Publication

DOING BUSINESS 2020: WORLD BANK GROUP RANKS NIGERIA

On the 24th day of October 2019, World Bank Group published “Doing Business 2020: Sustaining the pace of reforms”, its 17th in a series of annual reports measuring the regulations that enhance business activity and those that constrain it.

In its annual report, Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 190 economies—from Afghanistan to Zimbabwe, over time.

Doing business presents results for two aggregate measures: the Distance to Frontier score and the Ease of Doing Business index, which is based on indicator sets that measure and benchmark regulations applying to domestic small to medium-sized businesses through their life cycle. The Ease of Doing Business ranking compares economies with one another; the Distance to Frontier score benchmarks economies with respect to regulatory best practice,showing the absolute distance to the best performance on each Doing Business indicator. When compared across years, the Distance to Frontier score shows how much the regulatory environment for local entrepreneurs in an economy has changed over time in absolute terms, while the Ease of Doing Business ranking show only how much the regulatory environment has changed relative to that in other economies.

A high Ease of Doing business ranking suggests the regulatory environment is wellintentioned for setting up and operation of a local firm. Economies with cumbersome regulatory structures highlight how resource allocation is distorted and how such distortion negatively impacts on the entrepreneurial endeavours to transform their ideas into viable businesses. Cumbersome regulatory structures also constitute a disincentive for businesses to leave the informal sector, and for that reason, economic growth is further impeded.

Nigeria made a significant stride towards the global good practice frontier, and in consequence ranked 131 out of 190 economies. This represents an upward review compared to its ranking of 146 in the preceding year. The Distance to Frontier score is 56.9.

In this year’s report, New Zealand emerged 1st on the Ease of Doing Business ranking, Rwanda emerged the best in Africa by ranking 38th and Somalia ranked 190th.

The annual report presents quantitative indicators following analysis of regulations or changes in regulations that affect the life cycle of businesses across the world’s economies. There are ten topics included in the ranking namely, starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. It is worth mentioning that regulation on employing workers and contracting with government indicators are not included in this year’s ease of doing business score and ranking, but the data are presented in the economy profile.

The rankings are benchmarked to May 1, 2019 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking.

An economy’s Distance to Frontier score is indicated on a scale from 0 to 100, where 0 represents the lowest performance and 100 represents the frontier. It is indicative of how far the economy has moved toward (or away from) the most efficient practices and strongest regulations in areas covered by Doing Business. The data captured for Nigeria is a populated weighted average for the two (2) largest business cities, Lagos and Kano.

The report showed that Nigeria fared poorly in registering property, trading across borders, getting electricity, paying taxes and resolving insolvency; ranking 183rd, 179th, 169th, 159th and 148th respectively. It ranked Nigeria 105th, 73rd, and 55th in starting a business, enforcing contracts, and dealing with construction permits. The country, however, fared comparatively well in the ease of getting credit and protecting minority investors ranking 15th and 28th respectively.

There is an improvement in all of the indices captured in the report, however Nigeria recorded a downward review on the ease of paying taxes despite the introduction and implementation of the integrated Tax Administration System (ITAS), which is expected to simplify the process of filing and paying taxes.

Given the progress achieved in the overall ease of doing business ranking, there is no doubt that the Federal Government of Nigeria is making concerted effort to improve the business environment and investor confidence, which in consequence will result in increased foreign direct investment (FDI). However, it is imperative to mention that efforts to improve indices with unfavourable rankings must be intensified to achieve the overall objective.

It is evident from the report that economies with comprehensive reform effort record considerable improvement in their economy’s regulatory and business environment. For that reason, there is a visible correlation between the number of reforms and the actual improvement in the Distance to Frontier score.

In simple terms, Doing Business expounds on how uncomplicated or challenging it is for a local entrepreneur to set up and run a business when complying with relevant regulations. Highlighting the extent of regulatory obstacles and identifying the source of business development constraint enables a government to identify clear-cut areas of action as well as design reform agendas.

It is logical to express a word of caution in using this report considering that its strength and limitations must be considered. Doing Business methodology has its limitations because it does not measure all aspects of the business environment that are important to firms or investors – or all factors that affect competitiveness. The aspects which are not part of the study include but are not limited to: an economy’s proximity to large markets, corruption, availability of skilled labour, the security of property from theft and looting, the quality of infrastructure services (other than those related to trading across borders and getting electricity), the transparency of government procurement, macroeconomic stability or the underlying strength of institutions. It is also necessary to mention that it is not feasible to design a case study that will be an equally good fit for all the economies. For the reason that the report aims to have a global coverage, the choice of indicators is partly constrained by the data that can realistically be collected in some of the least developed economies of the world.

In spite of any shortcomings or gaps the reports may have, it is our view that this extensive annual report shows a keen analysis and interpretation of facts. It provides an opportunity for policy makers who have intention of improving their country’s regulatory environment to conduct comparative analysis with other economies, identify the source of business environment constraints and ultimately, articulate well-defined areas of action with a view to having less bureaucratic hurdles, robust legal institutions, and laws and regulations that are based on international best practice. It must be said, that numerous countries continue to rely on the annual report to design regulatory agenda/reform.