Investment & Economic Diversification
Diversification has been the subject of numerous plans and initiatives of the Federal Government of Nigeria (FGN) since the fall in crude oil prices. It is noteworthy that oil accounts for more than 70% of the nation’s earnings and a cut in its supply invariably affects the economy. Consequently, the FGN has decided to look beyond the oil sector for the sustenance and development of the economy. The FGN has indicated, through various ministries, a strong interest for diversification of the economy particularly in the solid minerals, power, agricultural, manufacturing, and gas sectors.
In recent times, the FGN has taken advantage of several platforms to call for investment in these sectors with proposed policies to incentivise such investments in order to actualize its development and diversification plan. It is therefore pertinent to have an understanding of the regulatory framework especially in respect of fiscal incentives that could encourage prospective investors to commit to investing in these sectors.
In line with the FGN’s determination to diversify the economy through the solid mineral sector, it has approved a new roadmap for the growth and development of the Nigerian mining industry for the sector that seeks to grow the contribution of mining to the country’s GDP and sustain the nation’s economy.
The recently unveiled roadmap maintains the three-year tax holiday as well as exemptions on import duties for mining equipment. The FGN under this roadmap proposes a Mining Income Tax Act to unify mining income taxes to be paid only to the FIRS, unlike the current regime where the mining companies pay similar forms of tax to the FGN and the states for carrying out mining activities.
The key components of the roadmap are: the establishment of an independent regulatory agency for the mining industry as canvassed by operators in the mining sector and emphasis on partnership between the federal and state governments by addressing the conflicts between the mining ministries of both tiers of government.
The principal law regulating the solid minerals sector is the Nigerian Minerals and Mining Act, 2007 (The Act). The Federal Ministry of Mines and Steel Development is charged with the responsibility of enforcing the provisions of the Act, as well as issuance of various licences to persons interested in carrying out mining activities in Nigeria. The Act was enacted for the purpose of regulating all aspects of the exploration and exploitation of solid minerals in Nigeria. The Act was modeled after some successful mining jurisdictions and aims to attract investment in the sector, and to this end, specific provisions were included, among which are:
• Security of tenure of mining licence.
• Competition for mineral titles on first-come-first-served basis.
• Transferability of mining rights.
• Exemption of customs and import duty on a list of equipment imported exclusively for mining operations.
• Expatriate quota and residence permits for approved personnel.
• Permission to retain a portion of foreign earnings in a domicile account.
• Free transferability of funds.
Notwithstanding the provisions of the Act and the newly approved roadmap by the government, a number of industry concerns still exist, to wit:
• Lack of recourse to the investor in relation to delays in application/approval processes caused by the government.
• The timing and seeking consent from landowners during the application for a mineral title.
• An inappropriate level of investigation (scoping study detail) for holders of an exploration licence to make application for a mining lease.
As part of its diversification plan, the FGN signed a power purchase agreement with 12 firms for the construction of solar power plants in eight states to generate 975MW of electricity. According to the FGN, the development is part of its larger plan to diversify Nigeria’s electricity generation mix, and provide practical, affordable, and realistic access to electricity to all Nigerians. The Minister for Power, Works & Housing recently revealed a roadmap for steady, incremental, and uninterrupted power supply. The roadmap confirms the drive to increase generation capacity by the use of renewable energy sources, including solar, wind, hydro, and coal.
The principal legislation regulating the power sector is the Electric Power Sector Reform Act, 2005 (EPSR Act). Various policies have been made pursuant to this law, one of which is the National Renewable Energy and Energy Efficiency Policy (NREEEP), 2015. The policy incorporates provisions for renewable energy and energy efficiency generation activities and recognizes the importance of an enabling framework for private investment in renewable energy and energy efficiency. Some of the incentives incorporated in the policy, which, if implemented, may attract investment include:
• Free custom duties for two years on the importation of equipment and materials used in renewables and energy efficiency projects.
• Allowance for project developers to obtain soft loans and special low-interest loans from the renewable electricity fund or renewable energy supply and energy efficiency projects.
• The government is to assist in allocation or granting of land to manufacturers of energy efficient products and renewable projects.
The EPSR Act provides for the grant of licences to persons upon application to the Nigerian Electricity Regulatory Commission. The phrasing of the provision for the duration of a licence in the Act makes it arguable that the licence is granted for a period of 10 years, which may be extended for a further period of five years only.
It is left to be determined if this is the actual intention of the legislators as the Act was enacted in 2005 and no licence granted pursuant to the Act has exceeded the 15-year period provided by the law. It is contended, however, that if the above understanding is correct, then the duration of the licence may not be sufficient for investors to recoup their investment and make enough profit before the expiration of their licences.
A review of the law to provide clarity on the issue of the duration of the licence may be necessary as the current regime significantly undermines investors’ confidence in the sector.
The agricultural sector is arguably one of the most viable sectors for the proposed diversification plan of the FGN. Many reforms and policies have been put in place in the sector to facilitate its development as well as attract investment in the sector.
A new roadmap (The Agriculture Promotion Policy 2016 — 2020) for the development of the sector has been officially released by the Federal Ministry of Agriculture and Rural development (FMARD). The roadmap is focused on reducing the importation of food into the country, and also to increasing the government’s foreign exchange earning via the sector.
