Doing Business In Nigeria 2018

viiForewordNigeria continues to face the challenge ofdiversifying its economy and making thecountry more business-friendly across allsectors. Improving the business environment is key for private sector led growthand has therefore become a top priorityfor the federal government. The establishment two years ago of the PresidentialEnabling Business Environment Council(PEBEC)—tasked with removing bureaucratic impediments to doing business inthe country—shows how seriously thecurrent administration is taking this goal.A burdensome investment climate createsunnecessary hurdles. Where regulationsare restrictive and procedural requirementstoo time-consuming or costly, entrepreneurs are less likely to start businesses orto abide by legal requirements and formallyregister their firms. Furthermore, governments lose out on potential revenues whenlevels of informality are high.The World Bank’s global Doing Businessreport has been assessing the businessenvironment in Lagos since 2004—andKano since 2014. But beyond these twostates, how can other states know howtheir business environment is faring orhow they can improve? Subnational DoingBusiness studies, which take a more comprehensive view of the country, have beenassessing all 36 states and FCT Abujasince 2010. The studies have delved deepinto four important processes coveredby business regulations—incorporating acompany, obtaining a construction permit,transferring a property title and resolving acommercial dispute in court. While thereare other important areas that can shapethe business environment, these fourareas were selected for benchmarking incollaboration with the federal and stategovernments. And for the first time, thisreport is looking not only at regulatoryefficiency but at measures of regulatoryquality.The results are encouraging: almost allstates have improved since 2014, whenthe last study was conducted. Whilesome have improved more than others,no state shines across the board nor doesany state always rank at the bottom. Thelesson? All states have something toshowcase and something to learn.And even more encouraging is that thegap between the lagging states and thebetter-performing states is getting narrower on regulatory efficiency. To putit simply, lagging states are catching upwith their better-performing peers.Yet challenges remain. Most Nigerianstates are still far from the frontier ofglobal good practices in all areas. Allstates have plenty of room for reformmoving forward. The good news is thatmany solutions can be found withinNigeria. States often need not look further than to their neighboring peers toemulate successful reforms.Take Kaduna, for example, the mostimproved state in this year’s report. Thestate authorities adopted a four-yeardevelopment plan in 2016. One of theplan’s four areas of focus is on promoting economic development and boostingprivate investment. The state has beenactively reforming its business environment, and the results have shown. Frommaking its company incorporation processelectronic to digitizing its land registry tostreamlining its construction permittingsystem, Kaduna’s efforts set a goodexample that other states could follow.I hope this report will continue to serveas an important tool for policy makersacross Nigerian states. Armed withdetailed data, they can identify some ofthe main bottlenecks and legal barrierswithin their state administrations anduse those findings as opportunities forreform. The report can also allow thestates to learn more about what theirpeers have been doing to address thesame challenges they themselves mightbe facing.Rachid BenmessaoudCountry DirectorWorld Bank

viii

OverviewMAIN FINDINGS This fourth report of the Doing Business in Nigeriaseries updates the data for 36 states and FCT Abuja andmeasures progress since 2014 in four regulatory areas:starting a business, dealing with construction permits,registering property and enforcing contracts. It alsoincorporates measures of regulatory quality in the latterthree indicators. No single Nigerian state dominates the indicatorrankings across all areas benchmarked. The resultsshow that most states, if not all, have something toshowcase and something to learn. The states that lagged behind in 2010 have beenimproving and narrowing the gap in regulatory efficiencywith the better-performing states. In the past four years, 29 Nigerian states implemented43 reforms across the four areas benchmarked, withKaduna, Enugu, Abia, Lagos and Anambra showing thelargest advance toward the global good practice frontier. Most reforms were federally driven in the area ofstarting a business, and most were focused on theefficiency of processes rather than the quality ofregulations. A proactive approach where state governmentsimplement federal reform initiatives in centrallyregulated areas, but also design and implement theirown reforms in areas under state authority, will be keyto improving Nigeria’s business environment.

