Businesses in Nigeria are struggling to survive. In 2016, about 272 firms went out of business, and multinational companies like Shoprite, Mr. Price, and many others exited in 2020. Big and small companies are going bankrupt. Of course, this could be because of poor decision-making by the business owners, but there’s more to it. In this article, I posit enterprises struggle to survive because of the big and overbearing Nigerian government.
What is a big government?
A government comprises many institutions and agencies. These actors include legislators, administrators, judges, and employees in the civil service. Because the government is complex, no single measure suffices to capture its actual “size.” However, the Cato Institute, an American think tank, defines it. “By government size, we measure government consumption, transfers and subsidies, government investment, the top marginal tax rate, and the government’s ownership of assets. Increasing these components reduces economic freedom and business development because it crowds out individual choices. “
How are these parameters reflected in the Nigerian scene? Let’s consider some of them and draw conclusions.
According to Nairametrics, “Nigeria’s Federal budget has been increasing over the last 18 years.” Except for 2002, 2011, 2014, and 2015. From a budget size of N677 billion in 2000, Nigeria’s budget jumped by about 399% over ten years to N4.99 trillion in 2013. And from N10.8 trillion in 2020 to N17.126 trillion in 2022, reflecting a 336% increase between 2010 and 2022.
There have been debates over the years on whether Nigeria’s steady increase in government consumption is good for the economy. Government officials sometimes argue that the budget size spurs economic growth. In our definition of government size above, we recall that an increase in government consumption reduces economic freedom and business development, but how does this work?
The government gains revenue through taxes, borrowing money, or printing cash via its central bank, so when expenditure increases, the pressure to earn revenue from these sources of income also increases, and the repercussions are unsuitable for businesses.
Overly taxing businesses is one of the primary reasons companies are fleeing the nation. Expanding the ‘debt pot’ endangers the nation’s future and, by extension, decreases investors’ confidence in the economy. The catastrophe that hyperinflation from excessively printing money causes cannot be overstated, as in Zimbabwe and many years ago in Germany after the second world war. We can see the ripple effects of expanding expenditure are not favorable for entrepreneurs and business owners alike.
In a statement, multimillionaire and entrepreneur Tony Elumelu noted that “multiple taxation kills 95% of small businesses in Nigeria”. The entrepreneur said, “Multiple business regulations, multiple taxation, and inconsistent government policies affect SMEs’ competitiveness and ability to attract capital in their investment climate.”
To further show the tax burden businesses in Nigeria have to bear, manufacturers and members of the Organized Private Sector of Nigeria (OPSN) recently urged the Federal Government to spare enterprises for further taxation. The Manufacturers’ Association of Nigeria (MAN) also stated that manufacturers in the country have been groaning under multiple taxations from the three tiers of government.
Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), also said, “The constant imposition of levies and approval of licenses is taking a toll on the private sector.” There should be a distinction between regulatory agencies and revenue-generating agencies. “
All this shows that the private sector has increasingly become the target for regulatory government agencies seeking to raise revenue for the government deficit, which continues to take a toll on the private sector’s competitiveness.
Even as business owners that remit taxes to the government lament over taxation and undue harassment by collection officers in many Nigerian states for the government to grow their local revenues, the federal government does not seem to change its stance. The authorities appear to shift slightly toward increased taxation in search of this elusive revenue. The 2021 Finance Bill shows that the government is serious about widening the tax base.
Bureaucracy is a system of government in which state officials make most of the critical decisions rather than elected representatives. Some examples are; Ministers, central bank governors, commissioners, etc. The procedures and policies of these bureaucrats affect doing business in the country. The effects of government bureaucracy on business performance in Nigeria have been quite adverse, and we will look at them here.
First, starting and registering a company in Nigeria is expensive and lengthy. Therefore, many individually owned businesses never make it past the startup stage because of how tedious it is to get past the huddled bureaucrats required to start a business.
Second, most businesses (SMEs and even existing companies) in Nigeria import raw materials needed to manufacture their goods. This is, however, difficult because of policies such as high import and export dues, which affect the cost of doing business. This may be because of increasing government tariff levies on raw material imports. Coincidentally, the Nigerian Customs Services are a top source of revenue for the Federal Government.
Third, businesses in Nigeria of every size and function pay many levies to various regulatory authorities under which their businesses operate. This has meant that these regulatory bodies have now become revenue-generating agencies. However, this goal is now being overshadowed.
In a nutshell
The government’s expenditure seems to be the bane of the discussion in this article because the government’s consumption is ever-increasing against its source of income, and it is constantly incurring deficits. It is now implementing policies to reallocate wealth from the private sector to its coffers.
This does not bode well for businesses and entrepreneurs in the country because entrepreneurs will cease to take risks if the government can capriciously steal the fruits of their efforts. The ripple effect of this is that unemployment continues to be a problem. Therefore, we need more economic freedom and fewer taxes instead of multiple taxation to create a conducive environment for businesses to grow because ‘big governments’ and ease of doing business don’t mix.