Over the years, businessmen have been lamenting the effects of poor infrastructure, multiple taxations, power on the cost of conducting business in Nigeria, but with the depreciation of the Naira against the Dollar, an already bad situation has been worsened; BENJAMIN UMUTEME reports.
Over a week now, manufacturers of sachet water popularly referred to as ‘pure water’ in Jikwoyi, have shut down their business leaving retailers and majority of households with no choice than to patronise boreholes for their drinking water. Reason: prices of raw materials are not allowing them to make profit.
According to a worker at Lia Table Water, a company that produces sachet water on Jikwoyi-Karshi road, who would not want his name of print, “the nylon used to produce the water is very expensive and we can’t even get supply from the person that usually ends it from Lagos. They say it’s the high exchange rate. As it is at the moment, I don’t know when we will begin producing again,” he said.
Perpetual Chibuzor had gone to Karu market earlier in the week to do her usual family purchase for the week, and after an hour she was left frustrated and could not buy all that was in the list she had prepared before leaving the house – reason being that the prices of goods have increased.
Also, Daddy Chiemerem as he is fondly called by those that patronise him, owns a household provision shop in Jikwoyi, a suburb of the federal capital territory, told Blueprint Weekend that for several months now he has continued to explain to his clients the reason for the upward movement of goods. He said the number of people that patronise him has reduced from what it used to be at this time of the year. Reason: Rise in the price of goods.
What may not be familiar is that Nigerians have been notorious for the high cost of doing business. Even though the country had its good time during the past administration of President Goodluck Jonathan where the naira was about N176/$1, trade experts still described the cost of doing business as very high.
Infrastructure, other challenges
For several decades, Nigerians have not ceased to lament over the prohibitive nature of the ease of doing business, which many attribute to the almost non-existent infrastructure — bad roads, epileptic power supply, just to a few. Added to that is the cost of generating power, multiple taxation and strangling activities of regulators.
According to the World Bank in a report, infrastructure services in energy, transport, water and telecommunications underpin the wealth of modern nations. And many experts fear that with the mainstay of Nigeria’s foreign exchange steadily on the decrease, addressing the country’s infrastructure challenge is a Herculean task.
Addressing journalists in Lagos recently, the governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, quoted a Moody’s report, which concluded that Nigeria needed to spend about $3.3 trillion in capital expenditure over the next 30 years or $1.1 trillion a decade to close its infrastructure deficit.
This amounts to $100 billion (N40 trillion) per annum or 28 per cent of Nigeria’s GDP of N144 trillion. Nigeria has spent just about $100 billion on infrastructure provision in the last 10 years.
In Nigeria, the current level of infrastructure deficit is a major constraint to economic development and attainment of growth average rate of at least five to seven per cent required to boost productivity and sustainable growth for businesses.
According to a World Development Indicators (2019), 56.20 per cent of Nigerians have access to electricity, while electric power consumption stood at 144.52 kWh per capita as of 2018.
“While the infrastructure deficit in Nigeria is estimated to be about 1.2 per cent of GDP, it is projected that the federal government needs to commit about $100 billion annually to address the nation’s infrastructural deficit,” Emefiele said.
In his reaction, a political economist and development researcher, Olamilekan Adefolarin, said, “The challenges of deficit infrastructure are absolutely a worrisome factor that manufacturers face apart from finance and imported complimentary raw materials and machineries. It is no more news that our roads are bad, electricity is abysmally low in generation and transmission is not meeting targets, logistic services are still faced with gaps with the absence of cargo trains and shortage of skillfully trained manpower is another challenge.”
World Bank’s biz index report
The World Bank in its Ease of Doing Business index, ranked Nigeria 131st. On “Getting Electricity”, the country was ranked 169th, 183rd on Registering Property and 179th on trading across borders globally.
And the stark reality is, as the Manufacturers Association of Nigeria (MAN) recently cried out, the suffocating cost of production. The umbrella body of manufacturers said the situation was choking the life out of many businesses.
Even Nigeria’s apex bank in its Manufacturing PMI between January and November 2020, reflected the impact of the pandemic, the PMI started the year above 50 points which shows an expansion in manufacturing activities, but a contraction of 49.6 points towards the end of the year.
In a chat with this reporter, Adefolarin noted that the high cost of doing business is tied to the poor infrastructure deficit and adverse multiple taxations in the country.
“However, must not rule out the impacts of international price transmission of goods and service in all these travails that have befallen our local manufacturers and consumers. Nevertheless, the effect of all this domestically discourages Foreign Direct Investments and others.
“For instance, local manufacturers bear the burden of Naira depreciation against the Dollar as they procure complimentary materials for production.”
On his part, Idakolo Gabriel Gbolade, the MD/CEO SD&D Capital Management Limited, said the situation has pushed investors to neighbouring country, with many others producing at below capacity
“The high cost of doing business has affected manufacturers and FDIs in several ways, but I will mention a few: 1). It has caused many manufacturing companies and investors to relocate to neighbouring countries where the cost of doing business is more competitive.
“Some manufacturers are already producing below capacity because of competition from imported products. It has also drastically reduced the profit margin of FDIs. Some manufacturers are already running at a loss while some have closed down their operations,” he said.
Also commenting, an economy expert, Joel Bisola, noted with regrets that the unfolding situation has put Nigerian manufacturers in a precarious condition as government’s reaction to the falling price of oil could lead to the lowering of consumers’ purchasing power and increasing cost of inputs.
He also pointed out that the resultant effect would be that goods emanating from Nigeria “will command higher prices, as against imported ones, a development that will sound a death knell on most indigenous manufacturers.”
To arrest the situation Adefolarin said Nigeria needs to harmonise its taxes in a way that it would reduce the burden of high cost of business transactions and manufacturing.
“To this is to remove multiple taxations at the central and sub-national levels. Secondly, it is imperative the CBN Monetary Policy Committee have a rethink on the double digits Monetary Policy Rate. Many analysts are of the opinion this is disincentive and crowd out manufacturers from getting bank loans. In addition to this, it is for it to step up its games in reducing inflationary tendencies that worsen the prices of goods in the market.
“Thirdly it’s the need for Nigeria to collaborate more on the African economic agenda, with AFCTAs being laudable policies that could help on a long-term basis. Lastly, we have visionary leadership and self confidence that would propel into effective participation in our economic development,” he said.