Doing business in Nigeria is by no means easy and this to a large extent stems from its regulatory approach. This piece attempts a cursory look at the activities of regulatory agencies in Nigeria and how they impact commercial transactions.
Intellectual papers focusing on effect of business regulations on economic growth abound. Many of the studies reveal strong correlation between regulation indices and economic growth. They find that even Foreign Direct Investments (FDI) do not spur growth in economies with excessive business and labour regulations. Further, they find that economies having less onerous business regulations grow faster. See S. Djankov, C. McLiesh, R. Ramalhom, Regulation and Growth Economics Letters (2006), p. 92. More recently key empirical studies find that business regulatory reforms are good for economic growth. See J.I. Haidar, The impact of business regulatory reforms on economic growth, Journal of The Japanese and International Economies, 26 (2012), pp. 285–307.
The author of the referenced paper postulates that each business regulatory reform is associated with a 0.15% increase in growth rate of GDP. Further, that reforms which improved business and investment climate, may have helped to mitigate the effects of the 2008 global slump in economic growth and those countries with more business regulatory reforms enjoyed higher economic growth rates.
In the current global economic climate, growth remains a key government priority and the World Bank has published series of annual Doing Business reports since 2004 investigating regulations that enhance business activities and those that constrain same. It is here noted that the relative importance of the World Bank Business regulatory indicators (See World Bank Doing Business Database, available online at http://www.doingbusiness.org.) are not in dispute as they help governments gauge the strength of their regulatory regime through country benchmarking. They provide an impetus for the formulation of reforms that will be of utmost benefit to the ranking as the indicators are backed by extensive description of regulations.
It is worthy of note that regulation in itself is good as it provides supervisory and oversight functions for the benefit of the public at large. The justification for regulatory and oversight functions over transactions is hinged on the complexity of certain areas of human endeavour and business, therefore requiring expertise attention while rapidly implementing public authority in those sectors and doing so without political interference. Regulators therefore are empowered by statutes to perform administrative roles whilst they are themselves guided by legislation. In performing their functions, regulators will use methods such as transparency of information and decision making, procedures for consultation and participation and give reasons for their actions. They are not to follow principles that promote arbitrariness and there are also arrangements for the review of their administrative decisions by courts or other tribunals. A more plausible explanation is that business regulations may have positive effect on growth by removing certain market failures and improving economic efficiency.
Business regulations could also have undesirable effects on economic growth by generating significant cost and objectionable distortions. Ultimately the impact of business regulations on growth would depend on which effect is larger. It has been postulated that economic policymakers can reduce business costs and risk and increase competitive pressure by improving administration and fiscal policies amongst other things. See Boudhiaf Messaoud, Zribi El Ghak Teheni, Business regulations and economic growth: What can be explained? International Strategic Management Review 2 (2014) p.77 (available online at http://www.sciencedirect.com/science/article/pii/S2306774814000039#)
The crux of the matter
In the course of writing this piece I administered a survey on selected transactional lawyers to find out what their experiences have been with respect to ease of transactions and the feedback points to the fact that in Nigeria, regulations and regulatory agencies seem to be stifling transactions due to onerous business regulations characterised by bureaucracy, inefficiency, and graft amongst other things. The role of lawyers advising on and facilitating transactions has indeed become wearisome due to regulatory bottlenecks. Consequently lawyers sometimes appear incompetent before their clients for not getting things done as fast as they should because of the inefficiencies of regulatory bodies that they have to deal with.
Some of the practical challenges faced by lawyers include the absence of some regulatory agencies charged with the responsibility of regulating certain commercial activities in the cities where they practice; and sometimes when they have presence in such cities, certain transactions can only be finalised in Abuja, FCT. It is disheartening to know that some regulators do not have functional offices in Lagos and so transactions that emanate from Lagos would need to have recourse to offices in Abuja for conclusion. This is disturbing because Lagos is a major financial centre not only in Nigeria but in Africa. The mega city is said to have the highest GDP and also houses one of the largest and busiest ports on the continent. It is indeed safe to say that it is the economic nerve centre of Nigeria. It is disconcerting therefore, that Lawyers in Lagos for instance would have to instruct other lawyers or sometimes non lawyers in Abuja to transact or interface with a regulator on their behalf. The result of these sorts of arrangements is shoddy services except the lawyer has to travel to engage the regulators thereby impacting on cost of transactions. In some cases the regulators’ office in the region only act as receiving agents for transactions or enquiries, thus the lawyer is better dealing directly with the offices at the centre (Abuja) and this also impacts on cost.
Also there have been instances where lawyers who are supposed to be dealing directly with a regulatory body are constrained to contract an official of that body because such persons have their way around issues that cause delays. The lawyer therefore is compelled to make use of such officials in order to conclude transactions within reasonable timelines. The whole arrangement is so exasperating but I am constrained to not be specific with the identities of such regulatory agencies that for the smallest bit of transaction one has to deal with the Headquarters in Abuja, if you want to get any meaningful response. Further, graft has been somewhat legalised in these agencies such that lawyers have found a way to accommodate these by making provision for what is now termed as ‘facilitation fee’ in fee notes. In practical terms, facilitation fee is more often than not, bribe money, but this is what lawyers have to put up with if transactions must make headway.
