The impact of lower oil revenues has been severe, resulting in a renewed focus on economic and fiscal diversification In 2016, the economy officially slid into recession, recording negative growth of 1.5%. Foreign exchange shortages and high inflation have hampered the growth of the manufacturing and services sectors, with administrative controls put in place by the Central Bank resulting in a reduction in Foreign Direct Investment (FDI) and Foreign Portfolio Inflows (FPI). in creating a favourable business environment to attract investment into the economy.
The Federal Government through the Presidential Enabling Business Environment Council (PEBEC) approved a 60-day action plan aimed at removing critical bottlenecks and bureaucratic constraints in eight (8) priority areas for doing business in Nigeria.
Significant improvements have been In an attempt to diversify the economy, the Federal recorded in the areas of: starting a business, dealing with Government has provided various import, export, trade construction permits, registering property, getting credit, and infrastructure incentives, and is actively investing trading across borders, and entry and exit of people.
The Nigerian economy has experienced improved social and economic performance over the past decade, but is facing significant headwinds following the adverse shock to the oil price since mid-2014, and more recently significant production shortages following pipeline vandalism in the Niger-Delta region.
Improvements in the business environment are necessary to deliver economic and fiscal diversification
Government revenues have declined almost 50% over the past two years, following the oil price drop in the second half of 2014. The impact of this on the states has been severe. A number of state governments have been unable to pay employee salaries and many have been forced to defer capital expenditure. In 2015, the Federal Government intervened with a bailout 1 package of NGN 338 billion to 27 states (including Edo, Ogun and Niger), to ensure employee salary obligations were met. In 2016, another bailout fund of NGN 90 billion was created but this time with stringent conditions intended to enforce fiscal responsibility within the states. With traditional sources of financing stretched and increasing pressure on basic infrastructure from a growing population, states urgently need to increase the flow of private investment. Our discussions with the private sector indicate that there is great interest in investing at the sub-national level, but the bottlenecks in the business environment remain a challenge.
Based on our assessment, challenges to doing business are broadly similar across all states. However, the magnitude of the challenges varies and depends on policy initiatives in each state and the implementation thereof We have identified limited access to finance and inadequate infrastructure, especially power supply as major business constraints. In addition, we highlight the following constraints in the state level business environment as identified in the course of our study: – Lack of clarity on registration procedures for new businesses – High cost of land acquisition and difficulty in obtaining land title – Sanctity of agreements and enforceability of contracts – Inadequacy of intra state transport infrastructure (road and rail) – Low level of automation of business processes within the civil service – Lack of clarity of around investment protection laws – Raw material shortages – Weak Public Private Partnership framework