Considerable robustness has returned to Nigeria’s capital and money markets following the introduction of a flexible foreign exchange regime by the Central Bank of Nigeria (CBN). Abiodun Eromosele reports that government’s efforts to create an attractive investment climate must be accompanied by matured regulation
Recently, Nigeria made improvement in the World Bank ease of doing business global ranking which saw the country move up five places in the last one year.
The World Bank report revealed that it is getting better to do business in emerging markets, as Nigeria jumped to 170 out of a total of 189 counties measured in the ease of doing business survey.
The report revealed that Nigeria now ranks among the top five economies in Sub-Saharan Africa in two areas: the ease of getting credit and the strength of minority investor protection. Also, some improvement was recorded in the process of starting up a business.
Analysts have hailed the feat as encouraging and laudable stressing however that Nigeria needs to do more to make its economy attractive to foreign investors and catch up with other developing countries, despite the improvement recorded.
“It’s appealing to see improvement in the ease of doing business in Nigeria, moving five notches to rank 170th of 189 ranked countries in the world. Whilst it is still a long haul to where a country like Nigeria should be, given the potentials and business opportunities in the country, I think it is important to look at the components of the rank to ensure further improvement going forward.
“In my view, the Central Bank of Nigeria (CBN), operators, as well as other collaborators in the financial services sector, have enhanced access to credit, especially at the low-end of the market, with expectation of further improvement, when the high interest rate tapers out. Most state governments and the Corporate Affairs Commission (CAC) have also relaxed rigid rules on starting or registering businesses, thus improving our score on this component of the ranking criteria, ”said a market watcher.
In ease of obtaining credit, Nigeria jumped 73 places up to number 52, while in ease of starting a business, it improved nine places to number 125.
The World Bank report went further to say that Nigeria has implemented 10 regulatory reforms, starting from 2005, making it easier to do business.
Nigeria improved its credit information system through a CBN guideline defining the licensing, operational and regulatory requirements for a privately-owned credit bureau.
The country, the report showed, improved access to credit information by distributing credit information from retail companies.
Also, a majority of reforms have focused on improving business incorporation, trade, and credit reporting systems—allowing the country to gradually narrow the gap with the best regulatory practices in the region.
Between 2013 and 2014, Nigeria saw an increase of 3.6 points in its distance to frontier score, greater than the global average increase of 0.8.
This is due, in large part, to an increase in the coverage rate of Nigeria’s credit reporting system and a reduction in the company registration fee that made it less costly to start a business.
Nigeria’s upward movement (+5) compared favourably to the BRICS (Brazil, Russia, India and China) (+0), other MINT (Mexico, Indonesia, Nigeria, Turkey) (+2) nations and Sub Saharan Africa (+2).However, Nigeria recorded a decline in rankings in the dealing with construction permit, getting electricity, paying taxes and resolving insolvency.
While the recent improvement in the ease of doing business in the country is commendable, analysts have warned that the gains may be reversed if regulators fail to do what is necessary.
The analysts also called on the federal government to eliminate regulatory rascality because the country had, in the past, missed several opportunities to enhance its business climate.
Over the years, the debate over the overbearing attitude of regulators as it concerns the ease of doing business in Nigeria has never been as contentious or rancorous as it is today.
What majority of the stifling policies or policy witch-hunt have effectively succeeded in doing is restrict or hinder innovation, investment opportunities, growth of economy and most importantly, bring about a static economy where bureaucrats dictate the pace of growth of an economy or out-rightly retard the process.
A country that prioritises the ease of doing business is almost on a sacred quest for the solution that will create growth, and open new eras of prosperity and well-being.
Unfortunately, like many things called holy, the concept of innovation is invoked ritually and ceremonially more than it is embraced in practice.
Having said that, amid all the rhetoric, of allowing organisations the enabling environment to thrive and in return grow the economy, a lot of regulatory authorities knowingly and unknowingly stifle it. They say they want more growth and innovation but at the same time, they seem to operate by a set of hidden principles designed to prevent businesses from surfacing or succeeding.
Impact of Regulation on Businesses
A pointer to what regulators decision can have on business and Foreign Direct Investment (FDI) was witnessed recently when the CBN announced a flexible exchange rate regime.
Days after the Central Bank released details of the country’s new foreign exchange policy, hallmarked by a market-determined foreign exchange rate, the economic outlook has expectedly entered positive territory, with growing investor confidence boosting the capital and money markets. The capitalisation at the Nigerian Stock Exchange (NSE) soared by N760 billion three days after the policy was announced, pushing overall market value to over N10 trillion.
The new policy ended the CBN’s fixed exchange rate policy, which in the last 16 months, stifled economic growth as investors pulled out capital and many companies sacked thousands of workers as profits plummeted because they were unable to procure foreign exchange for their operations.
