Resuscitating Businesses and Enterprises in Nigeria

By Christopher Okpoko

Business entrepreneurs are important to market economies because they can act as the wheels of the economic growth of the country. By creating new products and services, they stimulate new employment, which ultimately results in the acceleration of economic development. A large number of new jobs and opportunities are created by entrepreneurship.

Entrepreneurship creates a huge amount of entry-level jobs that are very much important to turn unskilled jobholders into skilled ones. It also prepares and provides experienced workers to large industries. The increase in the total employment of a country largely depends on the rise of entrepreneurship. So the role of entrepreneurship in creating new job opportunities is huge.

By bringing innovation to every aspect of businesses, entrepreneurial ventures enhance production utilizing the existing resources in the most effective ways. Entrepreneurs develop new markets by introducing new and improved products, services, and technology. Thus, they help generate new wealth and add more to the national income. So the government can offer the citizens more national benefits.

Nigeria is a natural location for a variety of industrial activities due to the availability of natural resources, affordable labour cost and large market. So public policy that encourages and supports entrepreneurship should be considered important for economic growth.  However, Nigeria is ranked 131 among 190 economies in the ease of doing business, according to the last World Bank annual ratings. Ghana ranked 13 places higher than Nigeria in the World Bank’s ease of doing business index and the 43rd most peaceful country in the world in the 2020 Global Peace Index, placing 104 spots ahead of Nigeria.

No doubt, the Nigerian business environment over the last three decades have degenerated, to being unfavorable with most businesses struggling with issues that affect their earnings which in most cases, is insufficient to meet their cost, let alone profit; They have to deal with the country’s inflation, bad government policies, high or multiple taxation, poor power supply, high cost of fuel and diesel, foreign exchange scarcity, difficulty in accessing raw materials, rising production cost, inability to pay up debts, amongst others.

Many companies in Nigeria, both foreign and locally owned, are also facing these same challenges and struggling to survive. However, some were not able to surmount this challenges and had to shut down operations or relocate to neighboring counties like Ghana. For instance, Thirty-eight major textile companies closed down business in Nigeria between 1999 and 2009, according to the Nigerian Textile Manufacturers’ Association. The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), reported that about 800 companies closed shop in Nigeria between 2009 and 2011, due to the harsh operating business environment.

In 2018, the Kano branch of the Manufacturers Association of Nigeria (MAN) reported that 232 manufacturing plants out of the 338 existing in Sharada/Challawa and Bompai Industrial estates, in Kano City closed down between 1994 and 2018. Similarly, the President, Food Beverage and Tobacco Senior Staff Association (FOBTOB), Comrade Quadri Olaleye, while speaking at the 14th National Delegates’ Conference (NDC) of the Food Beverage and Tobacco Senior Staff Association (FOBTOB) held on 31 May, 2021 in Abuja stated that between 2015 and 2021, 10 companies in the food, beverage and tobacco industry have shut their operations and businesses in Nigeria due to the harsh working environment particularly government policies, stifling the nation’s economy and the severe impact of the COVID-19 pandemic; while the International Centre for Investigative Reporting (ICIR) reported that More than 20 factories have stopped production activities in the last five years after several failed efforts to purchase foreign exchange from commercial banks at the official rate to order raw materials, machines and spare parts.

As reported in the media, Nigeria’s misfortunes have turned to Ghana’s gain thanks to the Economic Commission of West African States’ free trade treaty. Some local business have relocated to Ghana, a neighbouring country that enjoys a stable electricity and offers a more business friendly environment.  In 2006, two of Nigeria’s leading tire manufacturers, Michelin and Dunlop, relocated their factories to Ghana citing epileptic energy supply in Nigeria as the chief reason. In fact, Ghana has replaced Nigeria as West Africa’s aviation hub as major international airlines which used to have their regional operational headquarters in Lagos have moved to Accra, Ghana

From the above, over 1,000 business enterprises have either closed shop or relocated to Ghana due to harsh business environment. And the consequence of the above trend is the current unprecedented level of unemployment and insecurity in the country. Besides, there is nothing to show that this ugly trend will abate soon unless this new administration takes conscious effort to ameliorate the issues at the root cause of the closures and exodus of businesses.

To jump start the resuscitation of business enterprises in Nigeria, the federal government needs to focus more on infrastructure (electricity), availability of foreign exchange and address the issue of multiple taxation

Infrastructure

The infrastructure challenge, especially epileptic power supply must be addressed.

