NIGERIA – AN ECONOMIC OVERVIEW
1.
OVERVIEW
Nigeria officially the Federal Republic of Nigeria, is a federal
constitutional republic comprising 36 states and its Federal Capital
Territory, Abuja. The country is located in West Africa and shares land
borders with the Republic of Benin in the west, Chad and Cameroon in
the east, and Niger in the north. Its coast in the south lies on the Gulf of
Guinea on the Atlantic Ocean. There are over 500 ethnic groups in
Nigeria, of which the three largest are the Hausa, Igbo and Yoruba.
The name Nigeria was taken from the Niger River running through the
country. This name was coined by Flora Shaw, who later married Baron
Lugard, a British colonial administrator, in the late 19th century. The
British colonised Nigeria in the late nineteenth and early twentieth
century, setting up administrative structures and law while recognizing
traditional chiefs. Nigeria became independent in 1960.
Nigeria, known as "the Giant of Africa", is the most populous country in
Africa and the seventh most populous country in the world. Its oil
reserves (36.2 billion barrels of oil and 1.84 trillion Cubic Feet of natural
gas) have brought great revenues to the country. It is listed among the
"Next Eleven" economies. Nigeria is a member of both the
Commonwealth of Nations, and the African Union.
Nigeria is the 12th largest producer of petroleum in the world and the
8th largest exporter, and has the 10th largest proven reserves. (The
country joined OPEC in 1971). Petroleum plays a large role in the
Nigerian economy, accounting for 40% of GDP and 80% of Government
earnings.
Nigeria has one of the fastest growing telecommunications markets in
the world, major emerging market operators (like MTN, Etisalat, Zain and
Globacom) basing their largest and most profitable centres in the
country. The government has recently begun expanding this
infrastructure to space based communications. Nigeria has a space
satellite which is monitored at the Nigerian National Space Research and
Development Agency Headquarters in Abuja.
The country has a highly developed financial services sector, with a mix
of local and international banks (7 Banks rank among top 1000 Banks in
the world and 3 Banks rank among top 20 Banks in Africa), asset
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management companies, brokerage houses, insurance companies and
brokers, private equity funds and investment banks.
Nigeria also has a wide array of underexploited mineral resources which
include natural gas, coal, bauxite, tantalite, gold, tin, iron ore, limestone,
niobium, lead and zinc. Despite huge deposits of these natural resources,
the mining industry in Nigeria is still in its infancy.
Agriculture used to be the principal foreign exchange earner of Nigeria.
At one time, Nigeria was the world's largest exporter of groundnuts,
cocoa, and palm oil and a significant producer of coconuts, citrus fruits,
maize, pearl millet, cassava, yams and sugar cane. About 60% of
Nigerians work in the agricultural sector, and Nigeria has vast areas of
underutilized arable land.
It also has a manufacturing industry which includes leather and textiles
(centred Kano, Abeokuta, Onitsha, and Lagos), car manufacturing (for
the French car manufacturer Peugeot as well as for the English truck
manufacturer Bedford, now a subsidiary of General Motors), t-shirts,
plastics and processed food.
2.
ECONOMIC INDICES
Independence from the United Kingdom - 1 October, 1960
Became a Republic - 1 October, 1963
Currency -Naira (N) (NGN)
Official languages - English
Major languages - Hausa, Igbo and Yoruba
 Area
Total - 923,768 km2 (Water -1.4%)
356,667 sq mi
 Population
2013 estimate 174,507,539
2006 census 140,431,790
 Density - 188.9/km2
489.3/sq mi
 GDP (PPP) - 2013 estimate
Total
- $485.194billion
Per capita - $2,866
 GDP (nominal) - 2013 estimate
Total
- $289.885 billion
Per capita - $1,712.433
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 Inflation rates (from Sep, 2012 to Aug, 2013)
Max = 12.3, Min = 8.2
Current Inflation rate = 8.2
 The external reserve - 2013
US$48billion
 The Stock Market Capitalization - June 18, 2013
N11.91trillion
 The foreign exchange–as at 21st August, 2013
N155.76/US Dollar
3.
