The Economy in the Valleys of the Shadow of Death

The Economy in the Valleys of the Shadow of Death
 
 

 
Thousands of registered firms with the Corporate Affairs Commission (CAC) have since been submerged under the many valleys of the shadows of death created by the Federal Government, state and local governments. Some of these valleys were indirectly created by the government, but later lost control to ‘demons’ created by it.
These valleys can also be referred to as the cost of doing business in the country which has suffocated life out of many because of its excruciating weight. Some of these costs of doing business are visible while others are invisible.
The snares hidden in these valleys include poor electricity supply, which is hoped will improve with the private sector taking over power assets, multiple taxation, fueled by state governments’ greed to grow Internally Generated Revenue (IGR), the monster called corruption, insecurity, poor infrastructure, among other invisible ones.
 
Poor Electricity Supply
 
Keith Richards, managing Director of Promasidor Nigeria Limited said the lack of constant electricity is affecting his business operations considerably. The cost of producing an alternative is huge.
“We spend up to N100, 000 per hour on diesel. Because gas is now available we have just installed a gas generator that has cost us $1.2 million and the payback time is less than one year to show you how damaging the cost of power is. It is not the direct cost, if we switch on to PHCN (Power Holding Company of Nigeria), besides being epileptic, the voltage is unstable, so bad that it does enormous damage to the machines. Machines stop and start that means you get less machine efficiency, you are less effective”, he was quoted in the press.
Richards continued: “For a company like ours, at least we have the employment muscle and the ability to plan around these shortcomings and do the best we can, but what of those other companies that lacked the capacity. There are small businesses that want to produce goods so that we stop importing from China or India, instead they first have to invest in a generator and get bogged down by the diesel headaches, these are the drawbacks or the valleys of the shadow of death that cause the death of SMEs”.
This is sadly not affecting only big companies like ours, the ordinary people in the street with small businesses are also affected, there is no doubt that there will be a big boom in the economy if there is more electricity supply, he said.
The National association of  chambers of commerce, Industry, manufacturers and Agriculture (NACCIMA)’s president, Herbert Ajayi said, “More than half of the surviving firms had been classified as ailing, which poses a serious threat to the survival of the manufacturing industry in the country. Capacity utilisation in industries hovered around 30 percent and 45 percent on the average, with 100 percent overhead costs.
“Political and economic factors contribute greatly to the decline in the manufacturing sectors. For instance, poor infrastructure and epileptic power supply are also key impediments to the industry. The industry as a whole operates on more than 70 percent of energy it generates, using generators and operating these generators greatly increases the cost of manufacturing goods in Nigeria”, he stated.
“Other factors include increase in the prices of petroleum products used by industries, multiple taxation, unabated smuggling and inadequate access to finance, both local and abroad”, he added.
Corroborating Ajayi’s views, National President, Nigerian Association of Small Scale Industrialists (NASSI), Chuku Wachuku added that many companies operated below capacity in 2012 because of unstable power supply, inadequate funds and high labour costs.
 
Cost of Doing Business in Nigeria
 
 
 
DB 2014 Rank
DB 2013 Rank
Change in Rank
Starting a Business   
122
114

-8
Dealing with Construction Permits   
151
146

-5
Getting Electricity   
185
184

-1
Registering Property   
185
185
No change
Getting Credit   
13
11

-2
Protecting Investors   
68
67

-1
Paying Taxes   
170
167

-3
Trading Across Borders   
158
159

1
Enforcing Contracts   
136
138

2
Resolving Insolvency   
107
107
No change
***********************************
 
 
 
Source: World Bank/IMF
 
 
 

Roads

As far back as 2008, it was estimated that N450 billion is the cost Nigerian road users pay in terms of rehabilitation of their vehicles for plying bad roads yearly. This is outside what they pay in terms of hold-ups and robbery caused by bad roads, as well as death that occurred from time to time.
Though there are no recent statistics, it is believed that the situation would have worsened before the recent intervention by the works minister.
In fact, as at then, only 15 percent of the entire road mass in the country was said to be safe and motorable. The rest are death traps. These facts emerged from the authorities of the Federal Government’s agency in charge of roads administration, the Federal Roads Maintenance Agency (FERMA).
Richards is angry that, rather than maintain the road (Apapa-Oshodi) through which 90 percent of the raw materials come into the country, what you see is the tension between the federal and the state government over the management of the road.
“They are too busy playing politics while all manufacturers are suffering because of the very bad state and poor management of that road, and the fact that trailers particularly fuel tankers have blocked the road”, he said.

