Funmilayo Odude, Legal Practitioner, Damod Law Practice
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Nigeria’s business law reforms of 2020 are not enough to revamp the economy 12 Jan 2021
2020 ended with a number of important legislative developments in Nigeria, especially in business and trade. The major company regulation in the country, the Companies and Allied Matters Act (CAMA), was amended, and gazetted, after 30 years. The Corporate Affairs Commission (CAC), which was awaiting the publication before commencing full implementation of the new CAMA, subsequently announced that it would publish new regulations to provide the framework for full implementation of the Act from January 1, 2021.
President Muhammadu Buhari also signed the amended Banks and Other Financial Institutions Act (BOFIA) on November 13. The law contains some controversial provisions, such as limiting the remedy available to an aggrieved bank upon revocation of its licence to monetary compensation. Notwithstanding, it is undoubtedly a necessary review of the law that was first enacted in 1991.
On November 11, the Federal Executive Council ratified the African Continental Free Trade Agreement (AfCFTA). A few weeks later in December, the country’s four land borders, which had been closed since August 2019, were reopened. The reopening of the land borders was necessary, since trade under AfCFTA was rescheduled to take off on January 1, 2020, after the COVID-19 pandemic scuttled the initial date of July 1, 2020.
As at the time of writing this article last month, the Senate had just passed the Finance Bill 2020, which seeks to amend 12 tax laws. The government had stated that the bill would support the implementation of the 2021 budget and adopt appropriate counter-cyclical fiscal policies in response to the COVID-19 shock. The bill is also expected to further consolidate and enhance the tax incentives given to small and medium enterprises (SMEs) in the Finance Act 2019.
These legislations, in addition to the 2021 Appropriation Bill that was passed by the legislature last month, should revitalize the economy, beginning with a much-needed shot in the arm for the country to come out of recession. However, the business community does not seem to be very excited by last year’s strides in legislative and regulatory reforms. This is a clear indication that while revamping these laws was necessary, they are not enough to fix Nigeria’s ailing economy and poverty crisis. There are several other steps the country must take to give these laws the complements required to truly impact the economy.
At the moment, Nigeria’s supposedly greatest capital – namely, it’s huge and growing population – is in reality the country’s greatest liability. According to data from the National Bureau of Statistics (NBS), Nigerians below the age of 35 years account for 60 per cent of the entire population. This ordinarily should have positive social and economic implications for the country as most of these young people fall within the economically active or working-age population. Rather, the unemployment rate among young people (aged 15-34) stood at 34.9 per cent as of the second quarter of 2020.
More than 40 per cent of the Nigerian total population lived in poverty before the COVID-19 pandemic. A World Bank report of last year forecast that the effect of the pandemic and population growth would increase the number of poor people in the country by seven million in 2020.
To dent the poverty and unemployment epidemics, the much-talked-about economic diversification agenda of the government should be given more push in 2021. A broader base for taxation should replace the current dependence on oil revenue. The government also needs to address insecurity to make agriculture safe for farmers while promoting investments in the value chain of the sector. Even this would not be enough.
The push for diversification must extend to the country’s human capital development. The country is not on track to achieving this through social welfare programmes such as National Social Investment Programme (NSIP), etc. You do not lift people out of poverty by feeding them or paying unemployed youths a stipend for a few months. Instead, you can lift them out of poverty by empowering them to feed themselves and contribute meaningfully to the economy. Thus, I strongly believe that a thriving private sector is crucial for ending poverty.
Nigeria’s youth are mostly uneducated or under-educated. Many of them cannot add value to what is now a fast-evolving global economy and they are hardly to blame for their disempowerment. Nigeria’s body of tertiary educators, the Academic Staff Union of Universities (ASUU), was on strike for the most part of 2020. Incessant and long periods of strike by ASUU have tended to undermine the education of the students, even if the trade union was fighting for an improved learning system, including better compensation for the lecturers.
One of the areas in which the universities can support economic production is through R&D and innovations to solve the country’s and global challenges. But, as the world’s knowledge establishments scrambled to find vaccines for COVID-19, ASUU remained on strike. Almost the entire 2020 was used discussing payment platforms for university lecturers in ASUU’s negotiations with the government.
Nigeria’s rapidly growing population is a liability to the country because of the lack of investment to make the population an asset. Unless Nigeria invests in its people by prioritising investment in education, healthcare and security, revamping business legislations would make little impact on the economy.
A report by the United Nations Industrial Development Organization (UNIDO) highlights the imperative of a sound education system and private sector development and shows sub-Saharan Africa as a laggard in this regard. According to the report: “Successful innovation in industrialized and more advanced developing countries results in most cases from intensive cooperation and feedback loops between firms and supporting institutions, including universities, research centres and vocational training institutions. In most SSA (Sub Saharan African) countries very little headway has been made in developing such linkages. Universities, for example, devote very few resources to research and are rarely in a position to provide innovative solutions for the private sector.”
The review of business laws is just one step in creating an enabling business environment and a good investment climate. A huge part of the Nigerian economy is informal. But informal businesses are not the target of policies such as the tax incentives in the Finance Act. Informal businesses are subjected, almost on a daily basis, to informal levies and charges by associations and organizations manned by urchins, who often operate with the tacit approvals of many state governments.
A lot of the formal SMEs are also not spared from executive highhandedness. This needs to end. Government regulatory agencies should not see their roles and functions strictly from an adversarial or disciplinary standpoint. They ought to consider themselves as major drivers of the growth of the sectors or industries they regulate. In the meantime, the perception of corruption and inefficiency in enforcing regulations by the agencies is detrimental to private sector development. Improvements in business laws would be things to celebrate to the extent that the regulators are enablers and not hindrances to business growth.
As AfCFTA becomes operational, there are a lot of opportunities for exports of goods and services. To harness the opportunities, however, government needs to accelerate on finding solutions to the country’s infrastructure deficits. Nigeria’s challenges with respect to power, ports, transport and ICT infrastructure are not news to anyone. Yet, having been a drag on the economy for so long, there is little progress in solving the issues.
Finally, there is the need to address the issue of fiscal federalism. It is becoming more apparent that the current system cannot be sustained as the federal purse from which states receive their allocations continues to shrink due to dwindling oil prices and rising debt profile. Individual states have to devise innovative ways of enhancing their fiscal viability and attracting private sector investment.
If a formal process of restructuring does not commence soon, it would happen informally, a situation that might lead to even bigger challenges. A good example of how this is already playing out is the regional security outfits now being created.
To achieve true and lasting economic reforms, a holistic approach is required. The process must begin with an economic vision. Each policy and legislative amendment must align with the strategic economic plan derived from the vision. The plan would have to be assiduously implemented.
A Financial Nigeria columnist, Funmilayo Odude is a Lagos-based legal practitioner, and a public affairs analyst.