INVESTMENT OPPORTUNITIES
• Investment Opportunities exist in all sectors of the economy,
especially:
 Power – Generation, Transmission & Distribution
 Oil & Gas (extractive and non-extractive)
 Agriculture & Agro Allied
 Port Management
 Mass Transportation – Road, Rail, Air and In-land Water Ways
 Aviation
 Information & Communication Technology (ICT)
 Health Services
 Solid Minerals
 Banking & Financial Services
 Tourism /Hospitality
 Manufacturing - Pharmaceuticals, Textiles & Garments,
Automobiles, Iron & Steel
 Education
 Waste Management & Treatment
4.
INVESTMENT INCENTIVES IN NIGERIA
General Incentives
i. COMPANIES INCOME TAX
The Companies Income Tax Act has been amended in order to
encourage potential and existing investors and entrepreneurs. The
current rate in all sectors, except for petroleum, is 30 percent.
ii. PIONEER STATUS
The grant of Pioneer Status to an industry is aimed at enabling the
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industry concerned to make a reasonable level of profit within its
formative years. The profit so made is expected to be ploughed
back into the business.
Pioneer status is a tax holiday granted to qualified or (eligible)
industries anywhere in the Federation and seven year tax holiday
in respect of industries located in economically disadvantaged local
government area of the Federation. At the moment, there is a list
of 69 approved industries declared pioneer industries, which can
benefit from tax holiday. To qualify, a joint venture company or a
wholly foreign owned company must have incurred a capital
expenditure of not less than five million Naira whilst that of
qualified indigenous company should not be less than N150,
000.00. In addition, an application in respect of Pioneer Status
must be submitted within one year the applicant company starts
commercial production otherwise the application will be time
barred.
iii. TAX RELIEF FOR RESEARCH AND DEVELOPMENT
Industrial establishments are expected to engage in Research and
Development (R&D) for the improvement of their processes and
products. Up to 120 percent of expenses on (R&D) are tax
deductible, provided that such R&D activities are carried out in
Nigeria and are connected with the business from which income
or profits is derived. Also, for the purpose of R&D on Local raw
materials, 140 percent of expenses are allowed. Where the
research is longterm, it will be regarded as a capital expenditure
and will be written off against profit. The result of such research
could be patented and protected in accordance with
internationally accepted Industrial Property Rights.
iv. CAPITAL ALLOWANCES
The amount of capital allowance to be enjoyed in any year of
assessment is restricted in Nigeria to 75% of assessable profit in
case of manufacturing companies and 66% in case of others,
except such companies in agroallied industries that are not
affected by this restriction. If leased assets are used in agro allied
ventures, the full (100%) capital allowance claimed will be granted.
Moreover, where the leased assets are agricultural plants and
equipment, there will be an additional investment allowance of
10% on such expenditure.
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v. INPLANT TRAINING
This is applicable to industrial establishments that have set up In
plant training facilities. Such industries enjoy a two percent tax
concession for a period of five years.
vi. INVESTMENT IN INFRASTRUCTURE
This is a form of incentive granted to industries that provide
facilities that ordinarily, should have been provided by
government. Such facilities include access roads, pipe borne water
and electricity.
Twenty percent (20%) of the cost of providing these infrastructural
facilities, where they do not exist, is tax deductible.
vii. INVESTMENT IN ECONOMICALLY DISADVANTAGED AREAS
Without prejudice to the provision of the pioneer status enabling
law, a pioneer industry sited in economically disadvantaged Local
Government Area is entitled to 100% tax holiday for seven years
and an additional 5% capital depreciation allowance over and
above the initial capital depreciation allowance.
viii. LABOUR INTENSIVE MODE OF PRODUCTION
Industries with high labour/capital ratio are entitled to tax
concessions. These are industries with plants, equipment and
machinery, which essentially are operated with minimal
automation.
Where there is automation, such automation should not be more
than one process in the course of production. The rate is
graduated in such a way that an industry employing 1,000 persons
or more will enjoy 15 percent tax concession, while an industry
employing 200 will enjoy 7 percent and those employing 100 will
enjoy 6 percent and so on.
ix. LOCAL VALUE ADDED
10% tax concession for five (5) years. This applies essentially to
engineering industries, where some finished imported products
serves as inputs. The concession is aimed at encouraging local
fabrication rather than the mere assembly of completely knocked
down parts.
