92099 Doing Business 2015 Nigeria Economy Profile 2015 Nigeria Doing Business 2015 Nigeria 2 © 2014 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 17 16 15 14 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2015 Nigeria 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 6 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 29 Getting electricity ....................................................................................................................... 43 Registering property .................................................................................................................. 52 Getting credit .............................................................................................................................. 59 Protecting minority investors ................................................................................................... 66 Paying taxes ................................................................................................................................ 75 Trading across borders .............................................................................................................. 81 Enforcing contracts .................................................................................................................... 85 Resolving insolvency .................................................................................................................. 92 Labor market regulation ........................................................................................................... 95 Distance to frontier and ease of doing business ranking .................................................... 102 Resources on the Doing Business website ............................................................................ 105 Doing Business 2015 Nigeria 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is 1, 2014 (except for the paying taxes indicators, which for a local entrepreneur to open and run a small to cover the period January–December 2013). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, getting trading across borders and getting electricity), the credit, protecting minority investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and labor market regulation. macroeconomic conditions or the underlying strength of In a series of annual reports Doing Business presents institutions—are not directly studied by Doing Business. quantitative indicators on business regulations and the The indicators refer to a specific type of business, protection of property rights that can be compared generally a local limited liability company operating in across 189 economies, from Afghanistan to Zimbabwe, the largest business city. Because standard assumptions over time. The data set covers 47 economies in Sub- are used in the data collection, comparisons and Saharan Africa, 32 in Latin America and the Caribbean, 25 benchmarks are valid across economies. The data not in East Asia and the Pacific, 26 in Eastern Europe and only highlight the extent of obstacles to doing business; Central Asia, 20 in the Middle East and North Africa and they also help identify the source of those obstacles, 8 in South Asia, as well as 31 OECD high-income supporting policy makers in designing regulatory reform. economies. The indicators are used to analyze economic More information is available in the full report. Doing outcomes and identify what reforms have worked, where Business 2015 presents the indicators, analyzes their and why. relationship with economic outcomes and presents This economy profile presents the Doing Business business regulatory reforms. The data, along with indicators for Nigeria. To allow useful comparison, it also information on ordering Doing Business 2015, are provides data for other selected economies (comparator available on the Doing Business website at economies) for each indicator. The data in this report are http://www.doingbusiness.org. current as of June Doing Business 2015 Nigeria 5 CHANGES IN DOING BUSINESS 2015 As part of a 2-year update in methodology, Doing Finally, the name of the employing workers indicator set Business 2015 incorporates 7 important changes. First, has been changed to labor market regulation, and the the ease of doing business ranking as well as all topic- scope of this indicator set has also been changed. The level rankings are now computed on the basis of indicators now focus on labor market regulation distance to frontier scores (see the chapter on the applying to the retail sector rather than the distance to frontier and ease of doing business ranking). manufacturing sector, and their coverage has been Second, for the 11 economies with a population of more expanded to include regulations on labor disputes and than 100 million, data for a second city have been added on benefits provided to workers. The labor market to the data set and the ranking calculation. These regulation indicators continue to be excluded from the economies are Bangladesh, Brazil, China, India, aggregate distance to frontier score and ranking on the Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian ease of doing business. Federation and the United States. Third, for getting Beyond these changes there are 3 other updates in credit, the methodology has been revised for both the methodology. For paying taxes, the financial statement strength of legal rights index and the depth of credit variables have been updated to be proportional to 2012 information index. The number of points has been income per capita; previously they were proportional to increased in both indices, from 10 to 12 for the strength 2005 income per capita. For enforcing contracts, the of legal rights index and from 6 to 8 for the depth of value of the claim is now set at twice the income per credit information index. In addition, only credit bureaus capita or $5,000, whichever is greater. For dealing with and registries that cover at least 5% of the adult construction permits, the cost of construction is now set population can receive a score on the depth of credit at 50 times income per capita (before, the cost was information index. assessed by the Doing Business respondents). In addition, Fourth, the name of the protecting investors indicator set this indicator set no longer includes the procedures for has been changed to protecting minority investors to obtaining a landline telephone connection. better reflect its scope—and the scope of the indicator For more details on the changes, see the “What is set has been expanded to include shareholders’ rights in changing in Doing Business?” chapter starting on page corporate governance beyond related-party transactions. 24 of the Doing Business 2015 report. For more details Fifth, the resolving insolvency indicator set has been on the data and methodology, please see the “Data expanded to include an index measuring the strength of Notes” chapter starting on page 114 of the Doing the legal framework for insolvency. Sixth, the calculation Business 2015 report. For more details on the distance to of the distance to frontier score for paying taxes has frontier metric, please see the “Distance to frontier and been changed. The total tax rate component now enters ease of doing business ranking” chapter in this profile. the score in a nonlinear fashion, in an approach different from that used for all other indicators (see the chapter on the distance to frontier and ease of doing business ranking). Doing Business 2015 Nigeria 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: Sub-Saharan Africa based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Lower middle income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. This Population: 173,615,345 year's report presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 2,760 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier (DTF) scores. DB2015 rank: 170 The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute DB2014 rank: 175* distance to the best performance in each Doing Business Change in rank: 5 indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the DB 2015 DTF: 47.3 worst performance and 100 the frontier. (See the chapter on the distance to frontier and ease of doing business). DB 2014 DTF: 43.7 The 10 topics included in the ranking in Doing Business 2015: starting a business, dealing with construction Change in DTF: 3.6 permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading * DB2014 ranking shown is not last year’s published across borders, enforcing contracts and resolving ranking but a comparable ranking for DB2014 that insolvency. The labor market regulation indicators captures the effects of such factors as data (formerly employing workers) are not included in this corrections and the changes in methodology. See year’s aggregate ease of doing business ranking, but the the data notes starting on page 114 of the Doing data are presented in this year’s economy profile. Business 2015 report for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2015 Nigeria THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2015 Nigeria THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Nigeria and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Nigeria 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Nigeria (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Nigeria (Scale: Score 0 center, Score 100 outer edge) Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Nigeria 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business tells Doing Business introduced the distance to frontier score. This only part of the story, so do changes in that ranking. Yearly measure shows how far on average an economy is from the movements in rankings can provide some indication of best performance achieved by any economy on each Doing changes in an economy’s regulatory environment for firms, Business indicator. but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed in over time—how far it has moved toward (or away from) the different areas. To aid in assessing such changes, most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Nigeria come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2010, except for getting credit, paying taxes, protecting minority investors and resolving insolvency which had methodology changes in 2014 and thus are only comparable to 2013. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2015 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2015 Nigeria 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Nigeria United Kingdom DB2015 Best performer globally South Africa DB2015 Nigeria DB2015 Nigeria DB2014 Indicator Kenya DB2015 Lagos DB2015 Kano DB2015 India DB2015 DB2015 Starting a Business 129 138 -- -- 158 143 61 45 New Zealand (1) (rank) Starting a Business (DTF 77.13 73.76 78.91 71.19 68.42 74.02 89.43 91.23 New Zealand (99.96) Score) Procedures (number) 8.7 8.7 8.0 11.0 11.9 10.0 5.0 6.0 New Zealand (1.0)* Time (days) 30.8 30.8 28.0 40.0 28.4 30.0 19.0 6.0 New Zealand (0.5) Cost (% of income per 31.6 58.7 31.1 33.5 12.2 42.7 0.3 0.3 Slovenia (0.0) capita) Paid-in min. capital (% 0.0 0.0 0.0 0.0 111.2 0.0 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 171 168 -- -- 184 95 32 17 China (1) (rank) Dealing with Hong Kong SAR, Construction Permits 50.00 49.34 42.02 76.73 30.89 71.02 81.65 85.06 China (95.53) (DTF Score) Doing Business 2015 Nigeria 12 United Kingdom DB2015 Best performer globally South Africa DB2015 Nigeria DB2015 Nigeria DB2014 Indicator Kenya DB2015 Lagos DB2015 Kano DB2015 India DB2015 DB2015 Hong Kong SAR, Procedures (number) 17.0 17.0 17.0 17.0 25.4 8.0 16.0 9.0 China (5.0) Time (days) 105.9 105.9 116.0 72.0 185.9 125.0 48.0 105.0 Singapore (26.0) Cost (% of warehouse 26.4 52.7 33.8 1.7 28.2 9.3 0.9 1.2 Qatar (0.0)* value) Getting Electricity 187 186 -- -- 137 151 158 70 Korea, Rep. (1) (rank) Getting Electricity (DTF 31.37 29.38 31.37 31.37 63.06 58.85 55.74 78.42 Korea, Rep. (99.83) Score) Procedures (number) 9.0 9.0 9.0 9.0 7.0 6.0 5.0 4.0 12 Economies (3.0)* Time (days) 257.2 257.2 260.0 248.0 105.7 158.0 226.0 126.0 Korea, Rep. (18.0)* Cost (% of income per 478.0 960.5 478.0 478.0 487.7 1,020.2 729.5 90.1 Japan (0.0) capita) Registering Property 185 185 -- -- 121 136 97 68 Georgia (1) (rank) Registering Property 26.56 26.52 21.21 44.48 60.40 56.88 66.02 72.55 Georgia (99.88) (DTF Score) Procedures (number) 12.1 12.1 13.0 9.0 7.0 9.0 7.0 6.0 4 Economies (1.0)* Time (days) 69.6 69.6 77.0 45.0 47.0 72.0 23.0 21.5 3 Economies (1.0)* Cost (% of property 18.6 18.8 20.6 11.8 7.0 4.3 6.2 4.6 4 Economies (0.0)* value) Getting Credit (rank) 52 125 -- -- 36 116 52 17 New Zealand (1) Getting Credit (DTF 60.00 30.00 60.00 60.00 65.00 35.00 60.00 75.00 New Zealand (100) Score) Strength of legal rights 6 6 6 6 6 7 5 7 3 Economies (12)* index (0-12) Doing Business 2015 Nigeria 13 United Kingdom DB2015 Best performer globally South Africa DB2015 Nigeria DB2015 Nigeria DB2014 Indicator Kenya DB2015 Lagos DB2015 Kano DB2015 India DB2015 DB2015 Depth of credit 6 0 6 6 7 0 7 8 23 Economies (8)* information index (0-8) Credit registry coverage 0.1 0.0 0.1 0.1 0.0 0.0 0.0 0.0 Portugal (100.0) (% of adults) Credit bureau coverage 5.8 4.9 5.8 5.8 22.4 4.9 55.4 100.0 23 Economies (100.0)* (% of adults) Protecting Minority 62 61 -- -- 7 122 17 4 New Zealand (1) Investors (rank) Protecting Minority 57.50 57.50 57.50 57.50 72.50 45.83 67.50 78.33 New Zealand (81.67) Investors (DTF Score) Extent of conflict of interest regulation 6.0 6.0 6.0 6.0 6.7 4.7 8.0 8.3 Singapore (9.3)* index (0-10) Extent of shareholder governance index (0- 5.5 5.5 5.5 5.5 7.8 4.5 5.5 7.3 France (7.8)* 10) Strength of minority investor protection 5.8 5.8 5.8 5.8 7.3 4.6 6.8 7.8 New Zealand (8.2) index (0-10) United Arab Emirates Paying Taxes (rank) 179 177 -- -- 156 102 19 16 (1)* Paying Taxes (DTF United Arab Emirates 39.15 39.15 39.15 39.15 55.53 71.49 88.73 90.52 Score) (99.44)* Payments (number per Hong Kong SAR, 47.0 47.0 47.0 47.0 33.0 30.0 7.0 8.0 year) China (3.0)* Time (hours per year) 907.9 907.9 956.0 747.0 243.0 201.5 200.0 110.0 Luxembourg (55.0) Trading Across Borders 159 159 -- -- 126 153 100 15 Singapore (1) (rank) Trading Across Borders 50.12 50.12 52.14 43.36 65.47 54.49 71.05 88.32 Singapore (96.47) Doing Business 2015 Nigeria 14 United Kingdom DB2015 Best performer globally South Africa DB2015 Nigeria DB2015 Nigeria DB2014 Indicator Kenya DB2015 Lagos DB2015 Kano DB2015 India DB2015 DB2015 (DTF Score) Documents to export 9 9 9 9 7 8 5 4 Ireland (2)* (number) Time to export (days) 22.9 22.9 22.0 26.0 17.1 26.0 16.0 8.0 5 Economies (6.0)* Cost to export (US$ per 1,564.0 1,564.0 1,380.0 2,180.0 1,332.0 2,255.0 1,830.0 1,005.0 Timor-Leste (410.0) container) Cost to export (deflated 1,564.0 1,564.0 1,380.0 2,180.0 1,332.0 2,255.0 1,830.0 1,005.0 US$ per container) Documents to import 13 13 13 13 10 9 6 4 Ireland (2)* (number) Time to import (days) 33.9 33.9 33.0 37.0 21.1 26.0 21.0 6.0 Singapore (4.0) Cost to import (US$ per 1,959.5 1,959.5 1,695.0 2,845.0 1,462.0 2,350.0 2,080.0 1,050.0 Singapore (440.0) container) Cost to import (deflated 1,959.5 1,959.5 1,695.0 2,845.0 1,462.0 2,350.0 2,080.0 1,050.0 US$ per container) Enforcing Contracts 140 139 -- -- 186 137 46 36 Singapore (1) (rank) Enforcing Contracts 47.71 47.71 48.06 46.54 25.81 48.96 66.14 68.08 Singapore (89.54) (DTF Score) Time (days) 509.8 509.8 447.0 720.0 1,420.0 465.0 600.0 437.0 Singapore (150.0) Cost (% of claim) 57.7 57.7 62.0 43.4 39.6 47.2 33.2 39.9 Iceland (9.0) Procedures (number) 40.2 40.2 40.0 41.0 46.0 44.0 29.0 29.0 Singapore (21.0)* Resolving Insolvency 131 129 -- -- 137 134 39 13 Finland (1) (rank) Resolving Insolvency 33.76 33.74 33.76 33.76 32.60 33.31 64.51 82.04 Finland (93.85) (DTF Score) Doing Business 2015 Nigeria 15 United Kingdom DB2015 Best performer globally South Africa DB2015 Nigeria DB2015 Nigeria DB2014 Indicator Kenya DB2015 Lagos DB2015 Kano DB2015 India DB2015 DB2015 Time (years) 2.0 2.0 2.0 2.0 4.3 4.5 2.0 1.0 Ireland (0.4) Cost (% of estate) 22.0 22.0 22.0 22.0 9.0 22.0 18.0 6.0 Norway (1.0) Outcome (0 as piecemeal sale and 1 as 0 0 0 0 0 1 0 1 going concern) Recovery rate (cents on 27.9 27.9 27.9 27.9 25.7 27.1 35.7 88.6 Japan (92.9) the dollar) Strength of insolvency 6.0 6.0 6.0 6.0 6.0 6.0 14.5 11.0 5 Economies (15.0)* framework index (0-16) Note: DB2014 rankings shown are not last year’s published rankings but comparable rankings for DB2014 that capture the effects of s uch factors as data corrections and changes to the methodology. Trading across borders deflated and non-deflated values are identical in DB2015 because it is defined as the base year for the deflator. The best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2015 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practic e or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2015 Nigeria 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business measures the ease of starting a business in an economy by recording all procedures Each procedure starts on a separate day (2 officially required or commonly done in practice by procedures cannot start on the same day). an entrepreneur to start up and formally operate an Procedures that can be fully completed industrial or commercial business—as well as the online are recorded as ½ day. time and cost required to complete these procedures. Procedure completed once final document is It also records the paid-in minimum capital that received companies must deposit before registration (or within 3 months). The ranking of economies on the No prior contact with officials ease of starting a business is determined by sorting Cost required to complete each procedure their distance to frontier scores for starting a (% of income per capita) business. These scores are the simple average of the distance to frontier scores for each of the component Official costs only, no bribes indicators. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Is a limited liability company, located in the  Has a start-up capital of 10 times income per largest business city and is 100% domestically capita. owned . 