Tag Archives: Singapore

Doing Business: Can Nigeria replicate the Singapore model like Mauritius did?

By Rafiq Raji, PhD

It is undeniable that there is a correlation between a country’s business environment, foreign direct investment inflows and international trade performance. Countries that make setting up businesses easy, allow clearance of goods at ports with little hassle, grant entry and exit visas to investors and visitors alike in quick time, enable the registration of property with little trouble, provide reliable electricity, and make documentation like construction permits easy to acquire, attract more foreign direct investment (FDI). [1] The easier it is to do these things, the more likely cross-border and broader international trade would flourish.[2] These benefits are what motivate countries to try to improve their business environments, more so now that capital is increasingly choosy and circumspect.

Country GDP per capita(US$) (2016) (PPP) Overall DB rank (over 190) Trading across borders (over 190)
Singapore 87,855 2 41
Mauritius 20,422 49 4
Rwanda 1,977 56 6
Botswana 17,042 71 3
South Africa 13,225 74 25
Kenya 3,361 92 9
Seychelles 27,602 93 5
Zambia 3,880 98 31
Lesotho 3,601 100 2
Namibia 11,290 108 17
Ghana 4,412 108 29
Nigeria 5,942 169 181

Source: IMF, Doing Business 2017: Equal Opportunity for All (World Bank, Oct 2016) [3]

Singapore as role model
Singapore is the quintessential example. In the World Bank Ease of Doing Business (DB) 2017 rankings, Singapore is second out of 190 countries ranked globally, having topped the rankings at least nine times since they began in 2004.[4] With a GDP per capita on purchasing power parity (PPP) basis of US$87,855 (2016), it is one of the wealthiest countries in the world. More than three decades earlier, its GDP per capita of about US$8,852, was just one-tenth of its current level. Between 1980-2016, the Singaporean economy grew twenty-five times over from US$12 billion to US$297 billion. Its remarkable success is testimony to the heights any country can reach on the back of sustained reforms and reinvention. In Singapore, contracts matter and are readily enforced, the resolution of insolvencies are not tedious, there is little or no red tape in conducting tax affairs and cross-border trade thrives consequently. In spite of the second place ranking referred to above, Singapore is still widely acclaimed as the easiest place in the World to do business in.[5]

One aspect of doing business in foreign countries that investors dread, is that of dispute resolution. Court processes can be unnecessarily long and slow in most jurisdictions. Singapore overcame this constraint by automating the process, with almost all litigation activities (e.g., submission of claims, payment of court fees, serving of initial summons, etc.), outside of those requiring the physical presence of the litigants or their lawyers, doable online.

Even as some aspects of the Singaporean model are clearly replicable, attempts at copying it often falter when some of the necessary conditions that enabled the Southeast Asian nation to succeed, are missing. “Remaking is essential”: A country must be willing to reinvent itself when the variables change. [6] So just because a model proves successful over a certain period, does not mean it would be a good fit when the times change, as they always do. “Collective response” and “social consensus” also matter a great deal. [7] A determined leadership in the absence of an equally enthused followership may still flounder. Singapore has the unique distinction of having both. Still, there are probably just two essential ingredients for success. First, there must be the political will for reforms.[8] Second, and probably most important of all, the political leadership must be in a secure position and endure long enough for what are sometimes painful reforms, to translate into concrete progress.[9] The two identified prerequisites go together. Otherwise, longstanding African regimes could easily have been similarly transforming. Unsurprisingly, with political will lacking, most are not. There are a few exceptions, however. That is, cases where there have been both the political will for reforms and stable government to see them through. Successes recorded by Mauritius, Botswana and Rwanda, as the DB rankings show, offer a ray of hope for the continent. In line with the Singaporean evolution, their experience also adds to evidence about the identified necessary ingredients for success. In other words, they offer a template on how to assess the likelihood of success of many other countries, African ones especially, who now seek to be similarly attractive to foreign investors.