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x. REINVESTMENT ALLOWANCE
This incentive is granted to companies engaged in manufacturing
which incur qualifying capital expenditure for the purposes of
approved expansion, etc. The incentive is in the form of a
generalized allowance of capital expenditure incurred by
companies for the following:• Expansion of production capacity
• Modernization of production facilities
• Diversification into related products
The government within the past few years has introduced a number
of measures designed to promote investment. Some of these
measures include:
i. Fiscal measures on taxation
ii. Effective protection of local industries with import tariff or
outright ban on importation of locally available substitutes;
iii. Export promotion of Nigerian-made products; and
iv. Foreign currency facility for international trade.
Some of the specific incentives are categorized as follows:
i.
Export Incentives: Retention of export proceeds in foreign
currency:
Exporters of Nigerian commodities are obliged to open a foreign
currency domiciliary account (D/A) with an authorized bank of its
choice in which 100% of the proceeds of such exports may be
credited in foreign currency.
ii. Export Development Fund (EDF)
The Export Development Fund (EDF) is a special fund set up by
the government to provide financial assistance to private sector
exporting companies to off-set part of their initial expenses in
respect of certain export promotion activities. These are
promotional activities and the conditions for eligibility are as
outlined by the Nigerian Export Promotion Council (NEPC).
iii. Export Adjustment Fund Scheme:
This scheme serves as supplementary export subsidy to
compensate
exporters for the high cost of local
production arising mainly from infrastructural deficiencies and
also other natural and negative factors beyond the control of
the exporter.
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iv.
Tax and Other Incentives:
o Export oriented industries:
 Export oriented industries that export
not less than 60% of their
product
can enjoy 10 percent tax concession for
five years.
o Excise duty:
 In order to boost local industries,
stimulate trade and reduce cost,
government abolished most excise
duties since 1st January 1998.
o Capital Assets Depreciation Allowance:
 The Law in Nigeria provides an
additional
annual
depreciation
allowance of 50% on plant and
machinery to manufacturing exporters
who exports at least 50% of the value of
their annual turnover provided that the
product has at least 40% local raw
materials
content or 35% value
added.
o Pioneer Status:
 The provision of the Industrial
Development (Income Tax Relief) Act
with respect to Pioneer Status tax
holidays applied to any manufacturing
exporter who exports at least 50% of his
annual turnover.
o Companies with small or no profits in Agro allied
business are exempted from paying minimum tax of
20%
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Sectoral Incentives
Industry
(a) Companies with turnover of less than N1 million are taxed at a
low rate of 20% for the first five years of operation if they are in the
manufacturing business.
(b) Dividend from companies in manufacturing sector with
turnover of less than N1 million is tax free for the first five years of
their operation.
(c) Dividends derived from manufacturing companies in petrol
chemical and chemical and liquefied natural gas subsector are
exempted from tax.
Employment Tax Relief
- Any company with a minimum net employment of ten employees
of which 6% are employees without any form of previous work
experience within 3 years of graduating from school or any
vacation within the assessment period shall enjoy an exemption
from income tax of 5% of its assessable profits in the assessment
period in which the profits were generated.
- Any company with a minimum net employment of 5 new
employees and retains such employees for a minimum of 2 years
from the year of assessment in which the employees were first
employed shall enjoy an exemption from income tax of 5% of its
assessable profits in the assessment period in which the company
qualifies
Infrastructure Tax Relief
- Any company that incurs expenditure on infrastructure or
facilities of a public nature shall be entitled to an exemption
from income tax of an additional 30% of the cost of the
provision of the infrastructure or facilities in the assessment
period in which the infrastructure or facilities were provided e.g
Power (electricity); Roads/Bridges; Water; Health, Educational
and Sporting facilities
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Minimum Local Raw Materials Utilization
A tax credit of 20% is granted for five years to industries that attain
the minimum level of local raw material sourcing and utilization.
The minimum levels of local raw materials sourcing and utilization
by sectors are:
• Agroallied70%
• Engineering 60%
• Chemicals 60%
• Petrochemicals 70%
Oil and Gas Sector
In view of the enormous potentials in this sector, some fiscal
incentives have been put in place by the government for
investors as follows:
Gas Production Phase
• Applicable tax rate under the Petroleum Profit Tax
(PPT) Act to be at the same rate as company tax
currently at 30%.
