THE EASE OF DOING BUSINESS IN WEST AFRICA, NIGERIA AS A CASE STUDY

INTRODUCTION

What Is Ease Of Doing Business?

Ease of doing business simply means the softness or  difficulties that business owners undergo in trying to establish or run a business in a given country.

It is very obvious that the procedure or prerequisites for setting up businesses differs in different countries. In some countries it is said to be easy while in others,  it is difficult or very difficult.

There are several factors that determine how running a business in a country can be classified – thus, difficult or easy.  Some of the factors that makes running a business in a country to be easy or soft includes :

1)Government policy

2)Political structure

3)Climate

4)Social factors

5)Religious inclination

Each of the above listed factors can be broken down to sub factors but in this context of research work, we will be breaking down the number one ( government policy ) into two components and focus on the two subdivision.

Government policy under ease of doing business could be viewed as :

1)Policy on access to credit and

2)Policy on registration of business names

(There are more of it but I listed this two in order to stay within coverage )

Different countries have different approaches to how credit is  accessed by SMEs and how business names are incorporated .

The major aim and reasons why access to credit for businesses is difficult in some countries like Nigeria is because the central bank tend to hold interest rate at higher level so as to control the rate of cash in circulation.  This has affected the ranking of Nigeria in ease of doing business among other 190  countries.

Nigeria has strived over the years to improve in the ranking through different approaches and that we will be seeing in this course of research.

Another aspect of this research work is some of the approaches that federal government has introduced through CAC in order to reduce stress of registering a business in Nigeria.

EASE OF DOING BUSINESS UNDER ACCESS CREDIT AND REGISTRATION OF BUSINESS

Ease of doing business  is an aggregate figure that includes different parameters. These parameters indicate how easy or difficult it is to conduct business in a country.

Nigeria has made some progress on the World Bank’s ‘Ease of Doing Business’ ranking for 2020.

The Ease of Doing Business is an index published annually by the World Bank.

The Ease of Doing Business compares business regulations in 190 countries across the world.

What is Nigeria’s position now?

In the latest index from the World Bank, Nigeria is ranked 131 globally, moving up 15 places from its last ranking.

Enforcement of contracts entered was a key factor in Nigeria’s ascent on the table. Wide ranging reforms by the federal government was also cited as a significant factor.

According to the Bretton Woods Institution: “Nigeria conducted reforms impacting six indicators, including making the enforcement of contracts easier, which placed the 200-million-person economy among the world’s top improvers.

“Only two Sub-Saharan African economies rank in the top 50 on the ease of doing business rankings while most of the bottom 20 economies in the global rankings are from the region.”

Not so good in Africa

Africa got a few knocks too, no thanks to poor infrastructure, bureaucratic bottlenecks and logistic concerns.

“Compared to other parts of the world, Sub-Saharan Africa still underperforms in several areas. In getting electricity, for example, businesses must pay more than 3,100% percent of income per capita to connect to the grid, compared to just over 400% in the Middle East and North Africa or 272% per cent in Europe and Central Asia.

When it comes to trading across borders and paying taxes, businesses spend about 96 hours to comply with documentary requirements to import, versus 3.4 hours in OECD high-income economies, and small and medium-sized businesses in their second year of operation need to pay taxes more than 36 times a year, compared to an average of 23 times globally,” the World Bank wrote.

How Nigeria fared in the past

Nigeria was last ranked 146 among 190 economies.

In 2017, Nigeria was ranked 145.

The Ease of Doing Business in Nigeria averaged 145.09 from 2008 to 2018, reaching an all time high of 170 in 2014 and a record low of 120 in 2008.

Nigeria has now jumped 39 places on the ranking since 2016.

The Nigerian presidency operates the Presidential Enabling Business Environment Council (PEBEC) overseen by Vice President Yemi Osinbajo.

PEBEC’s main assignment is to initiate and implement reforms in Nigeria’s business environment and in government processes.