The case of Mauritius
The one African country that has consistently topped the rankings on the continent, and sometimes dubbed the “Singapore of Africa” – Rwanda also shares the epithet these days – is Mauritius (ranked 49 in the latest DB rankings).[10] [11] [12] Although the Mauritian economy (GDP of US$12 billion) is relatively small when compared with continental giants like South Africa (US$294 billion) and Nigeria (US$406 billion), it is one of the wealthiest. Its remarkable evolution especially suggests the Singapore model can be successfully replicated by African countries. Like Singapore, Mauritius ranks high for good governance and its politics is quite stable.[13] Mauritius’ strong institutions have also been widely acknowledged to be a key success factor.[14] Its cosmopolitanism, similar to that also evidenced in city and coastal states like Singapore, together with similarly close ties to China and India, were also crucial to the development of its manufacturing sector.[15] There is also a consensus in the literature about the huge role its trade policies played in its rapid development.[16] Preferential trade access agreements with key export markets and investment incentives via export processing zones (EPZs), enabled it to develop an apparel and textile manufacturing base, for instance. There is also now a vibrant light manufacturing sector. In addition, tax incentives have enabled Mauritius to become a preferred destination for offshore financial services, and was hitherto a major channel for Indian capital flows, a feat it competes with Singapore to achieve. Unsurprisingly, Singapore and Mauritius already explore palpable synergies between them, signing an air corridor agreement in October 2015, for instance.[17]

Mauritius especially highlights its DB ranking when pitching to foreign investors, and is acknowledged to be for Africa what Singapore is to Southeast Asia. However, unlike Singapore, it has not been similarly successful in getting foreign businesses that register within its jurisdiction, to actually situate the bulk of their operations within the country. That is why it is widely considered to be mostly a tax haven, a characterisation Mauritian authorities dislike and would like to disabuse. Unsurprisingly, its goods exports trend is not impressive, unlike the Singaporean example. It is noteworthy though that a bulk of its goods exports emanate from its EPZs. Lately, Mauritius has been forced to address these deficiencies, as developed economies crack down on tax havens and avoidance schemes and hitherto lucrative tax arrangements are renegotiated. Mauritius, which does not charge a capital gains tax, used to be the preferred destination for channelling capital to India, where capital gains tax can be as high as 40 percent and accounted for a quarter of its foreign capital inflows.[18] This may change from April 2017, when India started charging taxes on investments from Mauritius, after the more than 3-decade tax treaty between the two countries was amended in May 2016.[19] Consequently, Mauritius has ramped up its African focus, with more than half of foreign companies registered by it in the past few years, aiming to do business on the continent.

Corruption and poor governance may weigh on Nigerian reforms
Other African countries have been trying to improve their business environments.[20] Even so, most African countries remain in the lower rungs of the DB rankings, with South Africa and Kenya respectively at 74 and 92 out of 190 in the most recent one. Still, more than a quarter of ease of doing business reforms in 2015-16 were by Sub-Saharan African (SSA) countries, with Kenya one of the top 10 improvers globally. [21] Others seek to join the list of top improvers. Most recently, Nigeria (DB rank: 169) has made a splash about its DB reforms, announcing a 60-day action plan in late February 2017.[22] Nigeria’s abysmally poor non-oil goods exports is another motivation for the authorities’ forced reformist stance, after low crude oil prices over the past two years starved the government of revenue. Crude oil exports constituted more than 90 percent of total goods exports between 2009-15. That is, even as total goods exports were less than 20 percent of GDP on average. Unfortunately, attempts at using EPZs to spur export of manufactures have been slow-moving, with the most promising one (Lekki Free Trade Zone) still largely at development stage.

Fundamentally, the recently proposed DB reforms are aimed at increasing international trade and FDI. This is what motivates the three broad areas that Nigerian authorities have identified for reform: entry and exit of goods, entry and exit of people and government transparency and procurement. Agencies at the ports are to be reduced to six, from almost a dozen. Visitors to the country would be able to get visas on arrival, and those that apply at the country’s embassies, would hopefully get theirs within 2 days.

