The One-Size-Fits-All of the World Bank’s “Ease of Doing Business” Reports
The recently released World Bank “Ease of doing business 2018” report put Nigeria at 145 out of 190 countries surveyed, just behind Niger. This ranking represents a significant improvement over that of last year, when the country was ranked 169th. Therefore, there are several questions that need to be asked: Are these statistics enough? Is Nigeria’s business environment now friendly with entrepreneurs and investors? What do these figures mean to the ordinary Nigerian?
The report claims that Nigeria made impressive strides and joined the 10 top improvers for the first time. Of the 10 areas tracked by the index, Nigeria improved in 5 of them. Strikingly, one of the five areas that the country improved in is “Getting Credit” (in which Nigeria is now ranked 6th in the world). This Getting Credit rating makes the World Bank data seem questionable, and misleading. Meanwhile, the report did not cover areas like quality of the public sector, level of corruption, infrastructure development, incidence of protectionism, and commercial law regime. Therefore, we can argue that the ease of doing business index is not sufficient to highlight improvements to Nigeria’s competitiveness.
The index parameters did not consider countries’ specific factors, and it is therefore not appropriate to internationalize the parameters by using the same benchmark used for countries like the United State, Australia, Switzerland, Netherland, Germany, and other developed nations, to rank Nigeria. This is because these countries do not have electricity problems, potholes on their roads, insecurity, and so on. Thus, using an internationalized parameter to judge Nigeria is like using headache medication for cancer.
Going back to the 24 points leap the country just took on the ranking, this will help install confidence for investors. The issue of concern, however, is what was measured – “getting credit” moving 15 points was only due to capturing government initiatives such as the asset registration, and using movable assets to secure credit. What should have been considered is the rate or speed with which SMEs (Small and Medium-sized Enterprises) and manufacturers are getting credit from the banks. What the index measured was government effort and not the outcome. Another set of questions that need to be asked is whether the country’s border is still porous? Is the seaport now working according to the government directives? Are customs points still on the highways stopping trucks? Meanwhile, the struggle and resistance by the ministries and departments to honor and respect these policies and bring order is another issue to contend with.
The high interest rate also did not help improve doing business in the country. Although this cannot totally be blamed on the banks, due to other structural issues, such as the interest rates of bonds setting a very high floor on the cost of financing for third parties. The banks are buying money when the citizens deposit their funds, and the bank’s investment in treasury bills forces it to regard the price at which it may offer funding to entrepreneurs. The prevailing comparison today is between the interest rate and the yield rate for treasury bills. The trend of these money market indicators’ average annual rates is presented below:
Source: Central Bank of Nigeria
Given that the average citizen now has an opportunity cost of funding because of their ability to buy government treasury bills directly through any bank, their incentive to save money in banks is automatically reduced. Therefore, at the current treasury bill yield rate of 19% for 91 days maturity, this automatically becomes the cost of funds. At this rate, nobody will want to fix their money in any bank for less than 19%. So, if a bank is receiving a deposit at 19%, of which it will still include its overhead and lending cost, this explains why banks are lending at 25-31% to entrepreneurs. This situation places entrepreneurs in a crossfire because government is crowding-out investment. Be that as it may, with a risk-free treasury bill at 19% yield rate, banks do not need to lend to anyone in Nigeria, what they need to do is to invest in government bonds, and just wait for their returns.
It is for this reason that Nigeria’s federal government treasury bill yield rate is supposed to have an inverse relationship with the World Bank’s ease of doing business analyses. As the yield rate increases, Nigeria’s ease of doing business ranking should decrease.