Ease Of Doing Business Under Access Credit In Nigeria

Over the years , the federal government of  Nigeria under the democratic dispensation has being putting efforts  to facilitate ways of accessing credits for different business settings. This is  through facilitation of  access to credit for businesses-especially Micro , Small and Medium Enterprises (“MSMEs”). This efforts recorded a significant success  with the signing into law of the Credit Reporting Act 2017 (the “CRA”) and the Secured Transactions in Movable Assets Act 2017 (the “Collateral Registry Act”).  These Acts, which replaced  the hitherto existing guidelines issued by the Central Bank of Nigeria (“CBN”) on their respective subject matters, are products of extensive stakeholder engagements and will provide the statutory framework for the regulation of credit bureaux and a collateral registry in Nigeria.

Governments are often seen making frantic efforts in developing small and medium scale enterprises (SMEs). These enormous efforts are as a result of the activities of these enterprises having significant contribution to the employment generation, manpower development and gross domestic product of the country (Kadiri, 2012). It should be noted that the definition of small scale enterprise varies from one author to another. Nevertheless, small scale enterprise is an enterprise that has relatively little capital investment that produces in small quantity and as a result control small share of the market with less than 50 employees (Olatunji, n.d.). Also, management, marketing and entrepreneurial functions are vested in the proprietor. Ironically, in spite of the vital roles of small and medium scale enterprises in the economic growth and development of a nation, the effectiveness of these enterprises is still hampered by many factors. Some of these factors are:

•inadequate capital (finance)

•poor record keeping

•poor or wrong location

•poor planning

•inadequate infrastructural facilities

• lack of skilled manpower etc.

Of all the above identified problems, finance arguably seems to be the greatest challenge. Many of the SMEs have to content with the problem of raising sufficient start-up capital and how to attract credit facilities from financial organisations like banks.  Even where these facilities are available, small scale enterprises still have to provide collateral securities normally demanded by most lending institutions. These are in addition to high interest rate charged on loans given by these lending institutions. Without any doubt, the problem of finance is a major one particularly to the establishment and survival of small and medium scale enterprises. The discussion of this issue is therefore, the basis of this paper.

Concept of Small and Medium Scale Business  

In his review of activities of SMEs, Ukaegbu (2004), states that, prior to the introduction of the structural, adjustment programme in Nigeria small and medium scale industries were virtually neglected in all the development plans of the  country. However, since the advent of democratic government in 1999, there have been significant changes in attitude to small and medium scale industries and entrepreneurship among policy makers and managers of Nigeria economy.

This change in orientation has been attributed to an acknowledgment of the continuous importance of the sector in terms of the number of such enterprises, job creation and the promotion of its contribution to the Gross National Product (GNP). Oyedijo (2008) opines that the definition of small and medium industries should reflect the level of technology within the economy, the development needs or objectives of the economy and such other facts that are dictated by the social and cultural value of the economy. These considerations he asserts, suggest that there is no universally accepted definition of small and medium scale industries, the world over.

It is however important to realize that there is need for a standard definition of small and medium scale  industry within an economy. This need is paramount in the context of providing a frame of reference for the various agencies responsible for policy formulation and implementation in respect of small and medium scale industries. Adidu & Olannye (2006), states that different countries have different basis of defining small and  medium scale enterprises, some on capital investment, while others define it on the basis of management structure. There are many definitions on small and medium scale enterprises (SMEs) as there are experts on the subject. The Nigerian industrial policy describes SMEs as those whose total investment is between N100, 000 and N2million exclusive of land but including working capital.

There are however, some qualitative indicators that are common to most definitions namely; Size of capital, the number of employees, the annual turnover. Adidu & Olannye (2006), states that in summary, SMEs are those business whose capital investment does not exceed N5million (including land and working capital) or whose turnover are not more than N25million annually. The Small Business Administration (SBA) in the USA measures SME as one which posses at least two of the following criteria.

•Managers are also owners

•Owners supply the capital

• Area of operation mainly local

•Small in size within the industry.

It is therefore glaring that there is a universal cord that links all the above definition and that SMEs are generally low in terms of number of persons employed and the amount of investment and annual turnover. Thus, a review of existing literature on the subject suggests the following as the mostly used criteria for the definition of small and medium scale industries:

•No of employees

•Sales Volume: The size of sales volume in any business will determine where to group it. I.e. whether to a very small, small or medium business.

•Financial strength: This as well determines whether it is a very small, small or medium business. The amount of fixed assets and current assets each business is having helped to determine where to categorize them.