Incidentally, attempts were made in the past to sanitize the maritime ports.[23] That the bottlenecks remain point to the intense pushback reformers tend to face. Corruption is a principal motivation and is why Nigerian ports are some of the most expensive to clear goods at.[24] A report commissioned by the ports authority in October 2016, found that Nigerian authorities lose about N1 trillion annually to corruption at the ports. [25] Under new leadership, the ports authority has embarked on an anti-corruption war. Expectedly, it has come under attack, with death threats and mudslinging in tow.[26]

To demonstrate progress, Nigerian authorities announced in April 2017 that the number of days for registering a business had been reduced to two days from at least ten days, as part of reforms to ease doing business in the country.[27] Ordinarily, the activity takes longer than the statutory 2 working weeks hitherto. With that now reduced to two days, it could be reasonably expected that new business registration would be accomplished in a week, say. How was this achieved? Automation. Similar to how Singapore (and many other countries that copied its model since) was able to get rid of human-related bottlenecks to the ease of doing business, some of the tortuous tasks would now be done electronically. For instance, a lawyer would no longer be required to prepare registration documents, as some of the tasks they charge for could easily be done online by the prospective business owner. Also, such arduous tasks, in the Nigerian context at least, like registering with tax authorities, have been integrated into the government’s company registration portal. Additionally, lawyers at the business registry can now certify incorporation forms and other statutory compliance declarations for a token fee, tasks previously done by lawyers hired by the prospective business owner.

Considering how extraordinarily frustrating the Nigerian legal system is, the knotty issue of dispute resolution may be a hard nut to crack. Setting up specialist courts like Singapore did has not been similarly effective because the judiciary is as yet not equipped for the automation element. Judges still write their judgements by long-hand, there are no audio recording facilities in courts and virtually all documentation is in hard copy form. These deficiencies are why even with specialist courts like the National Industrial Court, Investments and Securities Tribunal and so on, cases can sometimes take years before resolution. And even when successful after years of litigation, red tape can be craftily deployed by a well-connected local partner or disputant to make the whole exercise seem like a total waste of time. A much broader reform of the Nigerian judiciary would have to presage any potential measure directed specifically at the ease of doing business. Understandably, the proposed DB reforms focus on those issues that can be easily fixed. But considering how important dispute resolution is to increasing investor confidence – as the Singaporean and Mauritian examples show – lack of progress in this regard only buttress the poor governance characteristic of the Nigerian business environment. And as earlier highlighted, entrenched interests, corruption and inter-agency rivalry at the ports, mean multiple inspections and continued unwholesome practices, which increase the lead time of goods clearance, would probably endure and continue to stymie the country’s trade performance. Patronage networks around doing business in Nigeria, beneficiaries of which include politicians and their lackeys in every facet of government, would be difficult to dismantle as well.

Conclusion
Nonetheless, even the slightest attempt at improving the Nigerian business environment should be applauded. Still, it would take at least a year of monitoring to determine how much difference the announced reform moves would make and if that would eventually be reflected in the Doing Businessrankings. Besides, there are other more entrenched problems that would require time and determination to fix. With Nigerian politics still relatively fragile, and even simple activities like passing the budget enmeshed in much wrangling, the risk remains that these new reforms may suffer the fate of earlier botched ones. That said, the legislature has expressed support for the efforts of the executive and aims to pass relevant legislation to ensure the DB reforms become codified in law and hopefully survive future administrations. As at late April 2017, two of the identified fifteen DB legislative bills had already been passed.

