By Moe Odele and Temilade Ojuade
The slogan of the Presidential Enabling Business Environment Council is “Business Made Easy” and more than ever, it is important to ensure that Micro, Small and Medium sized enterprises in Nigeria work.
- MSME’s makeup up to 90% of businesses in Nigeria and according to the Director General of the Small and Medium Enterprises Development Agency of Nigeria, SMEDAN, MSMEs contribute about 48.47% to the nation’s Gross Domestic Product. Therefore, it is critical that we create an environment that encourages entrepreneurs to start and scale sustainable businesses.
However, in present day Nigeria, there are some major bottlenecks that businesses face and one of them is the administrative cost of doing business.
Now, the Presidential Enabling Business Environment Council through its operational arm, Enabling Business Environment Secretariat (EBES), has the mandate to work side by side with Ministries, Departments and Agencies to implement ease of doing business reforms that will move Nigeria upwards in the World Bank Doing Business Index. This partnership is critical for entrepreneurs because MDAs sit at the helm of the major affairs an entrepreneur or a prospective entrepreneur will have to navigate to operate a legally compliant business in Nigeria.
As a business owner, the opportunity cost of any extra time spent dealing with bureaucracy is high. This is time that would have otherwise been spent on growing the business, developing proper marketing strategies, making sales and attending to customers. Therefore, eliminating administrative bottlenecks to doing business in Nigeria is imperative if businesses are to thrive.
The mandate of PEBEC is a laudable one, however, to ensure that public programs achieve what they set out to achieve, it is important to periodically review execution of said mandate and engage with stakeholders. To do this, PEBEC in currently in the middle of a 60-day National Action Plan on Ease of Doing Business (EoDB) which will run until April 29th, with the aim to further reduce the challenges that businesses face in identified areas of focus.
Some of those areas that touch directly on reducing cost for MSMEs are; Starting a business, Paying taxes and Accessibility to credit.
Starting a Business
PEBEC scores MDAs on transparency based on their compliance to a directive to publish a list of their fees, timelines and requirements for obtaining permits, licenses and approvals. To ensure that there is a robust monitoring and evaluation process, Ministries, Departments and Agencies are to submit monthly reports on various aspects of their service delivery, for instance, transparency.
The Corporate Affairs Commission is currently ranked at 88%, and this is a move from its previous 44%. This reporting system obviously encourages MDAs to make more visible efforts to improve their performance.
Now, as a prospective entrepreneur, I can log on to the CAC website and see exactly how much it will cost me to register my business. The CAC also uses social media to actively engage members of the public and openly answers questions on costs of registration of companies and timelines. This is vital because it ensures that entrepreneurs are not left at the mercy of middlemen who have historically exploited entrepreneurs due to the information asymmetry on costs of business registration.
The current CAC reforms reduces the one-time fee of setting up a business as there is now full transparency around approved fees and charges and stipulated timelines to approve requests or applications.
Running a Business
PEBEC makes pushing for legislative reforms a key part of its strategy and currently the Companies and Allied Matters Bill (2018) is on its way to being enacted as law. This Bill has passed the 3rd reading stage and has been passed by the House of Representatives.
The Bill will amongst others abolish Authorized Share Capital and will introduce Minimum Issued Share Capital. Currently, entrepreneurs are to pay certain frontloaded cost depending on the Authorized Share Capital of the proposed company. With the new law in place, these frontloaded costs will be abolished.
Also, the law will introduce e-meetings for private companies. This is vital because being able to run CAC complaint meetings virtually reduces company overhead. The law will also reduce filing fees for registration of charges by 65%.
Still on legislative reforms, there’s in the works an Omnibus Bill on Business Facilitation that seeks to be a single encompassing Bill to institutionalize PEBEC’s reforms so far and generally introduce new business friendly provisions.
For instance, the Omnibus Bill will address the issue of double taxation by exclusion of previously taxed profits. It will also reduce the tax burden on companies that have not started making profit yet by the deletion of minimum tax. Minimum tax is a federal tax that is payable by companies that have been operational for at least four years where the company has a loss or no taxable profit or the tax payable is less than the minimum tax computed. The passage of the Omnibus bill is expected sometime this year and it is one to look forward to.
Easing the tax burdens on SMEs allows SMEs to reinvested more into their companies thereby promoting sustainability and efficiency innovation.
Another interesting aspect of how the proposed legislative reforms will reduce costs for growing businesses is the reforms of our existing ports. Some of the main challenges PEBEC identified facing entrepreneurs who must use Nigerian ports are touting, duplicity of functions among agencies and corruption.
So PEBEC amongst other directives mandates ports to:
- harmonize their operations into one single interface station at the port and implement a single joint task force b. submit weekly data on the goods arriving and departing Nigeria to the head of the MDA and the head of the National Bureau of Statistics.
SMEs that depend on imports for raw materials will benefit from improved port operations and this would reduce delays and wastage as a result of bureaucracy and lack of transparency in port operations. The port reforms will also help ease ports congestion, speed up the cargo clearing process and save entrepreneurs unnecessary extra costs like demurrage.
This in the long run reduces the cost of operations for SMEs and will lead to better cost margins thereby allowing these SMEs to be more price competitive.
Additionally, PEBEC reforms on improved entry experience at airports and more efficient visa processing will expand the SMEs’ access to workforce, consultants and investors. The reforms in this area make it less expensive to obtain the necessary immigration documentation for foreign persons that Nigerian entrepreneurs are doing business with.
In conclusion, while the above are all commendable reforms, it is important that reforms are seen and felt at the most granular level. To do this, PEBEC must ensure that it broadens its stakeholder engagement so that the actual concerns of Nigerian entrepreneurs are consistently addressed.
Also, there is still a wide gap in moving businesses out of the informal sector. PEBEC should work with the necessary MDAs to implement policies and create incentives to move more businesses into the formal sector. Additionally, there are a myriad of areas where entrepreneurs in Nigeria are constantly battling, one of such areas is the multiple tax imposed at the state and local levels on business. This is still a sore spot for many businesses in Nigeria and PEBEC should prioritize this.
Finally, although the current policy reforms are helpful, a huge proportion of the costs MSMEs incur go to managing infrastructural deficits around electricity and logistics for instance, so PEBEC should use its mandate to promote the development of enabling infrastructures as well.
MSMEs are the indeed the backbone of developing economies like Nigeria especially considering their contributions to the GDP and their key role in easing unemployment rates, and since decreased costs of doing business is determinant of how MSMEs thrive, we are all looking forward to more reforms by PEBEC while applauding PEBEC for a job well done so far.
Editor’s Note: This article was originally published in The Spark Magazine. Find the magazine here to read other articles.