TRACING THE LEVEL OF CERTAINITY IN THE

NIGERIA BUSINESS ENVIRONMENT IN PAST TWO

DECADES

By

OJO-EDOKPAYI, Nathaniel Osagie

(17/SMS13/1005)

Department of Economics and Management Studies,

College of Social and Management Sciences
Afe Babalola University, Ado-Ekiti

January, 2018

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INTRODUCTION

Utomi (1999) lamented on the depressed state of Nigerian economy and agreed that Nigeria has

not learnt much as she has continued to follow the familiar road. He was specifically agonized on

the de-industrialization of Nigeria. In other words, rather than Nigeria getting industrialized,

industries are leaving Nigeria and no country has developed without industries. Nigeria will be

living in a fool’s paradise if she thinks she would be among the 20 world economies without

industries. Itsede (2001) asserts that for some years now Nigerian economy has had a lackluster

performance. Real Gross Domestic Product (GDP), which stood at 2.4 and 2.7 percent in 1998,

and 1999 respectively, had risen only marginally to 2.8 percent in 2000. From an average exchange

rate of N83.8 to $1.00 USD in 1998, the local currency had exchanged at an average of N102.02

in 2000, indicating a depreciation of 21.74 percent between 1998 and 2000. It further explains that

for the third consecutive year, industrial value added trended downwards, declining by 0.8 percent

in 2000 even as the Nigerian economy grappled with, among others, the lingering structural

bottleneck evidenced by the continued preeminence of the oil sector, derelict infrastructure, low

capacity utilization, high unemployment and pandemic poverty, import dependence and pervasive

corruption. Itsede would be extremely disappointed today because the statistics today is further

worse on all the fronts and even exchange rate has further plummeted against the dollar as it hovers

around N150 to $1. Oshiomlole (2010) elucidated that more than 70% of Nigerians live below $1

and that the rate of mortality is among the highest in the world while the average life expectancy

of Nigerians is 43 years. NACCIMA (2010) avers that Nigeria faces hard times if she fails to

diversify her revenue base from oil sector through serious and proactive encouragement of none

oil exports. According to NACCIMA, Nigeria will be full of regrets if she loses her current oil

demand as a result of new technological development.

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MEANING OF BUSINESS ENVIRONMENT

Like every other aspects of business management, the environment in which the business operates

must be managed and this is possible only when the organization has actually identified what

constitutes its business environment. The environment of any business outfit comprises its

“aggregate surrounding” defined as all elements within and outside the organization that are

relevant to its survival, growth and prosperity. Those elements that are outside the organization

are called external environment while those within the organization are called internal environment

(Obisi, 2016). Both the internal and external environment produce the “coping needs” for the

organization and they assist the organization in the process of coping with the environmental forces

that might threaten organizational goal attainment and survival. The external environment is

defined as all elements outside an organization that are relevant to its operation. It provides the

organization with its necessary inputs such as raw materials, money labour, energy and transforms

them into finished products or service and then returns them back to the external environment. The

quantity and quality of the outputs are provided to the organization by the external environment.

On the other hand, the internal environment consists of the organization’s managers and work

force which is the labour component (Obisi, 2016).

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CHALLENGES TO NIGERIA’S BUSINESS ENVIRONMENT

According to the Minister of National Planning, Senator Udo Udoma, the country currently spends

0.5% of its GDP on infrastructure, well below the required 3%-5% needed to meet its infrastructure

requirements. Road transportation, the most common form of transportation in Nigeria, is

particularly bad and has a significant negative effect on the cost of distribution both in time, and

wear and tear on distribution assets (e.g. trucks). Out of the 195,000 kilometers of road in the

country, only about 31% is tarred (FDC, 2018).

The infrastructure deficit in the power sector is equally challenging. Given the country’s total

population of 180 million, the energy need is estimated at 98,000MW per day. However, Nigeria

only generates an average of 3,500MW daily, creating a deficit of 94,500MW. The low power

supply, coupled with a large population, makes electricity costly. This translates to a higher

operating cost for businesses as electricity is an integral part of total operating expenses. Nigeria

is ranked 172nd among 190 economies in the ease of accessing electricity. The ranking measures

the time and cost to get connected to the electrical grid, as well as the reliability of the electricity

supply (FDC, 2018).