Despite recent crackdowns on treasury looters and other corrupt persons, corruption would be harder to tackle, however. There is the impression that should there be a change of government after the 2019 elections, the current anti-corruption momentum is likely to slow. Besides, a judiciary not in trend with the times would likely continue to slow the wheel of justice. And defense lawyers have proved to be quite deft at beating the system: successful prosecutions of high-profile corruption cases are rare. Thus, if one were to use the Singaporean and Mauritian success stories as templates, scepticism about the potential success of current reform proposals would be somewhat justified. Still, even the slightest reduction in red tape would bring tremendous relief to those foreign investors who are already decided on doing business in the country. Besides, foreign companies who have anyway managed to make hay despite the many constraints, could do with the efficiencies that some of the reforms would potentially bring about; that is, despite the risk of holdups down the line. But with a still fragile political fabric – evidenced by much infighting within even the ruling political party, which is an agglomeration of strange bedfellows of sorts – endemic corruption and poor governance, the reforms may yet flounder. There needs to be a “collective response” and “social consensus” around the reforms for them to succeed.

Dr. Rafiq Raji wrote this article for the NTU-SBF Centre for African Studies at the Nanyang Business School, Singapore, where he is an adjunct researcher. See link viz. https://www.ntusbfcas.com/african-business-insights/content/doing-business-can-nigeria-replicate-the-singapore-model-like-mauritius-did

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/business-can-nigeria-replicate-singapore-model-like-mauritius/

Africa’s long, bumpy journey to “Wealthland”: Reflecting on Lee Kuan Yew’s Singapore

By Rafiq Raji

remembering-lee-kuan-yew-thumbnail

We are all still reflecting on the recent death of Lee Kuan Yew (LKY), the rightly dubbed “Father of Singapore.” That Singapore’s success is largely due to LKY’s leadership is hard to refute. It would be shortsighted, however, to think any single individual can bring about such monumental change without help. Singapore had characteristics that made it amenable to strong-willed leadership. When the island state was expelled from Malaysia in 1965, many of LKY’s contemporaries likely didn’t envy his “good fortune.” The probability of success was marginal. Ironically, these are the type of conditions from which visionary leadership is borne. When the probability of failure is high and writ large, there is less competition. The leader who is borne out of these conditions has the unique opportunity to set the stage. The analogy that comes to mind is that of a literary writer. You have almost complete control over the setting, plot, and characters. The leader creates a system that supports his or her vision for the longest time possible before success breeds political competition. Some would argue that such conditions were not unique to LKY’s Singapore. After all, most African countries had that opportunity at independence as well.

Many an African leader uses LKY’s example to justify holding on to power. The typical argument goes thus: the leader needs time for his or her policies to yield results. Look at Singapore they say. It is true that the heterogeneity of Africa made it easier to divide and rule its peoples. But it would be self-serving to think that foreigners are entirely responsible for the continent’s current predicament. The British did divide and rule other non-African colonies. Singapore is a former British colony. What then made it possible for Singapore – which though colonized by the British and gained independence at about the same time as many African countries – to get its acts right? I think a fundamental characteristic was the country’s homogeneity. I define this to mean the dominance of a particular group, whether tribal, ethnic or political. A dominant political party (People’s Action Party has been ruling Singapore since 1959), tribe (74% of residents are Chinese), religion (34% are Buddhist), language (50% speak Mandarin Chinese) and LKY’s strong-willed but enlightened leadership made it possible for Singapore to rise from its desperate state those long years ago to become one of the world’s wealthiest nations today. There was also an element of good fortune, for the man, his country and fellow compatriots.

The parallels to be drawn with Singapore for many an African nation, which gained independence in the 1960s, are not flattering. And just because a model worked for Singapore does not mean it would lend itself well to the African condition. In fact, one could say many a longstanding African leader had similar opportunities as LKY. Africa’s current mixed fortunes point to the different directions taken by those opportune to lead its affairs at the time. My view is that it is too late for a Singapore model to be adapted for Africa’s peculiarities. A major constraint is the continent’s heterogeneity. As there have been numerous opportunities for past African leaders to change these configurations, there is really no point now blaming the architects of that “diversity.” Times have also changed. Growing up in Nigeria in the 1980s, everyone watched the same government-owned television channel, land telephone lines were the preserve of civil servants and the wealthy, most aspired to enrolling at government secondary schools, and there were no private universities. Today, things are very different. Social media has democratized speech. Because even though there has always been the freedom to speak, the reach of speech had hitherto been constrained by media access. Not anymore. Reminders of these legacies of tight government control can still be seen in other major African countries. In South Africa – the continent’s most developed state – for instance, the South African Broadcasting Corporation (SABC) still has the widest grassroots reach. And even though social media is pervasive, a lot of rural people still rely (prefer even) to listen to news on the radio. That space of course now has numerous private actors. The fundamental point though is that some of the stringent government controls implemented by LKY’s Singapore in the 1960s to 1980s – that in part contributed to the country’s success – were also in place in most African countries.