A report released by Socio-Economic Rights and Accountability Project (SERAP) showed that at least N11tn meant for the provision of adequate electricity for Nigerians was squandered under ex-presidents  Olusegun Obasanjo, Umaru Musa Yar’Adua and Goodluck Jonathan. Also, reports indicate that the projected gains expected from the over $7.5 billion loans taken by the former President Muhammadu Buhari administartion to overhaul the transmission segment of the electricity sector and deliver stable supply have remained an illusion. In fact, According to former Kaduna State governor, Nasir El-Rufai, Buhari’s administration spent N1.7 trillion in three years on Nigeria’s ‘broken’ electricity sector that is already privatized. In this regard, an Energy expert at the University of Ibadan, Prof. Adeola Adenikinju was quoted by a newspaper that the huge investments in the electricity sector, including transmission, have not delivered significant improvements and reliable electricity supply, stressing that there is a need for a planned, balanced investment in the sector.  Therefore, this new administration should not repeat the mistakes of previous administrations; they need to review what has been done with all the funds expended and be guided by experts’ advice.

 

Foreign Exchange (FOREX)

One of the major reasons most manufacturing companies in Nigeria closed shop was attributed to inability to access forex at official rate to import raw materials and machineries needed for production. According to the President of the Nigeria Association of Corporate Treasurers, (ACTN) Yinka Ogunnubi, during his inauguration as ACTN’s new President, he stated that Forex scarcity has been a significant issue for Nigeria and the multiple forex windows. To this end, he urged the federal government to address the scarcity of foreign exchange bedeviling the country.

Manufacturers in Nigeria are only able to get about 5 percent of the foreign exchange they need from banks for the importation of raw materials due to the shortage of dollars. However, supply of forex can be increased through increased foreign direct investment, exports, and diaspora remittances.

 

Multiplicity of Taxes

Manufacturers have lamented that the multiplicity of taxes, levies and fees have continued to hamper the competitiveness of the Nigerian manufacturing sector in the global space. Against the backdrop of the advent of the Africa Continental Free Trade Area (AfCFTA), this even puts Nigerian manufacturers at a disadvantage with their African counterparts, with the nation’s corporate tax rate at over 30 per cent well above the global average at 23.37 per cent and African average at 27.6 per cent.

The Manufacturers Association of Nigeria (MAN), the umbrella body of manufacturers in the country, lamented that the nation’s manufacturing sector is groaning under a multiplicity of taxes and levies, noting that over 30 of such different taxes, levies and fees are being charged by various government agencies. According to MAN, the development has led to small and medium enterprises (SMEs) losing about nine per cent of their total income yearly, which runs into billions of naira, to such multiple charges.

Furthermore, MAN, over the years, has expressed dissatisfaction over continuous increases in taxes, excise duties, VAT and others because multiple taxes/levies/fees depress production in the manufacturing sector. MAN also stated that No fewer than 17 bills, aimed at imposing more levies on the manufacturing sector, are pending in the National Assembly. These include the National Youth Service Corps Trust Fund Bill (seeking to take 1% of net profit), the Youth Entrepreneurship Development Trust Fund Bill (1% of net profit) and the 2% surcharge on all imports including raw materials, spares and machines). It is the preponderance of these taxes and unfriendly policy environment that constrain the competitiveness of the manufacturing sector in the global space and of course the reason for the current ranking of the country on the Ease of Doing Business Ranking.

Also commenting on the tax burden, President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Ide John Udeagbala, said that the 2022 Finance Bill is an attempt by the government to add more financial burden on the private sector that is presently struggling to keep businesses afloat. He warned: that any further tax increases on businesses may simply lead to shutting down of many companies and worsen the already bad unemployment crisis in the country. According to him, It is barely two years now since the government raised the education tax from 2% to 2.5%, many companies are struggling to adjust to that and now the same is being raised to 3%. VAT has also been raised from 5% to 7.5% over the same period. This is besides over 50 other forms of taxes and levies being imposed on the organized private sector by Federal, State and Local Governments.

In his reaction, Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, asserted that the nation’s current tax regime is stifling investment, noting that the corporate tax rate in Nigeria is the highest in the world.

On the way out of the challenge, MAN expects that government will reduce to the barest minimum the incidences of a multiplicity of taxes and ensure that only approved taxes/levies/fees are charged; widen the tax net to capture those not currently paying taxes and consider reducing the various tax rates which have been the global trend in recent times to encourage investment inflow, particularly into the manufacturing sector. In addition, It recommends that government should urgently consider reducing the corporate tax rate to 20 per cent to encourage investors in view of the various challenges being experienced by manufacturers, and coordinate the enforcement of compliance to Act 21 of 1998 on Taxes and Levies collectable by the three tiers of government.”

Also on the way forward, Udeagbala stated that government should find a way to reverse this trend by expanding tax-net to a greater number of taxable businesses and the working class and not increase tax rates as is being presently done.