As noted earlier the relative significance of the World Bank Business regulatory indicators are not in dispute as they help governments gauge the strength of their regulatory regime through country benchmarking. It remains unfortunate that we are constantly rated poorly and this buttresses the experiences of transactional lawyers as have been described above. In the World Bank’s Ease of Doing Business index, countries are rated from 1st to 189th and Nigeria is currently rated 169th, leaving us at the bottom of the list with a few African nations having understandably hasher economic conditions like prolonged national conflicts or natural disasters. Interestingly Ghana is more highly rated than Nigeria as it is currently ranked 114th in the index.
In June 2015 at the Nigerian Bar Association’s (NBA) Section on Business Law (SBL) 2015 conference, themed “Regulators as Catalysts for Economic Growth”, related issues were discussed. At the conference which was declared open by the Vice President, Prof. Yemi Osinbajo SAN with Keynote address delivered by Dr. Ekwow Spio-Garbrah, Ghana’s Minister for Trade and Industry, it was noted that sustaining meaningful development would be difficult unless the government put in place enabling policies to attract high quality investments. Speakers blamed various regulatory bodies and institutions for Nigeria’s economic woes. They maintained that because our regulators are inconsistent, heavy handed, unfair and under capacitated we cannot attract high quality internal or foreign investment or sustain meaningful growth. Amongst the key recommendations and action points from the conference were that Government should take heed of the “Ease of Doing Business Report” of the World Bank by ascertaining the specific indicators underpinning each aspect of the rankings, identifying the global leaders in relation to each indicator and devising the means to properly and effectively replicate those success factors here. It was resolved that to foster an enabling environment for appreciable economic growth and human capacity development, the Government should ensure that its affairs are performed objectively and transparently and that there was a need for law reform particularly in the business law area to enhance competitiveness, accountability and reduction of red-tape with respect to the ease of conducting business in Nigeria; And that Nigeria should ensure that its laws and regulations align with current economic realities in order to have a conducive predicate to engage the business community, amongst other resolutions.
It is almost one year since these resolutions were made and another SBL Conference is approaching, but it would be nice to know that the communiqué and resolutions of last year’s conference have been or are being implemented. Who is following up on these communiqués and recommendations? It is important that we lawyers do because at the end of the day, these impact us mostly as practitioners in this sphere in addition to its general impact on the economy.
The benefits of business-friendly regulations are well established in economic literature. Reforms simplifying business registration result in increased business formations. Burdensome and badly functioning business regulation undermines entrepreneurship and economic performance. Lofty as online and electronic services are, they remain luxurious services to expect from our regulatory agencies, at least for now. Practitioners would be most obliged to have effective and efficient offices at the regions and this will be an excellent place to start the much needed reforms. It is here recommended that the government can work with the private sector in providing efficient regulatory services. The truth is that many of these regulatory bodies are ‘tired’. Some of the services being rendered by the agencies can and indeed should be outsourced to private entities for effective and efficient management. Public Private Partnerships (PPP) have worked well in other areas of the economy and it is strongly believed that this is an area where it can be of immense value and this should indeed be explored.
A discuss on taking the clogs off the wheels of transactions would be incomplete without reference to effective dispute resolution. Enforcement of contracts is a major index for measuring ease of doing business. Parties will be wont to fulfilling their contractual obligations if default can be penalised expeditiously. This does not appear to be the case in Nigeria. Judicial system reforms are therefore imperative to keeping transactions clog free. There must be a resolute effort to improve our justice delivery. Further, the role of Arbitration and Alternative Dispute Resolution (ADR) in improving justice delivery cannot be overemphasised. Arbitration and ADR must be encouraged, its extant laws must be reviewed and brought to speed with global realities so that Nigeria becomes an arbitration friendly jurisdiction and investor confidence is boosted. This must be done with proper consultation with stakeholders as there have been previous attempts at sponsoring ludicrous arbitration bills in the National Assembly which ran contrary to the tenets of arbitration but same were happily scuttled. It is hoped that a new and improved federal arbitration law will be enacted as this will enhance the free flow of trade.
I have identified that there is strong correlation between regulation indices and economic growth and that even FDI will not spur growth in an economy with onerous business and labour regulations. Further I identified that regulations and regulatory agencies seem to be stifling transactions in Nigeria due to onerous business regulations characterised by bureaucracy, inefficiency, and graft amongst other issues, and this has resulted in the consistent poor rating Nigeria has had in the World Bank’s Business regulatory indicators. Also identified is that business regulatory reforms are essential for economic growth and that such reforms are imperative for our economy. It is recommended that the communiqué and resolutions at the NBA Section on Business Law 2015 conference be implemented as indeed Regulators can be catalysts to economic growth. The offices of regulatory agencies in the regions should be made to be more effective especially in Lagos which is the commercial nerve centre of the economy. Government can work with the private sector in providing efficient regulatory services through PPP which has worked in some sectors of the economy. Perhaps this option is worth exploring if the wheels of transactions would thereby become clog free.