1  Has a turnover of at least 100 times income per  Has between 10 and 50 employees. capita.  Conducts general commercial or industrial  Does not qualify for any special benefits. activities.  Does not own real estate. 1 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Nigeria 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Nigeria? largest business city of an economy, except for 11 According to data collected by Doing Business, starting a economies for which the data are a population-weighted business there requires 8.7 procedures, takes 30.8 days, average of the 2 largest business cities. See the chapter costs 31.6% of income per capita and requires paid-in on distance to frontier and ease of doing business minimum capital of 0.0% of income per capita (figure ranking at the end of this profile for more details. 2.1). Most indicator sets refer to a case scenario in the Figure 2.1 What it takes to start a business in Nigeria - Lagos Paid-in minimum capital (% of income per capita): 0.0 Doing Business 2015 Nigeria 18 What it takes to start a business in Nigeria - Kano Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Nigeria 19 STARTING A BUSINESS Globally, Nigeria stands at 129 in the ranking of 189 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in Nigeria to The rankings for comparator economies and the regional start a business. Figure 2.2 How Nigeria and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2015 Nigeria 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Nigeria is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Private Limited Liability Company firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid in minimum capital requirement: NGN 0 the study of laws, regulations and publicly available City: Lagos, Kano information on business entry in that economy. Following is a detailed summary of those procedures, Start-up Capital: 10 times GNI per capita along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Nigeria - Lagos Time to No. Procedure Cost to complete complete Reserve a unique company name at the Corporate Affairs Commission The Corporate Affairs Commission (CAC) Online System was commissioned in June 2005. The system envisaged an online search of unique company names immediately upon the purchase of an e- payment card from an accredited bank. Although this service is widely advertised by CAC, until now the system is not fully operational either NGN 500 1 because of power fluctuation or because of lack of availability of the 5 days on average application form pre-paid cards necessary to conduct the online transaction. In most cases, the applicants have to go to the CAC branch office in Lagos (either in Yaba or Alausa) to complete this procedure, where they submit Form CAC 1: Availability Check and Reservation of Name. Agency: Corporate Affairs Commission Prepare the requisite incorporation documents and pay the stamp duty 0.75% stamp duty To prepare the requisite incorporation documents, the incorporators paid on share must complete the requisite statutory forms, prepare and print the capital + NGN 500 memorandum and articles of association, and have them stamped by for each additional 2 the Federal Inland Revenue Service (FIRS). The Stamp Duty payable on 7 days copy of share capital (Ad valorem) is 0.75% and on the (MEMART) NGN 500 for Memorandum and each additional copy of Memorandum and Articles of Association Articles of stamped (2 copies). Association stamped (2 copies) Agency: Federal Inland Revenue Service Doing Business 2015 Nigeria 21 Time to No. Procedure Cost to complete complete Sign the declaration of compliance (Form CAC 4) before a Commissioner for Oaths or notary public The declaration by the barrister or solicitor engaged in the formation of the company may be sworn to before a Notary Public for a fee of NGN NGN 500 at the 4,000 - NGN 5,000, or at any of the recognized courts in the country court or NGN 4,000 3 (Magistrate Court, the State High Court, or the Federal High Court) 1 day - NGN 5,000 with a before a Commissioner For Oaths for a small fee of NGN 500 usually Notary Public chargeable by the respective courts. Agency: Notary Register at the Corporate Affairs Commission and Pay the fees at the bank desk of CAC To register the company with the Corporate Affairs Commission (CAC), the following incorporation documents are submitted: • Form CAC 1: Availability Check and Reservation of Name. • Memorandum and articles of association, stamped by the commissioner for stamp duties (2 copies). • Form CAC 3: Notice of registered address. • Form CAC 4: Declaration of compliance. • Form CAC 7: Particulars of directors. • Form CAC 2: Statement of share capital and return of allotment of shares. • Form CAC 2.1: Particulars of the company secretary. Incorporation fees are: 11 days on see procedure 4 • Incorporation fees for a company whose share capital exceeds average details. N1,000,000.00 are N10,000.00 for the first NGN 1,000,000.00 and NGN 5,000.00 for every additional NGN 1,000,000.00 or any part thereof. • NGN 500 incorporation forms. • NGN 3,000 for certified true copy of memorandum and articles of association. • NGN 2,000 for certified true copy of particulars of directors. • NGN 2,000 for certified true copy of particulars of shareholders. • NGN 2,000 for certified true copy of particulars of the company secretary. Moreover, legal fees for company incorporation vary from one law firm to another. Professionals (lawyers, chartered accountants and chartered secretaries) should be accredited by CAC. The payment can be done at the bank desk at CAC. Agency: Corporate Affairs Commission Doing Business 2015 Nigeria 22 Time to No. Procedure Cost to complete complete * Make a company seal Section 74 of the Companies and Allied Matters Act (CAMA) requires every company to have a common seal. The company is thus mandated to have a company seal by the Companies and Allied Matters Act 1990 (2004) (CAMA) first schedule paragraph 15, which provides a standard 1 day memorandum of articles of companies and requires directors to provide (simultaneous with NGN 4,000 5 a company seal. Such is also the common practice, especially because previous companies will generally have to register a deed and other official procedure) documents. Agency: Sealmaker Register for income tax and VAT at the Federal Inland Revenue Service The Federal Inland Revenue Service (FIRS) requires the applicant to complete tax registration forms for corporate income tax registration as well as VAT. The company submits an application letter to the tax authority for a tax clearance certificate and, for income tax purposes, registers at the integrated tax office. The registration process requires submitting a completed tax office– issued application (taxpayer registration input form, TRIF/2006/001 COYS) and the following documents: • Completed FIRS questionnaire. • Memorandum and articles of association (copy). • Certificate of incorporation (copy). • Directors’ names and addresses. • Tax advisor’s name and address. • Letter of appointment of a tax adviser and corresponding letter of acceptance. 4 days no charge 6 • The date the company commenced business; • Names, addresses and mobile numbers of major promoters and the chairman of the company, including their email addresses; • Other sources of income of the chairman and the promoters of the company; • Name and addresses of the principal officers of the company including the chairman, managing director, legal adviser and accountant; To register, the company must submit the taxpayer registration input form in triplicate, and the original certificate of incorporation must be presented for review by the controller. Upon the completed taxpayer registration input form and all other documents being received, a tax reference number is allocated. An application must be filed for the tax clearance certificate; its issuance is not automatic. Agency: Federal Inland Revenue Service Doing Business 2015 Nigeria 23 Time to No. Procedure Cost to complete complete * Register for personal income tax PAYE at the State Tax Office All employers shall register with the relevant state tax authority for income tax withholding. The PAYE Regulations, 2003 made pursuant to the Personal Income Tax Act provides that all employers are to register with the Lagos State Board of Internal Revenue Tax Office nearest to the registered company address for the purpose of remitting income tax deducted from their employees. The employer must within 6 months of commencing a business deduct tax from emoluments of employees and remit the amount deducted to any of the designated collecting banks. The registration requirements are as follows: 2 days 1. A copy of certificate of incorporation. (simultaneous with 7 no charge 2. List of staff and their annual salaries. previous 3. The Directors’ Tax Clearance Certificates (now Electronic Tax procedure) Clearance Certificate) 4. Letter of application for registration. Upon completion of registration, an Employer's Identification Number will be issued. An employer who fails or refuses to register commits an offence and is liable on conviction to pay a NGN 25,000 fine in addition to the payment of arrears of the tax due. Agency: State Tax Office * Register business premises with the Lagos State Government and Pay the business premises levy at a designated bank To register the company premises with the Lagos State Government, the entrepreneur heads to any nationalized commercial bank with some evidence of the business premises (utility bills, etc.) and pays the business premise levy to the account of the Lagos Inland Revenue Services (LIRS). The bank then issues a receipt bearing the Lagos State Government logo. NGN 10,000 paid at 1 day the beginning of (simultaneous with 8 Business premises in an urban area of Nigeria are required to be first year; NGN previous registered on the payment of a NGN 10,000 registration fee in the first 5,000 in subsequent procedure) year of registration (NGN 5,000 per annum as renewal registration fees years in the subsequent years). For rural areas, the business premises registration fees is NGN 2,000 for the first year of registration (NGN 1,000 per annum as registration renewal fees for the subsequently years). Agency: Bank * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Nigeria 24 Summary of time, cost and procedures for starting a business in Nigeria - Kano Time to No. Procedure Cost to complete complete Reserve a unique company name at the Corporate Affairs Commission The Corporate Affairs Commission online system allows for online search of unique company names upon the purchase of an e-payment card for a flat fee of NGN 500 from an accredited bank. Until now the system is not fully operational either because of power fluctuation or network failures, applicants may have to go to the CAC office to 4 days NGN 500 1 complete this procedure. The time to conduct the availability of name search, receive confirmation and reserve the company name is usually 4 days. The company’s name reservation lasts 60 days but can be renewed for a similar period. Agency: Corporate Affairs Commission Prepare the requisite incorporation documents and pay the stamp duty Stamp duty at 0.75% of share This procedure involves the following tasks: a. Preparing and printing the memorandum and articles of association; capital + NGN b. Completing the requisite statutory forms, and; 1,000 for stamping c. Having the memorandum and articles of association stamped by the of two extra copies 2 Federal Inland Revenue Service. 7 days of memorandum and articles of There is a stamp duty office located in the state capital in Kano and association (NGN housed in the same premises with the CAC. 500 each) + NGN 500 for Agency: Stamp duty office incorporation forms Sign the declaration of compliance (Form CAC 4) before a Commissioner for Oaths or notary public A declaration that the requirements of the Companies and Allied Matters Act have been met must be sworn by: (i) a barrister or solicitor engaged in the formation of the company or (ii) a person named in the memorandum and articles of association as a director or secretary of 3 the company. This procedure can be done before a notary public or 1 day NGN 50 filed at the State or Federal High Court. The common practice is for this declaration to be sworn before a Commissioner of Oaths at the State High Court. Agency: State High Court Obtain bank draft from a bank for payment of the registration fees NGN 20,000 incorporation fees 4 Payment is made to a bank designated by the Corporate Affairs 1 day [NGN 10,000 for Commission. nominal share capital of NGN Doing Business 2015 Nigeria 25 Time to No. Procedure Cost to complete complete Agency: Designated bank 1,000,000 or less + NGN 5,000 for all subsequent million] + NGN 3,000 for certified true copy of memorandum and articles of association + NGN 2,000 for certified true copy of particulars of directors + NGN 2,000 for certified true copy of particulars of shareholders + NGN 2,000 for certified true copy of particulars of the company secretary Register the company at the Corporate Affairs Commission The applicant must file with the Corporate Affairs Commission the required incorporation documents and forms, which include: a. Stamped memorandum and articles of association (2 copies); b. Form CAC 3, Notice of registered address; c. Form CAC 7, Particulars of directors; d. Form CAC 4, Declaration of compliance and the prescribed registration fees; e. Copy of the reservation of company name approval; f. Form CAC 2, Statement of share capital and return of allotment of shares; g. Form CAC 2.1, Particulars of Person who is the company secretary of a company or any changes therein; NGN 60,000 for 5 h. Photocopy of information page of international passport or national 18 days legal fees identity card for each director and subscriber. The fee schedule for registration is the following: for the first NGN 1,000,000 of nominal capital: NGN 10,000; for every NGN 1,000,000 or less thereof of nominal capital after the first NGN 1,000,000: NGN 5,000; fees for certified true copies of some forms are paid as follows: NGN 3,000 for C.T.C of Memorandum and Articles of Association, NGN 2,000 for C.T.C of Particulars of Directors (CAC 7), NGN 2,000 for C.T.C of Allotment of Share Capital (CAC 2) and NGN 2,000 for C.T.C of particulars of the company secretary. Lawyers are usually hired to undertake the administrative incorporation procedures. On average, a lawyer will charge NGN 60,000 to handle the entire incorporation process in this state. Doing Business 2015 Nigeria 26 Time to No. Procedure Cost to complete complete Agency: Corporate Affairs Commission * Make a company seal Section 74 of the Companies and Allied Matters Act (CAMA) requires every company to have a common seal. The company is thus mandated to have a company seal by the Companies and Allied Matters Act 1990 (2004) first schedule paragraph 15, which provides a standard 1 day memorandum of articles of companies and requires directors to provide (simultaneous with NGN 5,000 6 a company seal. It is also the common practice, especially because previous companies will generally have to register a deed or other official procedure) documents. Agency: Private company Register for income tax and VAT at the Federal Inland Revenue Service Entrepreneurs can register for both corporate income tax and VAT at the new Integrated Tax Office. For corporate income tax, the Federal Inland Revenue Service (FIRS) will require the applicant to complete tax registration forms. The new company registers at a Federal Tax Office nearest to its place of business or registered office. A letter is written to the tax authority applying for a tax clearance certificate. A form obtained from the tax office is filled and the following documents submitted with it: a. Taxpayer registration input form (TRIF/2006/001 COYS); b. Completed FIRS questionnaire; c. Copy of memorandum and articles of association; d. Names and addresses of directors; e. Copy of the certificate of incorporation; 5 days no charge 7 f. Name, address of tax adviser; g. Letter of appointment of tax adviser and a letter of acceptance; h. The date the company commenced business; i. Names, addresses and mobile numbers of major promoters and the chairman of the company, including their email addresses; j. Other sources of income of the chairman and the promoters of the company; k. Name and addresses of the principal officers of the company including the chairman, managing director, legal adviser and accountant. The application forms must be in triplicate and the original certificate of incorporation must be presented for 'sighting' by the controller before registration can be completed. Upon receipt of the completed taxpayer registration input form and all documents, a tax reference number is allocated. An application must be filed for the tax clearance certificate. Its issuance is not automatic. Doing Business 2015 Nigeria 27 Time to No. Procedure Cost to complete complete The fees for the tax clearance issuance are as follows: (i) for newly registered companies within 6 months of incorporation: no fee; (ii) for companies that are yet to commence business and show up for registration after 6 months of incorporation, if they request for tax clearance certificate a pre-operation levy of NGN 25,000 is payable for the first time and NGN 20,000 is payable for subsequent years until it files a notice of commencement of business. Companies required to register for VAT complete the VAT registration form (VAT Form 001, obtainable free of charge from all FIRS offices) and return it to the integrated tax office, which will issue a taxpayer identification number (TIN). Companies required to register for VAT must do so within 6 months from the date of company incorporation. Since the registration for corporate income tax and VAT are done in the same place; one Tax Identification Number (TIN) is issued to companies for all federal taxes. Agency: Federal Inland Revenue Service * Register for personal income tax PAYE at the State Tax Office The employers in