Rankings report: Nigeria

Nigeria fighting on every front

Nigeria is battling problems on every front: social, economic and political. A policy to redesign its currency has led to accusations of businesses and consumers becoming cash starved, while its increasing poverty rate is driving young professionals from the country.  Che Golden reports

While there are hopeful signs of future opportunities, local firms are battling fee and staffing pressure from the Big 4 and other international firms to stay competitive. Industry leaders are calling for a multi-faceted approach, including public-private partnerships, to tackle Nigeria’s problems  

As seen in IAB’s recent M&A report, one of the biggest obstacles to local accountancy firms in Africa is a lack of liquidity. With the poverty rate growing in Nigeria, the Central bank decided to redesign the currency in an effort to curb corruption and currency fraud, lower inflation and address the problem of having too much money in circulation. On 26 October 2022, the Governor of the Central Bank of Nigeria (CBN) Mr Godwin Emefiele announced that the highest denominations of the Naira, the Nigerian currency, (N200, N500 and N1000 notes) would be redesigned, giving a deadline of 31 January 2023 for all old notes to be deposited in banks in exchange for new ones.

“The currency redesign was supposed to have a positive impact on issues with liquidity in the foreign exchange market,” said Mark Ariemuduigho, senior partner, Baker Tilly Nigeria. “It was to improve handling of money in circulation, reduce inflation by reducing money in circulation which the banking sector could not account for, reduce speculation against the Naira, and also target criminals whose stock in trade is raw cash, by promoting a less cash-heavy economy.”

But Ariemuduigho claims that while the intentions were good, the policy has been implemented too fast, which has shocked the economy. “Businesses and citizens have found themselves cash-strapped, while small businesses have faced liquidity shock,” he said. “People have been put through unnecessary hardship with disrupted supply chains. The Central Bank needs to look at its timelines and roll the redesign back into a more phased approach to reduce the poor economic performance resulting from the shortage of cash.”

Mark Ariemuduigho, senior partner, Baker Tilly Nigeria

More needs to be done to tackle the liquidity issue, according to Alexander Kofi Peddler, managing partner of Nexia Agobo Abel & Co, such as promoting financial inclusion to help increase liquidity in the economy by bringing more people into the formal banking system. This can be done by providing financial education, simplifying account opening procedures, and expanding the reach of banking services to rural areas. “We also need to promote more entrepreneurship and more SMEs,” he said. “We can increase liquidity in the country through job creation, increasing competition, and boosting economic activity. This can be done through the provision of financing, training and technical assistance to SMEs.

“The government also needs to spend more,” he continued. “Increased government investments in infrastructure projects, healthcare, education, and other sectors will significantly boost economic activity, and we need to increase access to credit. This can be achieved through the CBN taking measures such as expanding the availability of loans, reducing interest rates, and improving credit scoring and risk assessment mechanisms.”

Despite the bleak economic situation, the pressure on fees is surprisingly low. “Given Nigeria’s high post-covid inflation rate, the pressure to cut fees or provide more services for the same price is lower than it used to be,” said Peddler. “The negotiating power of firms is hugely backed by the fact that the inflation rate in the country is at an all-time high therefore it is easier to convince companies that an increase in audit fees is inevitable.”

However, Igho Dafinone, managing partner of FCA, a Crowe member firm, would argue that while pressure on fees are low, local companies are not getting a fair renumeration in the first place. “Referral work to Africa is normally controlled by Europe, America and China,” he said. “The fees for this referral work are often where the assignments are from the above given the technical requirements and timing to deliver the assignments. The local market does not always get a fair return for skills offered by firms at our level. The big 4 still commands a premium in the market.” 

Alexander Kofi Peddler, managing partner, Nexia Agobo Abel & Co

Dr Adebola Olubanjo, executive chairman of Adebola Sobanjo Company, a BKR Member firm, feels that pressure on fees is still strong. “The pressure to cut fees has not eased because business owners are looking for every means to cut down on their expenses,” he said. “That includes paying less for professional services rendered. In order to increase income, services providers have to continuously look for areas to add value to business owners, expand reach and increase services.”

While accountancy firms around the world are struggling with recruitment and retention, Nigeria has seen a significant brain drain across all sectors as its young increasingly choose to migrate for work. Nigeria is in danger of having a missing generation unless drastic action is taken.

