What Does Nigeria’s Rise In World Bank’s Ranking for Doing Business Mean?

The World Bank this week produced their annual Doing Business report. It doesn’t tell you where to invest, but it does tell you exactly how easy or hard it might be and which hurdles (or lack of) you can expect to find when you get there. Ranking each country and their progress over time is an intriguing academic exercise, but does it tell investors anything useful?

This year Nigeria’s Doing Business ranking has shot up 24 places this year, outstripping the target set by Vice President Yemi Osinbajo’s target of jumping up 20 places on last year’s rankings. So, a reason to celebrate, surely?

In a country that sets political and economic targets and usually fails to meet, one is reluctant to underplay Nigeria’s improved Doing Business rankings. But it is right to question what they actually mean and what real impact it will have for investors?

Whilst they have risen a number of place, Nigeria is still ranked 145 (of 190 countries), up from 169th last year. And this position still places it behind the likes of Mali, Lao and Niger; and directly ahead of the Gambia, Pakistan and Burkina Faso.

But does a ranking really matter? What do the figures actually mean? The number is a product of a number of different measures of the ease of doing business in a country. Amongst the 10 metrics the World Bank takes into account are how easy it is to set up a business, deal with construction permits, get electricity and register property.

And here is where we really see what is going on with Nigeria’s Doing Business ranking. Whilst scores for almost all of these measures have improved, only one has shot up: getting credit, for which Nigeria now ranks sixth in the world. And this has effectively pulled up Nigeria’s overall standing in the league tables.

This essentially means that Nigeria has made huge progress in the area of laws governing moveable collateral and credit information systems. And this matters a lot.

Why? Because banks typically lend in emerging markets by taking immovable assets (such as real estate or land) as collateral. Banks are more reluctant to consider movable assets, such as livestock, machinery and inventory, as collateral for lending.

Movable assets are not only less secure but, to put it bluntly, firms are not seen as honest or thorough enough to produce a reliable register of these assets. Therefore, banks will not take them as collateral. And so, despite having very significant assets, a good Nigerian company may not have been able to leverage these assets to borrow until this year, because the regimes around movable assets have got much tighter and therefore satisfactory.

So the improvement in the Doing Business Ranking is real and should have a tangible effect for investors.

Where there still needs to be improvement is in those areas which are so endemic in Nigerian society but not elsewhere, and therefore are not likely to be included in global surveys.

In particular the biggest issue, anecdotally speaking at least, is corruption. The current government has undertaken a huge anti-corruption drive since coming to office in 2015. However, little progress has been made and with allegations lingering against businessmen close the to the previous administration, it is looking like a witch-hunt. And this, for investors, is worse than the effects of corruption.

So, Nigeria has made a big step towards allowing businesses the full access to credit which their assets would allow in any other country. But we need to look beyond the numbers at the bigger picture and the real issues which plague our nation.

Source: oilvoice.com