Following the development, Managing Partner at Noveni Advisors and U.S investment specialist on Africa, Aubrey Hruby, predicted a quick recovery of Africa’s largest economy as the new policy provides sufficient impetus for investors to return to the Nigerian market.
“This announcement has been a long time coming and could help move Nigeria onto the road to economic recovery. A bold step, devaluation will give investors a solid rate at which to return to the Nigerian market and give future transactions a baseline from which to start,” Hruby said.
Similar optimism was expressed by the International Monetary Fund (IMF), whose spokesman, Gerry Rice, noted that the policy will provide greater flexibility in the foreign exchange market, and help to reduce the fiscal and external imbalances that had plagued the economy.
“As we have said before, a significant macroeconomic adjustment that Nigeria urgently needs to eliminate existing imbalances and support the competitiveness of the economy is best achieved through a credible package of policies involving fiscal discipline, monetary tightening, a flexible exchange rate regime and structural reform,” Rice said. “Allowing the exchange rate to better reflect market forces are an integral part of that.”
Herein lays the imperative of balanced economic regulation. Until the new policy, Nigeria pegged its official exchange rate at N197/USD, a strategy that triggered huge pressure on the country’s external reserves and restricted foreign exchange supply to the economy. Economic stagnation was the result as the policy had numerous drawbacks, especially in stemming the flow of capital and foreign direct investments into the country.
The reversal of the policy, experts say, portends good for the economy, particularly by serving as a template for responsive regulation. Investment decisions and inflow of FDI depend in large part on the existence of a mature and balanced regulatory environment. Without clarity on policy directions and being able to modify such policies to support investment and business, hopes of attracting investment or engineering economic development are slim.
There is need for clear understanding and delicate balancing of the needs and aspirations of important stakeholders such as investors, financial institutions, the international community, and operators, among others, in order to safeguard the economy.
Ambiguities and uncertainties, especially arising from inadequate consultation or consideration of the outcome, lead to adverse consequences. The arbitrary imposition of regulations or lack of continuity often fails to fulfill the objectives of economic development.
A development that readily comes to mind was the admission by the Minister of Communications, Mr. Adebayo Shittu, that the initial fine of N1.04 trillion imposed on telecom firm MTN Nigeria Limited, for some infractions, was reduced to N300 billion in order to encourage foreign investments into the country.
Shittu indicated that government took into consideration the negative impact the hefty fine could have on the country, the people and the economy. This, apparently, was the result of constructive engagement between the Nigerian Communications Commission (NCC) and MTN.
“As far as we are concerned, the MTN issue is a closed matter. Nigeria as a country must move on. We must not do anything to drive away foreign investors. Foreign investments are potent means of bringing about development and wealth creation,” Shittu stated.
The resolution of the MTN saga comes in the wake of the amicable resolution of the dispute between Guinness Nigeria Plc and National Food and Drugs Administration and Control (NAFDAC) over some alleged infractions for which the brewing giant was slammed with a N1 billion fine.
Resolving Regulator, Operators’ Dispute
Another issue that undoubtedly requires some closure, possibly through constructive engagement, is the lingering dispute between the Financial Reporting Council of Nigeria (FRC) and Stanbic IBTC. Following what it described as discrepancies in Stanbic IBTC’s financial statements and general financial reporting for 2013 and 2014, FRCN announced a regime of sanctions, including the suspension of the Financial Reporting Numbers of Stanbic IBTC’s Chairman and CEO, and a fine of N1 billion. Ayodele Othihiwa of KPMG, auditors to Stanbic IBTC, was also suspended for the same offence.
As details of the issue became available, it turned out that FRC did not even consult the Central Bank of Nigeria (CBN), regulator of the industry, and acted without fair hearing for Stanbic IBTC, even when the rules and regulations stipulated that FRC can only sue when there is disagreement over an issue.
Stanbic IBTC went to court to seek enforcement of its right to conduct its business without interference from FRC, and subsequently obtained an injunction restraining the FRC from interfering with or hindering its operations pending final determination of the suit. While this was going on, FRC unleashed an undated rule, which precludes Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) without FRC certification or registration number from attesting to financial statements. The target, it is believed, was Stanbic IBTC.
In the letter dated May 27, which the Nigerian Stock Exchange (NSE) posted on its website, Stanbic IBTC claimed that its auditors, KPMG, refused to offer an opinion on its 2015 financial report, as required by regulation, because the auditing firm is afraid of being sanctioned by FRC. “The FRC also informed Stanbic IBTC Holdings Plc’s external auditors, KPMG, that as they are “privies” of FRC, it would sanction the firm if it issues an audit opinion in respect of the financial statements of Stanbic IBTC Holdings Plc or any of its subsidiaries.” With this stalemate, it would appear that FRC is intent on destabilising the organisation.