• Capital Allowance at the rate of 20% per annum in
the first four years, 19% in the fifth year and the
remaining 1% in the books.
• Investment Tax Credit of the current rate of 5%.
• Royalty at the rate of 7% on shore and 5% offshore.
Gas Transmission and Distribution
• Capital allowance as in production phase above.
• Tax rate as in production phase.
• Tax holiday under pioneering status.
LNG Projects
• Applicable tax rate under PPT is 45%.
• Capital allowance is 33% per year on straight-line
basis in the first three years with 1% remaining in
the books.
• Investment tax credit of 10%.
• Royalty of 7% on-shore, 5% off-shore tax
deductible
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Gas Exploitation (Upstream Operations)
Fiscal Arrangements are reviewed as follows:
• All investment necessary to separate oil from gas
from the reserves into suitable products is
considered part of the oil field development.
• Capital investment facilities to deliver Associated
Gas in usable form at utilization or transfer points
will be treated for fiscal purposes as part of the
capital investment for oil development.
• Capital allowances, operating expenses and basis
for assessment will be subjected to the provisions
of the PPT Act and the revised Memorandum of
Understanding (MOU).
Gas Utilisation (Downstream Operations)
Incentives given to investors for encouragement of exploitation
and utilization of Associated Gas for commercial purposes include:
• Companies engaged in gas utilization are to be
subjected to the provisions of the Companies Income
Tax Act (CITA).
• An initial tax free period of five years.
• Accelerated Capital Allowance after the tax-free period
in the form of 90% with 10% retention in the books
for plant and machinery.
• 15% investment capital allowance which shall not
reduce the value of the asset.
In 1998, the government approved additional incentives to support
the gas industry in the following areas:
• All fiscal incentives under the gas utilization
downstream operations in 1997 are to be extended
to industrial projects that use gas i.e. power plants,
gas to liquids plants, fertilizer plants and gas
distribution/transmission plants.
• Gas is transferred at 0% PPT and 0% Royalty.
• Interest on loans for gas projects is to be tax
deductible provided that prior approval was
obtained from the Federal Ministry of Finance
before taking the loan.
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• All dividends distributed during the tax holiday shall
not be taxed.
Power Sector
The Federal Government of Nigeria has set-up several incentives
to attract foreign direct investment into the power sector. The
incentives include:
• Tax Holidays of up to 5 years
• Exemption from Duty Taxes on imported equipment
• Capital & Investment Allowance which can be carried
forward and used after tax holiday period
• Manufacture of transformers, meters, control panels,
switchgears, cables and other electrical related
equipment
are
considered
as
pioneer
products/industries. As a result, there is tax holiday of
5 to 7 years for investors who invest in these areas.
• Power plants using gas are assessed under the
companies income tax act at a reduced rate of 30%
• 100% foreign ownership of Electricity plants
• Repatriation of profit with a 5% withholding tax
• Instituting a politically independent, and transparent
regulatory agent for the power sector that will
effectively enforce the established regulatory
framework
• Putting in place the necessary foundations e.g. reliable
transmission infrastructure that would create a level
playing field for efficient private sector participation in
the electricity supply
• Implementing a transparent and predicated tariff
adjustment mechanism that will cover cost of
production and provide adequate returns on
investment at all times.
Agriculture sector
Agriculture is one of the most viable sectors of the Nigerian economy.
It
-
accounts for over 70% of its employment;
has an annual average contribution of about 35% to the GDP over
the last 5 years;
is highly diversified agro-ecological condition that supports the
production of a wide range of agricultural products.
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There is need for a policy shift towards encouraging commercial
farming as it is dominated by traditional farming methods.
• Rice
– Imports over 2 Million MT/yr of milled rice
– Rice grows all across Nigeria
– Investment required in milling capacity for quality rice
• Cocoa
– Fourth-largest producer of coca beans in the world
– Produces between 300,000-350,000 tonnes of cocoa
annually
– Exports about 96% of its cocoa crop
• Cassava
– The world’s largest producer of cassava; 45 million tonnes
yearly
– Nigeria hopes to utilise cassava as part of its strategy to
diversify its economy away from petroleum.