the newly incorporated company are required to register with the relevant state tax authority for the purposes of deducting income tax from employees. Once an application is filed with 2 days a copy of the certificate of incorporation attached, a reference file is (simultaneous with 8 no charge then opened for the company. There is no cost related to this previous registration. procedure) Agency: State Tax Office * Receive an inspection from the State Ministry of Commerce, Industry, Cooperatives and Tourism for business premises registration After the submission of all application documents, an inspection of the 1 day business premises is carried out by an officer from the State Ministry of (simultaneous with 9 Commerce, Industry, Cooperatives and Tourism. The Ministry may no charge previous conduct an inspection of the premises to confirm the location of the procedure) business and determine the type of business activity. Agency: State Ministry of Commerce, Industry, Cooperatives and Tourism Doing Business 2015 Nigeria 28 Time to No. Procedure Cost to complete complete Pay registration fees for business premises into a government account at a designated bank Fees for the business premises permit are paid into a government account at a designated bank. The fees depend on the type of activity, category of business (limited liability company, partnership or sole proprietorship), size of the business, and its location, and range from 1 day NGN 20,000 10 NGN 600 to NGN 100,000. For a medium manufacturing company located in Kano metropolis the business premises permit costs NGN 20,000. The annual renewal fee is the same as initial registration. Agency: Designated bank Obtain a business premises permit from the State Ministry of Commerce, Industry, Cooperatives and Tourism Following payment of the assessed registration fees for business premises permit into a designated government account, the State 11 Ministry of Commerce, Industry, Cooperatives and Tourism issues a 3 days no charge business premises permit to the new business. Agency: State Ministry of Commerce, Industry, Cooperatives and Tourism * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Nigeria 29 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records the procedures, time and cost Obtaining utility connections for water and for a business in the construction industry to obtain sewerage all the necessary approvals to build a warehouse in Registering the warehouse after its the economy’s largest business city, connect it to completion (if required for use as collateral or basic utilities and register the warehouse so that it for transfer of the warehouse) can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking of economies on the ease of dealing with Does not include time spent gathering construction permits is determined by sorting their information distance to frontier scores for dealing with Each procedure starts on a separate day. construction permits. These scores are the simple Procedures that can be fully completed online average of the distance to frontier scores for each of are recorded as ½ day. the component indicators. Procedure considered completed once final To make the data comparable across economies, document is received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of warehouse value) Official costs only, no bribes  Is a limited liability company operating in the construction business and located in  Will have complete architectural and the largest business city. For the 11 technical plans prepared by a licensed economies with a population of more than architect or engineer. 100 million, data for a second city have  Will be connected to water and sewerage been added. Is domestically owned and (sewage system, septic tank or their operated. equivalent). The connection to each utility  Has 60 builders and other employees. network will be 150 meters (492 feet) long. The warehouse:  Will be used for general storage, such as of books or stationery (not for goods requiring  Is valued at 50 times income per capita. special conditions).  Is a new construction (there was no  Will take 30 weeks to construct (excluding all previous construction on the land). delays due to administrative and regulatory requirements). Doing Business 2015 Nigeria 30 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build business city of an economy, except for 11 economies for a warehouse in Nigeria? According to data collected by which the data are a population-weighted average of the Doing Business, dealing with construction permits there 2 largest business cities. See the chapter on distance to requires 17.0 procedures, takes 105.9 days and costs frontier and ease of doing business ranking at the end of 26.4% of the warehouse value (figure 3.1). Most this profile for more details. indicator sets refer to a case scenario in the largest Figure 3.1 What it takes to comply with formalities to build a warehouse in Nigeria - Lagos Doing Business 2015 Nigeria 31 What it takes to comply with formalities to build a warehouse in Nigeria - Kano Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Nigeria 32 DEALING WITH CONSTRUCTION PERMITS Globally, Nigeria stands at 171 in the ranking of 189 economies and the regional average ranking provide economies on the ease of dealing with construction other useful information for assessing how easy it is for permits (figure 3.2). The rankings for comparator an entrepreneur in Nigeria to legally build a warehouse. Figure 3.2 How Nigeria and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2015 Nigeria 33 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Nigeria are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated cost of information collected from experts in construction NGN 22,345,084 construction : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Lagos, Kano service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and cost, that apply to a company and structure matching the are summarized below. standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Nigeria - Lagos Time to No. Procedure Cost to complete complete Obtain soil investigation report A soil investigation report is done by an expert for the stability of the foundation. While according to Law No 3 (implemented in August 2012), only 3-storey (or more) residential or office buildings would need such a report, it would also be needed for a commercial 1 warehouse. Furthermore, depending on the location, sometimes a 2- 14 days NGN 100,000 storey building might require a soil analysis report. Agency: Private Company * Obtain sworn affidavit for search at the Commissioner of Oaths Before someone can carry out a search at the Land Registry, an affidavit must be first sworn and filed at the High Court. If the affidavit is registered before noon, then the lawyer will be able to proceed with 1 day NGN 250 2 the search. Otherwise, it will be done on the following day. Agency: High Court of Justice * Obtain an Environmental Technical Analysis Report The Ministry of Environment reviews the environmental impact assessment report. This report is needed to check whether this project is viable and the impact it will have on the immediate environment. All 7 days NGN 150,000 3 projects require this report, regardless of usage or height. Agency: Town Planner Engineer Doing Business 2015 Nigeria 34 Time to No. Procedure Cost to complete complete * Obtain a certified true copy (CTC) of the survey plan and CTC of the land ownership title A certified true copy of the survey plan must be obtained from the Land Registry to show the plot and its coordinates. Proof of ownership must also be obtained; otherwise the permit application will not be accepted. The sworn affidavit obtained previously must be presented to obtain the documents. But if the land has not been surveyed, then a private surveyor would have to conduct the survey of the plot of land and this survey would 3 days NGN 7,500 4 have to be registered with the Surveyor’s General Office. In that case, the survey would be verified against the master plan of Lagos. The black copy will be for BuildCo, the red copy will be registered with the Land Registry and a third copy will be kept at the Surveyor General Office. The cost of survey by a private surveyor can range from NGN 50,000 to NGN 100,000. Agency: Land Registry Obtain development permit from the Lagos State Physical Planning Permit Authority (LASPPPA) The development permit authorizes construction and is valid for 2 years. To obtain this permit, a building development plan portraying the intended uses and the proposed development on the site and the effect on adjacent developments and neighborhood must be prepared by a professional. Legally, a pre-approval inspection is required to verify that the land is located where the owner has stated it is and to verify that construction has not already started. BuildCo does not have to be present during the visit. An assessment of the amount to be paid will be written after that visit. All the necessary banking accounts where each payment for each tax must be made must be listed on this letter of assessment. For construction involving a structure of more than two floors, the 42 days NGN 7,100,616 5 developer or owner must submit a general contractors all-risk insurance policy certificate to the Building Control Agency along with the application to commence building work. The Lagos State Physical Planning Authority charges a contribution levy (10% of the building permit cost) for the preparation and production of development plans, such as local, district, subject, and action plans; development guides; office maintenance; procurement and maintenance of vehicles; office equipment; and similar issues. The following documents must be presented: • Proof of ownership • Survey Plan – on Sun Print paper • 5 sets of architectural drawings • 5 sets of structural drawings (calculation sheets and supervision letter from a registered engineer) • 5 sets of mechanical and electrical drawings Doing Business 2015 Nigeria 35 Time to No. Procedure Cost to complete complete • 5 sets of sanitary and plumbing drawings • Current Income tax Clearance Certificate (CIT) • Photocopy of payment of assessment fee • Certificate of incorporation of the company • Environmental Technical Analysis Report The following is a breakdown of the costs to be paid: Assessment fees (formula is Volume of the building X NGN 120) = 3901.6 m3 x NGN 120 Local Planning Office Levy: 10% of assessment fees Spatial Enhancement Contribution: 12% of the Local Planning Office Levy Application form of NGN 5000 Cost of Certificate of Fitness for Habitation: NGN 60,000 Fencing NGN 12 000 Infrastructure Development Charge (IDC) : 1300.6 X NGN 5000) Agency: State Physical Planning Permit Authority (LASPPPA) Hire a private engineer to conduct inspections A private engineer must be hired to conduct the inspections during construction phase. According to the Doing Business methodology, BuildCo has an engineer that prepares all the plans. However, this 6 engineer cannot conduct the inspections as well, so an external 1 day NGN 111,725 engineer must be hired. Agency: Private Company Obtain certificate of structural stability (first pouring of concrete) The concrete crushing test is done as follows: 1. A sample from a block of concrete is taken and brought back to the laboratory for testing. At this stage BuildCo pays for the entire testing. The testing is done at several stages: 2. 7 days after the sample is taken, the first result is obtained. 3. 14 days after the sample is taken, the second result is obtained (7 days after the first result). 4. 21 days after the sample is taken, the third result is obtained (7 days after the second result is delivered). 7 days NGN 35,000 7 5. 28 days later the last and final result is obtained, as well as the final report. Normally the longer the concrete is kept, the harder it will become and therefore it will have a better resistance to the crushing test. All payment for concrete testing is done once in this procedure. Agency: Lagos State Material Testing Laboratory Doing Business 2015 Nigeria 36 Time to No. Procedure Cost to complete complete Obtain certificate of structural stability (second pouring of concrete) 8 7 days no charge Agency: Lagos State Material Testing Laboratory Obtain certificate of structural stability (third pouring of concrete) 9 7 days no charge Agency: Lagos State Material Testing Laboratory Obtain certificate of structural stability of foundation 10 7 days no charge Agency: Lagos State Material Testing Laboratory Receive joint inspection during construction from the Building Control Agency and the Zonal Agency 11 1 day no charge Agency: Building Control Agency and Zonal Agency Receive inspections during construction from the Building Control Agency The Lagos State Urban and Regional Planning and Development Law from July 2010 gives the Building Control Agency the power to carry 1 day no charge 12 out inspection(s) of building construction, when necessary. Agency: Lagos State Building Control Agency Request and receive inspection by the Fire Department This certificate must be obtained at the local planning authority before the building can be used. It is within the discretion of the authority to conduct an on-site inspection before issuing the certificate. However, such an inspection, which normally takes about 45 minutes, is rarely 1 day no charge 13 performed. Agency: Fire Department Doing Business 2015 Nigeria 37 Time to No. Procedure Cost to complete complete Obtain certificate of completion and fitness for habitation 14 14 days no charge Agency: Lagos State Building Control Agency * Submit application for water connection to Lagos Water Company BuildCo collects the LWC Water Connection Form ("WCF") from the nearest Zonal Office ("ZO"). There are 31 zones in Lagos. The Completed WCF is submitted to ZO and ZO sends a Site Inspection Officer ("SIO") to the customer's property. • SIO confirms address and locational details of BuildCo's property. SIO also establishes an optimal size and length of connection pipes, and 1 day no charge 15 optimal connection materials. • SIO prepares comprehensive Site Report ("SR") including estimates of total connection costs, and submits SR to the ZO. • ZO prepares connection bill to customer. Agency: Zonal Office Pay the connection bill and submit evidence of payment to Zonal Office 16 1 day NGN 50,000 Agency: Zonal Office Receive water connection Once payment has been made, the Zonal Office (ZO) procures the connection materials and carries out the connection works. 13 days no charge 17 Agency: Zonal Office * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Summary of time, cost and procedures for dealing with construction permits in Nigeria - Kano Time to No. Procedure Cost to complete complete Apply for a building plan approval at the Kano Urban Planning and Development Authority 1 In order to obtain a building plan approval, BuildCo must submit a duly 1 day no charge completed application form to the Kano Urban Planning and Development Authority, along with the following documents: Doing Business 2015 Nigeria 38 Time to No. Procedure Cost to complete complete a. Proof of ownership (such as a certificate of occupancy); b. Survey plan (attached to the certificate of occupancy); c. Drawings, including: - Architectural designs (site plan, floor plans, elevations, sections, storm drainage system, construction details, doors and windows schedules), duly signed by a registered architect; - Structural designs (design calculations, foundation layout, structural details on beams, columns, staircases, etc.), duly signed by a registered structural engineer; - Electrical designs (lighting and power load calculation, power point layout, lighting point layout, schedule of fittings and fixtures), duly signed by a registered electrical engineer; - Mechanical engineering designs (load calculations, waste disposal layout, soil disposal layout, schedule of sanitary fittings), duly signed by a registered mechanical engineer. The documents are reviewed by the Kano Urban Planning and Development Authority. An assessment of the fees is given to BuildCo, to be paid at a designated bank. An on-site inspection will follow. Agency: Kano Urban Planning and Development Authority Pay the building plan approval fees at a designated bank BuildCo is given a payment order to be submitted to and paid at a designated bank. After payment, BuildCo is given a teller, or a bank receipt, which must be submitted back to the Kano Urban and Planning Development Authority. The authority opens a file for BuildCo, and the 1 day NGN 117,045 2 documents are submitted to the deputy director, then forwarded to the inspection officers who conduct an on-site inspection. Agency: Commercial Bank Receive a pre-approval inspection from the Kano Urban Planning and Development Authority After BuildCo's application has been reviewed, the Kano Urban Planning and Development Authority conducts an on-site inspection to verify that the plot reflects the details provided in the drawings and that the land is suitable for the proposed project. The inspectors draft a report in which the plot, roads, setback details, adjoining land and 2 days no charge 3 power and water connections are described. The report is then attached to the documents and drawings that BuildCo submitted for approval, and forwarded to the Kano Urban Planning and Development Authority for final review and approval. Agency: Kano Urban Planning and Development Authority Obtain a building plan approval from the Kano Urban Planning and Development Authority 4 14 days no charge After the inspection and the payments have been completed, the documents submitted for approval – along with the inspection report Doing Business 2015 Nigeria 39 Time to No. Procedure Cost to complete complete and the 3 remaining copies of the plan – are given to the Kano Urban Planning and Development Authority (KUPD) for final approval. The documents and plans are scrutinized and countersigned by a government architect, structural engineer and electrical engineer, before being