A simple and perhaps unarguable deduction from the aforementioned quotes is that FRC appears not interested in an amicable resolution of the contentious issues. And to threaten KMPG, if true, is despicable, to say the least.
This debacle, analysts believe, inevitably calls for the urgent constitution of a supervisory board for FRC, which is currently run like a sole administratorship, with Jim Obazee as executive secretary and chief executive officer.
Market watchers also wonder why the supervising Minister for Industry, Trade and Investment, Dr. Okechukwu Enelamah, whose understanding of the workings of the private sector and the corporate world is well documented, has yet to wade into the problem even as FRC engages in the destructive quest of maligning organisations, to Nigeria’s detriment.
What has baffled observers is that despite reported moves for an out-of-court settlement, Obazee, using FRCN as linchpin, continued with its opaque goal of destroying these corporates. As gleaned from Stanbic IBTC’s letter to NSE, the regulator vowed never to listen to any wise counsel or back down from its vicious course. The letter stated in part, “The FRC has informed Stanbic IBTC Holdings PLC that it will not comply with the court orders or engage constructively with Stanbic IBTC Holdings PLC unless and until there is a non-appealable decision of a court of competent jurisdiction. It is pertinent to mention that only decisions of the Supreme Court of Nigeria are non-appealable.”
“By insisting on bringing Stanbic IBTC and KPMG to their knees, at taxpayers’ expense anyway, what purpose does Obazee and FRCN wish to achieve? Nigeria’s economy is presently on its knees due to volatility in the global oil market. Companies across various sectors of the economy are retrenching in their numbers. President Muhammadu Buhari and his ministers have been to different parts of the world in search of investors and support for the economy.
“There is no better time for all hands to be on deck to revamp the economy by showcasing Nigeria’s potential to the world, especially investors. The consummation of Stanbic IBTC in 2008, which currently employs over 2,000 Nigerians, resulted in $525 million in FDI, the largest in Nigeria’s financial sector at the time. As part of Standard Bank Group, Africa’s biggest financial institution, Stanbic IBTC has gained considerable global expertise and network that Nigeria should harness for its benefit. KPMG, part of a global network in about 155 countries, has been operating in Nigeria since 1978, without a dent on its competence or integrity. Why now,” said a stockbroker who do not want his name in print?
He added: “I strongly believe that FRC’s intransigence would unnecessarily prolong the process of resolving the dispute with Stanbic IBTC or KPMG while keeping stakeholders on edge for as long as the litigation lasts. A situation where an individual will single-handedly indict major internationally-rated corporates operating in Nigeria as well as refuse to obey court orders does not augur well for Nigeria’s drive for foreign investment as a fillip to spur economic growth and development.”
An Economist, Emeka Chimezie, lent his voice to the call for government and other relevant authorities to support and encourage companies with huge investment appetite rather than stifle them with overbearing policies that will hinder industrial growth.
“It cannot be overemphasised that Nigeria needs as much foreign direct investments as it can get, particularly with the recent transformation agenda set in motion by the federal government, intended to ensure rapid growth and far-reaching economic prosperity, “he said.
Ohanyere continued: “Often than not, regulatory rascality, a situation where regulation takes the law in its hands rather than follow due process, is the key factor that negatively affects inflow of FDIs. Many a time, it unknowingly hinders investment inflows, for fear of losing domestic management control.
Meanwhile, the federal government has taken steps to ensure a better investment climate by approving the formation of committee on ease of doing business.
President Muhammadu Buhari approved the formation of a Presidential Commission on the matter. Vice President Yemi Osinbajo, who disclosed this recently, emphasised the need for ease of doing business in the country.
“President Muhammadu Buhari has approved a high-powered commission to work on the issues around the ease of doing business in the country,” the vice president announced while presiding over the first Quarterly Consultation between the presidency and the Manufacturers Association of Nigeria, (MAN).
Osinbajo said: “The commission will have a secretariat to be headed by a private sector professional who will be appointed to lead the secretariat of the presidential commission that will now pay even greater attention and focus to the issues of doing business in the country.
At the consultation MAN raised, among many concerns, their worries about cases of multiple taxation, and in response the vice president promised to follow up on the matter, adding that “one of the key issues the presidential commission which I am heading would be looking at is the case of multiple taxation.”
He added that this is also an issue that the Ministry of Trade and Investment is also actively engaged with.
At the end of the meeting, the President of MAN, Dr. Frank Udemba Jacobs, while speaking with State House Correspondents, expressed concern about the acts of vandalism regarding the nation’s oil and gas installations describing such as economic sabotage.
According to him, while “the association is happy about what the federal government is doing, but we are concerned about what is happening in the Niger Delta area which is a kind of sabotaging the economic activities of government and therefore we want to call on them to lay down their arms in the interest of the country.”