How to stop business closures, sustain jobs —NECA
One of the fallouts of harsh and unfriendly business environment in Nigeria has been increasing cases of closures of businesses whether big or small with the attendant loss of jobs among other ramifications.In this chat with the Director-General, DG, of the umbrella body for employers in the country and the voice of business in Nigeria, the Nigeria Employers Consultative Association, NECA, Adewale-Smart Oyerinde, gives insight into how businesses are closed and the consequences, among others.
Before a business comes to the difficult decision of exiting an environment or relocating to a different clime, it takes an average of 18 months because the stakeholders and shareholders must be considered. Those decisions will be taken at the shareholders’ level to discuss numerous things as this is the pattern that we have seen, what is the projection for six months for us? Will our capital base or accrued profit sustain us within this period? Will the pattern that we have seen continue in the next six months or one year? All of these things will be put into consideration before the business decides that with what we have seen, there might not be hope for us in the medium and short terms. At that point, the shareholders might decide that management should start the process of winding down. After that, they will start dealing with the issue of creditors, suppliers, disengagement of staff, and getting money for their severance pay. All these take about 18 months to do that.
For small business owners, it takes less. It takes the local government tout to bump into the business and cause a major disruption. Within 24 hours, the small business owner can just pack up. For those that have left, the plan to leave probably started last year because they realized the pattern of inconsistencies in policies, and the pattern of lawlessness and they could see that lack of input does not align with the core values of the home business. So they came to that decision. For a business trying to leave, what they will also look at is: What is 2024 looking like for this environment? Has there been some level of consistency in the government’s policy? Are they matching what they are saying with action? Can I get justice in court if I have a dispute with an agency of the government? What are industrial relations like? Is it adversarial or built on social dialogue?
These are variables that the business owners look at and say, ‘in six or eight months, things will start changing. Let us stay and progress or leave. To determine if the pattern of exit might reduce or continue, it is based on what the government says, what it might have said, and what exactly it will do for those business owners. If the environment is hostile, people see and that is why we keep saying beyond the talks by the Federal Government and visits by the President, every other layer of government, including the legislative arm, the state government, and local government, everybody must complement that effort to ensure that the environment remains conducive.
The President cannot be going around seeking investors and we still have legislators summoning organised businesses for one investigative hearing or the other. The issue is not the investigative hearing; it is the legality of the investigative hearing. When the Appeal Court said there was no basis for that hearing, it did not stop. It is a matter of the court, it is not the issue of whether it is appropriate or not. The issue is that, that action has been put in contention or challenged by an individual or an organization even when the court had made a pronouncement. What an average investor will be looking at is if a country’s National Assembly cannot obey the law, it means there is a problem for the investor when he or she has similar issues. It is the same for the regulatory environment. We cannot say people should come and the regulatory environment is still hostile. Regulators are still interested in how many businesses they can punish, rather than the businesses they can promote. Everybody’s action must align with the federal government’s plan of opening up the country for investors to come because you cannot survive alone. Foreign Direct Investment is needed in this country. With people leaving, it is sending a red flag. The question is: If GlaxoSmithKline, GSK, a global brand can leave, if Sanofi and Nampak can leave this country with their brands, names, and structures , that means something is wrong. Those are the issues we want the federal government to address as well as other structures with the potential to promote the ease of doing business or frustrate the ease of doing business.
Energy cost
Energy cost has remained an issue. But we are hoping with the coming on stream of the Port Harcourt refinery, the pressure on transportation cost should be reduced. The Minister of Power has also said the country is subsidizing electricity too much. We are hoping that his comment will not lead to an increase in electricity tariff because it would have a negative effect. We are also hoping that COP28 (COP28 was the 28th annual United Nations (UN) climate meeting. The summit took place in Dubai, in the United Arab Emirates (UAE) between November 30 and December 12, 2023) in which Nigeria was highly represented, will not be a waste because we have to start looking at alternative sources of energy. The fossil fuel conversation is a double-edged sword. Currently, crude oil gives us the highest source of Forex. If we are at the forefront of championing the transition from fossil fuel, what is our plan? What is our plan in the next five years if we are championing moving away from fossil fuel? If you are championing the move away from fossil fuel, then you must have a definitive plan of diversification. If we are making $10 through crude oil, then we must have a clear path toward which sector of our economy will give that $10 if we move away from crude.