submitted to the director. The director attaches a letter to the file before sending it to the managing director, who endorses the application, while the director signs the drawings and issue the approval letter. If granted, KUPD issues BuildCo a building plan approval authorizing the construction of the warehouse to proceed, as well as a plaque showing the file number and expiration date of the approval (3 years). A statutory limit reduced the time taken to complete this procedure to 14 days (10 working days). Agency: Kano Urban Planning and Development Authority Notifiy the Kano Urban Planning and Development Authority (KUPD) of commencement of work A letter notifying the Kano Urban Planning and Development Authority (KUPD) of the commencement of work must be sent one week prior to 7 days no charge 5 any construction work. Agency: Kano Urban Planning and Development Authority Receive an inspection at setting out level by the Kano Urban Planning and Development Authority KUPD sends a team of inspectors to check the construction site at the setting-out level. Construction work does not stop during the inspection. If a problem is identified, the inspection teams issues a stop 1 day no charge 6 order requesting the issue to be resolved before construction proceeds further. Agency: Kano Urban Planning and Development Authority Receive an inspection at foundation level by the Kano Urban Planning and Development Authority A team of inspectors from KUPD visits the construction site to ensure that the project is duly supervised and that the construction follows the specifications mentioned in the building plan previously provided by BuildCo. Construction work does not stop during the inspection. If a 1 day no charge 7 problem is identified, the inspection teams issues a stop order requesting the issue to be resolved before construction proceeds further. Agency: Kano Urban Planning and Development Authority Doing Business 2015 Nigeria 40 Time to No. Procedure Cost to complete complete Receive an inspection at first floor level by the Kano Urban Planning and Development Authority A team of inspectors from KUPD visits the construction site to ensure that the project is duly supervised and that the construction follows the specifications mentioned in the building plan previously provided by BuildCo. Construction work does not stop during the inspection. If a 1 day no charge 8 problem is identified, the inspection teams issues a stop order requesting the issue to be resolved before construction proceeds further Agency: Kano Urban Planning and Development Authority Receive an inspection at second floor level by the Kano Urban Planning and Development Authority A team of inspectors from KUPD visits the construction site to ensure that the project is duly supervised and that the construction follows the specifications mentioned in the building plan previously provided by BuildCo. Construction work does not stop during the inspection. If a 1 day no charge 9 problem is identified, the inspection teams issues a stop order requesting the issue to be resolved before construction proceeds further. Agency: Kano Urban Planning and Development Authority Receive an inspection at roof level by the Kano Urban Planning and Development Authority A team of inspectors from KUPD visits the construction site to ensure that the project is duly supervised and that the construction follows the specifications mentioned in the building plan previously provided by BuildCo. Construction work does not stop during the inspection. If a 1 day no charge 10 problem is identified, the inspection teams issues a stop order requesting the issue to be resolved before construction proceeds further. Agency: Kano Urban Planning and Development Authority Notifiy the Kano Urban Planning and Development Authority (KUPD) of completion of works A letter notifying the Kano Urban Planning and Development Authority (KUPD) of the completion of work is sent. The inspectors will then 11 proceed with a final inspection to verify that the work has been 1 day no charge completed according to the approved building plans. Agency: Kano Urban Planning and Development Authority Doing Business 2015 Nigeria 41 Time to No. Procedure Cost to complete complete Obtain final inspection from Kano Urban Planning and Development Authority 12 1 day no charge Agency: Kano Urban Planning and Development Authority Obtain a certificate of habitation from the Kano Urban Planning and Development Authority BuildCo's supervising architect/engineer fills out a Building Certification Form stating that the construction works have been completed according to the approved plan and submits it to KUPD. Within 7 days 13 from the receipt of the Building Certification Form (at no cost), KUPD 7 days no charge will issue a Certificate of Habitation. In practice, however, this procedure is neither adhered to nor enforced. Agency: Kano Urban Planning and Development Authority Obtain inspection from the Board of Internal Revenue for registration of building The Board of Internal Revenue service will visit the new warehouse and 14 register it for tax purposes. 1 day no charge Agency: Internal Revenue Authority Apply for water connection at the Kano State Water Board and pay application form fee In order to obtain a water connection, BuildCo must submit a commercial application form to the Kano State Water Board, which has 1 day NGN 15,000 15 offices throughout the city. Agency: Kano State Water Board Receive an inspection by the Kano State Water Board After the application has been submitted, a team of inspectors from the water board office visits the site to ascertain what needs to be done. 1 day no charge 16 Agency: Kano State Water Board Obtain water connection Usually, the building is connected to water supply within one month. A BuildCo employee will also install a septic tank. This usually costs about 30 days NGN 250,000 17 NGN 200,000. Agency: Kano State Water Board Doing Business 2015 Nigeria 42 Time to No. Procedure Cost to complete complete * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Nigeria 43 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity a customer is always to gain access by obtaining a connection (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. The obtaining final supply ranking of economies on the ease of getting electricity is determined by sorting their distance to Time required to complete each procedure frontier scores for getting electricity. These scores are (calendar days) the simple average of the distance to frontier scores Is at least 1 calendar day for each of the component indicators. To make the data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information  Is owned by a local entrepreneur, located Reflects the time spent in practice, with little in the economy’s largest business city, in follow-up and no prior contact with officials an area where other warehouses are Cost required to complete each procedure located. For the 11 economies with a (% of income per capita) population of more than 100 million, data Official costs only, no bribes for a second city have been added. Excludes value added tax  Is not in a special economic zone where the connection would be eligible for subsidization or faster service.  Is to either the low-voltage or the medium- voltage distribution network and either  Is located in an area with no physical overhead or underground, whichever is more constraints (ie. property not near a railway). common in the area where the warehouse is  Is a new construction being connected to located. Included only negligible length in the electricity for the first time. customer’s private domain.  Is 2 stories, both above ground, with a total  Requires crossing of a 10-meter road but all surface of about 1,300.6 square meters the works are carried out in a public land, so (14,000 square feet), is built on a plot of there is no crossing into other people's 929 square meters (10,000 square feet), is private property. used for storage of refrigerated goods  Involves installing one electricity meter. The The electricity connection: monthly electricity consumption will be 26880 kilowatt hour (kWh). The internal  Is 150 meters long and is a 3-phase, 4-wire electrical wiring has been completed. Y, 140-kilovolt-ampere (kVA) (subscribed capacity) connection. Doing Business 2015 Nigeria 44 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Nigeria? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 9.0 procedures, which the data are a population-weighted average of the takes 257.2 days and costs 478.0% of income per capita 2 largest business cities. See the chapter on distance to (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Nigeria - Lagos What it takes to obtain an electricity connection in Nigeria - Kano Doing Business 2015 Nigeria 45 Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Nigeria 46 GETTING ELECTRICITY Globally, Nigeria stands at 187 in the ranking of 189 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Nigeria to connect a The rankings for comparator economies and the regional warehouse to electricity. Figure 4.2 How Nigeria and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2015 Nigeria 47 GETTING ELECTRICITY What are the details? The indicators reported here for Nigeria are based on a OBTAINING AN ELECTRICITY CONNECTION set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Name of utility - Kano Electricity identified by Doing Business. Data are collected from the Kano: Distribution Company distribution utility, then completed and verified by electricity regulatory agencies and independent Name of utility - professionals such as electrical engineers, electrical Lagos: Eko Distribution Company contractors and construction companies. The electricity distribution utility surveyed is the one serving the area City: Lagos, Kano (or areas) in which warehouses are located. If there is a choice of distribution utilities, the one serving the largest The procedures are those that apply to a warehouse and number of customers is selected. electricity connection matching the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Nigeria - Lagos Time to No. Procedure Cost to complete complete Submit application to Eko Electricity Distribution Company and await clearance letter The licensed electrical contractor acts on customer’s behalf. All electrical contractors have to be licensed with the Federal Ministry for Power and Steel. Correspondence takes place between contractor and utility. Payments are made to utility by contractor who then bills the customer. The electrician must pick up application form at Eko Electricity Distribution Company, completes and submits it to the Eko Electricity Distribution Company office. This form must provide the PIN (Personal Identification Number) of the licensed electrician and a letter stating that 120 calendar days NGN 0 1 he will be in charge of the internal installation as well as the installation of the transformer. Since the load is more than 100 kVA, the request will be sent to EKO Headquarters for approval. This is an internal process. The approval letter will be given along with the list of materials to be bought by the customer (must be new, purchased from accredited distributor and receipt produced, test certificate of transformer from manufacturer produced). Agency: Eko Electricity Distribution Company Doing Business 2015 Nigeria 48 Time to No. Procedure Cost to complete complete Receive tentative approval letter from Eko Electricity Distribution Company, submit payment and request and receive site visit from utility engineer Upon receipt of application, the utility sends letter of clearance for purchase of distribution transformer and other external connection materials. It mentions in the letter the description of the materials (must be new, purchased from accredited distributor and receipt produced, 2 test certificate of transformer from manufacturer produced). The survey 31 calendar days NGN 0 fee is for the site visit which the utility engineer will do. The payment is for scheme and sanction preparation. The request for site visit is made over the phone to the utility. The engineer verifies that the materials purchased are of good quality. Agency: Eko Electricity Distribution Company Purchase and install external connection equipment Customer needs to purchase cables, distribution transformer, and installation accessories from market 18 calendar days NGN 1,559,250 3 Agency: Eko Electricity Distribution Company * Client's contractor obtains a right-of-way permit Client's contractor obtains right of way permit at the State Ministry of Works or State Roads Maintenance Agency 14 calendar days NGN 0 4 Agency: The State Ministry of Works or State Roads Maintenance Agency * Request and receive inspection from Inspecting Engineer, Nigerian Electrical Power Authority (NEPA) The Inspecting Engineer from NEPA will check all materials to ascertain whether they were of correct quality. The electrical contractor will show the letter of approval. The NEPA engineer will check if the installation has 14 calendar days NGN 0 5 been properly done, and if it is in compliance, a Certificate of compliance will be issued. Agency: Nigerian Electrical Power Authority Submit payment to Federal Ministry of Power and Steel and pick up the Inspection Certificate 6 1 calendar day NGN 2,000 The fee charged is for the certificate of compliance. Doing Business 2015 Nigeria 49 Time to No. Procedure Cost to complete complete Agency: Ministry of Mines and Power Submit inspection certificate to Eko Electricity Distribution Company, request and receive estimate letter from utility and make payment The customer can go to the utility to pick up the estimate letter. The estimate letter is usually prepared on the spot when the contractor 7 requests it. The contractor then makes the payment mentioned in the 30 calendar days NGN 575,000 letter, and also submits the inspection certificate from the Ministry to the utility. Agency: Eko Electricity Distribution Company Eko Electricity Distribution Company conducts internal wiring inspection and tests complete installation The utility engineer conducts the internal wiring inspection within a week 8 after the estimate is paid. 30 calendar days NGN 0 Agency: Eko Electricity Distribution Company Eko Electricity Distribution Company conducts meter installation and electricity starts flowing Once the internal wiring inspection is complete, the utility sends over the connection team to do the meter installation and then turns on 30 calendar days NGN 0 9 electricity flow. Agency: Eko Electricity Distribution Company * Takes place simultaneously with another procedure. Source: Doing Business database. Summary of time, cost and procedures for getting electricity in Nigeria - Kano Time to No. Procedure Cost to complete complete Submit application to Kano Electricity Distribution Company and await clearance letter 1 120 calendar days NGN 0 The licensed electrical contractor acts on customer’s behalf. All electrical contractors have to be licensed. Correspondence takes place between contractor and utility. Payments are made to utility by contractor who Doing Business 2015 Nigeria 50 Time to No. Procedure Cost to complete complete then bills the customer. The electrician must pick up application form at Kano Electricity Distribution Company, completes and submits it back.This form must provide the PIN (Personal Identification Number) of the licensed electrician and a letter stating that he will be in charge of the internal installation as well as the installation of the transformer. Agency: Kano Electricity Distribution Company Receive tentative approval letter from Kano Electricity Distribution Company, submit payment and request and receive site visit from utility engineer Upon receipt of application, the utility sends letter of clearance for purchase of distribution transformer and other external connection materials. It mentions in the letter the description of the materials (must be new, purchased from accredited distributor and receipt produced, 2 test certificate of transformer from manufacturer produced). The survey 21 calendar days NGN 0 fee is for the site visit which the utility engineer will do. The payment is for scheme and sanction preparation. The request for site visit is made over the phone to the utility. The engineer verifies that the materials purchased are of good quality. Agency: Kano Electricity Distribution Company Purchase and install external connection equipment Customer needs to purchase cables, distribution transformer, and installation accessories from market 18 calendar days NGN 1,559,250 3 Agency: Customer * Obtain a right of way clearance Client's contractor obtains right of way permit at the State Ministry of Works or State Roads Maintenance Agency 10 calendar days NGN 0 4 Agency: State Roads Maintenance Agency * Request and receive inspection from Inspecting Engineer The Inspecting Engineer from an outside agency will check all materials to ascertain whether they were of correct quality. The electrical 14 calendar days NGN 0 5 contractor will show the letter of approval. The engineer will check if the installation has been properly done, and if it is in compliance, a Certificate of compliance will be issued. Doing Business 2015 Nigeria 51 Time to No. Procedure Cost to complete complete Agency: Electrical Power Authority Submit payment to Federal Ministry of Power and Steel and pick up the Inspection The fee charged is for the certificate of compliance. 