• Sugar
- Machinery and Spare Parts for the establishment of Local sugar
manufacturing industries shall attract 0%
- Sugar Cane to sugar value chain investors shall enjoy a 5yrs tax
holiday
- Raw sugar shall attract an import duty rate of 10% plus a levy of
50% while refined sugar shall attract an import duty rate of 20%
plus a levy of 60%
Telecommunications Sector
• Good tariff structure, which ensures that investors
recover their investment over a reasonable period of
time.
• Import duty on all telecoms equipment reduced from
25% to 5%.
• Measures on speedy clearance of goods at the ports
• Exclusivity period for licences, e.g. 5 years for the GSM
licences, 3 years for long distance international
gateway operators.
• Pioneer status for five years (under industrial
Development (Income Tax Relief) Act 1990) is offered
to interested investors who want to set plants for the
manufacture of telecoms equipment in the country
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Solid Minerals
In order to encourage investments in the sector Government has
put in place the following incentives;
 Three to five years tax holiday for new mining
companies, and a system of deferred royalty
payment that is determined by the level of the
investment and the strategic nature of the
project. Also possible is capitalization of
expenditure on exploration and surveys;
 Companies profits tax reduction from 30% to
20%;
 Roll-over relief from Capital Gains Tax.
 Capital Allowance of 95% for Mining companies
replacing their Plant and Equipment and 75% for
companies with Mining Lease.
 Extension of infrastructure such as roads and
electricity to mining sites;
 Provision of 100% foreign ownership of mining
companies or concerns;
 Tax Relief on Interest Income: Interest accruing
from loans granted by banks in aid of export
activities enjoys favourable tax treatment.
 Capital Assets Depreciation Allowance: The law
in Nigeria provides an additional annual
depreciation allowance of 5% on plants and
machinery to manufacturing exporters who
export at least 50% of their annual turnover
provided that the product has at least 40% local
raw material content or 35% value added;
Free Trade Zones
Locating in any Free Trade zone in Nigeria automatically confers
on the investor, certain locational advantages as well as very
generous incentives. These include:
 Relative proximity to major markets of Africa, Europe and
America.
 Large domestic market for the 25% of production that FTZ
producers can sell in the Customs Territory.
 Favourable quotas on certain products from Nigeria
export to the European Union (EU) and the United States.
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 Made in Nigeria products enjoy preferential tariffs
concessions in EU.
 Abundant supply of skilled labour at very competitive
rates;
In addition to the above, the Nigeria EPZ’s regulatory regime is
liberal and provides a conducive environment for profitable
operations. The incentives available are among the most
attractive in Africa and compares favourably with those in other
parts of the world. These include:
i. Exemption from all Federal, State and Local
Government taxes, levies and rates
ii. Approved enterprises shall be entitled to import into a
Zone, free of customs duty on capital goods, consumer
goods, raw materials, components and articles
intended to be used for purposes of and in connection
with an approved activity.
iii. Freedom from legislative provision pertaining to taxes,
levies. Duties and foreign exchange regulations.
iv. Repatriation of foreign capital on investment in the
zone at any time with capital appreciation of the
investment.
v. 100% foreign or local ownership of factory allowable
vi. One stop approvals, (factory management deals with
only the management of the zone) which grant all
licenses whether or not the business is incorporated in
the Customs territory
vii. Unrestricted remittance of profits earned by investors
viii. Permission to sell 100% of total production in the
domestic market
ix. No import or export license
x. Rent free land at construction stage, thereafter rent
shall be as determined by the management of the
zone. Foreign manager and qualified personnel may
be employed by companies operating in the Zones
xi. Operations within a zone shall commence on the date
when the constructions of the perimeter fence and
gate have been completed and the Authority has
declared it so.
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Housing
Government Policy is to Provide Nigerians Access to Affordable Housing.
– The FG (through National Housing Fund) built more than
61,800 housing units in the six geopolitical zones to provide
affordable and quality houses.
– Increasing Access to Mortgage Finance through a Mortgage
Refinance Company (MRC). To be launched between July –
August 2013. Mortgages available starting 2014.
– MRC will be a PPP arrangement with shareholders that will
include Government, International DFIs, Nigerian Banks and
Insurance Companies.
– MRC to enable up to 200,000 affordable mortgages within 5
years.
– World Bank to support Government with investment of up to
$300 million at zero interest, 40 year loan, 10 years grace,
and 0.7% commitment charge, which will help lower costs,
especially interest rates.
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