Market thought leadership initiatives cover pricing, market organisation, and regulation and competition issues. On the innovation strategy end, the focus is on delivering product insights and improvements, as well as solid business transformation solutions. This generally complements growth strategy offerings woven around business internationalisation, financing, learning and capacity development.
Consistent with that focus, the 'State and Markets' publication primarily aims at strengthening regulation and competition. Other complementary objectives of this publication are to determine the impacts of government policies and regulations on the performance of product markets in Nigeria, Nigeria's regulatory quality, governance, effectiveness, and burdensomeness of each of the three kinds of government regulations, namely: [a] the legal framework regulations; [b] market regulations; and [c] general economic regulations. The publisher also investigates the extent to which each of these kinds of regulations, among other things, affect the drivers of product market performance.
Report Summary:
In trying to understand how and the degree to which government policies and regulations affect the performance of product markets in Nigeria, the author disaggregated the former into six dimensions. These perspectives to appreciating government policies and regulations comprise market entry regulations, credit market regulations, labour market regulations, regulatory burdens, and government effectiveness.
The report provides a section summary for each of these perspectives. In addition to that, the aggregated summary is presented of the findings in three chapters. The first summarises the impact of government policies and regulations on the performance of product markets in Nigeria in 2021. The second presented a summary of Nigeria's regulatory quality, governance and effectiveness in 2021, while the third piece dwelt on the effects of state regulation on the drivers of product market performance in 2021.
Readers also have access to the supporting data made available at the end of the summary of findings. The data was collected using structured surveys administered in twelve states [two states from each of Nigeria's six geopolitical zones]. Study participants include government officials working with crucial regulatory institutions, entrepreneurs, and members of the executive management of businesses across a wide array of sectors.
Nigeria's regulatory environment for the period under review witnessed meaningful improvements in the number of regulations newly adopted to strengthen the performance of firms in most industries. The regulatory institutions introduced an average of three additional rules and regulations across all the industries in 2021. The maximum was four in ten industries, with the waste management sector experiencing the lowest increment in the addition of new laws.
Regarding transparency of regulators' dealings, 80 % of the firms in the various industries agreed that, on average, their regulators are transparent enough, especially in the tourism/hospitality industry and transportation. Despite these improvements, the regulations still adversely affect product market performance.
High levels of regulatory bribing across virtually all sectors remain a key concern. The Nigerian product market suffers hostile business conditions that make them comparatively priced. High bribing intensity puts additional pressure on this existing challenge. The government has not been supportive in providing requisite infrastructure and facilities, particularly at seaports riddled with congestion, delays and corruption among customs officials.
But beyond the seaports, bad roads, and general absence of adequate logistics and distribution infrastructure, privately provided electricity and a host of other challenges, including difficulty accessing requisite finance, place a substantial burden on entrepreneurial performance.
Besides the bribing challenge is the frustrating process of obtaining business licences and permits. Lagos, Ogun and several other southwestern states have considerably resolved this challenge relative to other states in the country lagging seriously behind. On the positive side, there is no conscious policy hindering foreign ownership and investment in the country. However, Nigerians have preferential rights in critical industries, such as oil and gas.
Bottlenecks encountered in accessing loans from commercial and microfinance banks remain high. The resulting high cost of business financing explains why some micro, small and medium scale businesses in the country opt for credit facilities from friends and family. The substantially unfavourable credit market conditions aggravate the market for foreign exchange. Exchange rate regulations in Nigeria in 2021 had severe implications for Naira's purchasing power and investment drive.
The Naira exchange rate in 2021 affected the prices of imported goods and services and domestic products that rely primarily on imported parts and raw materials. In pursuing a single exchange rate regime in 2021, the central bank of Nigeria, CBN, jettisoned the multiple exchange rate. It devalued the Naira by 7.6% against the dollar, thus replacing the fixed rate of N379.00 to a dollar used for official transactions with the more flexible NAFEX. The opaque environment in the credit and naira currency markets further worsened the macroeconomic uncertainty distorting business performance.