In addition to infrastructure deficiencies, high interest rates and credit inaccessibility have been

major deterrents to business growth in Nigeria. Data shows that Nigeria’s commercial banks

charge the 26th highest interest rates on loans as compared to 186 other economies. A low interest

rate environment supports private individuals in raising capital to start their businesses, as

repayment is more manageable. In contrast, high interest rates signify higher finance costs and

lower profit margins for new businesses.

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Again MAN (2010) cries aloud that Nigerian business environment has come under the heavy

yoke of multiple taxations, which is capable of crippling businesses. In a well-documented survey,

MAN found that:

 119 different taxes and levies are being imposed by various tiers of government across the three

states as against only 39 approved by taxes and levies (Approved list of collection) Act 1998.

 From the 119 taxes and levies, 27 constitute taxes while the remaining 92 are levies.

 Numbers of taxes paid by companies in the three pilot states are Lagos 27, Ogun 21 and Oyo 26.

 Numbers of levies paid by companies in the three states are: Lagos 76, Ogun 66 and Oyo 69.

 The numbers of taxes that were duplicated are: Lagos 31, Ogun 8 and Oyo 6.

 The numbers of levies that were duplicated: Lagos 45, Ogun 17 and Oyo 15.

 Numbers of taxes paid by the companies interviewed at road blocks are: Lagos 20, Ogun 11 and

Oyo 6.

 Outside the 39 approved taxes and in the approved list of collection Act 1998, the interview

revealed that 10 unapproved taxes in Lagos, 7 in Ogun and 10 in Oyo state are paid respectively.

 Outside the 39 approved taxes and levies in the Approved list of collection Act 1998, the

interview revealed that 51 unapproved levies in Lagos, 48 in Ogun and 45 in Oyo are paid. 149

 The study also revealed that taxes and levies constitute between 10% - 50% of cost of production

in the three pilot states. The implication of these is that it will be very difficult for Nigerian

Businesses to come out successful out of the ordeal of the above disturbing picture painted by

MAN. Nigerian business will not win competitive advantage in the global economy because it is

reeling under the heavy yoke of multiple taxations.

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BUSINESS ENVIRONMENT IN NIGERIA IN PAST YEARS TILL PRESENT

Interestingly, Nigeria is said to have made the most progress in improving access to getting credit

according to the World Bank report — having moved 26 places to 6th position in 2017 — by

improving access to credit information and establishing collateral registries for movable property.

However, less than a third of the country’s 37 million Micro, Small, and Medium enterprises

(MSMEs) have successfully obtained a loan from a financial institution according to a joint 2017

report by the Central Bank and International Finance Corporation (IFC). Instead, most use personal

savings or reinvested profits as a source of business financing.

Additionally, the World Bank index does not cover many important elements of the business

climate such as corruption, macroeconomic stability, financial stability, quality of labour force,

infrastructure and security, which according to the World Economic Forum’s (WEF), Executive

Opinion Survey conducted this year are among the most problematic factors for doing business in

Nigeria. This implies a better performance on the World Bank’s list may not necessarily translate

to an increase in FDI, if countries improve their ranking on the index by amending regulations in

ways that have little substance. Perhaps this is why the link between Nigeria’s position on the

index and FDI in the country don’t have a clear pattern.

However, a look the direction of global oil prices provides a better look at what drives FDI in the

country. With oil accounting for more than half of the nation’s revenues, investor confidence in

the country is largely dependent on how well oil price fares globally. FDI reduced drastically in

the last two years, as the country struggled to cope with the fall in global oil prices mid-2014. The

same can be said for many commodity-dependent economies around the world which witnessed

similar situations as FDI flows in South Africa, Australia and Canada dropped by 69%, 39.6% and

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17% respectively from 2014 to 2015. Although there has been improvements in global oil price

and oil production volumes in 2017, the possibility of FDI increasing this year is still quite slim

despite Nigeria’s improvement in World Banks’s “Doing Business” report. To start with,

macroeconomic conditions are still poor. Although Nigeria came out of its recession in Q2 2017

with a growth rate of 0.55%, the growth rate is still considerably low when compared Q2 2014

which grew by 6.54% year on year. Secondly, despite the improvement in foreign exchange

liquidity this year, it is still vulnerable to oil prices shocks (BP, 2018).

