Stop the hype! CAMA 2020 will not transform Nigeria’s business environment

George Orwell must have had Nigeria in mind when he wrote in ‘Politics and the English language’ that political statements often “give an appearance of solidity to pure wind.” Nigeria is a country where miniscule progress is presented as a landmark achievement!

In 2018, when Nigeria moved up 24 places, from 169th to 145th on the World Bank’s Doing Business Index, one minister tweeted: “Congratulations Nigeria!!! The gloating was so much that one newspaper described it as “rhapsodic self-congratulations.”

Now, we are having another moment of hyperbolism. Since President Buhari signed the Companies and Allied Matters Act 2020 (CAMA 2020) into law on 7 August, the euphoria has been stratospheric. One commentator said: “A perusal of CAMA 2020 reveals that it is, in every sense, a “revolutionary piece of legislation…” Another wrote that it “provides a robust framework for reforming onerous, legal, regulatory and administrative bottlenecks.”

These are all extravagant claims. Nigeria is starting from an extremely low base. While any marginal progress is commendable, it mustn’t be presented as transformational. Tinkering around the edges is not what Nigeria needs, but radical, root-and-branch holistic reforms.

I mean, adopting in 2020 company law principles that have existed in the companies acts of most countries for several decades is not “revolutionary.” The first CAMA was introduced in 1990, and for 30 years Nigeria’s company law was mostly out of kilter with international best practices. Now, if bringing Nigeria’s company law in line some basic company law princes 30 years later is what makes CAMA 2020 “revolutionary”, then the levels of ambition and aspiration in this country are extremely low.

Think of it, CAMA 2020 addresses mainly procedural and administrative barriers, not substantive supply-side constraints. It may make some aspects of operating a business easier, but does it remove or even reduce the structural obstacles to successfully running a business in Nigeria? The Manufacturers’ Association of Nigeria (MAN) reportedly said that about 272 businesses failed in 2016; the number would have skyrocketed since then, especially in this year of Covid-19. Would CAMA 2020 stop the rate of business failure or collapse in Nigeria?

Here’s my point. Despite Nigeria’s improvement on the World Bank’s Doing Business Index, the world did beat its way to its door and private sector dynamism remains elusive. Similarly, CAMA 2020 will not, as someone said, “profoundly influence the direction of corporate activities” and “promote entrepreneurship and economic prosperity in Nigeria.”

Ralph Waldo Emerson reported said: “Build a better mousetrap, and the world will beat a path to your door.” Truth is, if Nigeria wants to attract foreign investors, if it wants to engender a dynamic private sector, it must “build a better mousetrap”, in the sense of transforming its business environment in a way that supports private sector development.

To be clear, I am not trivialising CAMA 2020. Some of its provisions are good; others are bad or not so good. Clearly, some of the business-related provisions are good. But most of the provisions affecting charities, NGOS and other voluntary organisations are not good, a subject that I addressed in my column in the Vanguard Newspaper last Thursday.

Many of the business-related provisions are, indeed, aimed at enhancing the ease of doing business, particularly for small companies. For instance, no one will disagree with the businessfriendly provisions, such as those: recognising single member/shareholder companies; allowing for statement of compliance signed by an applicant/ agent instead of, as previously, a declaration of statement attested to by a lawyer or Notary Public; and making the use of Common Seal non-mandatory. There are other provisions recognising the validity of electronic signature, electronic transfer of shares and virtual meetings; reducing filing fees for registration of charges; and exempting of small companies from the requirements to appoint auditors and company secretaries.

All the above provisions, which mimic similar provisions in the UK Companies Act of 2006, will reduce regulatory and administrative for small companies, and that must be welcomed. The provision that requires the disclosure of significant control and beneficial ownership should also be welcomed. Creating public registers of beneficial ownership, which would disclose who owns what in any country, was part of the agreement reached at the international anticorruption summit in London in 2016. If sections 119 and 120 of CAMA 2020 help to prevent asset-shielding, that would be a good anti-corruption provision.

However, there are some not-so-good business-related provisions in CAMA 2020, particularly the protectionist elements. For instance, the purported attempt in section 22 to protect shareholders from the dilution of their shares by restricting who individual shareholders could initially sell their shares to is an affront on property rights. Similar provisions in the UK Companies Act are about allotment of shares, not individuals’ right to sell their shares. Similarly, the protective shield for debtors and companies in distress in section 717, which limits the rights of creditors, goes beyond provisions in other companies acts to facilitate settlements between creditors and de debtors. It could create a moral hazard and, counterproductively, make it more difficult for companies to secure credit.

All that said, the business-related sections of CAMA 2020 are, overall, good. Yet, given the utter weakness of state capacity in Nigeria, it is very unlikely that the Corporate Affairs Commission will be able to implement the act effectively. But even if it did, my bigger point, considering the wild euphoria, is that CAMA 2020 alone will not transform the business environment and boost private sector development in Nigeria.

According to a World Bank report titled “Competitiveness Diagnostic Toolkit”, an effective business environment requires a regulatory regime that does not create unnecessary obstacles to running a business; a business-friendly tax environment; a legal framework that promotes market competition; and a sound governance and capable institutions. None of these is present in Nigeria.

Take the regulatory environment. Recently, Businessday wrote a poignant editorial titled “Business-killing regulations must go.” Would CAMA 2020 solve this problem? Would it, for instance, address the irrationality of maintaining different foreign exchange windows, despite foreign investors calling for a flexible and unified system? Would it end the bizarreness of closing Nigeria’s land borders for over a year now even though it is harming Nigerian businesses? Or would it stop the illiberal policy of excluding increasing number of products, currently 44, from access to foreign exchange or the equally illiberal policy of price controls? What about President Buhari’s credibilitydestroying orders to the central bank?

The World Bank report said that any analysis of the business environment must include four components: governance, business regulation, taxation and competition. Yet, on each of these four, Nigeria is a world laggard. Take governance. The meta-institutions, such as the rule of law, bureaucratic quality and sound policymaking, the protection and enforcement of contracts and property rights, etc, all of which contribute to the emergence of a dynamic private sector, are extremely weak in Nigeria.

What about business regulation? Well, as stated above, Nigerian businesses are over-regulated. They are subject to overlapping regulations, enforced heavyhandedly by multiple and overlapping regulatory agencies. Everyone knows about the multiple taxes. A World Bank study shows that there are 59 tax payments per year in Nigeria, compared to an average of 37 in sub-saharan Africa.

And competition? Well, Nigeria is a very uncompetitive economy. For instance, while Nigeria is improving its rankings on the World Bank’s Doing Business Index, it’s wallowing at the bottom of the World Economic Forum’s Global Competitiveness Index, where it ranked 116th out of 141 in 2019, compared to South Africa’s 62nd!

So, yes, CAMA 2020, albeit belated, is broadly welcomed. But, no, the hype is uncalled for. Its enactment is not revolutionary and will not significantly transform Nigeria’s business environment. For that, Nigeria needs radical, comprehensive structural reforms, not tinkering at the edges!

Creating public registers of beneficial ownership, which would disclose who owns what in any country, was part of the agreement reached at the international anti-corruption summit in London in 2016. If sections 119 and 120 of CAMA 2020 help to prevent asset-shielding, that would be a good anticorruption provision