In a race for a better society, Nigeria’s business ecosphere is unfortunately slowed down by business uncertainty.
In 2020, the “World Bank’s Ease of Doing Business Report” ranked Nigeria 146th out of 190 countries in terms of ease of doing business, indicating a hostile business environment.
This ranking is a result of various factors, which includes: bureaucratic red tape, government policies, lack of productive resources, and inadequate infrastructure, among others.
Bureaucratic red tape refers to excessive and unnecessary rules, regulations and procedures that governments impose on individuals and businesses. Most time in developing countries like Nigeria, these procedures are often characterised by complex and time-consuming processes, multiple layers of approval and documentation, lack of transparency and clarity.
On May 6, 2016, for instance, the Punch Newspaper reported that the federal government ordered the registration of 1.9 million POS operators under Corporate Affairs Commission, the intention behind this move may be to regulate and monitor the activities of POS agents, however the consequences are far reaching, as the line between over-regulating and genuinely ensuring play in the sector has been blurred.
It is must be noted that these agents are already registered with their respective banks and have valid contracts in the first place, adding another layer of registration with CAC may be an unnecessary bureaucracy which can lead to inefficiencies and delay.
The duplication of efforts not only wastes resources but also burdens POS agents with additional paperwork and documentation.
Also, the registration process for POS agents in rural or remote areas will be very slow where access to resources is limited.
The requirement for documentation and paperwork may be a significant hurdle for these agents, potentially forcing them out of business. This could lead to reduction in financial services available to these communities, further worsening the issue of financial exclusion.
In a similar vein, the Nigerian government’s policies have a large impact on the country’s business environment and unfortunately, many of these policies have negative impacts. Consequently, on April 30, 2024, Punch Newspaper reported that the Central bank of Nigeria stops Opay, Palmpay, Kuda, and Moniepoint from onboarding new customers pending further notice (the affected fintechs have been linked with allegations of accounts being used for illicit foreign exchange transactions reportedly).
Expanding on this, the directive might have been misdirected, as the majority of the implicated accounts belong to commercial banks, not micro finance platforms.
The same source also stated that most of the accounts involved in the alleged illegal forex trading were commercial bank accounts and yet the banks have not been directed to stop onboarding new customers. Whether the fintech companies and commercial banks are responsible for the fraud or not, the bone of contention here is that the policy raised by the government affecting one side of the party will stifle innovation and limit access to financial services for many Nigerians.
Fintech companies have been driving financial inclusion and innovation in Nigeria, providing services to the underserved population. By seemingly reducing their growth, CBN is undermining efforts to reduce financial exclusion and promote economic development.
In fact, this move creates an uneven playing field, favouring traditional banks over innovative fintech startups, which can lead to unfair competition and limit the growth of new ideas and services.
Nigeria’s fintech sector has attracted international investment, on February 18 2024, it was reported that some Nigeria startups are deploying tech tools to innovate ideas, and businesses got investors attention with more than $1billion in funding investment. The funds raised will go a long way in contributing immensely to the growth and development of the country. CBN’s move may damage Nigeria’s reputation as a hub for fintech innovation and limit foreign investment. This can limit the country’s ability to attract foreign investments and talents.
Furthermore, the Federal Government enactment of the cybersecurity levy may be a good step but at the wrong time, that will have negative consequences for businesses in Nigeria. The ambiguity with which the levy is driven by (0.5 or 0.05) further confirms this.
In a report by PWC, the latest SMEDAN/NBS MSME Survey indicates Nigeria’s SMEs contribute nearly 50% of the country’s GDP account for over 80% of employment in the country. No doubt, this sector is pivotal to Nigeria’s growth including reducing poverty levels. According to the National Bureau of Statistics, Small and medium scale enterprises (SMEs) in Nigeria have contributed about 48% – on average – to the national GDP in the last five years. Totaling about 17.4 million enterprises, they account for about 50% of industrial jobs and nearly 90% of activities in the manufacturing sector, in terms of number of enterprises.
Building on this, the levy, if furthered, may disproportionately affect SMEs, which is the backbone of Nigeria’s economy. It will increase operating costs for SMEs, potentially reducing their profit margins or leading to increased prices for product and services.
In the same light, the levy may reduce financial inclusion, which is a critical component of economic growth and development. SMEs may be discouraged from using electronic payment systems, potentially leading to a decrease in financial inclusion and a return to cash-based transactions. Most importantly, the levy can have a disproportionate impact on SMEs, which may not have the same economies of scale as larger businesses to absorb the additional costs. This can lead to a significant burden on SMEs, potentially forcing them to exit the market.
To push this idea further, the inadequacy of infrastructure in Nigeria has far reaching consequences for businesses operating in the country. On April 3, 2024, the Vanguard Newspaper reported that the Nigerian Electricity Regulatory Commission, NERC, has approved an increase of electricity tariff to N225 per kilowatt- hour from N68.
However, it will be for urban consumers, also known as Band A consumers(people who enjoy a minimum of 20 hours electricity). The recent approval of a significant increase in electricity tariff by the Nigerian Electricity Regulatory Commission(NERC) is a symptom of the country’s inadequate infrastructure.
The increased electricity costs will lead to higher operating expenses for businesses, particularly those in the manufacturing, production, and service sectors. This will reduce their profit margin and competitiveness, making it challenging for them to remain viable in an already competitive market. It was not long ago that it was reported that Cadbury Nigeria had a loss of N28.2 billion in 2023, and their shareholders’ fund wiped out.
There are several cases of inadequate infrastructure; the country’s economic instability is a significant contributor to the uncertainty faced by businesses. Nigeria’s economy has experienced multiple recessions in recent years, with inflation rates soaring as high as 18.72% in 2022, according to the National Bureau of Statistics. This economic volatility makes it challenging for businesses to predict their financial performance, invest in growth, and create jobs.
To support this, according to a report titled “Perception Study: Efficiency and Impact of Regulatory Activities of Standard Organization of Nigeria on SMEs, about 80% of Small and Medium Enterprises fail before their fifth anniversary due to harsh environments, lack of access to capital, and poor business practices.
Conclusively, Nigeria’s business environment is very uncertain. This makes it hard for businesses to grow and for people to start new ones. The government needs to make things better by simplifying rules, and investing in factors of production.
The government needs to take action and make things better for businesses. This will help create jobs, increase investment, and make Nigeria a better place to live.
Author: Ayorinde Ejioye
Ayorinde Ejioye is the Co-Founder and Chief Operating Officer of Gidi Real Estate Investment Limited