In an earlier note, I argue for a rethink of Africa’s “democratic” structures.[1] Our current systems are just too expensive to maintain. And the costs of entry for aspiring politicians – well intentioned or otherwise – are all the more prohibitive on both pecuniary and moral fronts. The emoluments and privileges accorded elected officials in a lot of African countries make the trappings of power all too attractive for rent-seeking leadership. A well-quoted story from LKY’s autobiography is how surprised third-world countries’ leaders were when they found out he flew commercial to a summit they were all attending. Is such a man or woman to be found in developing countries currently in need of that type of leadership? Yes. However, are the conditions present in these countries for such rare men and women ascend to power and effectively govern without succumbing to the trappings of power? Not really. Homogeneity and a power-distant culture provided the foundation for the type of political stability that LKY’s visionary leadership needed to triumph in Singapore. Most African cultures are power-distant as well. But the heterogeneity of cultures, beliefs, religions, and past injuries without justice have made it difficult for such type of leaders to emerge. And for the rare ones that manage to get ahead, the bruises they acquire along the way make them pliant to the flawed system. The alternative is a wasted tenure of ineffectiveness.

That said, there are arguments hither and thither about the sustainability of LKY’s Singapore model; especially as the country’s productivity growth remains lackluster. The view I take is that strong-willed visionary leadership can only go so far. To use an automobile analogy, strong-willed, enlightened and visionary leadership can help key-start a society and economy. But for the car to make it through the long journey, the engine (a country’s institutions) must be well-designed and properly (and regularly) serviced. A dearth of visionary leadership in most African countries has meant it took longer for them to even start their engines. And because the designs were flawed and engines not regularly serviced, the cars failed intermittently on the road to “Wealthland;” with mechanics (NGOs, multilateral agencies, foreign governments, etc.) always on call to fix the slightest problem. The outcome: a slow, uncomfortable and very long journey to prosperity. What then is the solution? Well, the car is already on the road. You can make the necessary repairs, buy new parts, or simply get a tow truck. Consequently, there would be delays and additional costs. In the end though, it is the persistence and will of the driver(s) that will get the car and its passengers to Wealthland. If the car’s engine is faulty, however, there is little any driver can do.

[1] Rethinking Africa’s “democratic” structures https://rafiqraji.com/2014/08/30/rethinking-africas-democratic-structures/

Views expressed are mine and not that of any institution(s) I may be affiliated with

Photo credit: http://www.channelnewsasia.com

#Singapore is hot! #Travel

By Rafiq Raji

Singapore 2014

Literally. With a temperature of 29 degrees Celsius around this period of the year, the weather is a welcome relief if you were arriving Singapore from a very chilly London like I was in the second week of December this year. I would be reminded of recent warmth a few days later of course, with temperatures in the low teens in the capital city of that great island English nation. As I couldn’t immediately hit town upon my arrival due to an academic engagement the following day, I had to make do with sights I saw on my way to the hotel from Changi International Airport. Fortunately, I was scheduled to present my paper and discuss another one both on the first day of the 2-day conference. So I had a full day to explore the city before returning to London the following day. Although 24 hours may not seem like enough time to explore a city, City Sightseeing Singapore makes it possible for you to get a sense of the city if you are time constrained like I was. And it is relatively cheap. Fortunately it was a bright and sunny Saturday. Well, at least until 3pm thereabout when the heavens poured rain. The remainder of the day thereafter was wet. But no matter, that period of the day was spent window-shopping from one mall to another connected by underpasses on Orchard Road. If you have money in your pocket, you are likely to spend it once you get into any of those underpasses. And you must pass through them. The Singaporeans make sure of that.