•Relative Size: The relative size of the business is determined by number of people working in this business, that is, the number of employees helps in determining whether it is a small, very small or medium business.

•Initial take-off capital: This means that the amount of shares you used to start or incorporate your business will help in large way to determine where to categorize the business.

•Personal management style.

•Independent ownership

•Name of business

•Composition of ownership and types of industry.

Even if there are controversies on definitions, what is not contestable is the contribution SMEs are making to the Nigerian economy.

Problems Of Small Scale Enterprises In Nigeria

In spite of all the efforts and supports of governments and multilateral institutions such as World Bank, SMEs have not been able to make the desire impact on the Nigeria economy. This therefore, underscores the fact that there exist fundamental issues confronting small scale enterprises that have not been adequately addressed. From personal interviews of some small scale entrepreneurs in Igabi Local Government of Kaduna State and observation of their business activities; it is evident that SMEs are bedevilled by financial, management and technical problems. The financial problem of these enterprises is multifaceted. It ranges from lack of sufficient start-up capital to inadequate working capital. These are in addition to poor record keeping culture by these SMEs. Other problems that have constrained the role of SMSEs and make the realisation of the benefits of their existence farfetched according to Mba and Emeti (2014) include:

1.Discrimination from banks which are somehow averse to the risk of lending SMEs especially start-ups.

2.Lack of knowledge on how to package appropriate bankable business proposals.

3.Weak demand for products arising low and dwindling consumer purchasing power and aggravated by preference for foreign products at the expense of locally produced goods.

4.High incidence of multiplicity of regulating agencies, taxes and levies that result in high cost of doing business and discourage entrepreneurship. This is due to the absence of a harmonised tax regime which would enable business owners to build in recognised and approved levies.

5.Wide spread corruption and harassment of SMEs by some government agencies over unauthorised levies and charges.

6.Exorbitant interest rates charged by banks and other financial institutions on loans granted to SMSEs. This is a big disincentive to seeking financial support from these institutions and thereby stifling the growth of these SMEs.

7.Wide spread pilfering and outright stealing prevalent among most SMSEs staff constitutes a major financial challenge. Funds that could have grown the business end up in private pockets of staff.

Small Scale Businesses and the Nigerian Business Environment  

In his review of the performance of small scale business, Asika (2004) states that, the history of small scale businesses, in many countries, especially Nigeria is replete with instances of firms which became extinct or stunted after an era of relative affluence in which they had attained leadership positions in their  respective industries. Everyone who had at any point in time owned or managed a business firm will agree that the vicissitudes in businesses environment are like powerful currents, which can either blow a particular firm right to the top or sweep it underneath completely.

The Nigerian business environment 

according to Ukaegbu (2004), is characterized by its free enterprise though the economy witnessed depression some years ago resulting in the destabilization of so many small scale businesses and other organization alike. Presently, the economy is being affected by the global economic meltdown, which is sweeping so many economies of the world and businesses struggling to survive, depreciation of the naira against the dollar, over dependence of the country on oil and inconsistency in government policies are what has characterized the Nigerian business environment.

Sources of Finance for Small Scale Enterprises 

Leon (2008) lists the following as various sources of finance for small scale enterprise:

1.Personal savings: Personal savings is a major source of finance for SMEs. To a large extend, one may say that it is the most assured source of finance. Most start-ups are usually planned; therefore, we may safely assume that the prospective owner will provide the initial capital. Such capital comes from savings kept for various eventualities and unforeseen mishaps that may require money.

2.Borrowing from friends and relations: Apart from sourcing finance from personal savings, many businesses are set up or financed by money borrowed from friends or relations. In some cases the finance is provided either as a gift or soft loan to be repaid at mutually agreed terms. One major problem associated with this source however, is that it is not easy to get because friends and relations may not trust the sincerity of the borrower to repay the loan.

3.Borrowing from commercial and microfinance banks: One major function of commercial banks is to lend money to customers be it individuals or corporate organisations. Part of the purpose of such loans is to enable the customers undertake capital projects that ordinarily their savings cannot finance. Usually the loans are repayable within a specified period of time and at an agreed rate of interest per annum. In addition, most banks normally require collateral securities before any loan is granted.