2DOING BUSINESS IN NIGERIA 2018For local entrepreneurs wanting tostart and operate a small businessin Nigeria, location matters. Largedifferences exist throughout the countryin the business regulatory environment.Incorporating a small or medium-sizeenterprise and getting all permits to startoperations could take more than six weeksin Adamawa but just 10 days in FCT Abujaand Lagos. The gap, however, is starting toshrink. Over the past eight years, statesthat had a more difficult business environment, as measured by Doing Business,have been gradually catching up with theirbetter-performing peers.Improving the business regulatory environment across Nigeria will be key forthe country’s economic growth. Nigeria’sheavy dependence on oil has posedstructural challenges that have made itdifficult to achieve sustained growth, create jobs and reduce poverty. Africa’s largest economy and most populous countryfaced an economic recession in 2016 thatposed significant challenges.1 And yetwith such challenges came great opportunities to improve. What became apparent to the government after the recessionwas the need to introduce changes toboost economic diversification. To leverage reform efforts, an inclusive approachis needed—one that empowers andencourages not only the federal government but also the state governments todesign and implement reforms. In thepast four years, the business regulatoryreform agenda has been driven largely atthe federal level. But there are initiativesthat aim to change that.To promote diversification, the government adopted its Economic Recovery andGrowth Plan for 2017–2020 (ERGP) inFebruary 2017. Its strategic objectives—restoring growth, investing in the Nigerianpeople and building a globally competitiveeconomy—require leveraging the privatesector and removing obstacles that arehindering the competitiveness of Nigerianbusinesses.2 The Presidential EnablingBusiness Environment Council (PEBEC)and the Enabling Business EnvironmentSecretariat (EBES), established in 2016,play a key role, as their mandate is toimprove Nigeria’s business environmentat a national and subnational level.3Subnational coordination is essential tothe success of the Economic Recoveryand Growth Plan; engagement at thesubnational level has been growing andthe results have shown. However, recenttrends indicate that despite an increasein the number of business reforms in thestates, these reforms have been mostly inareas where the federal government haspushed for them. Areas where it is up tothe states to improve, such as property registration or construction permitting, havenot moved as fast. But ample opportunitiesremain for states to set their own reformagenda, learn from each other’s experiences and adopt their good practices. Andif the country succeeds in diversifying itseconomy, the long-term prospects arepositive. According to PwC’s projections,Nigeria has the potential to become theworld’s 14th largest economy by 2050and enjoy an average annual growth rate ofmore than 4% in the long run.4Doing Business in Nigeria 2018 is thefourth report in the Doing Business inNigeria series, which since 2008 hasbeen documenting reforms that stateshave undertaken making it easier to dobusiness. Since the last round of benchmarking in Nigeria in 2014, the DoingBusiness methodology has gone throughsignificant changes that are reflected inthis report (box 1.1).WHAT ARE THE MAINFINDINGS?It is easier to start a business in FCTAbuja and Lagos, deal with constructionpermits in Niger and Kano, register aproperty in Kaduna and Zamfara, andenforce a contract in Kaduna and Bauchi(table 1.1). A more detailed look at theindicator rankings reveals several observations. Although the average distanceto frontier score worsened in a handfulof cases, it improved by an average of 3percentage points across most statessince 2014 (table 1.1). This indicates thatmany states are adopting good practices,which translates into a less burdensomebusiness climate for local entrepreneurs.No single state dominates in all areasbenchmarked. In fact, all but three statesrank in the top half in at least one indicator. Similarly, all but five states rank inthe bottom half in at least one indicator.A few states stand out, though. Kadunaand Jigawa are the only two states thatrank among the top five in three of thefour indicators. On the other end of thespectrum, Cross River, Ebonyi and Imorank below the 30th spot in three ofthe four indicators. From a public policyviewpoint, these results show that moststates, if not all, have something to learnand something to showcase.There continues to be substantialvariation in business regulations andtheir implementation across Nigerianstates, with significant gaps between thebest and worst performing states acrossall four indicators (figure 1.1). A goodway to illustrate the differences acrossstates is to analyze their performance inan international context. Differences indealing with construction permits andenforcing contracts stand out. Niger, Kanoand Jigawa—having a distance to frontierscore of almost 80 percentage points ondealing with construction permits—wouldrank in the top 25 of the 190 economiesmeasured globally by Doing Business. Onthe other hand, Lagos would rank in thebottom quartile of economies. Dealingwith construction permits is in fact the onlyindicator measured in this report wheremultiple Nigerian states would place in thetop quartile of the rankings globally.5 Niger,Kano and Jigawa surpass even the average performance of OECD high-incomeeconomies, due to the fewer number ofprocedures required and the speedier timewith which approvals are issued. In enforcing contracts, Kaduna, closely followed byBauchi and Jigawa, lead in the distanceto frontier score for the indicator and are

