Menu

PEBEC should now focus on improving Nigeria’s business environment 27 Oct 2020

In his editorial note last month, my colleague, Martins Hile, the Executive Editor of Financial Nigeria, alluded to the sense of disappointment the federal government may have suffered with the suspension of World Bank’s Doing Business (DB) report. However, this disappointment presents an opportunity.

In 2016, President Muhammadu Buhari inaugurated the Presidential Enabling Business Environment Council (PEBEC). The council was handed a two-point mandate. The first is to move Nigeria upwards on the Doing Business index; and the second is to remove critical bottlenecks and constraints to doing business in the country.

If the two points represent the horse and the cart, the government placed them in the reverse order in its stipulation of PEBEC’s mandate. But it is impractical for the cart to drag the horse. However, if the country were to achieve substantive improvement in the reform of the local business environment, it should be expected that Nigeria would climb up on the global DB index.

It could be that the government understood the limitation of linear thinking when it concerns advancing on the DB index. India rose on the 2018 DB rankings not because of improvement in its business environment. The data for its ranking was reportedly manipulated. Many other countries, including Chile, have also moved up on the index without changes in their business environment, according to a multi-year study of the Doing Business reports by Justin Sandefur, a senior fellow at Centre for Global Development. The implication of this is that countries that did better in actually reforming their business environment were deprived of the ranking they deserved.

With specific regard to the 2018 and 2020 reports, the World Bank has countenanced data inconsistency with its methodology and announced this past August a temporary suspension of the Doing Business report, pending the review and audit of its data collection and controls processes. However, this effort is unlikely to restore credibility to the DB index. Critics have said the rankings were being politically manipulated. In what could be a mortal blow to the ranking study, in 2018, Paul Romer, then-World Bank’s Chief Economist, said he had lost faith in the integrity of the DB index and subsequently resigned from the bank.

To say the least, the DB index can be quite misleading. It is even possible for a country to jump on the rankings for the year that its business environment evidently worsened. This was arguably the case with Nigeria’s performance on the 2019 index. The country moved up 15 notches on that index, which was released in the 2020 Doing Business report in October last year.

2019 was a year of general election in Nigeria. Electioneering in the country tends to heat up the polity in the months leading up to the polls, and months afterwards, as elections are challenged in the courts. It also erodes the functioning of state institutions; and distortionary campaign spending causes uptick in inflation. The expectation and actuality of election-day violence also paralyses business activities, apart from causing many members of the electorate to not go out to vote. All of these negative shocks substantially characterised last year’s general election.

Despite the crystallisation of political risk, but without evidence of discrepancy in the country’s DB data, Nigeria’s big leap on the 2019 index should be taken to mean the country delivered big on the indicators measured by the DB report. This then raises the point about the local relevance of the uniform indicators that are being tracked by the index for nearly 200 countries. With the countries at different stages of development, the indicators may not be apposite in driving the improvement that are germane for the performance of the local business environments.

The 2019 DB index tracked 11 indicators – one more than in previous years. The indicators included starting a business, dealing with construction permits, getting electricity, registering property, and getting credit. But in recent years, the biggest business environment challenge to Nigeria’s agriculture, the sector that accounted for 25.16 per cent of the country’s GDP in 2019, is insecurity. The DB index does not track security. Indeed, the provision of extension services, climate-resilient and high-yield seedlings, rural feeder roads and quality education in farming communities are far more beneficial to Nigeria’s agriculture than would the DB indicators.

It is also moot, the extent the indicators are relevant to the Nigerian services sector, which accounted for 52.60 per cent of the GDP in 2019. Lack of skills, inadequate infrastructure, including broadband internet, and lack of affordability are more impactful to the sector.

With the Doing Business report, Nigeria is essentially pursuing a largely locally-irrelevant international agenda. If the DB index were to be permanently rested, it would help countries to set their targets for improving their business environment more practically by themselves. China has risen to become the world’s second largest economy by pursuing its homegrown, endogenous reforms. But because business environment reform in Nigeria is externally focused, PEBEC started out with the makeover of the international airports.

The contribution of PEBEC to the enactment of the Companies and Allied Matters Act (CAMA) 2020 has been acknowledged. The legislation, which ironically was passed after the 2020 DB report was released, is a vital business environment reform in Nigeria. What is doubtful is whether the promises of CAMA 2020 would be realised, ultimately by raising the level of productivity and significantly reducing poverty in the country. As long as poverty is endemic in Nigeria, a large proportion of business endeavours would remain informal with the business environment remaining disorganised and unattractive to international investors.

Without the distraction of the Doing Business report – either temporarily or permanently eventually – PEBEC should now develop a new set of indicators that would address the issues that are germane to the current level of development in the country and what we can achieve in the medium term. Unlike the DB report, the indicators to be developed by PEBEC should change over time. When we have achieved on indicators targeting some basic improvements, we can raise the targets with a new set of indicators – or set new targets with the same indicators. This would allow for a more functional measurement of progress. Targeting the same indicators ad infinitum is like having the same set of students remaining in a class but competing for positions by taking the same examination every year.

Nigeria faces enormous and deepening development challenges, including those negatively impacting the business environment. We can’t afford to continue to address the challenges with generic global solutions instead of bespoke local ones.