1 calendar day NGN 2,000 6 Agency: Ministry of Mines and Power Submit inspection certificate to Kano Electricity Distribution Company, request and receive estimate The customer can go to the utility to pick up the estimate letter. The estimate letter is usually prepared on the spot when the contractor requests it. The contractor then makes the payment mentioned in the 25 calendar days NGN 575,000 7 letter, and also submits the inspection certificate from the Ministry to the utility. Agency: Kano Electricity Distribution Company Kano Electricity Distribution Company conducts internal wiring inspection and tests complete installation The utility engineer conducts the internal wiring inspection within a week 8 after the estimate is paid. 30 calendar days NGN 0 Agency: Kano Electricity Distribution Company Kano Electricity Distribution Company conducts meter installation and electricity starts flowing Once the internal wiring inspection is complete, the utility sends over the connection team to do the meter installation and then turns on 33 calendar days NGN 0 9 electricity flow. Agency: Kano Electricity Distribution Company * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2015 Nigeria 52 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. The (calendar days) ranking of economies on the ease of registering Does not include time spent gathering property is determined by sorting their distance to information frontier scores for registering property. These scores are the simple average of the distance to frontier Each procedure starts on a separate day. scores for each of the component indicators. To Procedures that can be fully completed online are recorded as ½ day. make the data comparable across economies, several assumptions about the parties to the Procedure considered completed once final transaction, the property and the procedures are document is received used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure  Are limited liability companies, 100% (% of property value) domestically and privately owned and Official costs only, no bribes perform general commercial activities. No value added or capital gains taxes included  Are located in the economy’s largest business city . 2  Is located in a periurban commercial zone, and no rezoning is required.  Have 50 employees each, all of whom are nationals.  Has no mortgages attached, has been under the same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square  Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000  Is registered in the land registry or cada- square feet). The warehouse is in good stre, or both, and is free of title disputes. condition and complies with all safety standards, building codes and legal  Property will be transferred in its entirety. requirements. There is no heating system. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Nigeria 53 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Nigeria? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 12.1 procedures, which the data are a population-weighted average of the takes 69.6 days and costs 18.6% of the property value 2 largest business cities. See the chapter on distance to (figure 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in Nigeria - Lagos What it takes to register property in Nigeria - Kano Doing Business 2015 Nigeria 54 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Nigeria 55 REGISTERING PROPERTY Globally, Nigeria stands at 185 in the ranking of 189 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Nigeria to transfer property. Figure 5.2 How Nigeria and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2015 Nigeria 56 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: NGN 22,345,084 notaries and property registries. These procedures are those that apply to a transaction matching the City: Lagos, Kano standard assumptions used by Doing Business in collecting the data (see the section in this chapter on The procedures, along with the associated time and what the indicators cover). cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Nigeria Time to No. Procedure Cost to complete complete Conduct search of property title and obtain consent application form at Lands Registry The lawyer representing the parties fills out and submits a letter, which NGN 5,000 search states the purpose of the search. The search fee is paid in cash at the 7 days fee + NGN 2,000 1 Lands Registry. consent form fee Agency: Ministry of Lands and Physical Planning Execute deed of assignment and consent application form Seller and buyer sign four (4) copies of the deed of assignment and the application for consent form. Legal fees are charged based on the Scale of Fees for Conveyancing Matters [Legal Practitioners (Remuneration for Legal Documentation and Other Land Matters) Order 1991]. This is a sliding scale based on slices of the consideration involved, and averages out at about 7.5% of the consideration. In practice, due to competition 3.75% of property 2 1 day amongst lawyers, the fees charged for property assignment in Kano are value legal fee lower than those prescribed and amount to approximately 3.75% of property value. The fees will include all the steps required until the new title is registered under the buyer's name Agency: Lawyer's Office Submit application for Governor's consent to the assignment at the Ministry of Lands and Physical Planning 30 days processing fee of 3 By virtue of the Land Use Act, promulgated in 1978, all land comprised in (simultaneous NGN 10,000 territory of each state in the federation became vested in the Governor with procedure 4) of that state, whose prior consent is mandatory for the legal validity of any transfers or alienation of interest in landed property. In Kano, the Doing Business 2015 Nigeria 57 Time to No. Procedure Cost to complete complete authority to grant the consent has been delegated by the Governor to the Commissioner for Lands, who delegated it further to the Permanent Secretary for Lands. In order to obtain such consent, the following documents must be submitted: a. Copy of the deed for which consent is sought; b. Proof of settlement of outstanding ground rates; c. Letter of clearance of the title holder and board’s resolution in case of a corporate body; d. Three years tax clearance certificates of the seller and buyer; e. Registration particulars and articles of association of the company. Agency: Ministry of Lands and Physical Planning * Receive inspection of the property from the Ministry of Lands and Physical Planning The valuation includes a physical inspection of the property to assess its 7 days market value. Upon completion of valuation, a valuation report is issued, (simultaneous no cost 4 based on which registration fees are assessed. with procedure 3) Agency: Ministry of Lands and Physical Planning Collect letter of consent and demand order for payment of fees from the Ministry of Lands and Physical Planning The applicant receives a letter of consent, which is conditional on payment of the prescribed fees. Registration must be done within 4 5 months; failure to do so attracts a penalty of NGN 100 payable on each 1 day no cost defaulting day including weekends. Agency: Ministry of Lands and Physical Planning Assess the deed of assignment at the Stamp Duty Office (Federal Inland Revenue Services) The deed is presented by buyer's lawyer for assessment of stamp duty at the FIRS. The FIRS typically uses the figure as indicated by the Lands 1 day no cost 6 Registry in their assessment of the fees. Agency: Stamp Duty Office, Federal Board of Inland Revenue Pay prescribed fees and stamp duty at the designated bank 5% of property The buyer or his/her agent pays the prescribed fees and stamp duty at value registration 7 the designated bank. Payment of stamp duty is by bank draft payable to 1 day fee + 3% of any of the designated receiving banks. Stamp duty for property property value assignment between companies is assessed at 3% of the property value. stamp duty fee Doing Business 2015 Nigeria 58 Time to No. Procedure Cost to complete complete Agency: Commercial bank Stamp the deed of assignment at the Stamp Duty Office (Federal Inland Revenue Services) The deed is presented by buyer's lawyer for stamping at the FIRS. Stamping takes place only after the FIRS receives confirmation of receipt 1 day no cost 8 of payment. Agency: Stamp Duty Office, Federal Board of Inland Revenue Register the deed of assignment at Lands Registry Buyer's lawyer submits payment receipts to the Schedule Officer at Lands Registry, who in turn enters the deed into the Lands Registry records. 3 days no cost 9 Agency: Ministry of Lands and Physical Planning * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Nigeria 59 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable Strength of legal rights index (0–12) 3 lenders’ rights to view a potential borrower’s financial history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially Depth of credit information index (0–8) 4 movable property, as security to generate capital— while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2015 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. 3 For the legal rights index, 2 new points are added in Doing Business 2015 for new data collected to assess the overall legal framework for secured transactions and the functioning of the collateral registry. 4 For the credit information index, 2 new points are added in Doing Business 2015 for new data collected on accessing borrowers’ credit information online and availability of credit scores. Doing Business 2015 Nigeria 60 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Nigeria stands at 52 in the ranking of 189 and bankruptcy laws in Nigeria facilitate access to credit? economies on the ease of getting credit (figure 6.1). The The economy has a score of 6 on the depth of credit rankings for comparator economies and the regional information index and a score of 6 on the strength of average ranking provide other useful information for legal rights index (see the summary of scoring at the end assessing how well regulations and institutions in Nigeria of this chapter for details). Higher scores indicate more support lending and borrowing. credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Nigeria and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2015 Nigeria 61 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Nigeria and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Source: Doing Business database. Doing Business 2015 Nigeria 62 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Nigeria (table 6.1)? Table 6.1 How has Nigeria made getting credit easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Nigeria improved its credit information system through a DB2010 central bank guideline defining the licensing, operational and regulatory requirements for a privately owned credit bureau. Nigeria improved access to credit information by distributing DB2013 credit information from retail companies. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Nigeria 63 GETTING CREDIT What are the details? The getting credit indicators reported here for Nigeria The data on the legal rights of borrowers and lenders are are based on detailed information collected in that gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as well collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Lagos Kano Strength of legal rights index (0–12) Index score: 6 Index score: 6 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional No No equivalents to security interests in movable assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of movable assets, without requiring a specific description Yes Yes of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without requiring a specific description of Yes Yes collateral? May a security right extend to future or after-acquired assets, and may it extend automatically to the products, proceeds or replacements of the Yes Yes original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between Yes Yes parties; and can the collateral agreement include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non- incorporated entities, that is unified geographically and by asset type, with No No an electronic database indexed by debtor's name? Does a notice-based collateral registry exist in which all functional No No equivalents can be registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and searches can be performed online by any No No interested third party? Doing Business 2015 Nigeria 64 Lagos Kano Strength of legal rights index (0–12) Index score: 6 Index score: 6 Are secured creditors paid first (i.e. before tax claims and employee Yes Yes claims) when a debtor defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee No No claims) when a business is liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law No No protect secured creditors’ rights by providing clear grounds for relief from the stay and/or sets a time limit for it? Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor Yes Yes to sell the collateral through public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 6 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - Yes No 1 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years of negative data or erase data on Yes No 1 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? By law, do borrowers have the right to access their No No 0 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an Yes No 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions No No 0 assess the creditworthiness of borrowers? Note: Prior to Doing Business 2015, the depth of credit information index covered only the first 6 features listed above. An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or Doing Business 2015 Nigeria 65 covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 621,895 0 Number of individuals 4,747,797 0 Percent of total 5.8 0.1 Source: Doing Business database. Doing Business 2015 Nigeria 66 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions ; Disclosure requirements for related-party transactions What do the indicators cover? Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold interested indicators and shareholders’ rights in corporate directors liable for prejudicial related-party transactions; governance through another. The ranking of economies Available legal remedies (damages, disgorgement of on the strength of minority investor protections is profits, fines, imprisonment, rescission of the transaction) determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the extent of shareholder governance index. To make the Extent of conflict of interest regulation index data comparable across economies, a case study uses (0–10) several assumptions about the business and the Sum of the extent of disclosure, extent of director liability transaction. and ease of shareholder indices, divided by 3 The business (Buyer): Extent of shareholder rights index (0-10.5)  Is a publicly traded corporation listed on the Shareholders’ rights and role in major corporate decisions economy’s most important stock exchange (or at least a large private company with Strength of governance structure index (0- multiple shareholders). 10.5) Governance safeguards protecting shareholders from  Has a board of directors and a chief executive undue board control and entrenchment officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Extent of corporate transparency index (0-9) specifically required by law. Corporate transparency on ownership stakes, The transaction involves the following details: compensation, audits and financial prospects  Mr. James, a director and the majority Extent of shareholder governance index shareholder of the company, proposes that (0–10) the company purchase used trucks from Sum of the extent of shareholders rights, strength of another company he owns. governance structure and extent of corporate transparency indices, divided by 3  The price is higher than the going price for used trucks, but the transaction goes forward. Strength of investor protection index (0–10)  All required approvals are obtained, and all Simple average of the extent of conflict of interest required disclosures made, though the regulation and extent of shareholder governance indices transaction is prejudicial to Buyer.  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2015 Nigeria 67 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Nigeria? The economy has a score of 5.8 not measure all aspects related to the protection of on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Nigeria stands at 62 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Nigeria and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2015 Nigeria 68 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the protecting indices for Nigeria in 2014. A summary of scoring for the minority investors indicators into context is to see where protecting minority investors indicators at the end of this the economy stands in the distribution of scores across chapter provides details on how the indices were comparator economies. Figures 7.2 through 7.7 highlight calculated. the scores on the various minority investor protection Figure 7.2 How extensive are disclosure Figure 7.3 How extensive is the liability regime for directors? requirements? Extent of director liability index (0-10) Extent of disclosure index (0-10) Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2015 Nigeria 69 PROTECTING MINORITY INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Ease of shareholder suits index (0-10) Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2015 Nigeria 70 PROTECTING MINORITY INVESTORS Figure 7.5 How extensive are shareholder rights? Extent of shareholder rights index (0-10.5) Note: The higher the score, the stronger the protections. Source: Doing Business database. Figure 7.6 How strong is the governance structure? Strength of governance structure index (0-10.5) Note: Higher scores indicate more stringent governance structure requirements. Source: Doing Business database. Doing Business 2015 Nigeria 71 Figure 7.7 How extensive is corporate transparency? Extent of corporate transparency index (0-9) Note: Higher scores indicate greater transparency. Source: Doing Business database. Doing Business 2015 Nigeria 72 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Nigeria are based on detailed information shareholder rights, governance structure and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2015 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Nigeria. