Improving the ease of doing business – The Sun Nigeria

With its recent decision to shut down operations after about 50 years in Nigeria, the GlaxoSmithKline (GSK), a drug manufacturing giant, has joined the list of multinational companies that left the country due to adverse economic environment. If the trend continues, Nigeria’s economic growth potential might not be fully realised. The renowned pharmaceutical company revealed that henceforth all its operations in Nigeria will be handled by a third-party distribution model to serve its numerous customers in the West African sub-region.

The decision of GSK to leave Nigeria has raised concerns over the increasing exodus of foreign firms and the urgent need for the federal government to address the factors responsible for their exit from the country. Clearly, GSK and other foreign companies are leaving the country on account of our poor ranking on the global ease of doing business. The likely factors responsible for our poor ease of doing business are foreign exchange shortage, poor power supply, rising interest rate, inflation and rising cost of production. Others include insecurity, unemployment, uncertainty arising from the recent hasty removal of fuel subsidy and multiple taxation.

In the face of rising cost of production, business owners will most likely invest in countries with high rate of ease of doing business and where they can spend less in the cost of production and make more profits. Unfortunately, Nigeria is not one of those countries, hence the exodus of many foreign companies from our shores in recent times.   For Nigeria, the exit of multinational companies is a major blow to the manufacturing sector that is already experiencing fund pressures.

Recent government policies may have had few immediate positive effects, they have negatively affected critical sectors essential to economic recovery. Consequently, some of the policies have eroded income and trading capital of several local and foreign companies that had established their earnings based on the official FX. But the current scarcity of Forex has hit hard on most firms and their profit projections.  Not only the foreign firms are affected, many local industries have shut down as a result of the aforementioned factors.

A recent survey by the Manufacturers Association of Nigeria (MAN) showed that more than 400 firms have ceased operations, and many others relocated to neighbouring countries. MAN lamented that due to the choking business environment, its members borrowed N1.8trillion in the first half of 2023 to survive. The amount is 24.5 per cent rise against N1.47trillion in the corresponding period of 2022. As a result, severe high funding pressure has increased their finance cost to the tune of N330.9billion, representing 411 per cent within the first half of 2023. This has made manufacturers to resort to expensive bank borrowing to sustain their businesses, thereby increasing their exposure to high interest rate, which currently stands at 18.75 per cent. Since rising finance is often driven by steady increase in Monetary Policy Rate (MPR), the federal government should take a holistic review of the business environment so that the business climate will be more competitive for growth.Presently, Nigeria ranks very low in both the World’s Competitiveness Index and Ease of Doing Business. Though the country moved up 11 places two years ago, it has gone down the ladder due to multiple factors, primarily due to the current economic uncertainty following the 2023 elections, acute forex scarcity, weak infrastructure, poor productivity and the depreciation of the naira.  All of these challenges pose a major risk to job creation and economic inclusion across all sectors.

With over 80 per cent of government revenue depending on oil receipts, the economy is increasingly becoming vulnerable to external shocks.  Available information shows that over the last two decades, it has become imperative for the federal government to urgently address the weak revenue base caused by oil theft and pipeline vandalism, rising and unsustainable debt profile currently put at over N49trillion (excluding Ways and Means Advances from the CBN), over-dependence on oil revenue, exposure to external shocks through inadequate forex supply and double-digit inflation. The current economic crisis requires a sense of urgency to revamp the economy and a deliberate move from consumption to production.  In addition, the government needs to boost the non-oil sector for export and enhance the nation’s foreign exchange earnings. Last year, the non-oil sector grew by 4.8 per cent (year-on-year) in the second quarter against 6.1 per cent in the Q1 2022.  Altogether, to encourage foreign investment, government should enthrone transparency in the management of finance, rule of law, and ensure good governance.

Data from Nigeria Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) indicate that the economy may witness more production constraints in the coming months unless the federal government initiates good fiscal and monetary policies that will encourage private and foreign capital inflows into the country.The low growth of 1.2 per cent recorded in the agricultural sector and three per cent for the manufacturing sector in the Q2’22 GDP Report and other sectors that grew above five per cent may not be enough to grow the economy.

Since the new ministers will be given portfolios soon, they should prioritise revamping the economy above other things. We believe that improving the ease of doing business will make Nigeria the preferred destination in Africa for foreign investors.