Doing Business in Nigeria: Ekiti, Ogun and Cross River lead the way

Proshare

Thursday, October 30, 2014 4.50 AM / FDC

 

The World Bank group recently released the “doing Business in Nigeria” (DBN) report for 201419, which is an update of the 2010 version. The DBN 2014 report analyses the business environment of the 36 states in Nigeria as well as the Federal Capital Territory (FCT), Abuja. The report also pointed out reforms adopted in each state that enhanced the business environment.

 

Ekiti, Ogun and Cross River states introduced reforms that resulted in improvement in more than two of the four indicators used in the DBN analysis. Lagos state, surprisingly, recorded an improvement in only one of the “doing business” indicators.

 

This article points out some important findings in the report which we believe will be useful for planning and policy making in each state. Fortunately, the release of the DBN 2014 report is timely, as it coincides with preparations for the upcoming 2015 general elections. This presents an opportunity for both current and potential policymakers in the state and federal governments to re-view existing policies affecting the “doing business” metrics, and identify policy options that will enhance the business environment.

 

Background

The DBN 2014 report sought to measure the regulations in place that govern small to medium-size domestic firms. The report focuses on regulations that affect SMEs because they are believed to be the key drivers of competition, job creation and growth in developing economies. In the report, it was stated that ― where regulation is burdensome and competition limited, success tends to depend on whom one knows. But where regulation is transparent, efficient and implemented in a simple way, it becomes easier for aspiring entrepreneurs to compete on an equal footing and to innovate and expand. In analysing the business environment, the report adopted a simplistic approach by measuring the performance of Nigerian states based on four key indicators:

1.    Starting a business

2.    Dealing with construction permits

3.    Registering property

4.    Enforcing contracts

 

The report notes that these four indicators were chosen because they measure the end-to-end experience of an entrepreneur in establishing a small business, including the associated time and cost. The report concludes that when the government improves the efficiency in regulations as measured by the four indicators used in the DBN analysis, it could encourage more entrepreneur-ship across Nigeria.

 

Key Findings

·         Most states recorded some progress in their business environ-ment compared to the DBN report in 2010. A total of 34 improvements were recorded and are split across the four indicators used in the DBN analysis.

·         Most state reforms focused on reducing the complexity and cost of regulatory processes as measured by the first three indicators (starting a business, dealing with construction permits and registering property).

·         Three states (Cross River, Ekiti and Ogun) introduced reforms that resulted in improvement in more than two of the indicators used in the DBN analysis.

·         Ekiti alone, recorded improvements in all four indicators used in the DBN analysis.

·         Nine states, including Abia, Akwa Ibom and Kwara amongst others21 made regulatory processes more cumbersome, slower and less affordable compared to their performance in 2010.


Any Surprises?

As the largest commercial city in Nigeria that also attracts many foreign investors, one would have expected Lagos state to outperform other states in improving its business environment. However, the DBN 2014 report shows that Lagos state only improved in one of the indicators: starting a business. However, it was noted that the findings in the DBN report change when several other indicators that affect the business environment are introduced. For example, variables like macroeconomic stability and the size of the market. Also, the report did not measure all costs and benefits of a particular law or regulation to society as a whole. Per-haps, the limited scope of the report might have affected the true performance of Lagos State.


 

What Did Other States do Differently?

The states that improved their business environment as analyzed in the DBN 2014 report adopted several reforms that contributed to their success.

1. Reforms that made it easier to start a business

·         Computerization: Increased reliance on technology rather than manual processes in handling applications (e.g Cross River)
·         Hiring new staff: Increased the number of staff who process applications (e.g. Anambra, Cross River, Ogun)
·         Management training
·         Better tracking of applications

 

2. Reforms that reduced the time to issue a construction permit
·         One-stop centres: Officials responsible for reviewing construction permit applications gather in one office to give their approvals. This eliminated the former method of applications moving from one office to another. (e.g. Rivers, Delta and Oyo)

·         Harmonized demand notice: Oyo State adopted a new single application form which allows applicants to submit all documents required at the same time.

 

3. Reforms that reduced the time and cost to register property
·         Delegating consent for property transfers from the Governor to other capable officials such as special assistants, gen-eral attorney (e.g. Bauchi, Rivers and Niger)

·         Digitization of land records, which made land registries more efficient (e.g. Cross River, Niger and Rivers)

·         Introduction of a geography information agency in Cross River sped up the process of searching for property titles and increased title security

·         The fee to obtain the Governor‘s consent on a transaction was reduced from 15% to 10% of the property value in Ekiti state and from 10% to 5% in Ondo state

 

4. Reforms that helped to enforce contracts
·         New judges were appointed in Niger state and experienced judges were moved to courts with a high backlog

 

Next Steps

In the DBN 2014 report, it was recommended that states ex-change information about the good practices adopted which led to improvements in their business environment. This will facilitate the replication of good local practices and lead to further improvement in the business environment nationwide. We also recommend that policymakers have consultations with other stakeholders within a particular state to determine good practices that best suit their state. We also call for greater collaboration between the state and federal governments to review existing policies affecting “doing business‘, and identify more favourable policy options that can be standardized in the country.

 

Chart 1 : How the adoption of the states‘ best practices can move Nigeria up in the global rankings



NOTES

1 9World Bank. 2014. Doing Business in Nigeria 2014: Understanding Regulations for Small and Medium-Size Enterprises. Washington, DC: World Bank Group

20 World Bank. 2014. Doing Business in Nigeria 2014: Understanding Regulations for Small and Medium-Size Enterprises. Why this Focus? - Page 12

21 Bauchi, Gombe, Kano, Kebbi, Kogi, and Taraba

 

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