Regulations Undoing Diversification of the Nigerian Economy

Dr. Vincent Nwani

Director @ LCCI

Oct. 2017

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About LCCI

"If I have seen further it is only by standing on the shoulders of giants” – Sir Isaac Newton

SINCE 1888, 129 YEARS 1,750 Corporate Members – 60% of industrial output in Nigeria

28 Trade Groups

1st Chamber in Nigeria & 2nd in Africa

300 Trade Missions P. A

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The Regulations are Inimical to Diversification of Economy

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Security2

Nigeria’s business environment scores low in global rankings

4

Poor

1 World Bank

2 Transparency International, Institute for Economics and Peace

3 GlobalEconomy.com

Score Rank

Stability of laws &

policies3

World Bank

“Ease of doing

business”1 169 of 189

149 of 163

181 of 191

Infrastructure

Index

177 of 190

Economic

Competitiveness

Index

124 of 140

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Key Policies & Regulations Undoing Diversification

• Overall Economic Structure

• Macro Economic Regulations – Cross Cutting Issues

• Extraction/Mineral Regulations

• Industrial Regulations

• Financial Regulations

• Infrastructure Related Regulations

• Land Regulation

• Ease of Doing Business - Institutional Issues

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Elements affecting Nigeria’s business environment

What is the issue?

3

Impact on industry

Efficient and

effective regu-

latory bodies 3

▪ Lengthy contracting processes

▪ Inefficient regulatory processes

shrouded in bureaucracy

▪ Overlapping functions and

mandates of regulatory agencies

▪ Increases cost premium

▪ Creates uncertainty and

administrative bureaucracy

Multiplicity of

regulations,

taxes and reforms 1

▪ Multiplicity of taxes, levies and fees

▪ Overlapping and conflicting

regulations

▪ Prolonged industry reform

processes

▪ Increases costs of doing business

▪ Creates regulatory uncertainty

▪ Reduces Nigeria’s attractiveness

as investment destination

2 Security of

lives and

properties

▪ Militant attacks from Niger Delta

Avengers and others

▪ Terrorist threat from Boko Haram

▪ Rampant wave of Kidnaping

▪ Increases costs of doing business

through security cost premium

▪ Loss of lives and property

▪ Degradation of environment (e.g.

oil spills)

▪ Shut-in of production and

increased repair costs

4 Contract

sanctity

▪ Non-adherence to contracts (e.g.

crude oil over-lift disputes in

Production Sharing Contracts)

▪ Lengthy dispute resolution

process

▪ Erodes investors’ confidence

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Ports Issues

Indicators Current Reality

Multiplicity of Agencies: No. of Government Departments

Operating in the Port

14, Depts- 28

Cargo Clearance Timeline 5 to 14 days

Delays: Number of papers/ paper work and agencies to

interface with for to clear cargo 18 agencies, and 23

signatures

Number of papers/ paper work and agencies to interface

with for to Export a cargo 20 agencies, and 33

signatures

Illegal Fees and Levies 71% of the time spent to

import and 64% of the

time spent to export

Infrastructure Breakdown Predominant

Costs of Delays & Illegalities About 50% import and

61% export processing

costs

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Burden of Multiple/ Cumbersome Tax and

Levies Tax Issues Prayers from the Operators

Cumbersome Tax Processes and Structure allowing

for illegalities and corrupt practices.

Illegal levies on delivery vans and unlawful request

for samples of products by law enforcement agents

along various routes.

Incidences of multiple taxation by Federal, State and

Local Governments.

Indecent enforcement of regulations on business

operators by respective regulatory agencies in cases

of alleged defaults.

Multiplicity of taxes, levies, fees etc.

Review of the tax structure to streamline

number of taxes/levies and their rates

with a possibility of having a One-Stop-

Shop model.

Tax system transparency and

accountability by the Government

New businesses should have a

graduated tax rates allowing for relatively

lower rates at early stages of operations.

