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
|
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: [email protected]
Tel: 234-1-7746617, 2705386, 7732305, 08033827944
www.lagoschamber.com
THANK YOU