Harsh business environment in Nigeria forced about 322 organised private companies to close shop between 2009 and 2014, a report by the World Bank Enterprise Survey has shown.
The report also said out of 5,833 firms sampled in the country within the period, at least1,136 were reported to be at the risk of closing down.
A firm is considered to have closed down or exited if it is confirmed as ceasing operation.
The World Bank Enterprise Survey, which focused on emerging markets and developing economies, covered small, medium and large-scale enterprises in the non-agricultural formal private sector.
The study looked at the effects of factors such as trade, finance, labour, infrastructure, innovation, regulations, taxes and business licensing, crime, informality and corruption on business growth.
Results of the survey, which was published in a report by the African Development Bank, entitled ‘Creating Decent Jobs: Strategies, Policies and Instruments’, identified political environment and corruption as major obstacles to the survival of businesses in Nigeria and other African countries.
Stifling business regulations were also identified as a major constraint to doing business, according to the study.
Issues relating to tax rates, access to land, trade registration, tax administration, business licencing and permits are among the constraints relating to business regulations.
Inadequacy of infrastructure, particularly transportation, electricity and telecommunication facilities affected the survival of the businesses as well as access to finance.
The study also found that competition from operators in the informal sector was another factor that undermined the survival of businesses in the review period.
In the same vein, the AfDB report noted that conflict along ethnic and regional lines had stalled economic growth in Nigeria.
“In Nigeria, conflicts along ethnic, and by extension, regional lines, have contributed to Nigeria’s politically turbulent past and stalled its economic growth,” the report said.
The report further observed that the conflicts had had negative impact on the labour market.
It identified human capital challenges as one of the reasons for the decline in the country’s manufacturing sector.
“Nigeria’s manufacturing sector has declined because of a human capital issue: manufacturing firms use low skill, low-wage labour not because higher skill labour is unavailable, but because they cannot afford the wages demanded by higher skill labour,” the report said.
Nigeria’s unemployment rate, estimated at 37 per cent, was ranked as among the highest in Africa, with youths mostly affected.
Cost of production too high – Expert
The Registrar, Chartered Institute of Finance and Control of Nigeria, Mr Godwin Eohoi, said the harsh operating environment was responsible for the closure of many businesses in the country.
He said the two major challenges that companies in Nigeria faced currently were the bad conditions of road and poor power supply.
He argued that if the government could address these twin problems, there would not be any need for companies to relocate to other countries.
Eohoi said, “We just came out of recession and government can encourage companies to grow by giving them tax holidays. Government should also provide infrastructure development.
“The cost of production is high and many companies can’t cope with high overhead cost. Government should provide good roads because without good roads, you can’t take what is produced to the market. Without electricity you can’t manufacture goods. Tax holidays should also be given to some categories of companies.”
The President of Trade Union Congress, Qadri Olaleye, said millions of Nigerians had lost their jobs in various sectors due to economic problem.
He said it was more prevalent in the textile and food industries where companies such as Atlantic Textile Nigeria, Jaybee, Bhojsons, Westex and Specomill textiles had closed shop with thousands of workers rendered jobless.
Quoting a report from the National Bureau of Statistics, Olaleye said between the fourth quarter of 2017 and the third quarter of 2018, the number of unemployed Nigerians increased from 17.6 million to 20.9 million.
He said, “Nigerian tertiary institutions of learning produce up to 500,000 graduates every year with only a fraction able to secure employment.
“Financial intervention to manufacturing companies will aid the diversification of the nation’s economy from import-driven economy to manufacturing reliance economy.”
Olaleye also said, “We need to do close monitoring of the disbursed intervention funds in order to discourage corruption and diversion of funds. Good policy formulation and palliative measures to cushion the effects are equally important to guide against the present situation, where closure of boarders has skyrocketed prices of rice.”