4.Lease financing: Lease financing is a type financing that is available to small and large business organisations. Basically, a lease is a contract whereby one party (the leasee) hires equipment from another party (the leasor) in a way that the leasee uses the equipment without purchasing it. But in return the leasee pays the leasor agreed periodic fees called lease rentals. At the end of the lease period, the leasee may have the option to purchase the equipment. Typical equipment financed through lease agreements are oil tankers, luxurious buses, tractors etc.

5.Borrowing from the Bank of Industry (BOI) and other government institutions: The Bank of Industry Limited is Nigeria’s oldest and industrial financing institution. It was reconstituted in year 2001 out of the defunct Nigerian Industrial Development Bank Limited which was incorporated in 1964. The mandate of BOI is to provide financial assistance for the establishment of large, medium and small scale enterprises as well as expansion, diversification and modernisation of ailing ones. Presently, huge sum of funds are been channeled through this bank for small scale enterprises.

6.Borrowing from cooperative society: This is a major source of funding for small scale enterprises. Small enterprises have a great difficulty in obtaining capital, due to the poor match between their capital needs

and the operating rules of the capital markets. Of all financing options available to SMEs, including a reluctant financial market and doubtful relations; cooperatives appear to be a most reliable option. Cooperatives, particularly financial cooperatives are response of the market itself to mobilize resources and make same available to SME and other users through appropriate institutional arrangement, thus explaining the recourse of some development agencies to channel funds meant for SMEs through cooperatives (Nwankwo,2012).

Prospect of Funding for Small Scale Enterprises in Nigeria 

According to Okereocha (2014), the future of small and medium scale enterprises sector looks promising. Of late, local and foreign financial institutions, government agencies state governments and well meaning individuals have been focusing attention on the sector.

The World Bank has in a bid to help close the funding gap for small and medium scale enterprises, approved $500m (N21.7b) lifeline for the sector in Nigeria. This is coming on the heels of similar intervention by the central bank of Nigeria, which has launched N220b small and medium scale enterprises (SMEs) fund. If these enterprises could take advantage of these efforts and also key into several capacity building programmes of some states, then, the sector will no doubt fulfill its role of creating jobs and ensuring inclusive economic growth and development.

While the Central Bank of Nigeria and the World Bank are showing the way in the area of access to finance, some state governments and public agencies have concluded partnership arrangement that promises to put the sector on the path of sustainable growth.

Already, the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) in conjunction with United Nations Development Programme (UNDP) have conclude plan to train women entrepreneurs with the hope of leveraging the CBN N220b SMEs fund.

Bank of Industry and some state governments have also stepped up the tempo of their support programmes for small scale enterprises. For instance, the bank in partnership with Kaduna state government recently signed an MOU to provide N1b matching fund for small scale enterprises in the state. This has further fuelled the hope of a revitalized small and medium scale sector capable of generating employment and creating wealth thereby reducing the high rate of unemployment and crime in the state.

THE SECURED TRANSACTIONS IN MOVABLE ASSETS ACT 2017 

In order to increase economic growth and development, the Collateral Registry Act establishes a regime that guarantees access to affordable credit secured by movable properties of real micro, small and medium enterprises (  MSMEs) in Nigeria.  In relation to raising seed capital and financing, the bane of MSMEs has been that financiers prefer to extend credit to corporates with established credit histories and real properties to secure the credit granted. MSMEs typically have no real properties and can only offer their movable properties as security, an offer which financiers in many cases are unwilling to accept. With the enactment of the Collateral Registry Act, those difficult days are slightly over  for MSMEs as they may now obtain credit secured by their movable assets act.

In addition to its general objective of providing and developing a framework guaranteeing access to credit secured by movable assets, the specific objectives of the Collateral Registry Act include: (i) establishing a National Collateral Registry; (ii) stimulating affordable lending to MSMEs; (iii) facilitating the perfection and realisation of security interests in movable assets; and (iv) enhancing financial inclusion in Nigeria.

The Collateral Registry Act establishes a National Collateral Registry (the “NCR”) within the CBN to receive, register and store information on security interests created over movable assets, and provide access to persons who may seek information on such security interests from the NCR. Searches on registered security interests on movable properties may also be conducted at the NCR.  The NCR would be headed by a registrar appointed by the Governor of the CBN.