Review of tax legislations with a view to

tackling multiple taxation

Decentralisation of tax collection within

states

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Different agencies charge a wide range of taxes, fees and levies to oil

and gas companies in addition to the regular fiscal terms

Description Rate Agency

Marine Logistics Cabotage: - Coastal &

Inland Shipping - Vessels & Personnel

2% of Contract Value per invoice

qrtly ($3mln pa)

NIMASA Started 2003

NPA - Pilotage Pilotage District and area

(up to $12mln pa)

NPA Rates increased by NPA by 30% across the board in

April 2014

NPA Others - Cargo & Stevedoring

Dues

Quantity dependent

(up to $6mln pa)

NPA …

Offshore Safety Permit $680 per person & Annual renewal

charges of $335 per permit

DPR Since 2013

Use of various radioactive substances or

equipment

Various tariffs amounting to an

estimated minimum of N11.5mln

every two years

NNRA Since 2012. Up from ~ N1m

Environmental Impact Assessment (EIA)

▪ Registration

▪ Renewal

▪ Approval & Impact Statement

Circa:

▪ N11m per EIA

▪ N15m per renewal every 3 years

▪ N5m per EIA

FMEnv Started 2006. Updated 2012 from circa N2-3m per EIA

Description Rate Agency Remarks

NESS 0.12% FoB cargo value - Monthly CBN/

Finance

Started 01/05/2012. Up to $65mln pa industry wide

W&M Monitoring Fee 0.035% FoB Cargo value -

Quarterly

FMITI Since 2012 (W&M Act 2004). Fee originally set at

0.175%, but reduced to 0.0355. Overlap with NESS fee

Cabotage:

▪ FPSOs & MODUs

2% of Contract Value annually NIMASA Based on 2004 Act but only applied recently with plan to

back charge

Remarks

NCDF Levy 1% value of contracts - Deducted at

source from invoice payments

NCDMB Since 2010

NDDC Levy 3% of the total annual budget NDDC Per NDDC Act of 2001

Education tax 2% of assessable profit ETF Education Tax Decree No. 40 1998

Major other taxes, fees & levies

Miscellaneous other taxes, fees & levies

9

MULTIPLICITY OF REGULATIONS, TAXES & REFORMS

1

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Logistics & Transport: Multiplicity of Stickers /Permit Issued to

Transporters By Agencies STICKERS ISSUANCE AURTHORITY RENEWAL

PERIOD

Drivers License Road Safety 4 Years

Local Government Papers Local Government Yearly

Vehicle License VIO Yearly

Harney Permit VIO Yearly

Road Worthyness VIO 6 Months

Barge Permit Local Government Yearly

Stickers/ National Emblem Local Government Yearly

Conductors Bag Local Government Yearly

Insurance Policy Insurance Company Yearly

Vehicle Identification Tag Federal Government Yearly

Vehicle Radio/TV Permit Local Government Yearly

Lagos State Ministry of Transport Directorate of Motor Vehicle

Administration

Lagos State Government Yearly

Nigeria Police Force Emblem & MOT Nigerian Police 6 Months

Nigeria Lorry Drivers Association Emblem NURTW Yearly

Vehicle Outdoor Mobile Environmental Sanitation Permit Lagos State Government Yearly

Parking Permit Local Government Yearly

Lagos State Consolidated Emblem Lagos State Government Yearly

National Union of Road Transport Workers Papers NURTW Yearly

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Windscreen of a typical Delivery Van in Lagos

State

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Nigeria’s security situation contributes to its difficult business

environment

Ghana

Angola

Nigeria

Mozambique

Tanzania

Security risk

0=No risk,

100= Most risky

54

39

75

39

39

Community

Issues

Compared to other countries in the region,

Nigeria is characterized by high security risk

and community issues…

Nigeria ranks 149 of 163 in Transparency

International security ranking

SOURCE: Transparency International, Institute for Economics and Peace

SECURITY

1 Including Nigerian Delta Revolutionary Crusaders, Niger Delta Creek Warriors, Ogunuma Camp of Niger Delta and Adaka Boro Avengers

2 Pan Niger Delta Forum

… demonstrated in criminal

incidents and threats to

security of life and property

▪ Criminality, such as kidnap,

armed robbery, cult related

violence remain prevalent in

some parts of country

▪ Continued presence of

militant groups1 in the region

that jointly denounced

PANDEF2 and threatened

Niger Delta operations

▪ Boko Haram still strong and

present in North East

4

2

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Nigeria’s security

costs of 12% is 5

times higher than

the global average

of 2% which

erodes

competitiveness

13

Additional costs for security

in Nigeria due to:

▪ Convoy operations: Secure

movement of supplies and

personnel over land is very

costly due to need for

military/ police protection etc.

