TAKING A STAKE IN AFRICA’S BIGGEST ECONOMY
A KEYNOTE ADDRESS BY
AMB. HABIB HABU, OON
CONSUL GENERAL OF NIGERIA, NEW YORK
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OUTLINE
• Introduction
• Country Profile
• Overview of the Nigerian Economy
• Government’s Transformation Agenda
• Nigerian Economy in Africa
• Rebasing of GDP
• Opportunities & Incentives offered by the Nigerian Economy
• International Oil Pricing & the Nigerian Economy: What Prospects
• Conclusion
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Introduction
• I’m honored & excited to give the keynote address
• My focus is on the Nigerian Economy; policies that have influenced
rapid economic transformation; Key sectors that account for recent
growth; opportunities/incentives for investment; and future
prospects.
• But first, Brief Country Profile
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Population
– 170m
GDP
- $510bn
GDP Growth – 6.4%
GDP per capita - $2,600;
Inflation Rate - 7.8%
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Overview of the Nigerian Economy
• Nigeria is the largest economy in Africa
• Stable macro-economic fundamentals
• Increased economic diversity and visibility on the global economic
map
• New economic and investment opportunities
• Top African destination for FDI (UNCTAD, 2013)
• Among Goldman Sach “Next 11”
• Top destination for equity in frontier markets (Rencap. 2014)
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Overview of the Nigerian Economy cont’d
• Key challenges
• Lack of adequate infrastructure
• Income inequality
• High unemployment
• Significant levels of poverty & growth disparities
among regions
• Poor power supply
• Insecurity in the North East region
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Government’s Transformation Agenda
• Priorities as defined in Govt’s Transformation Agenda
• Infrastructure – power, transport, housing, ICT
• Real sector – agriculture, manufacturing, oil and
gas, solid minerals
• Human capital development – education,
healthcare, labour and productivity, women and
youth development
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Nigerian Economy in Africa
• Nigeria rebased its GDP from 1990 to 2010, resulting in an 89% increase in
the estimated size of the economy.
• As a result, the country has become the largest economy in Africa with an
estimated nominal GDP of USD 510 billion, surpassing South Africa’s USD
352 billion and Egypt’s USD 271.9 billion (2013).
• The exercise has revealed a more diversified economy than previously
thought. The services sector is more dominant. Sectors like entertainment
(Nollywood) contribute significantly to GDP, more than previously thought.
• Nigeria has maintained its impressive growth over the past decade with a
record estimated 7.4% growth of real gross domestic product (GDP) in
2013, up from 6.7% in 2012.
• Due to falling crude price, GDP growth as at 3rd quarter of 2014 was 6.23%
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Nigerian Economy in Africa cont’d
• Nigeria is also Africa’s Largest Market, with 170 million in population (7th largest in the World), and a
growing middle class, currently 23 percent of the population (AFDB 2010)
• By 2050, Nigeria will have one of the youngest populations in the World – number 5 on the “List of the Top
Ten Countries. Nigeria’s median age is projected at 21.4 years in 2050, from 17.8 years in 2013.
• Driven by the Non-Oil Sector, Nigeria’s real GDP growth outperformed that of Sub-Sahara African region in
2014.
2011
2012
2013
2014 Q3 2014
• Real GDP Growth % (Old Series)
7.43
6.58
6.89
N/A
N/A
• Real GDP Growth % (New Series)
5.31
4.21
5.49
6.23
6.75*
• Non-Oil Growth % (New Series)
5.85
5.81
8.42
8.21
7.0**
• Sub-Sahara Africa – Real GDP growth %
5.5
4.9
4.9
N/A
5.4**
* Based on NBS Projections. ** Based on IMF Projections
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Nigerian Economy in Africa cont’d
• Going forward, there are prospects of strong economic growth.
• Such prospects are predicated on continued recovery of the global
economy, favourable agricultural harvests and a possible boost in
energy supply arising from the power-sector reform, as well as on
expected positive outcomes from the Agricultural Transformation
Agenda.
• Comprehensive economic and structural reforms are also expected to
improve economic growth.
• Nevertheless, the country’s ongoing GDP rebasing may influence the
growth figures, possibly making them lower going forward since the
expected result is a larger economy.
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Nigerian Economy in Africa cont’d
Other Positive Indicators
• Sovereign Debt Position Remains Strong and Sustainable but concerns continue to exist
over the build-up of domestic debt
• Non-Oil Revenues are Low….but Government is working to enhance them
• Inflation is trending downwards: Inflation is now 8.3% as at the end of July 2014, down
from 12.3% in December 2012
• Exchange Rate is fairly stable: The Naira/USD exchange rate has remained within the
prescribed band (plus/minus 3% band around N155)
• Foreign Reserves at US$ 38.9 Billion (2014), of which:
• Excess Crude Account is US$ 4.05 Billion (July 24, 2014)
• Sovereign Wealth Fund is fully operational. Funds under management now stands at
$1.55 billion.
• Yields on Eurobonds are low & Domestic Bond yields are also relatively low
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Nigerian Economy in Africa cont’d
Other Positive Indicators
• External Accounts have slightly weakened in recent times but remain in a
strong position
• Nigeria remains in the top 3 FDI destinations in Africa with South Africa and
Mozambique being the other two
• Government has been reforming the financial sector
• Clean up of banking system complete – all 24 banks are now fully stable and
capitalized. Non-Performing Loans (NPLs) are now less than 5 percent.
• Government policies (e.g. forbearance) have supported a strong capital markets
performance – one of the best in Africa.
• Insurance Sector is also doing better, with introduction of micro- insurance
etc…Number of policy holders increased from 700,000 in 2010 to about 2 million in
2014.