Under the Collateral Registry Act, when security is created, the secured creditor may perfect the security by filing the prescribed forms and other relevant information relating to the security interest at the NCR.  Although such secured creditor may take possession of the collateral, physical possession without more does not amount to perfection of the security.

To protect creditors, the Collateral Registry Act provides that the security interests created over movable assets in favour of creditors attach not only to the collateral itself, but also to all identifiable and traceable proceeds of the collateral. Even if the security interest was created before the collateral was comingled in a mass or product, the security interest automatically continues in that mass or product. In this way, the Collateral Registry Act has given creditors a statutory right to trace and claim their security interests even if the essential character of the collateral materially changes.

In relation to the realisation of security, the Collateral Registry Act provides that in the event of a default by a borrower, the creditor may enforce and realise his security either by: (i) resorting to any judicial remedy under law or under the security agreement; (ii) taking physical possession of the collateral, with or without a court order if the security agreement permits; (iii) rendering the collateral inoperative; and (iv) appointing a receiver or take the benefit of all the other remedies provided by the Companies and Allied Matters Act (“CAMA”).

In providing or taking secured credit, a major concern for obligors has always been the prohibitive costs of perfecting security. Finance parties have had to devise several structures to reduce or avoid perfection costs comprising stamp duties and registration fees of different kinds. The Collateral Registry Act has solved this problem in relation to security interests created over movable assets by exempting such security interests from payment of stamp duties. This should ordinarily make it easier for MSMEs to access credit with minimal transaction costs. Unfortunately, the financing costs of MSMEs that are registered as limited liability companies under the CAMA will remain the same because the Collateral Registry Act does not prevent the creation and registration of security interests in the form of charges by companies registered under CAMA.  Thus, even if those companies do not incur stamp duties for the purposes of registration at NCR, they will still be required to make such payments for the purpose of registering security created by them pursuant to CAMA.

THE CREDIT REPORTING ACT, 2017 

The CRA provides a platform for “credit information providers” to provide credit bureaux with information relating to a person’s credit worthiness, credit standing or capacity, and to the history and profile of such person with regard to credit, assets and any financial obligations.  The credit bureaux may then share such information with “credit information users” that satisfy certain conditions.  

The key objectives of the CRA include (i) facilitating and promoting access to credit; (ii) enhancing risk management in credit transactions; (iii) promoting responsibility in the credit market by encouraging responsible borrowing; and (iv) discouraging reckless credit granting by credit providers.  The Act also provides a framework for licensing credit bureaux including the terms and conditions upon which the licences may be suspended or revoked.

The CRA requires any person seeking to establish, operate or conduct business as a credit bureau or to perform the functions of a credit bureau to obtain a licence for that purpose from the CBN.  The minimum capital requirements and other conditions regulating the grant or issuance of the licence are to be fixed and determined by regulations issued by the CBN.

The CRA mandates all credit information providers to provide credit and credit-related information to credit bureaux upon entering into a credit related transaction with their customers. The credit information providers are thereafter required to provide information on a periodic basis on the status of performance of such customer’s obligations under the transaction.   Additionally, a credit information provider does not require the consent of the customer in order to provide a credit bureau with information relating to such customer or client.

The list of entities that qualify as credit information providers and which are required to furnish credit bureaux with credit information of their customers is fairly extensive.  It includes banks and other financial institutions; leasing companies; insurance companies; cooperative societies and institutions that offer credit to MSMEs; utility companies including but not limited to electricity companies, telecommunications companies, and water corporations; asset management companies; suppliers of goods and providers of services on a post-paid, deferred or instalment payment basis.  The CBN is empowered to expand the list from time to time.

When credit information providers furnish the credit bureaux with the credit information of their customers or clients, the credit bureaux are authorised to disclose such information to “credit information users” who may require them.

Generally, a credit information user must have entered into a data exchange agreement with a credit bureau before a person’s credit information can be released by the credit bureaux to the credit information user.  In the case of those credit information users who do not have data exchange agreements with the credit bureaux, such users must obtain the written consent of the relevant customer or client before such customer’s information can be released to the credit information user.

Credit information users include all credit information providers (as defined above) and such other persons as the CBN may from time to time prescribe.  