OVERVIEWBOX 1.1 What does Doing Business in Nigeria 2018 measure and what has changed since 2014?Doing Business in Nigeria 2018 studies regulations from the perspective of small and medium-size firms. It focuses on whetheran economy has in place the rules and processes that can lead to good outcomes for entrepreneurs and, in turn, increasedeconomic activity. Recognizing the important role governments play in bolstering private-sector development, Doing Businesspromotes smart regulation. The key premise is that well-framed laws and regulations—designed to be efficient, transparent,accessible to all, enforceable in court and easily implemented—can empower entrepreneurs to devote their time to productiveactivities and grow their businesses. However, Doing Business does not measure the full range of factors, policies and institutions that affect the quality of an economy’s business environment or its national competitiveness, such as aspects of marketsize, macroeconomic stability, lack of security or the quality of the labor force.Compared with four years ago, this report introduces three important methodological changes adopted by Doing Business. Thefirst one affects three out of the four areas measured. In the areas of dealing with construction permits, registering property andenforcing contracts, new measures of regulatory quality have been added to complement those related to efficiency. The reasoningis that it is not enough to improve the efficiency of procedures if the institutions function poorly and provide a low quality of service.In terms of dealing with construction permits, this study now considers, among other things, the professional qualifications of thosein charge of examining projects, approving construction licenses and inspectingWhat Doing Business in Nigeria continues to cover and what is newprojects, along with the liability and insurance regimes that apply to construction activity. The registering property- Procedures, time, cost and paid-in minimum capital to start a businessWhat theindicator evaluates access to registryDoing Business- Procedures, time and cost to complete all the formalities to build a warehouseinformation—how the land registriesin Nigeria series- Procedures, time and cost to transfer a propertycontinues toand mapping systems (cadastre) op- Time and cost to resolve a commercial disputemeasureerate and how much they cover—anddispute resolution mechanisms relatedto property rights. Finally, the enforcingcontracts indicator was expanded to- Quality of building regulation and its implementationcover aspects of the quality of judicialWhat this- Quality of the land administration systemreport addsprocesses, focusing on well-established- Quality of judicial processesgood practices that promote quality andefficiency in the court system acrossfour main areas: court structure andproceedings, case management, courtNote: See the chapter “About Doing Business and Doing Business in Nigeria 2018” for more information on theautomation and alternative disputequality indices, as well as the chapters on dealing with construction permits, registering property and enforcingcontracts, which include a box discussing the quality component of each indicator.resolution.The second methodological change affects how the indicator rankings are calculated. In Doing Business in Nigeria 2018 the ranking is based on a distance to frontier score rather than on a percentile rank. The distance to frontier score benchmarks economieswith respect to a measure of regulatory best practice—showing the gap between each economy’s performance and the bestperformance on each indicator as recorded by Doing Business. This measure uses a 0 to 100 scale—where 100 represents thebest practice identified globally and 0 the worst—to show how far a given economy is from “the frontier,” which is the best performance observed for each of the indicators at an international level. Each state’s indicator ranking enables it to be comparedwith the other states and with 189 other economies around the world.aLastly, two updates were made to the assumptions on the dealing with construction permits indicator. The cost of building awarehouse is now set at 50 times income per capita (before, it was assessed by the Doing Business respondents). As such, thecost is now recorded as a percentage of the warehouse value rather than as a percentage of income per capita. In addition, thisindicator set no longer includes the procedures for obtaining a landline telephone connection. For the enforcing contracts indicator, the value of the claim is now set at twice the income per capita or 5,000, whichever is greater.The data in the report are based on the relevant laws, regulations, decrees and fee schedules, as well as on correspondence andinteractions with private- and public-sector contributors—including lawyers, architects, building engineers, government officialsand other professionals routinely administering or advising on legal and regulatory requirements.b The results are up to date asof March 31, 2018.a. For more information on the distance to frontier, see the chapter “About Doing Business and Doing Business in Nigeria 2018.”b. See the “About Doing Business and Doing Business in Nigeria 2018” chapter, the data notes and the list of contributors in the acknowledgments.3

4DOING BUSINESS IN NIGERIA 2018TABLE 1.1StateHow do Nigerian states compare among themselves and with good regulatory practices?AverageDTF score,2018(4 indicators)Abia53.90Adamawa54.34Akwa 8.21Borno60.55Cross nugu56.82FCT ñññòAverageDTF score,2014(4 indicators)Starting a businessDealing withconstruction permitsRegistering propertyEnforcing contractsRankDTF scoreRankDTF scoreRankDTF scoreRankDTF 2761.2759.121577.113558.26237.391358.37Source: Doing Business database.Note: The average distance to frontier score (DTF) is the average DTF score for the four indicators measured in this report. The DTF score for each indicator shows how far alocation is from the best performance achieved by any economy on each Doing Business indicator. The DTF score is normalized to range from 0 to 100, with 100 representing thefrontier of best practices (the higher the score, the better). The scores for both 2014 and 2018 are based on the most recent Doing Business methodology. For more details, see thechapter “About Doing Business and Doing Business in Nigeria 2018.” A green arrow indicates an improvement in the score between 2014 and 2018, while a red arrow indicates adeterioration in the score. The data for Lagos and Kano have been revised since the publication of Doing Business 2018. The complete data set can be found on the Doing Businesswebsite at http://www.doingbusiness.org.

OVERVIEWFIGURE 1.1 On the global scale, the gap between the best and worst performers putsNigerian states worlds apart in dealing with construction permits and enforcing contractsDoing Business rank (1–190)125% T Abuja85.6166.76Kaduna65.1069.199555.5125% Ondo71.04Lagos51.37Starting abusinessDealing withconstruction permitsHighest DTF score in Nigeria26.04Lowest DTF score in NigeriaAverage DTF score in Sub-Saharan AfricaKaduna45.72Cross contractsAverage DTF score in NigeriaAverage DTF score in OECD high-income economiesSource: Doin

Doing Business in Nigeria 2018 focuses on business regulations and their enforcement in four Doing Business areas. It goes beyond Lagos and Kano to benchmark 34 additional states and FCT Abuja. Doing Business in Nigeria 2018 Registering property Records the procedures, time and cos