The real sector is facing a lot of challenges.To address these challenges, the Federal Government last year issued an Executive Order to facilitate the ease of doing business, promote transparency and efficiency, among others. But the im- plementation of government policies and regulations, some experts say, is hurting efforts at creating a conducive business environment, Assistant Editor CHIKODI OKEREOCHA reports.
When then Acting President Yemi Osinbajo signed the Executive Order on the Ease of Doing Business, last year, real sector operators heaved a sigh of relief. To them, the order, which broadly sought to facilitate the ease of doing business to save time and cost, promote transparency and efficiency in the business environment, was a strategic response to the challenges of the business environment.
With its promises of making the business environment conducive, and eliminating the hurdles in the way of a bigger and more productive private sector and, ultimately, forcing a rebound of the economy, the ease of doing business initiative enjoyed the overwhelming support and buy-in of the private sector. They also expected that the initiative would help fast-track the transition to a non-oil economy.
Other objectives of the Executive Order, which put private sector operators in a joyous and expectant mood, include the promise of boosting domestic and foreign investments, promoting made-in-Nigeria products and services by supporting local contents in public procurement by the Federal Government, as well as creating jobs. However, the achievement of the laudable objectives through the order has come under serious threat. The Nation learnt that various regulations and policies being implemented by the government are impeding the ease of doing business initiative and, inadvertently, stifling the productive sector’s growth.
One of the regulatory complexities undermining the ease of doing business initiative is multiple taxes and levies by the government. The barrage of taxes and levies, which have been hitting hard on real sector operators, it was learnt, came in the wake of the high revenue drive by the three tiers of government. Although the economy technically exited recession with Gross Domestic Product (GDP) growing by 0.55 per cent in the second quarter (Q2) of last year, the various tiers of government are yet to recover fully from reduced revenue from oil following the crash in oil prices at the international market.
To make up for the shortfall in the monthly allocation from the Federation Account, government resorted to expanding their list of taxes, levies and fees payable to them by businesses. Now, real sector operators, particularly manufacturers, are feeling the heat and accusing the government of inadvertently stifling the productive sector’s growth through such multiple taxes and levies.
The Manufacturers Association of Nigeria (MAN), Ikeja Branch Chairman, Otunba Francis Meshioye, did not mince words when he said the cost of the heavy tax regime propelled by the revenue drive by the three tiers of government was being borne principally by businesses. This, he said, was threatening the manufacturing sector’s survival. Explaining further, he said the uncertainty arising from regulatory burden and complexities in government’s tax drive were undermining the manufacturing sector’s ability to successfully launch new businesses, expand existing ones, and create jobs. These, according to him, negate the objectives of the ease of doing business initiative and other reactionary interventions by the federal and state governments.
Meshioye, who spoke at the 10th edition MAN Breakfast Meeting for CEOs and Managing Directors of member-companies, in Lagos, also lamented that the confidence of local and foreign investors in the manufacturing sector on the ease of doing business was being threatened.
The MAN breakfast meeting for MDs/CEOs is a yearly event that provides a veritable platform for effective interactions by over 300 CEOs on economic challenges that threaten the survival of the manufacturing sector and also helps proffer ways to mitigate the threats.
The theme of this year’s breakfast meeting was “The Nigerian Manufacturing Sector: Current Issues and Strategic Options.” Its special emphasis was on “The Impact of Legislation, Regulations and Policies on the Ease of Doing Business in Nigeria,” with Meshioye maintaining that “Regulatory policies should not be seen to impede industrial growth.”
The MAN chief expressed regrets that despite being the engine of economic growth, the manufacturing sector was under siege. He, therefore, urged government to put in place progressive legislations specifically focused on improving existing policies that will boost the profitability of businesses and ease entry barriers for entrepreneurs.
Meshioye said though the economy technically exited recession in Q2 of 2017, the exit remains volatile, with the manufacturing sector still battling to survive the myriad of challenges facing it.
Citing Lagos State as an example, he said manufacturers are contending with the expansion of the list of taxes, levies and fees payable to the state government’s Ministries, Departments and Agencies (MDAs) without consulting stakeholders.
