I agree, Nigeria’s Corporate Affairs Commission (CAC) which handles business registration and incorporation in Nigeria has improved. If you have all your documents right, you can get a company registered within two weeks. Yet, to get that done, you may need to use a lawyer who understands the CAC world. That costs money and makes incorporating a private limited liability company to require expenses of at least N80,000. The government part of the N80,000 is largely small with the bulk going to the lawyer. You may say that the amount is relatively small for the lawyer. But when you note that few graduates in Nigeria earn up to N70,000 per month, you will understand that the process remains costly for artisans and makers who we need to formalize their ventures.
But despite the cost of incorporating, Nigeria is making progress, just as many parts of Africa, but we are still far behind. When artisans and innovators cannot incorporate, they become invisible. Most times, they are forgotten in the national industrial policy. That is a problem.
It takes less than ten minutes to approve certain documents towards starting a new business in New Zealand. At most, it takes a day to get a business approved to open its doors to customers. And all the procedures are combined into a single step. That is why the World Bank ranks it among the top five in its Doing Business report. This pattern of quick new business approval is similar in most developed nations where it could take from a day to a week. In the United States, it takes hours depending on the state. In short, in some states, it could be automatic if they can validate your identity digitally.
But move to Africa. It takes 136 days to get approval to start a new business in Equatorial Guinea. Why? Because the country’s Prime Minister must approve all new businesses. Yes, a Prime Minister must approve a small business to be operated by a college student in that country. By moving this approval to the office of the Prime Minister, the nation creates about 20 procedures compared to 1 in New Zealand.
Yet, Equatorial Guinea does better than another country, Guinea-Bissau. Guinea-Bissau needs 213 days to approve a new business. The fees and legal costs are a factor of 807 more when compared to New Zealand. So if an entrepreneur in New Zealand pays $1 to launch a new business, the counterpart in Guinea-Bissau will pay $807, in relative terms.
The whole outlooks show that only the rich can afford to create new businesses in most parts of the black race. In Haiti, it takes more than three years to get a building permit with many layers of bureaucracy.
I have created firms in two countries. In the United States, it took less than a week and all was done via the web. In Nigeria, it took weeks when I first did it in 2010. Sure, I do blame myself. I had “engineering” in my company name when technically I was not a Nigerian engineer (I was not registered with the professional body, so I cannot have a firm with engineering title. It is irrelevant that I hold a PhD in engineering.). Since I registered, Nigeria has made progress. Yet, there are still many hurdles we need to overcome. Nigeria remains ranked in triple digits in World Bank’s Doing Business. That has to improve. I understand that the government is simplifying that process.
From Cameroon to Botswana, the experience is basically the same. The high barrier to incorporation makes it tougher for most business owners to operate and join the formal economy. The reality is that unless Africa finds ways to improve its business registration climate, most entrepreneurs will continue to operate in the informal sector thereby depriving the state much needed taxes and fees.
I used some World Bank numbers to examine the relationship between the Doing Business ranking and the percentage of a nation’ GDP in the informal economy. There was no surprise: a correlation exists. As the burden of registering businesses increases, the percentage of GDP in the informal economy also increases. So, Guinea-Bissau has more of its GDP controlled in the informal sector than New Zealand.
There are many reasons why this trend happens in Africa where we have disproportional level of informal economies dominating our GDPs. A key factor is that most business owners in Africa are not educated and their businesses rarely need government approvals to thrive. The woman that sells oranges and carrots by roadsides may not bother to register with the governments as there seem to be no major benefit incorporating the business will give her. The same applies to most African subsistence farmers.
Another reason is the cost and time needed to incorporate. When most people consider these factors, they decide to go under and operate in the shadow economy. That does not help government statistics and national planning.
Nonetheless, most of these business owners will be most willing to incorporate if the process is efficient and affordable. From Nigeria to Cameroon, Africa must work very hard to modernize most of its business environments so that people could be attracted to launch businesses legally. If they leave the system as it is, governments are basically encouraging their entrepreneurs to shun the formal sector. Certainly, it will not be the best model for development.
As we expect to diversify our economies, moving away from minerals and hydrocarbon, the inventors and innovators can only make progress when they are formalized. That is the only path through which they can attract funding and scale. It is a message that must be communicated with policies designed and implemented to make it easier for dreamers to become makers.