If you were walking on Orchard Road towards the Ion Orchard mall for instance, you have to cross over Paterson Road, which intersects Orchard Road from the side I was walking from. As the road is fenced on both sides at the intersection, you couldn’t just cross. Instead, you either went down the underpass or crossed towards the other side of Orchard road and then over another intersecting road (Scotts Road) before continuing onwards. But you’d still have to walk further down and even then, the only way into the malls on the other side is down an underpass. Thus, if you were just planning to cross the road through the underpass, think again. The shops are situated just along where you must pass through. And because there are so many people trying to get through, you end up thinking may be you should take a break in one of the shops. So, if you have one of those plastic cards, hmmn. You will spend. I can guarantee that. The other major shopping district, which starts at the end of Orchard Road, is also where the iconic landmarks of Singapore are situated. At least the ones, I was keen on seeing. Encircling the Marina Bay are shopping malls, the Art Science Museum, the Singapore Flyer (largest observation Ferris wheel in the world), Gardens by the Bay et cetera. Developments around the Marina Bay are such that, you could live and work in the area without having to go anywhere else within the City. And trust the Banks to congregate their offices in the area. The skyline of Marina Bay is filled with the branded buildings of major international financial institutions.

While still at Nanyang Business School, the venue of the conference I was attending, I struck a conversation with a Singaporean student who was volunteering at the event. I wanted to know how wealthy he felt. Singapore after all has one of the highest GDP per capita in the world. The gentleman thought he was not as wealthy as the average Singaporean. His sentiment caught me by surprise. Surely, if he was attending a top business school like NBS, he couldn’t be poor? So I asked the same question again but now as a series of questions. Do you have cable TV? Do your parents rent or own the house they live in? Is any Singaporean able to attend NBS if they are accepted? His answers to these questions were in the affirmative. The “poor” guy was probably thinking about quite a number of his contemporaries driving their Ferraris and Lamborghinis with little care on the major streets of Singapore; a sign of intergenerational wealth. For a highly priced education (attending NBS for instance), the government provides financial assistance he would tell me. But the fundamental test for me of whether a country is wealthy is the proportion of its citizens that own their own homes. 90% of Singaporeans own their own homes, according to figures from the National Population and Talent Division (NPTD) in September this year. On average, these homes are 4-room flats. That should give you an indication of how “poor” my Singaporean friend really was!

Inevitably, I kept comparing Singapore with Malaysia, the country that it gained independence from in 1965. Singapore being a city-state, a fair comparison would be with Kuala Lumpur, the capital city of Malaysia. One of my regrets when I visited Kuala Lumpur in 2011 was not being able to visit Singapore just an hour away. Africans face many constraints when they travel round the world. To have tried securing a visa then to see the neighbouring city would have been a little distracting. It would take another 3 years before I’d finally get the chance. But of course, being a Muslim, you know if you were destined for something, all of the World would not suffice to stop you. So, a lesson there. Kuala Lumpur is smaller and slower-paced (according to my ‘friend’ who has a relative in Malaysia). Maybe I liked Kuala Lumpur better in spite of all these because it is predominantly Muslim. But there are lots of Malaysians and Muslims in Singapore. In fact, I got to meet my Singaporean friend because I was looking for where to say my prayers at the Business School. And he is not a Muslim. The mosque it turns out is situated on top of the Dean’s office. Ha! But then I stayed in Kuala Lumpur longer, some 4-5 weeks if my recollection is correct. It is likely I would like Singapore more had I stayed as long as well. Based on the facts, however, they are not comparable. On my 13-hour flight back to London, I did ponder how one spurned could still come out on top – Malaysia expelled Singapore from its Federation in 1965, just two years after joining. And today, Singapore is five times (5x) richer on a GDP per capita basis. A timely and valuable lesson for a young man still trying to find his way in the World.

Opinions expressed are mine and not that of any institution(s) I may be affiliated with