He listed other challenges to include difficulties created by the bottlenecks in the implementation of the harmonised inspection of workshops, and traffic gridlock at the ports.
“These are the resultant effects of legislation, regulations and policies being implemented by the government, which together increase the cost of doing business and the misery index of the citizenry,” Meshioye said.
Also speaking at the meeting, MAN President Dr. Frank Udemba Jacobs lamented that the introduction of some tax heads and increment in taxes/levies by the state government were done without consultation with stakeholders who are expected to pay the fees. He also said despite the state government’s agreement to harmonise the inspection of factories and work places, complaints received from MAN members showed that MDAs in the state are yet to implement the agreement.
The over 150 per cent increment in environmental development levy and petroleum storage permit payable to the Lagos State Environmental Protection Agency (LASEPA) has also not gone down well with the MAN chief and his members. He, therefore, called for a downward review.
Jacobs also pointed out that the biennial review of the Environmental Audit Report by LASEPA as against three yearly review of the same document by the National Environmental Standards and Regulatory Agency (NESREA) was imposing a huge cost on manufacturers.
He also drew the state government’s attention to the upward review of the land use charge, saying this has compounded the woes of manufacturers who are already at the verge of collapse on the weight of high operating cost.
As if these were not bad enough, Jacobs accused the state government of not being enthusiastic about patronising made in Nigeria products.
“The state government has exhibited high level of reluctance. We appeal that the administration directs a reversal of this trend by ensuring that patronage of made-in-Nigeria products is enshrined in the procurement policy of the Lagos State government,” he said.
However, the aforementioned identified challenges in the business environment now threatening the ease of doing business initiative are not peculiar to Lagos State alone. The Nation learnt that manufacturers and other real sector operators in virtually all the 36 states are grappling with similar challenges.
For Founder and Senior Partner of Paul Usoro & Co, Mr. Paul Usoro (SAN), lack of synergy, among various government agencies, is partly responsible. Other issues militating against the ease of doing business policy, he said, include inefficient power supply, insecurity, freeze in the lending activities of banks and lack of maintenance culture.
Usoro, who was guest speaker at the MAN breakfast meeting, said, for instance, that power supply in Nigeria still falls short of the megawatts required to power the economy. He said while the country reportedly generates about 7, 000 megawatts (Mw), this falls short of the required 10, 000 as envisioned in the Economic Reforms and Governance Project.
The expert in Communication Law, in his paper titled: “The Impact of Legislation, Regulations and Policies on the Ease of Doing Business in Nigeria,” said apart from the problem of distribution of power to consumers, macro-economic instability caused by high interest, inflation and exchange rates also conspired to hurt the ease of doing business initiative.
Indeed, manufacturers are agonising over high inflation, interest and exchange rates. For instance, many of them are unable to sustain or expand production at the prevailing interest rate of between 20 -27 per cent, depending on the borrower’s perceived risk level.
As Usoro said: “The major source of capital for businesses in Nigeria still remains bank loans, which come with high interest rates.”
The exchange rate, which stands at about N306/$1 and N360/$1 at the official and parallel market, respectively, is also not less disturbing.
He listed other factors militating against the policy to include the unpredictability or lack of continuity of government policies, freeze in banks’ lending activities, multiple taxation and lack of synergy and cooperation among MDAs etc.
The Ease of Doing Business policy, which has become a subject of scrutiny by experts and real sector operators, came into being as a result of public perception that Nigeria failed to translate her huge population and abundant natural resources to a better economic fortune largely because of challenges to the ease of doing bunnies in the country.
This position is not without justification. For instance, Nigeria has fared poorly in the global ranking of countries based on Ease of Doing Business and Economic Competitiveness. The World Bank in its ‘2017 Doing Business Report’ ranked Nigeria 169 out of 190 countries on the ease of doing business index. It also ranked 127 out of 138 economies covered in the ‘Global Competitiveness Report 2016-2017’ by the World Economic Forum.
Usoro said as part of efforts to make smooth some of the observed gray areas in the implementation of the ease of doing business policy aimed at reversing these trends, the three tiers of government should harmonise their taxes.
He added that the government should see manufacturers as strategic partners, while the executive order should be streamlined and harmonised with existing laws.