The credit information users are required to keep information provided to them confidential and are allowed to use such information only for “permissible purposes”.

The CRA restricts the purposes for which credit information may be accessed. As mentioned above, information provided or received pursuant to the CRA can only be used for what the Act has termed “permissible purposes”. The permissible purposes include considering an application for credit or considering a person’s qualification to act as a guarantor for the grant of credit; reviewing, renewing, restructuring or monitoring of existing credit facilities; carrying out employment checks on employees or prospective employees; assessing the creditworthiness of a prospective tenant in any lease or tenancy; complying with the directive of a regulatory authority or a public body to provide credit information, etc.

 

The CRA creates various offences including knowingly providing inaccurate, misleading or false information to credit bureaux, credit information providers or credit information users; using credit information for a purpose other than a permissible purpose; failing to submit or update credit information within the required timeframe, and other related offences.

Conclusion on Ease Of Doing Business Under Access Credit

The significance of MSMEs in the development of any economy cannot be overstated.  Studies have shown that most MSMEs do not survive past their early years, and only about 5% to 10% of them flourish to maturity.  One of their greatest challenges is inadequate access to capital, or where accessible, the cost of such capital.

The absence of credit history by most MSMEs, coupled with their relatively low asset base to be used as collateral for credit renders them unattractive to commercial lenders and other credit providers.  It is hoped that the implementation of the Collateral Registry Act and the CRA will address these problems and ultimately have a somewhat positive effects

INTEREST RATE AND ACCESS TO CREDIT IN NIGERIA

In any economy, the key drive for  business entities to vent into loan is low interest rate. For quiet long, the bench mark of interests charged on loans in nigeria are not encouraging due to the economic condition of the country. This has discouraged alot of business entities from accessing loans as there are no tendencies of some  businesses to meet up.

However, the Central Bank of Nigeria held its monetary policy rate at 13.5 percent during its September meeting, as widely expected, as inflation remains persistently above the Bank’s target range of 6-9 percent and economic growth remains sluggish. The bank’s governor Godwin Emefiele said at a press conference that tightening rates could constrain growth while loosening it could allow inflation to rise, and that holding rates steady would allow the bank to appraise the impact of current policies, such as changes to the loan to deposit ratios at banks, that comes into force at the end of September, aiming to increase lending and foster growth. Interest Rate in Nigeria averaged 11.08 percent from 2007 until 2019, reaching an all time high of 14 percent in July of 2016 and a record low of 6 percent in July of 2009.

EASE OF DOING BUSINESS UNDER BUSINESS REGISTRATION 

Years back, it takes a professionals to register a business name with corporate affairs commission due to some of the long and technical approaches. Few years back, there are some amendments in the registration procedure that have enabled business owners to register their own business without the services of a lawyer or an accountant.

This was made possible through the the efforts of corporate affairs commission as they  recently announced the introduction of electronic stamping which is aimed at reducing stress and time wasting of registration period. The corporation stated that it was a part of an on-going reforms to ensure making the process of company incorporation faster, easier and cheaper. the CAC has integrated it’s Company Registration Portal (CRP) to the Electronic Stamp Duty Portal of the FIRS therefore applicants no longer need to stress or pay much money in trying to register a business in Nigeria  . This is  quiet unlike before that one need to waste  much time in trying to do so.

In this regards, CAC  customers no longer have to submit incorporation documents to Commissioners of Stamp duty for assessment and physical stamping. This is to say that intending business mangers and owners can take  advantage of the new system by initiating their incorporation on the CRP. The stamp duty interface is available immediately after you complete the application form and the memorandum and articles of association on the CRP.

Customers are required to download and print the documents of incorporation for execution by the directors and subscribers and the certificate of stamp duty.

This new initiative has alleviate the stress of registering a business in Nigeria compared to those days.

Nigeria has moved up several places on the World Bank’s Ease of Doing Business ranking.

CONCLUSION

Ease of doing business under access credit and business registration had being improving over the years through the afforts of government agencies. This statement does not mean that Nigeria is now a save haven for doing businesses as the country still rank far behind. Moreover, efforts should be geared towards softing ways of accessing credit for SMEs and also registration of business in Nigeria.