EODB: A catalyst for attracting FDI into an emerging economy

“Furthermore, rising unemployment levels could trigger an increase in social vices, such as drug abuse, robbery, armed struggles, internet fraud, and related crimes. Ultimately, this crisis could lead to a reduction in the continent’s Gross Domestic Product (GDP) and per capita income.”

Recently, there have been numerous reports of multinationals across Africa leaving in droves for other continents, such as Europe, the USA, and the Middle East, where, according to reports, the business climate appears friendlier, more welcoming, accommodating, and inviting. Some of the reasons cited for their relocation include an unfavourable business climate leading to a drop in sales volume and margins, a corresponding decline in profitability, and, in extreme cases, repeated operating losses. Other reasons include unfriendly government policies that have hindered the “Ease of Doing Business” (EODB).

The mass exodus of multinational corporations from the African continent, if not urgently addressed, could spell doom, especially in terms of increasing job losses, which would raise the unemployment rate. Additionally, job losses may lead to a higher poverty rate. Furthermore, rising unemployment levels could trigger an increase in social vices, such as drug abuse, robbery, armed struggles, internet fraud, and related crimes. Ultimately, this crisis could lead to a reduction in the continent’s Gross Domestic Product (GDP) and per capita income.

To address this ugly trend of multinational relocation, several measures can be employed. Among these, creating an enabling business environment and fortifying our Ease of Doing Business (EODB) parameters stand out. An enabling business environment, also known as a Business Enabling Environment (BEE), consists of the totality of norms, customs, policies, laws, regulations, legislation, trade agreements (local and international), and public infrastructure that either promotes or hinders the free flow of goods and services, with an impact on the nation’s value-added activities.

EODB, on the other hand, refers to measures designed to simplify the laws and regulations governing business activities within a particular geographical area. I would like to highlight some significant strides made by both collective African governments and individual heads of state. One such notable initiative is the African Continental Free Trade Area (AfCFTA), established in 2018, although it fully commenced operations on January 1st, 2021, due to the negative impact of the COVID-19 pandemic on the global economy.

In Nigeria, former President and Commander-in-Chief of the Nigerian Armed Forces, His Excellency, President Muhammadu Buhari, GCFR, in 2016, established and inaugurated the Presidential Enabling Business Environment Council (PEBEC), a specialized government agency tasked with addressing issues related to the Nigerian business environment. The PEBEC is headed by the office of the Vice President (VP) of the Federal Republic of Nigeria and has a dual mandate: to make Nigeria a progressively easier place to do business by removing bureaucratic constraints and improving investor and stakeholder perceptions of the Nigerian business landscape.

Additionally, the remarkable efforts of the current administration, led by President Ahmed Bola Tinubu, GCFR, in addressing bottlenecks in the national tax system and collection processes should not be ignored. This administration has established and inaugurated the Presidential Fiscal Policy and Tax Reform Committee (PFPTRC), chaired by Mr. Taiwo Oyedele, FCTI, FCA. Among other things, the committee has recommended harmonizing over sixty-two different taxes and levies, with the objective of reducing or consolidating them to about eight, thus promoting the Ease of Doing Business (EODB).

In 2022, the World Bank released its annual report ranking countries based on their EODB ratings. Interestingly, the top-ranking countries included Singapore, New Zealand, Hong Kong SAR, China, Denmark, and South Korea. No African nation ranked among the top five, despite the considerable efforts made by African governments in this area.

Locally, our expectations for an ideal EODB parameter should center around what management scholars refer to as the PESTLE index. This includes:

• The establishment of a stable political climate that positively affects businesses (political environment);
• A stable interest rate, inflation rate, and foreign exchange rate (economic environment);
• Ensuring that norms, values, and belief systems accommodate a business-friendly environment (socio-cultural environment);
• Supporting innovation and technological advancements that enhance business operations (technological environment);
• Protecting the environment from degradation or collapse due to issues like flooding or deforestation (ecological environment); and
• Enacting laws, regulations, and legislation that support business growth and sustainability (legal environment).

When well-articulated, EODB can offer numerous benefits to African nations. These include job creation, the promotion of a simplified regulatory framework alongside a business-friendly atmosphere, boosting governance structures, improving transparency and accountability, and, most importantly, attracting much-needed Foreign Direct Investment (FDI).

Foreign Direct Investment (FDI) explained:

Foreign Direct Investment (FDI) refers to an investment opportunity made by an individual or company in one country into a business interest located in another. It may also be viewed as a form of ownership in a foreign business or investment undertaken by an individual, company, or government from another nation.

FDI manifests in three key ways:

1. Greenfield strategy: A type of FDI where a company builds entirely new operations or facilities in another country.
2. Brownfield strategy (Acquisition strategy): A form of FDI where a company purchases or acquires an existing venture or project in a foreign country.
3. Joint venture: An arrangement where two or more companies collaborate to create a new enterprise for a common goal.

Benefits of FDI

FDI offers a host of benefits to nations that embrace it, including job creation, reducing poverty levels, mitigating social vices, and encouraging knowledge transfer, which boosts production. It also assists investors in controlling foreign operations, fosters economic expansion, increases sales, production, and productivity, encourages local patronage, enhances customer satisfaction and brand loyalty, and boosts government revenues through taxes. Ultimately, FDI contributes to the nation’s GDP growth.

Conclusion

A nation’s economy is built on the wealth generated by businesses and industries within it. Governments that genuinely want to grow their economies must prioritize the Ease of Doing Business (EODB) to attract Foreign Direct Investment (FDI) and create an enabling environment for business growth. FDI is a crucial stimulant for economic growth, and no nation can grow in isolation without it.