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Nigeria Answer (Lagos) Score (Lagos) Answer (Kano) Score (Kano) Extent of disclosure index (0-10) 4.0 4.0 Shareholders Shareholders or or board of board of Which corporate body can provide legally sufficient approval directors directors 1 1 for the Buyer-Seller transaction? (0-3) including including interested interested parties parties Existence of a Existence of a Is disclosure by the interested director to the board of conflict without 1 conflict without 1 directors required? (0-2) any specifics any specifics Disclosure on Disclosure on the the transaction Is disclosure of the transaction in published periodic filings transaction and 2 and on the 2 (annual reports) required? (0-2) on the conflict of conflict of interest interest Is immediate disclosure of the transaction to the public No disclosure No disclosure 0 0 and/or shareholders required? (0-2) obligation obligation Must an external body review the terms of the transaction No 0 No 0 before it takes place? (0-1) Extent of director liability index (0-10) 7.0 7.0 Can shareholders sue directly or derivatively for the damage Yes 1 Yes 1 caused by the Buyer-Seller transaction to the company? (0-1) Can shareholders hold the interested director liable for the Liable if unfair or Liable if unfair 2 2 damage caused by the transaction to the company? (0-2) prejudicial or prejudicial Can shareholders hold members of the approving body Liable if liable for the damage cause by the transaction to the Liable if negligent 1 1 negligent company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1 Yes 1 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder Yes 1 Yes 1 plaintiff? (0-1) Can both fines and imprisonment be applied against the No 0 No 0 interested indrector? (0-1) Doing Business 2015 Nigeria 73 Voidable if Voidable if Can a court void the transaction upon a successful claim by a negligently 1 negligently 1 shareholder plaintiff? (0-2) concluded concluded Ease of shareholder suits index (0-10) 7.0 7.0 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? Yes 1 Yes 1 (0-1) Documents Documents that Can the plaintiff obtain any documents from the defendant that the the defendant 1 1 and witnesses during trial? (0-3) defendant relied on relied on Can the plaintiff request categories of documents from the No 0 No 0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Yes 2 Yes 2 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1 Yes 1 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes regardless of Yes regardless 2 2 the company? (0-2) outcome of outcome Strength of minority investor protection index (0-10) 5.8 5.8 Extent of conflict of interest regulation index (0-10) 6.0 6.0 Extent of shareholder rights index (0-10.5) 6.0 6.0 Can shareholders amend company bylaws or statutes with a No 0 No 0 simple majority? Can shareholders owning 10% of the company's share Yes 1.5 Yes 1.5 capital call for an extraordinary meeting of shareholders? Can shareholders remove members of the board of directors Yes 1.5 Yes 1.5 before the end of their term. Must a company obtain its shareholders’ approval every time Yes 1.5 Yes 1.5 it issues new shares? Are shareholders automatically granted subscription rights No 0 No 0 on new shares? Must shareholders approve the election and dismissal of the Yes 1.5 Yes 1.5 external auditor? Can shareholders freely trade shares prior to a major No 0 No 0 corporate action or meeting of shareholders? Strength of governance structure index (0-10.5) 4.0 4.0 Is the CEO barred from also serving as chair of the board of Yes 1.5 Yes 1.5 directors? Must the board of directors include independent board No 0 No 0 members? Must a company have a separate audit committee? Yes 1.5 Yes 1.5 Must changes to the voting rights of a series or class of shares be approved only by the holders of the affected Yes 1.5 Yes 1.5 shares? Must a potential acquirer make a tender offer to all Yes for listed Yes for listed 1 1 shareholders upon acquiring 50% of a company? companies companies Is cross-shareholding between 2 independent companies No 0 No 0 limited to 10% of outstanding shares? Is a subsidiary barred from acquiring shares issued by its Yes 1.5 Yes 1.5 parent company? Extent of corporate transparency index (0-9) 6.5 6.5 Doing Business 2015 Nigeria 74 Yes for listed Yes for listed Must ownership stakes representing 10% be disclosed? 1 1 companies companies Must information about board members’ other directorships as well as basic information on their primary employment be Yes 1.5 Yes 1.5 disclosed? Must the compensation of individual managers be disclosed? No 0 No 0 Must financial statements contain explanatory notes on significant accounting policies, trends, risks, uncertainties Yes 1.5 Yes 1.5 and other factors influencing the reporting? Must annual financial statements be audited by an external Yes 1.5 Yes 1.5 auditor? Yes for listed Yes for listed Must audit reports be disclosed to the public? 1 1 companies companies Extent of shareholder governance index (0-10) 5.5 5.5 Source: Doing Business database. Doing Business 2015 Nigeria PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2013 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business measures the taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as the Time required to comply with 3 major taxes administrative burden of paying taxes and (hours per year) contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax payable transactions made over the year. Information is also compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if required the simple average of the distance to frontier scores for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to Profit or corporate income tax one of the component indicators, the total tax rate . 5 The financial statement variables have been updated Social contributions and labor taxes paid by to be proportional to 2012 income per capita; the employer previously they were proportional to 2005 income Property and property transfer taxes per capita. To make the data comparable across Dividend, capital gains and financial economies, several assumptions are used. transactions taxes  TaxpayerCo is a medium-size business that Waste collection, vehicle, road and other taxes started operations on January 1, 2012.  Taxes and mandatory contributions include  The business starts from the same financial corporate income tax, turnover tax and all position in each economy. All the taxes labor taxes and contributions paid by the and mandatory contributions paid during company. the second year of operation are recorded.  A range of standard deductions and  Taxes and mandatory contributions are exemptions are also recorded. measured at all levels of government. 5 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 26.1%. Doing Business 2015 Nigeria 76 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with 2 largest business cities. See the chapter on distance to taxes in Nigeria—and how much do firms pay in taxes? frontier and ease of doing business ranking at the end of On average, firms make 47.0 tax payments a year, spend this profile for more details. 907.9 hours a year filing, preparing and paying taxes and Globally, Nigeria stands at 179 in the ranking of 189 pay total taxes amounting to 32.7% of profit (see the economies on the ease of paying taxes (figure 8.1). The summary at the end of this chapter for details). Most rankings for comparator economies and the regional indicator sets refer to a case scenario in the largest average ranking provide other useful information for business city of an economy, except for 11 economies for assessing the tax compliance burden for businesses in which the data are a population-weighted average of the Nigeria. Figure 8.1 How Nigeria and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2015 Nigeria 77 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue rise. consolidating filings, reducing the frequency of What tax reforms has Doing Business recorded in Nigeria payments or offering electronic filing and payment. (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Nigeria made paying taxes easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Nigeria introduced a new compulsory labor contribution paid DB2013 by the employer. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Nigeria 78 PAYING TAXES What are the details? The indicators reported here for Nigeria are based on LOCATION OF STANDARDIZED COMPANY the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Lagos, Kano chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on Lagos: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 398 30% 18.6 profit gross Social Security Contributions 12 396 7.5% 8.5 salaries Tertiary education trust fund taxable 0 paid jointly 0 2% 2.5 contribution profit gross Training Tax 1 0 1% 1.1 salaries Employee Compensation gross Contribution paid by the 12 0 1% 1.1 salaries employer capital Capital gains tax 1 0 10% 0.5 gains interest not Tax on money market interest 0 withheld 0 10% 0.3 income included property Tenement Tax 1 0 0.125% 0.2 value Doing Business 2015 Nigeria 79 Total tax Notes on Lagos: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate 5/1000 of Stamp duty on checks 1 0 5% value of 0.2 check fixed fee NGN 5,000 depending Road license 1 0 0 per vehicle on type of vehicle State business levy 1 0 NGN 5,000 fixed fee 0 NGN 100 Infrastructure Development 1 0 per fixed fee 0 withheld Tax employee value not Value added tax (VAT) 12 162 5% 0 added included included in Fuel tax 1 0 0 fuel price Employee labor tax 0 paid jointly 0 10% 0 withheld various small Advertising tax 1 0 0 rates amount small Stamp duty on contracts 1 0 0 amount Totals 47.0 956.0 32.7 Total tax Notes on Kano: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 310 30% 18.6 profit gross Social Security Contributions 12 320 7.5% 8.5 salaries Tertiary education trust fund taxable 0 paid jointly 0 2% 2.5 contribution profit gross Training Tax 1 0 1% 1.1 salaries Employee Compensation gross Contribution paid by the 12 0 1% 1.1 salaries employer Doing Business 2015 Nigeria 80 Total tax Notes on Kano: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate capital Capital gains tax 1 0 10% 0.5 gains interest not Tax on money market interest 0 withheld 0 10% 0.3 income included property Tenement Tax 1 0 0.125% 0.2 value 5/1000 of Stamp duty on checks 1 0 5% value of 0.2 check fixed fee NGN 5,000 depending Road license 1 0 0 per vehicle on type of vehicle State business levy 1 0 NGN 5,000 fixed fee 0 NGN 100 Infrastructure Development 1 0 per fixed fee 0 withheld Tax employee value not Value added tax (VAT) 12 117 5% 0 added included included in Fuel tax 1 0 0 fuel price Employee labor tax 0 paid jointly 0 10% 0 withheld various small Advertising tax 1 0 0 rates amount small Stamp duty on contracts 1 0 0 amount Totals 47.0 747.0 32.7 Source: Doing Business database. Doing Business 2015 Nigeria 81 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from a Customs clearance documents 10% drop in their trading costs than from a similar reduction in the tariffs applied to their products in Port and terminal handling documents global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing a Inland transport and handling standard shipment of goods by sea transport, and the number of documents necessary to complete the Customs clearance and inspections transaction. The indicators cover predefined stages Port and terminal handling such as documentation requirements and procedures Does not include sea transport time at customs and other regulatory agencies as well as at the port. They also cover trade logistics, including Cost required to export and import (US$ per the time and cost of inland transport to the largest container) business city. The ranking of economies on the ease All documentation of trading across borders is determined by sorting their distance to frontier scores for trading across Inland transport and handling borders. These scores are the simple average of the Customs clearance and inspections distance to frontier scores for each of the component Port and terminal handling indicators. To make the data comparable across economies, Doing Business uses several assumptions Official costs only, no bribes about the business and the traded goods. The business:  Is located in the economy’s largest The traded product: business city. For the 11 economies with a population of more than 100 million, data  Is not hazardous nor includes military items. for a second city have been added.  Does not require refrigeration or any other  Is a private, limited liability company, special environment. domestically owned and does not operate  Do not require any special phytosanitary or with special export or import privileges. environmental safety standards other than  Conducts export and import activities, but accepted international standards. does not have any special accreditation  Is one of the economy’s leading export or such as an authorized economic operator import products. status.  Is transported in a dry-cargo, 20-foot full container load. Doing Business 2015 Nigeria 82 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Nigeria? population-weighted average of the 2 largest business According to data collected by Doing Business, exporting cities. See the chapter on distance to frontier and ease of a standard container of goods requires 9 documents, doing business ranking at the end of this profile for more takes 22.9 days and costs $1564.0. Importing the same details. container of goods requires 13 documents, takes 33.9 Globally, Nigeria stands at 159 in the ranking of 189 days and costs $1959.5 (see the summary of four economies on the ease of trading across borders (figure predefined stages and documents at the end of this 9.1). The rankings for comparator economies and the chapter for details). Most indicator sets refer to a case regional average ranking provide other useful scenario in the largest business city of an economy, information for assessing how easy it is for a business in except for 11 economies for which the data are a Nigeria to export and import goods. Figure 9.1 How Nigeria and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2015 Nigeria 83 TRADING ACROSS BORDERS What are the details? The indicators reported here for Nigeria are based on LOCATION OF STANDARDIZED COMPANY a set of specific predefined stages for trading a standard shipment of goods by ocean transport (see the section in this chapter on what the indicators Port Name - Kano: Apapa Port cover). Information on the required documents and the time and cost to complete export and import is Port Name - Lagos: Apapa Port collected from local freight forwarders, shipping lines, customs brokers, port officials and banks. City: Lagos, Kano The predefined stages, and the associated time and cost, for exporting and importing a standard shipment of goods are listed in the summary below, along with the required documents. Lagos Kano Stages to export Time (days) Cost (US$) Time (days) Cost (US$) Customs clearance and inspections 3 350 3 350 Documents preparation 12 280 12 280 Inland transportation and handling 3 300 7 1,100 Ports and terminal handling 4 450 4 450 Totals 22 1,380 26 2,180 Lagos Kano Stages to import Time (days) Cost (US$) Time (days) Cost (US$) Customs clearance and inspections 12 360 12 360 Documents preparation 14 330 14 330 Inland transportation and handling 2 400 6 1,550 Ports and terminal handling 5 605 5 605 Totals 33 1,695 37 2,845 Doing Business 2015 Nigeria 84 Documents to export Bill of lading Cargo release order Commercial Invoice Customs export declaration Form NXP Inspection report Packing List Technical standard/health certificate Terminal handling receipts Documents to import Bill of lading Cargo release order Combined Certificate of Value and Origin (CCVO) Commercial invoice Exit gate Form M (valid for foreign exchange) Letter of Credit Manufacturer's certificate of production or SONCAP Packing list Payment receipt of customs fees and duties Pre-Arrival Assessment Report (PAAR) Single Goods Declaration (SGD) Form Terminal handling receipts Source: Doing Business database. Doing Business 2015 Nigeria 85 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because Procedures to enforce a contract through businesses know they can rely on the courts if a new the courts (number) customer fails to pay. Speedy trials are essential for Steps to file and serve the case small enterprises, which may lack the resources to Steps for trial and judgment stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the judicial system in resolving a commercial dispute before Time to file and serve the case local courts. Following the step-by-step evolution of Time for trial and obtaining judgment a standardized case study, it collects data relating to Time to enforce the judgment the time, cost and procedural complexity of resolving a commercial lawsuit. The ranking on the ease of Cost required to complete procedures (% of enforcing contracts is the simple average of the claim) percentile rankings on its component indicators: Average attorney fees procedures, time and cost. Court costs The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The Enforcement costs case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city. For the 11 economies with a population of more than  The seller requests a pretrial attachment to 100 million, data for a second city have secure the claim. been added.  The dispute on the quality of the goods  The buyer orders custom-made goods, requires an expert opinion. then fails to pay.  The judge decides in favor of the seller; there  The seller sues the buyer before a is no appeal. competent court.  The seller enforces the judgment through a  The value of the claim is 200% of the public sale of the buyer’s movable assets. income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2015 Nigeria 86 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial cities. See the chapter on distance to frontier and ease of dispute through the courts in Nigeria? According to data doing business ranking at the end of this profile for more collected by Doing Business, contract enforcement takes details. 