“Nigerian professionals see no future in Nigeria,” said Ariemuduigho. “Unemployment is on the rise; instead of technocrats and entrepreneurial leaders, politicians have taken over the economy. Professionals are relegated and excellence no longer attracts accolade. Agricultural and other business entrepreneurs are being forced out of their ventures because of the general insecurity and government’s lack of the willpower to punish criminality in society.”

The brain drain could be resolved through key reforms, according to Peddler. “Developing a conducive environment would seem to sum up most of the fundamental issues facing Nigeria today,” he said. “This covers subjects such as insecurity, an attractive salary structure, affordable housing as well as basic infrastructures to name but a few. A conducive working environment is one of the few things that can be put in place to help retain skilled professionals in Nigeria.”

The rise of remote working since Covid means more Nigerian graduates are being tempted away by international firms with deeper pockets, according to Dafinone, and it is hard for Nigeria to compete with the living conditions of richer countries. “Until Nigeria’s living conditions improve in terms of health and education of children, this trend is not likely to reverse,” he said.

Encouraging entrepreneurship is another way of reducing Nigerians' over reliance on foreign employment and could also go a long way in reducing the gross unemployment plaguing the country, while increasing research and development could create new industries that would halt Nigerians’ search for greener pastures overseas. 

Igho Dafinone, managing partner, FCA, a Crowe member firm

“Primarily, addressing the issue of skills drain requires all hands to be on deck,” said Peddler. “We need concerted efforts to address not just the high level of unemployment facing the country, but to also proffer solutions to the economic hardships and career difficulties. The goal is not to make people want to stay, but to make them not want to leave.”

“The government needs to collaborate with the private sector to create opportunities for professionals to engage in meaningful work and be incentivised to remain in Nigeria,” said Dr Olubanjo. “This can be achieved through public-private partnerships, entrepreneurship programs, and creating an enabling environment for businesses to thrive.”

Demand for auditing services has dropped as the Finance Act 2020 states that the Federal Inland Revenue may not ask for audited Accounts for small businesses, although Peddler claims that increased awareness of the benefits associated with hiring professional auditors, has led many small companies to appoint auditors of their own accord.  But there are other opportunities in the pipeline.

One area is the ongoing reform of the oil and gas sector. Nigeria is one of Africa's largest oil producers, and the government has been making an effort to reform the sector to improve transparency and attract more investment. This reform could potentially lead to significant changes in the way the sector is regulated and managed.

“Another potential development is the continued growth of the digital economy,” said Ariemuduigho. “With more people adopting digital technologies and online services, there is likely to be continued growth in e-commerce, telehealth, online education, and other digital services. This growth could lead to increased investment in the digital economy and the development of new digital infrastructure.”

Dr Adebola Olubanjo, executive chairman, Adebola Sobanjo Company, a BKR Member firm

ICT is expected to remain as a significant proportion of the economy in the foreseeable future. The government is making an effort to advance the expansion of the sector with policies such as the National Broadband Plan, which aims to increase broadband penetration in the country, and the National eGovernment Master Plan, which aims to increase the use of ICT in government operations and services.

Peddler sees IT audit as a field that is under tapped and predicts it could be the future of the profession. Dr Adebola Olubanjo sees continued growth of e-commerce over the next 12 months, an expansion of telehealth and increased adoption of renewable energy. AI and machine learning technologies are expected to continue to advance, with potential applications in areas such as healthcare, finance, and transportation and he predicts the gig economy in Nigeria will grow as more people seek flexible work arrangements and businesses look for cost-effective staffing solutions.

Dafinone has seen demand for payroll and statutory support, together with corporate business valuation, grow in the last couple of years and he thinks the firm will see more demand for corporate valuation and tax as industries adjust their competitive structures. Dr Olubanjo has seen a rise in taxation services, management consultancy and forensic auditing. “For the next 12 months we have the plan to increase our international clients,” he said. “We are also focusing on management consultancy, which adds value to existing clients and new clients will also be targeted.”

The Nigerian government has a huge amount of work to do to restore economic stability before it even thinks of improving the life of the average citizen. It will be interesting to see if allows the private sector to take some of the load.