Furthermore, infrastructural challenges, insecurity, corruption are still major constraints facing the

country which all have serious implications on FDI. For instance, while oil price improved in 2010

from $61.74 in 2009 to $79.61, FDI still fell drastically from $3.2 billion to $729 million due to a

combination of militancy in the Niger Delta and the Boko Haram insurgency in the North which

threatened security in the region. The Annual Doing Business Report in Nigeria 2014, which

benchmarks 35 Nigerian states in addition to Abuja, covered four indicators including starting a

business, dealing with construction permits, registering property, and enforcing contracts. The

report, launched in Abuja on Monday, showed the country slumped nine spots from its 138th

ranking out of 189 countries covered by the report in 2013 to 147th position in 2014. Other details

of the report revealed the the country also performed poorly in its starting a business ranking, down

from the 114th position in 2013 to 122nd; dealing with construction permits, from 146th to 151st,

and better electricity from 184th to 185th (BP, 2018).

In registration of property, the report said the country’s operational conditions did not witness any

improvement or change from its 185th position in 2013. The same situation applies in its ability to

resolve insolvency in business, with the country stuck in 107th position attained in 2013. The

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country however recorded marginal improvements in the areas of trading across borders

(improving one step from 159th ranking to 158th position) and enforcement of contracts (from

138th position to 136th), ability to guarantee credits to prospective investors declined from the

11th ranking in 2013 to the 13th position; from 67th to 68the ranking for ability to protect investors

and 167th ranking to 170th position for paying of taxes. The World Bank Group said the new

report showed that most states across Nigeria continued to implement regulatory business reforms,

with Cross River, Ekiti, Niger, Ogun, and Rivers making the biggest strides. The report also

revealed that 22 states improved in at least one of the areas measured since the last benchmarking

exercise in January 2010. The findings showed big strides was achieved in the past few years by

some states. Ogun, one of the lowest ranked overall performers in both 2008 and 2010, is one of

the top reforming states in 2014. The report also found that most of the reforms documented

focused on streamlining the complexity and cost of regulatory processes. One-stop centre helped

improve the time to issue a building permit in Rivers, Delta, and Oyo, in some cases dropping by

50 percent or more since 2010. Further findings showed that the case management provisions

introduced by Ekiti’s new civil procedure rules in 2011 helped reduce average trial time by nine

months. Data also showed that states continued to digitise land records and introduce geographical

information systems making property registration more secure and efficient. The report identified

that challenges persisted in most of the categories, with no single state ranking at the top on all

indicators (BP, 2018).

For instance Abuja, FCT and Lagos are among the top performing states on the ease of starting a

business, but rank in the bottom two positions on the ease of dealing with construction permits.

Similarly, Sokoto and Osun rank two and three in dealing with construction permits, but 30 and

33 in starting a business, respectively. Additionally, Nigerian entrepreneurs face different

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regulatory hurdles, depending on where they establish their businesses. Varied state regulations

and practices along with uneven implementation of federal legislation drive these differences and

impact local entrepreneurs differently. Lead Private Sector Development Specialist with the World

Bank Group, Mierta Capaul, said the report showed the importance of close coordination between

federal and state governments in implementing more streamlined and efficient regulatory

frameworks for all Nigerians (BP, 2018).

CONCLUSION

Under the present circumstances, Nigeria and Nigerians especially the government must provide

confidence building strategy and reorient all security apparatus and take positive steps to reposition

businesses in Nigeria if her dream of becoming one of the twenty industrialized countries by 2020

as actions should speaks louder than words.

REFERENCES

Business Post (BP). (2018). http://www.thebusinesspost.ng/tms/what-did-nigeria-do-right-

increasing-ease-doing-business/nigerias-business-environment-still-tough

FDC (2018). Improving Nigeria’s Business Operating Environment to Enhance Economic

Growth. https://investadvocate.com.ng/2018/03/02/improving-nigerias-business-operating-
environment-enhance-economic-growth/

Itsede, C. (2001). Paper Presented on the revitalizing Nigerian Business Firms Implications of the
year 2001 Budget at the University of Lagos.
MAN (2010). Multiple Taxation in Nigeria. Punch Newspapers, Monday August 9.
NACCIMA (2010). Nigeria faces hard times. Punch Newspaper August 12.
Obisi C. (2016). Nigerian Business Environment Daunting: Challenges and Suggested Solutions
International Journal of Scientific Research in Education,. 9(3), 144-150.

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Oshiomhole, A. (2010). N16.45trn Squandered by Government in Nigeria. Punch Newspaper 12
August.
Utomi, P. (1999). Business Communication in the New Millennium. Paper Presented for Human
Resource Development Board, University of Lagos. Unilag on renovating our Corporate
Management Practices for the New Millennium, 20th May Lagos.

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