We will continue to make policy recommendations to the government this year so that the prosperity that is promised can be enjoyed by all.
Like previous years, 2023 was a year in which we had significant economic challenges that created different dynamics for Organized businesses. While trying to surmount the obstacles that COVID threw in our way, other challenges that we created for ourselves as a people continued to dig us deeper into the hole. 2023 came with many challenges. It is a stale news to say tax remains top of the issue that organized businesses face. Policy inconsistency from 2022 up to the early part of 2023 was also a serious challenge that organized businesses faced. While the last administration made promises, the rate of reversal of those policies made it very difficult for organized businesses to plan. Similarly, regulatory and legislative incursion and harassment negated all the attempts at improving the ease of doing business. These were the things that we faced in the early part of 2023.
Meanwhile, we had an election that brought in a new administration. While the new government came up with many reforms to reverse the negative trajectory in which we find ourselves, those reforms have not addressed the challenges that we face. The government came up and removed fuel subsidy which naturally increased the cost of doing business and worsened cost of living. Just as energy cost skyrocketed, the cost of logistics also skyrocketed. The harmonization of the exchange rate also came with its dynamics. The value of Naira plummeted significantly and we are still trying to find a balance. Forex, which remains scarce, also had serious effect on the cost of doing business for organized businesses, especially those compelled to import inputs. All of these things created problems for organized businesses. Though some have said the government is only seven months old and it has started on a good trajectory by trying to reverse the pattern of recklessness that we witnessed in the past, we hope that the effect of those policies will start coming to fruition as quickly as possible this New Near.
We know that the last administration supported the Naira with over N150 billion every month for us to have a seemingly workable naira exchange rate. This government has stopped that pattern. It has also stopped the pattern of fuel subsidy that had become a deep hole in the country’s pulse while aligning the fiscal and monetary policy environment. This is positive for us. We are hoping that the foundation that they have set will create an opportunity for the economy to start booming before the end of 2024 so that the pattern of businesses exiting the country and the high rate of employment will reduce significantly.
For us, 2023 was a challenging year and we hope that the steps taken by this administration will yield positive results this 2024.
Maybe the first and second quarters might not be called definitive quarters for us. Probably, the end of the second quarter to the end of the year might be friendlier. For instance, there was a report that the dollar inflow to the country has increased by about four percent. We also know that the Taiwo Oyedele Presidential Committee on Fiscal and Monetary Reforms will round off its work between the first and second quarters of 2024 with the expectations that the implementation of far-reaching recommendations of that committee will start coming up to make the tax environment much more friendly and make tax collection much more efficient as well as reduce the burden of a multiplicity of taxes on organised businesses. If that is done, it would create a few dynamics within the context of the multiplicity of taxes –both legal and illegal – that organised businesses are paying. As reported, we know that the Port Harcourt refinery has come on stream , and the Dangote refinery has received about five or six tranche of millions of barrels of crude oil. The expectation is that, for the reason of both refineries coming on stream and one or two modular refineries, the pressure on Forex will reduce. The Forex that is used in the importation of petrol might be saved resulting in an increase in the volume of Forex that we have in the country, which could also affect the value of the naira.
In the long run, it is all about demand and supply. If there is a shortage of dollars and huge naira chasing a few dollars, naturally demand wil be more than supply. Then, the price will go up. If supply is more than demand, the price will come down. It is a simple economics.
The price of crude has also increased significantly. This will change the game for the government as more revenue will come in. We also know that a lot of reforms and private sector engagement are going on in most of those agencies. If we aggregate all these signals, we might want to say we are getting a semblance of positive vibes. If all these things are implemented conscientiously with a high level of citizen engagement and consensus, there are chances that 2024 will be better than 2023. However, it is neither here nor there. But one thing is for us to see these conjectures, and patterns and postulate that this is what might happen. The context of implementation of those things can change whether those will turn into positives or not. We believe that with continuous engagement and advocacy by the private sector, 2024 will be a foundational year for the prosperity and economic growth that we are all anticipating.