509.8 days, costs 57.7% of the value of the claim and Globally, Nigeria stands at 140 in the ranking of 189 requires 40.2 procedures (see the summary at the end of economies on the ease of enforcing contracts (figure this chapter for details). Most indicator sets refer to a 10.1). The rankings for comparator economies and the case scenario in the largest business city of an economy, regional average ranking provide other useful except for 11 economies for which the data are a benchmarks for assessing the efficiency of contract population-weighted average of the 2 largest business enforcement in Nigeria. Figure 10.1 How Nigeria and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2015 Nigeria 87 ENFORCING CONTRACTS What are the details? The indicators reported here for Nigeria are based COURT NAME on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this chapter on what Claim value - Kano: NGN 777,684 the indicators cover). These procedures, and the time and cost of completing them, are identified through Claim value - Lagos: NGN 777,684 study of the codes of civil procedure and other court regulations, as well as through questionnaires Court name - Kano: Kano Magistrates Court completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Court name - Lagos: Lagos Magistrates Court City: Lagos, Kano Table 10.2 Summary of time, cost and procedures for enforcing a contract in Nigeria Sub-Saharan Indicator Lagos Kano Africa average Time (days) 447 720 650 Filing and service 40 21 Trial and judgment 265 661 Enforcement of judgment 142 38 Cost (% of claim) 62 43.4 45.1 Attorney cost (% of claim) 45 25 Court cost (% of claim) 12 11.3 Enforcement Cost (% of claim) 5 7.1 Procedures (number) 40 41 39 Number of procedures (without bonus points) 41 41 Specialized commercial courts -1 -1 Total number of procedures (including bonus points) 40 40 Doing Business 2015 Nigeria 88 No. Lagos Procedures Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. 2 Plaintiff hires a lawyer: Plaintiff hires a lawyer. Plaintiff files a summons and complaint: Plaintiff files a summons and complaint with the court (orally or * in writing). Plaintiff pays court fees: Plaintiff pays court fees (e.g. court duties, stamp duties, or any other type of court * fees). Answer ‘yes’ even if Plaintiff recovers these costs. Registration of court case: Registration of court case by the court administration (this can include 3 assigning a reference number to the case). Assignment of court case to a judge: Assignment of court case to a judge (through a random procedure, * automated system, ruling of an administrative judge, court officer, etc). Judicial scrutiny of summons and complaint: Judge examines Plaintiff's summons and complaint for 4 formal requirements as a matter of law or standard practice. Judge admits summons and complaint: Judge admits summons and complaint (after verifying the formal * requirements). Delivery of summons and complaint to person authorized to perform service of process on Defendant: 5 The judge or a court officer delivers the summons to a summoning office, officer, or authorized person (including Plaintiff), for service of process on Defendant. Attempt at physical delivery: An attempt to physically deliver summons and complaint to Defendant is 6 made. Second attempt at physical delivery: If a first attempt is not ordinarily successful, a second attempt to 7 physically deliver the summons and complaint to Defendant is required by law or standard practice. (Check ‘yes’ only if a first attempt at physical delivery is not ordinarily successful) Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. Decision on pre-judgment attachment: Judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. Guarantees securing attached property: Plaintiff submits guarantees or bonds to secure Defendant 8 against possible damages to attached property. Pre-judgment attachment order: Defendant's property is attached prior to judgment. Attachment order 9 either involves physical attachment, or is achieved by freezing, registering, marking, or otherwise separating and restricting Defendant’s movement of specific moveable assets. Custody of assets attached prior to judgment: If physical attachment is ordered, Defendant's attached 10 assets are placed in the custody or control of an enforcement officer or private bailiff. Doing Business 2015 Nigeria 89 No. Lagos Procedures Report on pre-judgment attachment: Court enforcement officer or private bailiff issues and delivers a 11 report on the attachment of Defendant’s property to the judge. Trial and judgment: Defendant files an answer to Plaintiff’s claim: Defendant files a written pleading which includes his answer 12 or defense on the merits of the case (see assumption 4). Deadline for Plaintiff to reply to Defendant's defense or answer: Judge sets a deadline for Plaintiff’s 13 submission of a reply to the Defendant's defense or answer. Plaintiff’s written reply to Defendant's answer: Plaintiff responds to Defendant’s answer with a written 14 pleading, which may or may not include witness statements or expert (witness) statements. Filing of written submissions: Plaintiff and Defendant file written pleadings and submissions with the court 15 and transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Adjournments: Court procedure is delayed because one or both parties request and obtain an 16 adjournment to submit written pleadings. Check as ‘yes’ if this commonly happens. Framing of issues: Plaintiff and Defendant assist the court in framing issues on which evidence is to be 17 presented. Delivery of expert report by court-appointed expert: The independent expert, appointed by the court, * delivers his or her expert report to the court (see assumption 5-b). Mediation hearing: The judge, during this informal meeting with the parties, encourages them to settle 18 the case (acting as mediator). The case cannot be settled, the judge may draft a pre-trial conference report, after which the case may be allocated to another judge for tr Request for interlocutory order: Defendant raises preliminary issues, such as jurisdiction, statute of * limitation, etc. Checked as ‘yes’ if commonly raised by the Defendant as a matter of practice, regardless of justification. Court’s issuance of interlocutory order: Court decides the preliminary issues the Defendant raised by * issuing an interlocutory order. Check as ‘yes’ if this is commonly the case in commercial cases. Plaintiff’s appeal of court's interlocutory order: Plaintiff appeals the court's interlocutory orde r, which 19 suspends the court proceedings. Check as ‘yes’ if an appeal by Plaintiff is common in this case. * Setting of date(s) for oral hearing or trial: Judge sets the date(s) for the oral hearing or trial. Pre-trial conference aimed at preparing for trial: The judge meets with parties to make practical 20 arrangements for the trial (for example, the number of witnesses parties intend to call on during trial, how much time each party is given to present oral arguments etc.). * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court (see assumption 5-a). Adjournments: Court proceedings are delayed because one or both parties request and obtain an 21 adjournment to prepare for the oral hearing or trial as a matter of common practice. Adjournments: Court proceedings are delayed because one or both parties request and obtain an 22 adjournment during the oral hearing or trial, resulting in an additional or later trial or hearing date. Doing Business 2015 Nigeria 90 No. Lagos Procedures 23 Closing of the evidence period: The court makes the formal decision to close the evidence period. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 24 Writing of judgment: The judge produces a written copy of the judgment. Registration of judgment: The court office registers the judgment after receiving a written copy of the 25 judgment. Plaintiff receives a copy of the judgment: Plaintiff receives a copy of the written judgment which is 100% 26 in favor of Plaintiff (see assumption 6). Defendant is formally notified of the judgment: Plaintiff or court formally notifies the Defendant of the 27 judgment. The appeal period starts to run from the day the Defendant is formally notified of the judgment. Appeal period: By law Defendant has the opportunity to appeal the judgment during a specified period. 28 Defendant decides not to appeal. Seller decides to start enforcing the judgment when the appeal period ends (see assumption 8). Order for reimbursement by Defendant of Plaintiff's court fees: The judgment orders Defendant to 29 reimburse Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff hires a lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented by * a lawyer during the enforcement of judgment phase. Plaintiff retains an enforcement agent to enforce the judgment.: Plaintiff retains the services of a court 30 enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff requests an enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). Attachment of enforcement order to judgment: The judge attaches the en forcement order (‘seal’) to the 31 judgment. Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer * or a private bailiff. Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a 32 private bailiff requests Defendant to voluntarily comply with the judgment. Identification of Defendant's assets by court official or Defendant for purposes of enforcement: The judge, 33 a court enforcement officer, a private bailiff or the Defendant himself identifies Defendant's movable assets for the purposes of enforcing the judgment through a sale of Defendant’s assets. Contestation of selection of assets identified for sale: A party, Plaintiff or Defendant, which was not 34 involved in the designation of the assets for attachment, contests the selection of assets for enforcement of judgment through a sale. 35 Plaintiff identifies Defendant's assets for attachment: Plaintiff identifies Defendant's assets for attachment. Doing Business 2015 Nigeria 91 No. Lagos Procedures Creditor notification of intent to attach: A court enforcement officer or private bailiff notifies other 36 creditors of the intent to attach Defendant's goods. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separ ating 37 assets). 38 Sale through public auction: The Defendant’s movable property is sold at public auction. Direct sale: Defendant's property is sold but not through a public auction. Checked as ‘yes’ if the direct * sale is common as an alternative to a public auction (assumption 9 is disregarded here). Distribution of proceeds: The proceeds of the public auction are distributed to Plaintiff (and, where 39 applicable, to other creditors, according to the rules of priority). Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which 40 Plaintiff had advanced previously. 41 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. No. Kano Procedures Filing and service: * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2015 Nigeria 92 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By improving the expectations of creditors Appeals and requests for extension are and debtors about the outcome of insolvency included proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and thereby improve growth and estate) sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome of Fees of insolvency administrators insolvency proceedings involving domestic legal Lawyers’ fees entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recouped by secured creditors through Other related fees reorganization, liquidation or debt enforcement (foreclosure) proceedings. To determine the present Outcome value of the amount recovered by creditors, Doing Whether business continues operating as a Business uses the lending rates from the International going concern or business assets are sold Monetary Fund, supplemented with data from piecemeal central banks and the Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) determines the maximum value that can be framework index. The index tests whether economies recovered adopted internationally accepted good practices in four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of the Resolving Insolvency indicator is account based on the recovery rate and the total score of the Present value of debt recovered strength of insolvency framework index. The Strength of insolvency framework index (0- Resolving Insolvency indicator does not measure 16) insolvency proceedings of individuals and financial institutions. The data are derived from survey Sum of the scores of four component indices: responses by local insolvency practitioners and Commencement of proceedings index (0-3) verified through a study of laws and regulations as well as public information on bankruptcy systems. Management of debtor’s assets index (0-6) Reorganization proceedings index (0-3) Creditor participation index (0-4) Doing Business 2015 Nigeria 93 RESOLVING INSOLVENCY Where does the economy stand today? Combination of quality regulations and efficient practice According to data collected by Doing Business, Nigeria characterize the top-performing economies. How scores 2.0 out of 3 points on the commencement of efficient are insolvency proceedings in Nigeria? proceedings index, 2.0 out of 6 points on the According to data collected by Doing Business, resolving management of debtor’s assets index, 0.0 out of 3 points insolvency takes 2.0 years on average and costs 22.0% of on the reorganization proceedings index, and 2.0 out of the debtor’s estate, with the most likely outcome being 4 points on the creditor participation index. Nigeria’s that the company will be sold as piecemeal sale. The total score on the strength of insolvency framework average recovery rate is 27.9 cents on the dollar. Most index is 6.0 out of 16. indicator sets refer to a case scenario in the largest Globally, Nigeria stands at 131 in the ranking of 189 business city of an economy, except for 11 economies for economies on the ease of resolving insolvency (figure which the data are a population-weighted average of the 11.1). The rankings for comparator economies and the 2 largest business cities. See the chapter on distance to regional average ranking provide other useful frontier and ease of doing business ranking at the end of benchmarks for assessing the efficiency of insolvency this profile for more details. proceedings in Nigeria. Figure 11.1 How Nigeria and comparator economies rank on the ease of resolving insolvency Doing Business 2015 Nigeria 94 Source: Doing Business database. Doing Business 2015 Nigeria 95 Figure 11.2 Recovery Rate (0-100) - Nigeria Source: Doing Business database. Figure 11.3 Strength of insolvency framework index (0-16) - Nigeria Source: Doing Business database. Doing Business 2015 Nigeria 96 LABOR MARKET REGULATION Doing Business measures flexibility in the regulation of Doing Business 2015 presents the data for the labor employment, specifically as it affects the hiring and market regulation indicators in an annex. The report redundancy of workers and the rigidity of working hours. does not present rankings of economies on these This year, for the first time, the indicators measuring indicators nor include the topic in the aggregate distance flexibility in labor market regulations focus on those to frontier score or ranking on the ease of doing affecting the food retail industry, using a standardized business. Detailed data collected on labor market case study of a cashier in a supermarket. Also new is that regulations are available on the Doing Business website Doing Business collects data on regulations applying to (http://www.doingbusiness.org). The data on labor employees hired through temporary-work agencies as market regulations are based on a detailed survey of well as on those applying to permanent employees or employment regulations that is completed by local employees hired on fixed-term contracts. The indicators lawyers and public officials. Employment laws and also cover additional areas of labor market regulation, regulations as well as secondary sources are reviewed to including social protection schemes and benefits as well ensure accuracy. To make the data comparable across as labor disputes. economies, several assumptions about the worker and the business are used. Over the period from 2007 to 2011 improvements were made to align the methodology for the labor market The worker: regulation indicators (formerly the employing workers  Is a cashier in a supermarket or a grocery store indicators) with the letter and spirit of the International  Is a full-time employee Labour Organization (ILO) conventions. Only 6 of the 188  Is not a member of the labor union, unless ILO conventions cover areas measured by Doing membership is mandatory Business: employee termination, weekend work, holiday The business: with pay, night work, protection against unemployment  Is a limited liability company (or the equivalent and medical care and sickness benefits. The Doing in the economy) with 60 employees. Business methodology is fully consistent with these 6  Operates a supermarket or grocery store in the conventions. The ILO conventions covering areas related economy’s largest business city. For 11 to the labor market regulation indicators do not include economies the data are also collected for the the ILO core labor standards—8 conventions covering second largest business city. the right to collective bargaining, the elimination of  Is subject to collective bargaining agreements if forced labor, the abolition of child labor and equitable such agreements cover more than 50% of the treatment in employment practices. food retail sector and they apply even to firms that are not party to them. Between 2009 and 2011 the World Bank Group worked  Abides by every law and regulation but does not with a consultative group—including labor lawyers, grant workers more benefits than those employer and employee representatives, and experts mandated by law, regulation or (if applicable) from the ILO, the Organisation for Economic Co- collective bargaining agreements. operation and Development (OECD), civil society and the private