Dismantling Barriers To Enterprise -By Uddin Ifeanyi

Filed under: Economic Issues |
Ifeanyi Uddin

Ifeanyi Uddin

 

An antediluvian criminal justice system means we cannot enforce contracts efficiently, nor resolve insolvencies fast enough. Regulatory capture has hurt corporate governance practice: insider abuses and poor conflict of interest regulation guarantee that minority interests will continue to be fleeced by the beneficial owners in any enterprise. All of which translates into a dearth of inward-bound investments.

“Industrial policy”, more than any other aspect of our domestic portfolio of policies, reveals the true nature of the Nigerian state. When it comes to outlining this policy’s prescriptions for diverse sectors of the economy, the pretences to a modernising instinct fold in upon themselves, revealing a residual preference for statist (or “pro-poor”) solutions to economic problems.

At the juncture we are at today, two major difficulties confront would-be reformers of the Nigerian economy. First, is the fact of diminished productivity across just about every sector of the economy. Second, is the more disturbing failure of private entrepreneurs to pick up the slack, as a capacity-constrained state sector continues to contract. Confronted by similar difficulties in the past, our default response was (and, alas, still is) to erect barriers between the domestic economy and the rest of the world. Within this autarchic space, domestic industry is supposed to thrive.

It rarely does in theory; and in practice, often succeeds on the back of the deployment of other policy initiatives. In our case, the worry is that after a half century of these policies, industry appears worse off because of this cosseting. Nor do we appear concerned that the tariff and non-tariff barriers erected purportedly to protect domestic actors from the predatory influences of foreign imports are then subverted through a succession of waivers that end up granting monopoly statuses to businesses run by political cronies.

Drop the rose-tinted spectacles through which what remains of the Nigerian “left” continues to address economic problems, and it is obvious that the central domestic response to our economic challenge is not how to reinforce this transfer of wealth from would-be importers of foreign goods to our newly minted local businessmen. Rather, we are invited to drive significant increases in both total factor productivity, while creating conditions favourable to entrepreneurial activity. Interestingly, both of these deliverables demand that the economy remains open to new technologies, and new methods of organising the work place. Therefore, if we must move this economy forward, we would require fewer non-tariff and tariff external barriers as possible. Unfortunately, even acknowledging this possibility does not help address the fact that the biggest current let to the Nigerian economy are the sundry internal barriers that make it well-nigh impossible for businesses to be started, run, and when necessary, wound down with minimal fuss.

The World Bank makes a good fist of trying to put numbers to these barriers ― in its “Doing Business” reports ― where it attempts to compare “business regulations for domestic firms in 189 economies”.

On the back of this report, which then are the internal barriers that we need to bring down, if domestic economic activity is to grow rapidly enough to dent the levels of want with which we are becoming familiar?

Quite easily, we all agree that access to electricity is a major concern. The toll that incessant blackouts have taken on the economy is now measured in terms of both lost output, and the diversion of skills that would previously have found outlets in artisanal activities, into borderline crime. The task here is to reduce the number of agencies (and procedures within agencies) involved in the processing of requests for connection to the national grid. Ideally, an effective reduction should cut down the time involved in these processes, and the associated costs to domestic economic actors.

In its 2015 version of the “Doing Business” report, the World Bank makes this “procedure, time and cost” case for four other such barriers to domestic entrepreneurial activities: “Starting a business”, “Dealing with Construction permits”, “Registering property”, and “Enforcing contracts”. Of course, on all these measures, the Nigerian economy scores abysmally.

Add problems with “Paying taxes” to this list, and you get an index of the extent of state intrusion in the economy. Such is the dead hand of the state that the World Bank estimates that on average, businesses in Nigeria make 47 tax-related payments annually, and spend 907.9 hours processing this. It figures that our total tax rate (as a proportion of profits) is about 33 percent.

An antediluvian criminal justice system means we cannot enforce contracts efficiently, nor resolve insolvencies fast enough. Regulatory capture has hurt corporate governance practice: insider abuses and poor conflict of interest regulation guarantee that minority interests will continue to be fleeced by the beneficial owners in any enterprise. All of which translates into a dearth of inward-bound investments.

Against all these lets, the fact that we score 159th out of 189 countries in the ease with which trade can be carried out across our borders is a middling complaint. Expectedly, of the 189 countries covered by the report, Nigeria comes in a measly 170. But only because we have more barriers to doing business in place within the economy than we have operating between the economy and the rest of the world.

 

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