell to 44.69. Singapore remained the easiest country to do business in, with a DTF of 87.34, while Eritrea remained at the bottom of the ladder, plunging further to 27.61 from 33.16 in 2015.
At 32 and 62 respectively, Mauritius and Rwanda remained the best destinations for business in Africa, while Ghana led the West African park at 114 of 189 countries. Power generation was identified by the global financial institution as one of the reasons unemployment is high in Nigeria and why multinationals leave Nigeria. Globally, Nigeria stands at 182 in the ranking of 189 economies on the ease of getting electricity.
“Industry is a core sector for the generation of national wealth and employment in Nigeria, but faced with an electricity sector hampered by poorly- utilised generation capacity, high transmission losses and frequent outages, companies turn to self-provision of electricity. “This raises their production costs, reducing their competitiveness and thus their demand for labour.
The erratic and inadequate power supply in Nigeria has often been cited as the main reason forcing multinationals to relocate production lines to other countries. Power outages also affect output levels,” the global bank stated. The bank said informal construction and bad building affected the public and businesses in Nigeria.
“Where informal construction is rampant, the public can suffer. Take the case of Nigeria, which lacks an approved building code setting the standards for construction,” the report read. “Without clear rules, enforcing even basic standards is a daunting task, and many buildings fail to comply with proper safety standards.
Structural incidents have multiplied. “According to the Nigerian Institute of Building, 84 buildings collapsed in the past 20 years, killing more than 400 people.” On reforms carried out so far, World Bank said: “Nigeria made transferring property in Lagos less costly by reducing fees for property transactions.
“Nigeria strengthened minority investor protections by requiring that related- party transactions be subject to external review and to approval by disinterested shareholders. This reform applies to both Kano and Lagos.” Meanwhile, the IMF, in its April 2016 Regional Economic Outlook for Sub- Saharan Africa, Time for a Policy Reset, released yesterday, said that Nigeria and other countries in sub-Saharan Africa needed policy reset.
The Fund said the region is set to experience a second difficult year as a result of multiple shocks after an extended period of strong economic growth. It said that growth in the region as a whole is projected to fall to three per cent in 2016, the lowest level in some 15 years, albeit with considerable differences across the region.
Just last March; the IMF said that it has, again, cut its growth forecast for Nigeria as the oil exporter faces “substantial challenges” from low crude prices. In its annual review of Nigeria’s economic situation, the Fund said that gross domestic product (GDP) growth would slow to 2.3 per cent in 2016 from an estimated 2.7 per cent in 2015. In February, after IMF officials visited the country, the Fund had forecast 3.2 per cent growth for Nigeria in 2016.
It added that Nigeria’s general government deficit would grow further after doubling to 3.7 per cent of GDP in 2015. But in its latest report, the Fund noted that while the outlook remains favourable, growth is well below the six per cent that was customary over the last decade and barely above population growth.
“Africa needs a substantial policy reset to reap the region’s strong potential,” said Antoinette Sayeh, Director of the IMF’s African Department. “This is particularly urgent in commodity exporters and some market access countries, as the policy response to date has generally been insufficient.
“The slowdown reflects the adverse impact of the commodity price slump in some of the larger economies and more recently the drought in eastern and southern Africa. The sharp decline in commodity prices, a shock of unprecedented magnitude, has put many of the largest sub-Saharan African economies under severe strain.
As a result, oil exporters, such as Nigeria and Angola and also most countries of the Central African Economic and Monetary Union, continue to face particularly difficult economic conditions.” Consequently, she said non-energy commodity exporters, such as Ghana, South Africa and Zambia, have also been hurt by the decline in commodity prices. Also, she noted that several southern and eastern African countries, including Ethiopia, Malawi, and Zimbabwe, are suffering from a severe drought that is putting millions of people at risk of food insecurity.
However, Sayeh stressed that the outlook remains favourable. “Many countries in the region continue to register robust growth. In particular, most oil importers are generally faring better with growth in excess of five per cent in countries such as Côte d’Ivoire, Kenya, and Senegal, as well as in many low-income countries.
In most of these countries, growth is being supported by ongoing infrastructure investment efforts and strong private consumption,” she said. She noted that the decline in oil prices has also benefitted many of these countries, though the drop in prices of other commodities that they export, and currency depreciations, have partly offset the gains.
Her words: “More broadly, medium-term growth prospects remain favourable as the underlying drivers of growth at play domestically over the last decade generally continue to be in place. In particular, the much improved business environment and favourable demographics should play a supportive role in the coming decades.
“Faced with rapidly decreasing fiscal and foreign reserves and constrained financing, commodity exporters should respond to the shock promptly and robustly to prevent a disorderly adjustment. As revenue from the extractive sector is likely durably reduced, many affected countries critically need to contain fiscal deficits and build a sustainable tax base from the rest of the economy.
For countries outside monetary unions, exchange rate flexibility, as part of a wider macroeconomic policy package, should also be part of the first line of defence. “Given the substantially tighter external financing environment, market access countries in which fiscal and current account deficits have been elevated over the last few years will also need to recalibrate their fiscal policies. Such recalibration would help them to rebuild scarce buffers and mitigate vulnerabilities if external conditions worsen further.”
