Why Nigeria’s ranking in World Bank Doing Business report may slump

The state-level Ease of Doing Business for Nigeria has just been released by the World Bank. The ranking, which measures the economic competitiveness of Nigeria’s 36 states and the Federal Capital Territory (FCT), is a more detailed version of the national level ease of doing business.

A high ranking on the ease of doing business index means the regulatory environment is more conducive for starting and operating local businesses.

According to the World Bank report, while Abuja ranks as the best state for starting up a new business, Ondo State ranks as the worst. Lagos, the country’s commercial capital, is ranked 4th best state for starting a business, while Kano State ranks 34th.

In dealing with construction permits, Lagos State ranked the worst state in Nigeria, occupying 36th position. Abuja, the FCT, occupied 35th position. Kano State ranked 27th, while Jigawa State came first on construction permits.

In the property registration criteria, Lagos State came 31st, while Abuja occupied 7th position. Kano State was ranked as the 5th best state for registering property; Abia State was 36th, while Zamfara remains the best state in this area, according to the World Bank.

Under the contract enforcement criteria, Katsina State claimed 1st position, while Abuja came 5th. Kano and Lagos States, on the other hand, took 25th and 28th positions, respectively. Cross River State lags peers in contract enforcements, according to the report, occupying 36th position.

Nigeria’s performance on the upcoming National Doing Business Report that ranks approximately 189 countries will be based on the performance of Lagos and Kano States.

According to the National Competitiveness Council’s preliminary analysis, Lagos State is placed in the Bottom 10 in three of the four pillars.

In measuring the ease of doing business in the states, the report provides a snapshot of the period of time taken, monetary cost and number of procedures measured across four key business indicators: starting a business, dealing with construction permits, registering property, and enforcing contracts. These four pillars indicate the ease of doing business.

Incidentally in Nigeria, many factors are up against starting and running a business. Starting a business often requires registration, access to finance and meeting the demands of regulatory agencies of the government. Business registration is handled by the Corporate Affairs Commission (CAC). But the Lagos Chamber of Commerce and Industry (LCCI) recently expressed frustrations faced by investors in the course of business incorporation.

The chamber said rather than live up to the high expectations of better service delivery promised few months ago, the quality of service at the CAC has deteriorated.

“Rather than take the promised 24 hours, business incorporation now takes well over one week in most cases,” said LCCI.

In terms of finance access, the business community says the high cost of funds, which ranges between 17 and 30 percent, stifles business and makes its growth difficult. The Manufacturers Association of Nigeria (MAN), in its recent economic review, put the average interest rate charged by banks to its members in 2013 at 20.4 percent.

“With the current interest rates hovering between 17 percent and 28 percent and for a growing economy like ours, it will be difficult to achieve the desired economic growth and motivate indigenous entrepreneurs to create businesses since they will not be competitive with their foreign counterparts who obtain fund from their countries at single digit and invest in the Nigerian economy,” said Mohammed Badaru Abubakar, national president, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA).

Lending in South Africa, Africa’s second-largest economy behind Nigeria, as of March 2014, is 9 percent. In Thailand, business owners borrow loans from commercial banks at 6.9 percent interest rate, according to World Bank data.

Moreover, many businesses in Nigeria provide their own energy needs to the detriment of their margins, even amid multiplicity of taxes and regulatory agencies. The LCCI, NACCIMA and other businesspeople have questioned the rationale behind the Standards Organisation of Nigeria (SON), National Agency for Food and Drug Administration (SON) and the Consumer Protection Council (CPC) all exercising regulatory authorities on the same business, amid high levies and fees.

Secondly, obtaining construction permits in the country is usually cumbersome. According to the World Bank, there are up to 18 steps that will be taken before a resident or citizen obtains a permit. Some of the steps include obtaining soil investigation report, swearing of affidavits at the Commissioner of Oaths, obtaining Environmental Impact Assessment Report, among others. In South Africa, there are only 16 steps and the business owner is certain about the fees to be paid and the period every step will take.

Furthermore, registering a property in Nigeria involves ministries of land, federal or state, as well as an unclear number of agencies, each with different charges. The World Bank puts the steps for Nigeria at eight. They include swearing affidavit for search at the Commissioner of Oaths, conducting a property title search at the land registry, executing the deed of assignment/conveyance and land Form 1C, among others.

In an earlier report, BusinessDay had quoted Olusola Olubode, former managing director of Refuge Homes Savings and Loans Limited (mortgage bankers), as saying that Nigeria lagged behind countries like Ghana, Thailand and New Zealand in ease of registering property, pointing out that in Ghana it required just five procedures, 34 days and 1.3 percent of a property value.

Olubode also hinted that in New Zealand, property could be registered online in two days at a cost of 0.1 percent of the property value, stressing that Nigeria was one of the world’s most difficult places to register property, especially when, in Thailand, registering property required just one step, less than a day and 1 percent of property value.

Similarly, Abdulrahman Kadiri, CEO of Lagos-based Oak Properties, told BusinessDay that in Dubai, United Arab Emirates (UAE), in less than 72 hours a buyer should have perfected his land titles, adding that “you don’t even have to pay through your nose to get building approval”.

Dapo Ojo of Estate Links Limited also said that in the UK, it took 1-2 months, six procedures and 4 percent of the value of the property to register a property, while it took the same 1-2 months, six procedures and between $1,000 and $8,000 to do the same thing in the USA.

Contract enforcement in the country often involves legal fees, which may not be easily affordable by business operators in the micro, small and medium-scale category (MSME). Some business owners lament that cases of contracts in court often take a long time to be settled. According to the World Bank, it takes about 447 days to enforce contracts, involving filing and service, trial and judgment and enforcement of judgment. But generally, businesspeople say trust is key to successful contract enforcement, a trait still lacking among many Nigerians.