The World Bank Enterprise Survey recently revealed that not less than 322 organised private companies reportedly shut down their operations in the country between 2009 and 2014 due to harsh business environment. According to the report, out of 5,833 companies sampled in Nigeria within the period, about 1,136 were reported to be at the risk of closing down or relocating to neighbouring West African countries.
Some of the factors identified by the survey that led to the development were high cost of production, trade, cost of borrowing, infrastructure deficits, innovation, regulations, taxes, business licensing, insecurity and corruption on business growth, among other problems. Specifically, the survey focused on small, medium and large-scale enterprises in the non-agricultural private sector.
Results of the survey published by the African Development Bank (AfDB) in its recent report entitled: “Creating Decent jobs, Strategies, Policies and Instruments” collaborated the challenges that stymie businesses in Nigeria. In addition, AfDB noted that the issues of power supply, inadequacy of infrastructure, particularly transportation (road/rail), telecommunication facilities, tax administration, adversely affected the survival of businesses in Nigeria. The survey further found that competition from operators in the informal sector contributed to undermine the progress of businesses in Nigeria.
We are not surprised by the World Bank Enterprise survey, though it took place before its most recent reports on the Ease of Doing Business (EoDB) index in which Nigeria moved 15 places in the ranking, from 146 to 131 in the world annual ranking that assesses prevailing business climate conditions and regulations across 90 countries based on ten Ease of Doing Business indicators.
The World Bank EoDB report had also named Nigeria as one of the topmost improved economies in the world for the second time in three years. Nigeria is one of the two African countries to make it to the prestigious list. Nonetheless, the recent World Bank Enterprise Survey confirms its previous surveys from 2009- 2015 that showed that the Ease of doing business in the country remained cumbersome, to say the least.
For sometime now, the Manufacturers Association of Nigeria(MAN) and Organised Private Sector(OPS) have lamented that businesses in Nigeria are operating under very high risks that have resulted in shut down and loss of jobs, thereby increasing the number of unemployed Nigerians in the labour market. According to the National Bureau of Statistics (NBS), the unemployment rate has jumped to 20.9 million, and the number is expected to increase by the end of the year unless urgent measures are taken to check it.
Therefore, we call for the formulation of good policy and financial intervention in the manufacturing sector that will drive the diversification of the economy. It is unfortunate that Nigeria’s loss has become the gain of its neighbouring countries. The truth is that the fortunes of companies operating in the country might worsen if government does not quickly address the identified challenges. Government should put concrete measures in place to remove the factors inimical to business operations in the country. Of primary concern is the cost of production that business operators complain about. Others are streamlining the tax administration, power supply challenges and insecurity. On tax administration, for instance, Nigeria in 2015 was rated “third to the last” on the global ranking of Ease of Doing Business. And on security, last year, Nigeria was ranked the third worst place to do business on account of its security challenges. But that narrative may have changed with the latest report by the World Bank on EoDB. Nevertheless, harsh economic environment continues to impede business operations and their profitability.
There is no doubt that Nigeria has been on the bottom rungs of global rankings of competitiveness and Ease of Doing Business. In 2016, the World Economic Forum (WEF) ranked Nigeria 126th in the global competitiveness in the Ease of Doing Business index because of harsh economic environment and inconsistent government policies. Therefore, improving Nigeria’s ratings on the critical indicators must depend largely on ensuring that the factors that led to the current harsh business environment are addressed. For Nigerian companies to thrive, they need incentives such as tax holidays, good infrastructure, stable power supply and good tax regime.