Multiple Taxation
 
The problematic issue of tax dates back to pre-colonial years. The able bodied men used to run to the bush whenever they hear the tax people were coming. That was even when, the impact of the tax was seen in infrastructure, among other things. Now, with little evidence, apart from high-brow areas that your tax is actually in action has slowed the appetite of tax payers.
So, what the government does now, particularly the states and local governments is to employ the use of touts and in some cases sub-let it to groups with a heart of stone.
Besides employing touts, they now also set up agencies that are given targets to meet to go ye and raise money for government.
One of the aggrieved motorists wrote to one of the media in Lagos. “Permit me to draw the attention of the boss of the Lagos State Vehicle Inspection Office, Mr. Johnson, on the unwholesome attitude of his men who have decided to turn themselves from vehicle inspection officers to vehicle extorting officers. On May 22, I was accosted at the Oworoshonki area of Lagos for expired vehicle documents which I renewed despite all the stress associated with the paying of the fine, tax clearance, demurrage, and the imposed vulcaniser bill whose charges are as outrageous as the demurrage. Later on October 18, I was again embarrassed at Maryland for the same vehicle driving licence which, this time, they said was fake and asked me to go and pay another N25,000.Every effort to make them see reason that I had the same nasty experience a few months back fell on deaf ears. I hope this is not part of Lagos State mega city policy to extort residents of the state? And I want to ask Lagosians, whose duty is it to detect fake driving licence? The FRSC or VEO sorry VIO”?, he asked.
Others who shared their experience said, fot the men of the Federal Road Safety Corps who patrol the highways, booking and bribery seem to be the main reason they are out daily. Their bosses do not reward them for rescue efforts, as that has become a secondary obligation, they are rather forbidden from returning to the office ‘empty handed.’
One of such investigations revealed that the men work to meet a daily, weekly and monthly financial target or they would face disciplinary actions.
In some commands under the Lagos Sector, it is mandatory for each patrol team to secure a minimum of 10 bookings each day from traffic offenders, while a cash return not less than N15,000 must accompany the bookings usually paid by the offenders into the commission’s coffers.
The monthly targets, usually set for each command by its unit commander, is an entrenched practice said to be recognised by the zonal commanders, who in turn compensate the head of the unit command that brings in the highest amount.
An award of recognition for the Best Unit Commander is allegedly staged regularly. Those who perform very well are given incentives including a sponsored trip abroad.
The targets are set based on how lucrative the area of posting is.
 
 
Summary of Tax Costs in Nigeria, by State
 
Average
Lagos
Anambra
Enugu
Ogun
Direct tax burden
31.3%
23.5%
33.5%
51.6%
17.4%
Double Taxation
8.0%
6.0%
9.0%
12.0%
4.0%
Mobile fees and levies
10.0%
12.0%
11.0%
12.0%
5.8%
Compliance Costs
11.0%
10.0%
13.0%
12.0%
7.0%
Total tax burden
42.3%
33.5%
46.5%
63.6%
24.4%
 
 
 
 
 
 
 
 
 
 
 
 
Source: Nibal Pitigala and Mombert Hoppe, May, 2011
 
 
Perhaps the worst part of revenue generation is the local government thugs they employ on high ways. They carry all the weapons fashioned in hell – including long sticks with nails attached, broken bottles, juju portions, among others. Decent business men and women are easily scared by these tactics and a host of foreign investors look elsewhere without hesitation.
Reports have it that about 104 out of the 140 textile companies in the country have stopped production, with over 200,000 workers losing their jobs. Most of the retrenched workers are now commercial motorcycle riders.
To worsen the issue of insecurity, many states have since banned motorcycle riders from operating.
Some list of troubled textile companies include Aba Textile Mills Plc, Afprint Nigeria Plc, Asaba Textile Mills Plc, Bholsons & Company (Nigeria), Enpee Industries Plc, Excelsior Garment Factory, GDM Textiles Manufacturing, Haffar Industrial Co Ltd, Horizon Fibres (Nig) Plc, Jaybee Industries Nigeria Ltd, Kaduna Textiles Ltd, Lucky Fibres (Nig) Plc, Millet Nigeria Ltd and Nichemtex Industries Ltd.
Others that have also stopped producing as a result of several anti-manufacturing elements are Nigeria Textiles Manufacturers Association, Nigerian Textiles Mills Plc, Nitol Textiles Manufacturing Co NIG Ltd, Nortex Nigeria Ltd, Northern Nigeria Textile Mills Ltd, Novelty Industrial Co Ltd, President Clothing Co Ltd, Prestige Industries Ltd, Rola Stores Ltd Nigeria,
Specomill Textiles Ltd, Stretch Fibres (Nig) Plc, Sunflag Knitting Mills Nigeria Ltd, Textiles Manufacturers Association (Nigeria), United Nigeria Textiles Ltd (UNT), United Nigerian Textiles Plc, and Universal Textile Industries Ltd.
Religious organisations have completely taken over these factories in Ilupeju and Ikeja industrial estates of Lagos where most of these factories were located. However, some that are not rented by any religious groups have remained a nuisance to the environment as the properties gradually wear out.

Infrastructure

For the most part of the last 14 years of Nigeria’s democracy, there has been near collapse of infrastructure. The development has been so bad that most businesses groan under intense pain due to overhead cost incurred in providing alternative infrastructure like power. In fact, power has become an albatross to the nation’s manufacturing sector.
For instance, in 1999, manufacturing sector accounted for not less than five percent of the Gross Domestic Product (GDP).  This shrunk to 4.9 percent in 2012.
As a result of high cost of production that results from inadequate infrastructure, the manufacturing capacity remains on the down side.
The manufacturing sector is further bogged down by massive decline in capacity utilisation resulting from high exchange rate of the naira and congestion at the ports. Prior to the financial meltdown, the manufacturing sector had not fared better largely due to lack of infrastructure and high production cost.
 
 
 

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