sector—to review the methodology for the labor market regulation indicators and explore future areas of research. A full report with the conclusions of the consultative group is available at: http://www.doingbusiness.org/methodology/employing-workers. Doing Business 2015 Nigeria LABOR MARKET REGULATION What are the details? The data reported here for Nigeria are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Difficulty of hiring index Difficulty of hiring covers 4 areas: (i) whether fixed-term wage to the average value added per worker. The contracts are prohibited for permanent tasks; (ii) the average value added per worker is the ratio of an maximum cumulative duration of fixed-term contracts; economy’s GNI per capita to the working-age population (iii) the minimum wage for a cashier, age 19, with 1 year as a percentage of the total population. of work experience; and (iv) the ratio of the minimum Lagos Kano Difficulty of hiring index Data Data Fixed-term contracts prohibited for permanent tasks? No No Maximum length of a single fixed-term contract (months) No limit No limit Maximum length of fixed-term contracts, including renewals (months) No limit No limit Minimum wage applicable to the worker assumed in the case study 111.17 111.17 (US$/month) Ratio of minimum wage to value added per worker 0.26 0.26 Source: Doing Business database. Doing Business 2015 Nigeria 98 LABOR MARKET REGULATION Rigidity of hours index Rigidity of hours covers 7 areas: (i) whether the premium for work on a weekly rest day (as a percentage workweek can extend to 50 hours or more (including of hourly pay); (v) whether there are restrictions on night overtime) for 2 months in a year to respond to a work; (vi) whether there are restrictions on weekly seasonal increase in workload; (ii) the maximum number holiday work; and (vii) the average paid annual leave for of days allowed in the workweek; (iii) the premium for workers with 1 year of tenure, 5 years of tenure and 10 night work (as a percentage of hourly pay); (iv) the years of tenure. Lagos Kano Rigidity of hours index Data Data 50-hour workweek allowed for 2 months a year in case of a seasonal Yes Yes increase in workload? Maximum working days per week 6.0 6.0 Premium for night work (% of hourly pay) 0% 0% Premium for work on weekly rest day (% of hourly pay) 0% 0% Major restrictions on night work? No No Major restrictions on weekly holiday? No No Paid annual leave for a worker with 1 year of tenure (in working days) 6.0 6.0 Paid annual leave for a worker with 5 years of tenure (in working days) 6.0 6.0 Paid annual leave for a worker with 10 years of tenure (in working 6.0 6.0 days) Paid annual leave (average for workers with 1, 5 and 10 years of tenure, 6.0 6.0 in working days) Source: Doing Business database. Doing Business 2015 Nigeria 99 LABOR MARKET REGULATION Difficulty of redundancy index Difficulty of redundancy index looks at 9 questions: (i) whether the employer needs approval from a third party what the length is in months of the maximum to terminate 1 redundant worker; (vi) whether the probationary period; (ii) whether redundancy is employer needs approval from a third party to terminate disallowed as a basis for terminating workers; (iii) a group of 9 redundant workers; (vii) whether the law whether the employer needs to notify a third party (such requires the employer to reassign or retrain a worker as a government agency) to terminate 1 redundant before making the worker redundant; (viii) whether worker; (iv) whether the employer needs to notify a third priority rules apply for redundancies; and (ix) whether party to terminate a group of 9 redundant workers; (v) priority rules apply for reemployment. Lagos Kano Difficulty of redundancy index Data Data Maximum length of probationary period (months) 3.0 3.0 Dismissal due to redundancy allowed by law? Yes Yes Third-party notification if 1 worker is dismissed? No No Third-party approval if 1 worker is dismissed? No No Third-party notification if 9 workers are dismissed? Yes Yes Third-party approval if 9 workers are dismissed? No No Retraining or reassignment obligation before redundancy? No No Priority rules for redundancies? Yes Yes Priority rules for reemployment? No No Source: Doing Business database. Doing Business 2015 Nigeria 100 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice requirements and severance payments applicable to a requirements, severance payments and penalties due worker with 1 year of tenure, a worker with 5 years and when terminating a redundant worker, expressed in a worker with 10 years is considered. One month is weeks of salary. The average value of notice recorded as 4 and 1/3 weeks. Lagos Kano Redundancy cost indicator (in salary weeks) Data Data Notice period for redundancy dismissal for a worker with 1 year of 1.0 1.0 tenure Notice period for redundancy dismissal for a worker with 5 years of 4.3 4.3 tenure Notice period for redundancy dismissal for a worker with 10 years of 4.3 4.3 tenure Notice period for redundancy dismissal (average for workers with 1, 5 3.2 3.2 and 10 years of tenure) Severance pay for redundancy dismissal for a worker with 1 year of 2.3 2.3 tenure Severance pay for redundancy dismissal for a worker with 5 years of 11.4 11.4 tenure Severance pay for redundancy dismissal for a worker with 10 years of 22.9 22.9 tenure Severance pay for redundancy dismissal (average for workers with 1, 5 12.2 12.2 and 10 years of tenure) Source: Doing Business database. Social protection schemes and benefits & Labor disputes Doing Business collects data on the existence of unemployment protection schemes as well as data on whether employers are legally required to provide health insurance for employees with permanent contracts. Doing Business also assesses the mechanisms available to resolve labor disputes. More specifically, it collects data on what courts would be competent to hear labor disputes and whether the competent court is specialized in resolving labor disputes. Doing Business 2015 Nigeria 101 Lagos Kano Social protection schemes and benefits & Labor disputes indicator Data Data Availability of unemployment protection scheme? No No Health insurance existing for permanent employees? No Yes Availability of courts or court sections specializing in labor disputes? Yes Yes Source: Doing Business database. Doing Business 2015 Nigeria 102 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING This year’s report presents results for 2 aggregate defined as the total tax rate at the 15th percentile of the measures: the distance to frontier score and the ease of overall distribution for all years included in the analysis. doing business ranking, which for the first time this year For the time to pay taxes the frontier is defined as the is based on the distance to frontier score. The ease of lowest time recorded among all economies that levy the doing business ranking compares economies with one 3 major taxes: profit tax, labor taxes and mandatory another; the distance to frontier score benchmarks contributions, and value added tax (VAT) or sales tax. In economies with respect to regulatory best practice, addition, the cost to export and cost to import for each showing the absolute distance to the best performance year are divided by the GDP deflator, to take the general on each Doing Business indicator. When compared price level into account when benchmarking these across years, the distance to frontier score shows how absolute-cost indicators across economies with different much the regulatory environment for local entrepreneurs inflation trends. The base year for the deflator is 2013 for in an economy has changed over time in absolute terms, all economies. while the ease of doing business ranking can show only In the same formulation, to mitigate the effects of how much the regulatory environment has changed extreme outliers in the distributions of the rescaled data relative to that in other economies. for most component indicators (very few economies Distance to Frontier need 700 days to complete the procedures to start a business, but many need 9 days), the worst performance The distance to frontier score captures the gap between is calculated after the removal of outliers. The definition an economy’s performance and a measure of best of outliers is based on the distribution for each practice across the entire sample of 31 indicators for 10 component indicator. To simplify the process, 2 rules Doing Business topics (the labor market regulation were defined: the 95th percentile is used for the indicators are excluded). For starting a business, for indicators with the most dispersed distributions example, Canada and New Zealand have the smallest (including time, cost, minimum capital and number of number of procedures required (1), and New Zealand the payments to pay taxes), and the 99th percentile is used shortest time to fulfill them (0.5 days). Slovenia has the for number of procedures and number of documents to lowest cost (0.0), and Australia, Colombia and 110 other trade. No outlier was removed for component indicators economies have no paid-in minimum capital bound by definition or construction, including legal requirement (table 15.1 in the Doing Business 2015 index scores (such as the depth of credit information report). index, extent of conflict of interest regulation index and strength of insolvency framework index) and the Calculation of the distance to frontier score recovery rate (figure 15.1 in the Doing Business 2015 Calculating the distance to frontier score for each report). economy involves 2 main steps. First, individual Second, for each economy the scores obtained for component indicators are normalized to a common unit individual indicators are aggregated through simple where each of the 31 component indicators y (except for averaging into one distance to frontier score, first for the total tax rate) is rescaled using the linear each topic and then across all 10 topics: starting a transformation (worst − y)/(worst − frontier). In this business, dealing with construction permits, getting formulation the frontier represents the best performance electricity, registering property, getting credit, protecting on the indicator across all economies since 2005 or the minority investors, paying taxes, trading across borders, third year after data for the indicator were collected for enforcing contracts and resolving insolvency. More the first time. For legal indicators such as those on complex aggregation methods—such as principal getting credit or protecting minority investors, the components and unobserved components —yield a frontier is set at the highest possible value. For the total ranking nearly identical to the simple average used by tax rate, consistent with the use of a threshold in Doing Business . Thus Doing Business uses the simplest 6 calculating the rankings on this indicator, the frontier is 6 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to Doing Business 2015 Nigeria 103 method: weighting all topics equally and, within each overall tax system. Instead, it is mainly empirical in topic, giving equal weight to each of the topic nature. The nonlinear transformation along with the components . threshold reduces the bias in the indicator toward 7 economies that do not need to levy significant taxes on An economy’s distance to frontier score is indicated on a companies like the Doing Business standardized case scale from 0 to 100, where 0 represents the worst study company because they raise public revenue in performance and 100 the frontier. All distance to frontier other ways—for example, through taxes on foreign calculations are based on a maximum of 5 decimals. companies, through taxes on sectors other than However, indicator ranking calculations and the ease of manufacturing or from natural resources (all of which are doing business ranking calculations are based on 2 outside the scope of the methodology). In addition, it decimals. The difference between an economy’s distance acknowledges the need of economies to collect taxes to frontier score in any previous year and its score in from firms. 2014 illustrates the extent to which the economy has closed the gap to the regulatory frontier over time. And Calculation of scores for economies with 2 cities in any given year the score measures how far an covered economy is from the best performance at that time. For each of the 11 economies for which a second city Treatment of the total tax rate was added in this year’s report, the distance to frontier score is calculated as the population-weighted average This year, for the first time, the total tax rate component of the distance to frontier scores for the 2 cities covered of the paying taxes indicator set enters the distance to (table 12.1). This is done for the aggregate score, the frontier calculation in a different way than any other scores for each topic and the scores for all the indicator. The distance to frontier score obtained for the component indicators for each topic. total tax rate is transformed in a nonlinear fashion before it enters the distance to frontier score for paying taxes. Table 12.1 Weights used in calculating the distance to As a result of the nonlinear transformation, an increase in frontier scores for economies with 2 cities covered the total tax rate has a smaller impact on the distance to Economy City Weight (%) frontier score for the total tax rate—and therefore on the Dhaka 78 distance to frontier score for paying taxes—for Bangladesh Chittagong 22 economies with a below-average total tax rate than it São Paulo 61 would have in the calculation done in previous years (line Brazil Rio de Janeiro 39 B is smaller than line A in figure 15.2 of the Doing Shanghai 55 China Business 2015 report). And for economies with an Beijing 45 extreme total tax rate (a rate that is very high relative to Mumbai 47 India the average), an increase has a greater impact on both Delhi 53 these distance to frontier scores than before (line D is Jakarta 78 Indonesia bigger than line C in figure 15.2 of the Doing Business Surabaya 22 Tokyo 65 2015 report). Japan Osaka 35 The nonlinear transformation is not based on any Mexico City 83 Mexico economic theory of an “optimal tax rate” that minimizes Monterrey 17 distortions or maximizes efficiency in an economy’s Lagos 77 Nigeria Kano 23 Karachi 65 Pakistan that from the simple average method because both these methods Lahore 35 assign roughly equal weights to the topics, since the pairwise Moscow 70 Russian Federation correlations among indicators do not differ much. An alternative to the St. Petersburg 30 simple average method is to give different weights to the topics, New York 60 depending on which are considered of more or less importance in the United States Los Angeles 40 context of a specific economy. Source: United Nations, Department of Economic and Social 7 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned Affairs, Population Division, World Urbanization Prospects, to the strength of legal rights index and 40% to the depth of credit 2014 Revision. http://esa.un.org/unpd/wup/CD- information index. Indicators for all other topics are assigned equal ROM/Default.aspx. weights Doing Business 2015 Nigeria 104 Economies that improved the most across 3 or more Selecting the economies that implemented regulatory Doing Business topics in 2013/14 reforms in at least 3 topics and had the biggest improvements in their distance to frontier scores is Doing Business 2015 uses a simple method to calculate intended to highlight economies with ongoing, broad- which economies improved the ease of doing business based reform programs. The improvement in the the most. First, it selects the economies that in 2013/14 distance to frontier score is used to identify the top implemented regulatory reforms making it easier to do improvers because this allows a focus on the absolute business in 3 or more of the 10 topics included in this improvement—in contrast with the relative improvement year’s aggregate distance to frontier score. Twenty-one shown by a change in rankings—that economies have economies meet this criterion: Azerbaijan; Benin; the made in their regulatory environment for business. Democratic Republic of Congo; Côte d’Ivoire; the Czech Republic; Greece; India; Ireland; Kazakhstan; Lithuania; the former Yugoslav Republic of Macedonia; Poland; Ease of Doing Business ranking Senegal; the Seychelles; Spain; Switzerland; Taiwan, China; Tajikistan; Togo; Trinidad and Tobago; and the The ease of doing business ranking ranges from 1 to 189. United Arab Emirates. Second, Doing Business sorts these The ranking of economies is determined by sorting the economies on the increase in their distance to frontier aggregate distance to frontier scores, rounded to 2 score from the previous year using comparable data. decimals. Doing Business 2015 Nigeria 105 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 10,700 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 139 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, reform case repreneurship studies and customized economy and regional profiles Distance to frontier http://www.doingbusiness.org/reports Data benchmarking 189 economies to the frontier in regulatory practice Methodology http://www.doingbusiness.org/data/distance-to- The methodologies and research papers underlying frontier Doing Business http://www.doingbusiness.org/methodology Information on good practices Showing where the many good practices identified Research by Doing Business have been adopted Abstracts of papers on Doing Business topics and http://www.doingbusiness.org/data/good-practice related policy issues http://www.doingbusiness.org/research Doing Business iPhone App Doing Business at a Glance—presenting the full Doing Business reforms report, rankings and highlights for each topic for Short summaries of DB2015 business regulation the iPhone, iPad and iPod touch reforms, lists of reforms since DB2008 and a ranking http://www.doingbusiness.org/specialfeatures/ simulation tool iphone http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2015 Nigeria 106