In the labour market, the publisher observed that only businesses in the southwest and some parts of north-central Nigeria fully comply with the national minimum wage of N30,000. The author conclude that this partial compliance level is due to the high demand for labour services in those areas. The disparity in the compliance level drives labour movement from zones of lower compliance to zones paying the minimum wage.
The government demonstrated substantial weakness in the face of the prevailing insecurity raging across the entire country. Critical sources of insecurity comprise Boko Haram, ISWAP, Banditry and Kidnapping, rampaging Herders, Niger-Delta, and Separatist movements, which are not limited to IPOB in the south-east and Odua in the southwest.
The ever-increasing insecurity in Nigeria, especially related to the constant clashes between farmers and herders, has plummeted agricultural sector productivity, thus increasing the cost of foodstuff and other agro-based intermediate inputs in production processes.
It also presents a significant encumbrance to logistics and supply chain activities, underscoring product market performance. Insecurity made the list of the top 15 import challenges faced by firms. The relatively high level of insecurity makes it more difficult for businesses to grow food and cash crops, transport raw materials and finished goods, or travel to offer their services in other parts of the country.
In conclusion, the report submits that the government needs to make more efforts to ease market entry conditions. Many states, mainly in the Southwest geopolitical zone and the federal capital territory, have made significant progress in the one-stop shop for business registration. Other states should cue from this and lessen the challenging market entry conditions. Without lowering the operational costs faced by financial institutions, it may also be challenging for banks to make the cost of credit much lower than currently.
However, macroeconomic uncertainties defining the general conditions under which businesses operate will continue to heighten attendant credit risks and costs. The government needs to put more effective mechanisms for enforcing compliance with the minimum wage on the labour market side. In general, government effectiveness in providing public goods, including security and the rule of law, is far lower than the past threshold.
Key Topics Covered:
1.0 About this report
2.0 Impact of government policies and regulations on the performance of product markets in Nigeria in 2021
3.0 Nigeria's regulatory quality, governance, and effectiveness in 2021
4.0 Effects of State regulations on the drivers of product market performance in 2021
5.0 Overview of Business Regulations 5.1 Section summary 5.2 Number of regulatory documentation requirements 5.3 Number of regulatory institutions 5.4 The revenue cost of regulation to firms 5.5 Regulator bribing 5.6 Days to comply with regulator requirements 5.7 Ease of obtaining business licences and permits
6.0 Market Entry Regulation 6.1 Section summary 6.2 Number of steps to business commencement approval 6.3 Business commencement regulatory compliance costs 6.4 Cost of clearing a container 6.5 Top ten export challenges 6.6 Top fifteen import challenges 6.7 The severity of foreign ownership/investment restrictions 6.8 Quality of judicial processes at an industry level 6.9 Days to resolve an industry-based contract dispute 6.10 Market/trade union influence on the industry
7.0 Credit Market Regulations 7.1 Section summary 7.2 Ease of access to financial sector credits 7.3 Three most important sources of credit 7.4 The interest rate on a 90-day borrowed facility
8.0 Labour Market Regulations 8.1 Section summary 8.2 Effective minimum wage 8.3 Effect of prescribed minimum wage on new hires 8.4 Awareness of laws governing the hiring and firing of workers 8.5 Rates of compliance with laws on the hiring and firing of workers
9.0 Regulatory Burden Index 9.1 Section summary 9.2 Awareness of any law protecting the abuse of borrower's rights 9.3 Transparency of regulator's dealings 9.4 Additional rules and regulations in 2021
10.0 Government Effectiveness 10.1 Section summary 10.2 Quality of infrastructure provision 10.3 Regulatory effectiveness
11.0 Business Performance 11.1 Section summary 11.2 Workforce hiring and firing 11.3 Revenue and profitability growth