▪ Aviation:

Additional air transport

instead of marine and/or land

▪ Other security costs:

Additional costs for

protection of facilities

SOURCE: Industry data

SECURITY 2

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Average contracting cycles in Nigeria are extremely lengthy compared

to other major oil and gas producing countries

6

3

5

7

8

5

7

Saudi Arabia

Nigeria

Angola

Argentina

4-6x

~24-38

Venezuela

Indonesia

Kazakhstan

Australia

SOURCE: Industry data

Average contracting cycles

Months Locations

Current contracting process includes 250+ steps which makes it

lengthy and costly

6

EFFICIENT AND EFFECTIVE REGULATORY BODIES

3

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Regulatory bodies / Agencies with highest Infraction on Businesses

IMIGRATION

CUSTOMS

1ST

4th

3rd

2nd

5th

9th

7th

8th

6th Respondents were asked

to identify the most

challenging public

regulatory bodies in

Nigeria and rank them as

they affect their business

operations.

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Presence of High Regulatory Corruption: Incidence of Infraction ranked per activities of SON

Incidence of infractions are rampant in these activities because of the human interface in

processing and getting approval. Introduction of electronic transaction will have a long way

in reducing the incidence of corruption in the organision.

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Presence of High Regulatory Corruption: Impacts of Infractions on business activities?

4%

3%

2% 2%

1% 1% 1%

Increased

overall business cost

Increased

production cost

Lower profit Opportunity

lost to competitors

Lower

turnover

Reduced

market share

Retrenchment

of employees

By implications, the private sector operators are loosing so much, couple with the other

economic factors that impinge on their businesses. It further lowers the standard of living

in the country because the private sector operators definitely transfer part of the cost to the

consumers that buy the final products.

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Consequences for refusing to pay unofficial fees/inducement to Regulators

2

2

3

3

3

5

14

19

19

30

Goods/Products will not be certified

Import permit will be siezed

Goods will be labelled as substandard

Goods/Product will be delayed at the port

Unrealistic charges will be imposed

Impose heavy charges on minor offence

Siezure of goods

Delay in processing documents

Unnecessary harassment

Factory/Warehouse will be sealed up

Top penalties

for refusing to

pay unofficial

fees

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3

2 2

1

11

Increased overall

business cost

Opportunity lost to

competitors

Increased operations cost

Lower profit Lower turnover Reduced market share

On an estimate, companies suffer a loss of up to 25% due to Regulatory Infractions

in Nigeria.

Impacts of Regulatory Infractions on business activities?

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Proposed solutions to Factors affecting Nigeria’s business environment

What is the issue?

3

Impact on industry

2 Security of lives

and properties

▪ Militancy attacks from

Niger Delta Avengers

and others

▪ Terrorist threat from

Boko Haram

▪ Increases costs of doing

business and cost premium

▪ Loss of lives and property

▪ Degradation of environment

(e.g. oil spills)

▪ Shut-in of production and

increased repair costs

▪ Continuous engagement with

Niger Delta region to promote

inclusiveness

▪ Improve security and surveillance

▪ Non-adherence to

contracts (e.g. crude

oil over-lift disputes in

Production Sharing

Contracts)

▪ Lengthy dispute resolution

process

▪ Erodes investors’

confidence 4 Contract sanctity

▪ Honour prior commitments

▪ Put in place fair and independent

dispute resolution mechanisms

Efficient and

effective regu-

latory bodies 3

▪ Lengthy contracting

processes

▪ Inefficient regulatory

processes shrouded in

bureaucracy

▪ Overlapping functions

and mandates of

regulatory agencies

▪ Increases cost premium

▪ Creates uncertainty and

administrative bureaucracy

▪ Accelerate project development by

minimizing approval delays

▪ Creation of a one-stop-shop

regulatory body

▪ Multiplicity of taxes,

levies, fees etc.

▪ Overlapping and

conflicting regulations

▪ Prolonged industry

reform processes

▪ Creates regulatory

uncertainty

▪ Increases costs of doing

business

▪ Reduces Nigeria’s

attractiveness as business

destination

Multiplicity of

regulations,

taxes and reforms 1

▪ Reduction of administration burden

through streamlining of taxes,

levies and fees

▪ Harmonization and simplification of

regulations

▪ Increase collaboration amongst

stakeholders to support industry

reform timelines

Proposed solutions

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THANK YOU

Dr. Vincent Nwani

Established in 1888, the Lagos Chamber of

Commerce and Industry (LCCI) is the foremost and

largest private sector group in Nigeria with over 1,750

corporate members, accounting for an estimated 60%

of industrial output, 65% of general commerce and

75% of financial services in the country.

For more information, contact LCCI:

Commerce House

1 Idowu Taylor Street,

Victoria Island,

Lagos - Nigeria

Email: lcci@lagoschamber.com

vincent@lagoschamber.com

Tel: 234-1-7746617, 2705386, 7732305, 08033827944

www.lagoschamber.com

THANK YOU