Driving Investment in Nigeria: Policies and Initiatives

Nigeria’s GDP grew by 0.55% in 2Q2017, signifying the end of the country’s recession that it had been experiencing since 2015. Statistics from the National Bureau of Statistics indicate that the major contributors to this development include agriculture, mining and quarrying, and manufacturing. The federal government of Nigeria (FGN) also employed various initiatives to improve the environment for businesses. These initiatives seek to increase investor confidence in Nigeria’s economy, drive local and foreign investment, and ultimately improve the economy. Key policies and initiatives introduced by FGN for this purpose are highlighted below.

Taxation
Nigeria’s tax to GDP ratio, at 6%, is one of the lowest in the world. In a bid to improve this, FGN introduced a tax amnesty program in June 2017. The program provides a timeframe of nine months for tax defaulters to declare their taxable income for the preceding six years. In return, defaulters would enjoy immunity from prosecution for tax offenses, tax audit, waiver of interest until December 31, 2017, penalties, and the option of spreading payment of outstanding liabilities over a maximum period of three years as may be agreed upon with the relevant tax authority.
In October 2017, the Nigerian Investment Promotion Commission (NIPC) published the Compendium of Investment Incentives, which restated some of the incentives available to investors in specific industries. The industries and incentives are outlined below:
• Agriculture/Agro-Allied Industry: Investors in this sector will enjoy capital allowance of 95%, and are exempt from payment of minimum tax. In addition, they may carry forward their losses indefinitely while also enjoying a rebate of 10% on import duty, and 20% levy on husked brown rice.
• Solid Minerals: Investors are entitled to exemption from payment of companies income tax during the first three years of operation.
• Manufacturing: Investors who borrow from banks under the Agricultural Credit Guarantee Scheme for cassava production and processing are entitled to a 60% reduction on interest payable after liquidation of the loan. Investors in sugar processing will enjoy a rebate of 5% on import duty and 5% on the levy on raw sugar imported for local processing. Investors who carry out approved manufacturing activities in an Export Processing Zone (EPZ) are exempt from all taxes, levies and rates, and may export up to 100% of their products from the EPZ into the Nigerian customs territory.
• Tourism/Hospitality: 25% of income generated from tourism, if deposited in a reserve fund to be utilized within five years (for building and expansion of new hotels, conference centers and other facilities for tourism), is exempt from tax.
• Oil & Gas: Investors are entitled to investment tax allowance that is 50% of the chargeable profit for the duration of their production sharing contract. Also, investors who carry out activities in the Oil and Gas Free Zone are exempt from all taxes, levies, and rates. Such investors may export up to 100% of their products into the Nigerian customs territory. In addition, they will enjoy a 75% duty rebate on raw materials processed in the Oil and Gas Free Zone.
Furthermore, investors engaged in mining, wholly export trade, manufacturing, and agriculture, with a turnover of less than NGN1 million, will be entitled to pay company income tax at the rate of 20% instead of 30%, for the first five years in which the turnover is less than that amount.
In August 2017, 27 industries were added to the list of industries eligible for pioneer status incentive (PSI), which exempts qualifying industries from paying income tax for an initial period of three years, which may be renewed for a maximum additional period of two years. Some of the newly-included industries are coal mining and processing industries, steam generator manufacturers, railway locomotives, textile machine manufacturers, apparel and leather producers, plastics and rubber machine manufacturers, e-commerce service providers, and real estate investment vehicles under the Investments and Securities Act.
Additionally, with the introduction of the 2017 Revised Guidelines for Export Expansion Grant Scheme, the Export Credit Certificate can now be used to settle all federal government taxes.
It is noteworthy that FGN signed a double taxation agreement (DTA) with Singapore in August 2017, which now awaits ratification. Also, the DTA between Nigeria and Spain has recently been ratified. This is in addition to the long-standing DTAs with 13 other countries that have been in operation.
Access to Credit
The Credit Reporting Act 2017 was passed by FGN to improve access to credit by providing a framework for credit reporting, licensing, and regulation of credit bureaus. The act ensures that credit providers have access to accurate and reliable credit information on prospective borrowers. To this end, it sets standards and conditions for the establishment and operation of credit-rating agencies. This law will enable credit providers to evaluate the credit history of a borrower before making decisions on whom to grant credit. It will also boost the willingness of financial institutions to grant credit facilities to more enterprises in need of such facilities.
Access to Foreign Exchange
To improve foreign exchange (FX) availability, the Central Bank of Nigeria (CBN) introduced some policies to boost liquidity in the market and ensure timely execution and settlement of eligible transactions. The Investors & Exporters (I&E) window, for example, was introduced in April 2017. This window is market-driven, as dealing parties determine exchange rates on a willing-buyer-and-willing-seller basis.
Only invisible transactions (e.g. loan and interest repayments, dividends/income remittances, capital repatriation, software subscription fees and technology transfer agreements, and so on), bills for collections, and trade related payment obligations are permitted on the window. For other transactions, investors can access FX through CBN interbank market. According to FMDQ OTC Securities Exchange, the total value of transactions traded at the I&E Window between April 2017 and December 2017 amounted to approximately USD26 billion.
Immigration
FGN has introduced an online platform for processing of visas on arrival for foreign nationals in order to make the process easier and faster than the manual process of visa applications. The visa is valid for a single period of 14 days and can be obtained on arrival in Nigeria.
Infrastructure
• Electricity: Power supply remains a challenge in Nigeria. A recent report from the World Bank shows that 80 million Nigerians lack access to electricity while millions more are poorly served. As electricity generation capacity presently stands at 7,000MW, there is a wide margin between demand and supply of power in Nigeria. In a bid to address this, the Nigerian Electricity Regulatory Commission (NERC) introduced regulations geared toward encouraging investments in power projects. Two important regulations in this regard are the Mini-Grid Regulations (MGR) 2016 and the Eligible Customer Regulations (ECR) 2017. MGR enables investors to obtain permits to set up facilities for generation and distribution of electricity within particular geographic locations. ECR permits certain classes of consumers to purchase power directly from electricity generators (e.g. independent power plants) at prices to be negotiated by the parties. Both regulations allow a structure under which contracts for supply of electricity are not subject to tariff control by NERC, thereby assuring the generating companies a return on their investment. FGN also introduced incentives for development of renewable off-grid power projects. Notable among these is the Rural Electrification Agency capital grant, for funding of off-grid renewable energy projects in unserved and underserved communities. The fund is granted as a one-off subsidy and is in the range of 50—75% of the required capital, or USD10,000—USD300,000, whichever is less.
• Roads: FGN introduced the Road Trust Fund (RTF) in October 2017 to increase private sector participation in the provision of roads. Under RTF, participating companies are entitled to recover 100% of capital expenditure on road infrastructure as tax credit against the total tax payable over a three-year period.
Impact of Initiatives
The initiatives introduced by FGN will help to increase investor participation in various sectors of Nigeria’s economy. It is expected that there will be more reforms applied to sectors, and sustained implementation of the reforms will drive greater economic growth.