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Opportunities & Incentives offered by the
Nigerian Economy
Drivers of the Economy
• Thriving democracy with strong, independent and critical press
• Increasing transparency in government operations, with independent and
well respected regulatory agencies
• Ongoing privatization & deregulation of the Nigerian economy
• Independent judiciary and increasing citizen participation in governance
matters
• Infrastructure re-engineering and expansion
• Strong and virile Financial and Insurance sector
• Simplified and streamlined Business Entry procedures – One-Stop Initiative
• The Public Service reform – removal of bureaucratic huddles
• Low External Debt
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Opportunities & Incentives offered by the
Nigerian Economy cont’d
Government has developed incentives for various sectors of the economy to provide an enabling
environment that is conducive to the growth and development of industries, inflow of FDI, shield
existing investments from unfair competition, and stimulate the expansion of domestic production
capacity
Industrial sector
Taxation:
Fiscal measures have been drawn to provide for deductions and allowances in the determination of
taxable income of manufacturing enterprises, including:
• Pioneer status, which is a concession to pioneer companies located in economically
disadvantaged areas, providing a tax holiday period of five to seven years. these industries must
be considered by the government, to be beneficial to the country's economy and in the interest of
the public.
• Companies that are involved in local raw material development; local value added; labour
intensive processing; export oriented activities; in-plant training; are also qualified for additional
concessions.
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Opportunities & Incentives offered by the
Nigerian Economy cont’d
Investment Guarantees/Effective Protection
• Transferability Of Funds
• Guarantees Against Expropriation
Access To Land
• Any company incorporated in Nigeria is allowed to have access to land rights for the purpose of its activity in any state in
the country. it is, however, a requirement that industrial companies comply with regulations on use of land for industrial
purposes and with environmental regulations. Land lease is usually for a term of 99 years unless the company stipulates a
shorter duration.
Oil & Gas Sector
The following fiscal incentives have been approved by the government in the gas production phase:
• tax rate under petroleum profit tax (ppt) act to be at the same rate as company tax which is currently at 30%;
• capital allowance at the rate of 20% per annum in the first 4 years, 19% in the 5th year and the remaining 1% in the
books;
• investment tax credit at the current rate of 5%;
• royalty at the rate of 7% on shore and 5% offshore.
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Opportunities & Incentives offered by the
Nigerian Economy cont’d
Gas Transmission and Distribution
• Capital Allowance As In Production Phase;
• Tax Rate As In Production Phase;
• Tax Holiday Under Pioneer Status.
LNG Projects
• Applicable tax rate under ppt is 45%;
• Capital allowance is 33% per annum onsight-straight-line basis in the first
three years with with 1% remaining in the books;
• Investment tax credit of 10%;
• Royalty of 7% on shore, 5% offshore tax deductible
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Opportunities & Incentives offered by the
Nigerian Economy cont’d
AGRICULTURE
• In addition to favourable terms of agricultural loans, companies in the agro-allied
business do not have their capital allowance restricted to 60% but graduated in full 100%;
• Agro-allied plant and equipment enjoy enhanced capital allowances of up to 50%.
Solid Minerals
• 3 to 5 years tax holiday;
• deferred royalty payments depending on the magnitude of the investment and strategic
nature of the project;
• possible capitalisation of expenditure on exploration and surveys;
• provision of 100% foreign ownership of mining companies or concerns;
• in addition to roll-over relief under the capital gains tax (cgt), companies replacing their
plants and machinery are to enjoy a once-and-for-all 95% capital allowance in the first
year with 5% retention value until the asset is disposed of, etc.
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Opportunities & Incentives offered by the
Nigerian Economy cont’d
Tourism
• The tourism sector was accorded preferred sector status in 1991. this makes it qualify for such incentives as
tax holidays, longer years of moratorium and import duty exemption on tourism related equipment;
• State governments are prepared to facilitate acquisition of land through the issuance of certificate of
occupancy for the purpose of tourism development;
• 25% of income derived from tourists by hotels in convertible currencies are tax-exempt provided such
income is put in a reserve fund to be utilized within 5 years for expansion or the construction of new hotels,
conference centres, etc that are useful for tourism development
Telecommunications
• Government provides non-fiscal incentives to private investors in addition to a tariff structure that ensures
that investors recover their investment over a reasonable period of time, bearing in mind the need for
differential tariffs between urban and rural areas. Rebate and tax relief are provided for the local
manufacture of telecommunications equipment and provision of telecommunication services.
• There are numerous other tax incentives for other lines of trade and export incentives for non-oil sector
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International Oil Pricing & the Nigerian
Economy: What Prospects
• In the face of failing oil prices and drop in Government revenue, Nigeria has introduced
austerity measures focusing on spending cuts mostly applied to areas that are in the
least likely to constraint growth eg cut in international travels and consolidation of some
government agencies whose functions overlap
• The measures are expected to help in maintaining the external shocks and also help
intensify structural transformation
• The measures are not just belt tightening, but an opportunity to improve fiscal
management and widen tax net that will help Government to generate additional
revenue and at the same time help in redistributing income. Introduction of luxury
property tax
• Because Nigerian GDP growth is led by non-oil sectors, the very adverse conditions are
not immediately expected in Nigeria and may never become a reality
• The Nigerian economy is projected to grow at over 5% in spite of the cuts in GDP growth
projections as a result of falling oil prices
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CONCLUSION
• The diligent implementation of the economic component of the
Federal Government’s Transformation Agenda has resulted in strong
macro-economic fundamentals
• This, coupled with the carefully defined austerity measures, will help
Nigerian economy stay the cause even in the face of falling oil prices
• Nigeria remains attractive to FDI
• Growth in services, agriculture and manufacturing will remain on
track and will help create jobs
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CONCLUSION
THANK YOU
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