According to Mbwana Alliy Venture Capitalist from Savanah Fund, there are four metrics to be used in assessing the ease of doing business in digital economies across Africa. One of them is towers.
Towers are regulations, taxation policies and general processes to ease business operations in the country[1]. Some countries implement policies that make it easier to conduct business by reducing registration and licensing costs, encouraging transparency in processes, providing convenient methods for tax payment, and making cross-border trade easier. Countries such as Mauritius, Rwanda, Morocco, Kenya, Botswana, South Africa, Zambia, Tunisia and Seychelles[2], have towers in place that enable business operations in their country.
In 2016, the Nigerian Presidential Enabling Business Environment Council led by the Vice President was inaugurated to drive business reforms in the country. This council is tasked with identifying policies and regulations that improve Nigeria’s ease-of-doing-business ranking. These policies and regulations form a framework that is intended to safeguard economies and generate income, however, challenges arise if these frameworks are poorly thought out and implemented.
In general, this council has brought forth bills that have been enacted and in theory, will aid in improving the ease of doing business. In reality, however, for some industries, they seem to be achieving just the opposite of their mandate. Two of such bills are the Companies & Allied Matters Act 2020 (“CAMA”), and the Finance Bill 2020.
According to CAMA, any company that ‘carries on business in Nigeria’ including a non-resident company (foreign company), must be registered in Nigeria[3]. A company that ‘carries on business in Nigeria’ is one that is doing business in Nigeria with Nigerians continuously. Within the digital economy, non-resident companies are typically registered in one country while carrying out business in regions or across the globe. The advantage of this is to have lean operations without being tied down financially in many different countries, but in operating this model in Nigeria they potentially run afoul of CAMA’s stipulations.
The Finance Act of 2020 is another one of those policies that work well for the majority but hurts the digital economy. Prior to this Act, companies not registered in Nigeria and with no physical location in the country were exempt from paying taxes in the country[4]. With the enactment of the Act though, this is no longer the case[5].
The challenge here arises when the same company is registered in a second, different country and has to pay taxes in that country as well. To solve this challenge Nigeria has signed a Double Tax Treaty with 13 countries (12 if you exclude Italy, where the treaty applies to Air & Shipping agreements only)[6]. The first problem is that Nigeria has signed treaties with only 13 countries in comparison to Malaysia at 68 countries and the United Kingdom at 131 countries. And the second problem surrounds the implementation of the treaties[7].
It is not unusual for these towers to be imposed after the business has commenced.
In 2018, Gokada, an e-hailing passenger motorcycle company was launched in Lagos, Nigeria. Although there was already a ban on motorcycles with engines below 200cc in certain parts of the state, Gokada was determined to solve the traffic and accessibility problem by introducing motorcycles that are above 200cc in parts of the state without the ban. Then came Max and O’Ride; together these three players attracted investments worth over $180 Million[8].
On January 27 2020, the state government announced a ban on all motorcycles taking effect February 1, 2020, due to the “safety of passengers and security of the state”[9]. Over 6,500 drivers from these companies lost their jobs, and companies that couldn’t pivot were hung out to dry alongside investor’s money[10].
More recently, in August 2020, after many weeks of back and forth, the Lagos state government introduced a new license system and some regulations for ride-hailing operations in the state also in an attempt to increase security[11]. They imposed a service charge (N20) on each trip taken, an 8 million Naira license and renewal fee, mandatory comprehensive insurance for the automobile as well as passengers, and mandatory background checks[12].
Policies, regulations and frameworks are actually helpful in curbing corruption, ensuring safety and security and, creating structure and an enabling environment. The challenge lies where they are not fully thought out in relation to the entire economy and when they are not implemented properly. In such cases, they achieve the opposite and create barriers to doing business instead.
Contact Versa Research trusted research partner!
[1] http://savannah.vc/2012/01/18/which-african-country-is-best-to-do-a-tech-startup-a-decision-framework/#.XeTvKpNKi9Y
[2] https://ventureburn.com/2017/11/easiest-places-in-africa-to-start-a-business/
[3] https://www.mondaq.com/nigeria/new-technology/902238/the-legal-framework-applicable-to-the-facilitation-of-digital-content-in-nigeria
[4] https://www.mondaq.com/nigeria/new-technology/902238/the-legal-framework-applicable-to-the-facilitation-of-digital-content-in-nigeria
[5] https://www.mondaq.com/nigeria/new-technology/902238/the-legal-framework-applicable-to-the-facilitation-of-digital-content-in-nigeria
[6] https://www2.deloitte.com/ng/en/pages/tax/articles/inside-tax-articles/improved-double-tax-arrangements-in-nigeria.html
[7] https://www2.deloitte.com/ng/en/pages/tax/articles/inside-tax-articles/improved-double-tax-arrangements-in-nigeria.html
[8] https://techcabal.com/2020/02/14/lagos-ban-okada-tricycles-not-solving-problems/
[9] https://techcabal.com/2020/02/14/lagos-ban-okada-tricycles-not-solving-problems/
[10] https://techcabal.com/2020/02/14/lagos-ban-okada-tricycles-not-solving-problems/
[11] https://www.premiumtimesng.com/news/headlines/408920-lagos-govt-e-taxi-hailing-operators-agree-on-new-regulations.html
[12] https://www.premiumtimesng.com/news/headlines/408920-lagos-govt-e-taxi-hailing-operators-agree-on-new-regulations.html
