Nigeria’s unfriendly business environment last week caught the attention of the World Bank again. In its Enterprise Survey released last week, the World Bank revealed that 322 companies closed down their operations in the country in five years. However, the big issue is that a further whopping 1136 companies run the risk of closing down their operations. In this report, BABAJIDE OKEOWO takes a look at the several challenges that have been responsible for the increased mortality rate of Nigerian businesses.
A few weeks ago, the World Bank Enterprise Survey had revealed that at least 1,136 companies were at risk of closing down in Nigeria. The result of the survey published by the African Development Bank, AfDB in a report entitled ‘Creating Decent Jobs: Strategies, Policies and Instruments’, identified several factors as being responsible for this rot. The survey, which was conducted over a five-year period, from 2009 to 2014, revealed that only 814 companies survived.
According to the report, factors responsible for this unexpected development include business regulation; tax rates, access to land, trade registration, multiple tax administration and business licensing and permits.
Similarly, infrastructure problems like transportation, poor electricity and, corruption are other factors that are responsible for the extinction of some of these companies.
Access to finance, the practice of competitors in the informal sector and inadequately educated workforce are some other factors identified as being responsible.
Recently, Sophia Nigeria Limited and Linda Manufacturing Company Limited, manufacturer of popular “Xpression” weave-on brand, which controlled a significant market share in the hair accessories market, announced they are struggling to survive, as such they shut down their major plants in the country and laid off about 6,000 workers. The story of these companies depicts one of many examples of business giants, which have been brought to their knees due to the challenging business environment.
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Nigerians were shocked when the only two tyre manufacturing companies in Nigeria – Michelin Nigeria Limited and Dunlop Nigeria Limited – closed shop and left the country. The reasons they gave for closing down were harsh business environment and bad government policies.
The figure might even be higher – CSL Brokers
Leading stock-broking firm, CSL Stockbrokers Limited, claimed that the figures presented by World Bank might not represent the true picture of things given that the time period covered by the survey is not recent and covered a period of reasonably strong growth in the economy.
“We reckon that the time period covered by the survey is not recent and covered a period of reasonably strong growth in economic activities. Between 2014 and 2016, Nigeria plunged into a recession, experiencing severe crunch in the FX market, which hampered manufacturing and trade. Accordingly, we think the number of firms that shut down operations within this period would be much more significant. In more recent data, the United Nations Industrial Development Organisation (UNIDO) also stated in 2017 that only 20 per cent of Nigerian SMEs manage to survive,” the firm stated.
Why it is tough operating in Nigerian business environment –Stakeholders
Mike Nosa Ogunbor is the Managing Director and CEO of Tonox Chemical Enterprises, a fledgling company located at Plot 2B, Chemnat Avenue, Iyana Meiran, off Abeokuta Expressway Lagos State, he had huge dreams of growing the small company to a large one and subsequently a conglomerate. Few years after setting up the company, it has struggled to pick-up.
Lamenting his ordeal, Ogunbor confided in The Nigerian Xpress that starting up a business in Nigeria is akin to taking an uncalculated risk given the myriads of challenges most companies face in Nigeria.
“Myriads of challenges plague the business environment in Nigeria. For example, what a small company spends on power generation alone is enough to run the company out of business. We all know the situation of power supply in this country, so if as a business owner, you depend on the government power supply to run your business, then you are not serious. I run this small company on an average of 30 litres of diesel every day, do the calculation and you will have a fair idea of the challenges I go through,” he said.
If you think that is all the challenges Ogunbor faces in the course of running his company, wait for it.
“As if that is not enough there are several other expenses I incur that makes running this company a huge challenge. Do you know that to erect a signpost at the junction of this street to serve as direction to prospective clients and customers also comes at a cost? I am required to pay a government agency certain amount of money yearly to be able to put the signpost there, that does not include some other taxes I must pay to the government to enable me to operate this business. Government policies are not helping small businesses in Nigeria at all,” he added.
Speaking further, Ogunbor lamented the duplicity of government agencies and their threat to businesses in the country.
“Multiple taxations are another factor that is killing businesses in the country. Hardly have you set up a company when different government agencies will start knocking on your door to ask you for this tax or that tax, and this is a company that is barely getting off the ground, how will such business survive?” he asked.
Similarly, the Executive Secretary of the Nigerian Association of Small and Medium Enterprises, NASME Eke Ubiji, affirmed that the sector is struggling to survive in an unfavourable business environment. Ubiji revealed that some members of his association have “closed shops” over the challenges hindering growth in the sector.
“Access to finance, difficulty in accessing foreign exchange, power and taxation are huge problems that manufacturers are dealing with. Many companies have closed shop in the country while those still in operation no longer produced up to their installed capacity owing to a reduction in the purchasing power of Nigerians and inflation, the report that said 85 per cent of manufacturing companies were not operating up to 75 per cent of their installed capacity is very correct,” he added.
How companies can survive the harsh environment –Expert
Alhaji Olaleye Wasiu, the CEO of Fanol RDS Products Limited called on the government to make the business environment friendlier to manufacturers to enable companies to thrive and contribute to the Gross Domestic Product, GDP of the country thereby triggering growth in the economy.
According to him, “a situation where you generate your own power for production does not make you competitive, because whatever is produced in this manner is produced at a higher cost when compared to other parts of the world. The same goes for the transportation system as we still move our goods via roads, even the heavy-duty goods. Such goods, which should go by rail, lack enough rail lines to carry them. There is a need to develop the transportation sector to the point where it can support the manufacturing sector and also support the economy, also the issue of power should be solved once and for all” he said.
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CSL Brokers posited that there is the need for a Public-Private Partnership to solve the infrastructure problem in the country which will, in turn, lead to the survival of companies in the country while calling on the government to implement policies that will foster a more accommodating business environment.
“Furthermore, Public-Private Partnerships (PPPs) remain the most viable way to solve Nigeria’s infrastructural conundrum. In all, an improved business environment will not only reduce the business risk priced into the cost of credit for SMEs, but it would also engender the growth of the private sector. We believe the federal government must begin to implement policies that would foster a more accommodating business environment. Some of these policies would obviously revolve around improving land access, clearer business regulations, removal of registration bureaucracies, and curbing corruption in regulatory bodies & judicial system” the firm added.
It’s not all gloomy –CBN
According to the Central Bank of Nigeria, CBN in its Production Manager Index, PMI for October revealed that business activities have maintained an uptick which indicates improvement according to the PMI report released by the Central Bank of Nigeria (CBN). The PMI witnessed an increase from 58.0 as at September to 58.2 points in October.
The apex bank in the PMI report stated that the latest index represents an expansion in the manufacturing sector. Of the 14 sub-sectors surveyed, 13 reported growth.
If this report is commensurate with the realities on the ground is yet to be seen.
