Sometimes I think I must sound like a cracked record. For the last how many years, every time I had the chance to speak to a minister or to give an interview, I made the same arguments. If the problems never change, the solutions are unlikely to either. We have had the same problems for a generation. The same generation has known what the solutions are. The new transitional committee and the incoming economic team will know what the problems are and they will know what must be done. The ‘what’ has never been the issue, it has been the ‘how’.
Over the years I have been asked frequently by banks and finance houses to meet potential investors into Nigeria to give some practical perspective. They understand all the infrastructural challenges as these are well-documented. Typically, what they ask is whether it is possible to build a successful business in Nigeria within the constraints of three key factors: security, corruption and ease of doing business. Up to now I have had to immediately caveat my answer. My caveat is to separate business with government from either B to B or my own field of consumer goods. In all likelihood, over the last few years, it would have been extremely difficult to run a profitable business within generally acceptable ethically guidelines if your main source of income was government. It is unlikely you would ever have won any meaningful government contracts without crossing that line into corruption. However, for non-government business, while the environment can be challenging and occasionally hostile, there is no doubt that it is possible to be successful. By successful, I mean profitable and sustainable.
Sure, managing within the current security situation is definitely a challenge. There are direct expense increases (theft, physical security and police and so on) but the main costs are more indirect. These could be higher transport rates into areas of risk, de-stocking by customers in those areas, higher insurance rates or just the huge distraction and management time. Needless to say, unfortunately, there may be tragic times when the fallout of the security situation comes home in a real way if team members become embroiled personally. In terms of corruption, I never had to bribe anyone to buy a bottle of Guinness or a sachet of Cowbell Milk. Being successful in the consumer goods business is about the right products at the right price and quality, delivered to the right location. There is petty corruption to be dealt with, at a cost financially and to management time, such as errant security forces at checkpoints, local government harassment and rent-seeking officials, but I see this as a consequence of the failure of the enabling environment under the ease of doing business issue rather than corruption per se. If our regulatory structures were more efficient and transparent most of the opportunities for petty corruption and dash collection would fall away.
So, the most complex part of the investor’s question is invariably how to answer the ease of doing business question. I have written on this issue several times. Simply put, Nigerian industry is uncompetitive. Part of the responsibility for this certainly relates to the failure of infrastructure – power would be the classic example. However, the overreaching, duplicated or just inefficient burden of multiple taxation and regulatory paralysis is a significant contributor. Clearly, potential new investors into Nigeria are aware of this as it ranks highly in their list of concerns – alongside security and corruption. Any FDI requires due diligence and any research will throw up data such as the World Bank’s “Ease of doing business index” where we have just ‘celebrated’ moving from 175 (out of 189) in 2005/10 to 170 in 2010/14. Aside from such data, investors would have heard the loud and vociferous complaints from companies and private sector organisations. I quote from a column of mine in January:
“In addition to fees and barriers many agencies now levy fines and penalties or even close depots and factories without recourse to any rule of law. In a recent interview, the DG of the Lagos Chamber of Commerce and Industry (Muda Yusuf) said, “First, the regulators are the accusers and the judges. They are the ones that will give you charges and penalties. Secondly, their charges are too much, sometimes outrageous. There has to be a mechanism to regulate these charges.”
Any potential investor will know these inefficiencies will have a financial cost but they will also make his investment slower to set up, suck in a great deal of management time and make it harder to recruit managers experienced enough to deal with these problems.
More on this next week.
Keith Richards
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