To ensure that the strategy contained in the Roadmap is executed as intended, FMARD works closely with States and other Federal MDAs; for example, power, transportation, and trade. FMARD has also decided to become a more focused policymaker and regulator to ensure accountability and results for investors.
As part of its development plans, FMARD has stated that it will use its convening and related powers to ensure that the enabling system is in place to support agribusiness. From investments in rural roads to reduce transport time, to improved security in farming communities to reduce the incidence of criminality, to the reduction in intra-state taxes and levies.
Currently, some of the major incentives available in the sector are:
• Importation of agricultural machinery and equipment attracts zero percentage duty.
• Corporate tax incentives rebate of 12% shall be enjoyed by bakers on attainment of 40% cassava blend within a period of 18 months.
• Companies in the agro-allied business do not have their capital allowance restricted. It is granted in full, i.e. 100%.
• Agro-allied plant and equipment enjoy enhanced capital allowances of up to 50%.
• The payments of minimum tax by companies that make small or no profits at all do not apply to agro-allied business.
• Agricultural Credit Guarantee Scheme Fund (ACGSF) administered by the Central Bank of Nigeria: Up to 75% guarantee for all loans granted by commercial banks for agricultural production and processing.
• Interest Drawback Program Fund: 60% repayment of interest paid by those who borrow from banks under the ACGS, for the purpose of cassava production and processing provided such borrowers repay their loans on schedule.
The slump in the price of oil has turned FGN’s attention to increasing activities aimed at harnessing Nigeria’s large deposit of unexploited natural gas and associated gas. The principal law regulating the Nigerian gas sector is the Petroleum Act. The Petroleum Act grants ownership of every gas within Nigerian territory to the FGN.
The Gas Master Plan 2009 failed to deliver on the projected targets with minimal investment made in the gas sector from that time to date. In a further attempt to encourage investment in the gas sector, the FGN has introduced the Oil and Gas sector Roadmap 2016, codenamed 7 Big Wins Roadmap.
The 7 Big Wins Roadmap, although released in 2016, outlines the medium and short-term goals and focus of the FGN in the oil and gas sector from 2015 to 2019. The 7 Big Wins are the specific focuses of the government in the petroleum industry for the next four years to wit; Niger Delta and security, policy and regulation, business environment and investment drive, transparency and efficiency, stakeholder management and international gas revolution, refineries, and production capacity.
The roadmap draws its content from the new Petroleum Industry Reform Bill. It proposes new policies such as National Oil Policy, National Gas Policy, Downstream Policy, and Fiscal Reform Policy. The implementation of these policies is the medium through which the 7 Big Wins will be attained. Even though the roadmap has no immediate economic relevance, it is meant to give prospective investors insight into the policy plans, structures, and fiscal regime (for instance, Petroleum Fiscal Reform Bill) of the FGN for the petroleum industry until 2019.
In keeping with the intendments in the roadmap, the FGN released the NGP. The NGP articulates the vision of the FGN, set goals, strategies, and an implementation plan for the introduction of an appropriate institutional, legal, regulatory, and commercial framework for the gas sector. The policy intends to move Nigeria from an oil-based economy to a gas-based industrial economy. It provides for the enactment of a new legislation to address gas issues, remove the anomaly in the petroleum sector, and distinguish between upstream, mid, and downstream. The legislation, among other things, will recognize gas as fuel in its own right other than a by-product of oil production.
The policy also incorporates the plan of the FGN to establish a single petroleum regulatory agency, by consolidating the existing regulatory agencies to check the current regulatory overlaps in the sector.
Furthermore, the policy incorporates a proposal for an investment promotion office given that it would be helpful to potential investors in making enquiries about investment opportunities in the Nigerian petroleum sector. The office will be able to give authoritative estimates of the market structure, opportunities for investment, legal and fiscal conditions, and any other information that may be necessary.
Although the FGN did not introduce a new policy for the manufacturing sector within the period under review, the president has hinted that it would implement an industrial roadmap introduced by the previous administration in 2014, that is, the Nigeria Industrial Revolution Plan 2014 (NIRP). The NIRP identifies agro allied, metals and solid minerals, oil and gas industrial activities and construction, light manufacturing, and services as the areas of focus for industrial improvement and export activities. To encourage investment in the identified sectors, the NIRP proposes to adopt multiple initiatives to intervene across the value chain and hope to facilitate decisions to bring down borrowing costs including structural drivers (e.g. monetary and fiscal policy) and specific channel drivers (e.g. credit risk perceptions). The NIRP also plans to facilitate the creation of an industrialization funding vehicle/company to mobilize private and public capital into milestone projects in the industrial sector. We are yet to see any definite action taken in this direction.
Although the laws remain unchanged and the challenges facing the sector—transport facilities, power supply, infrastructure, and funding—are still prevalent, agribusiness is gaining momentum with various grants from the FGN, states, and other bodies. This has resulted in growth in medium- and small-scale agribusinesses such as mass rice production in Ebonyi, Kebbi, and Anambra States. There has also been established agricultural manufacturing companies within the period under review, one of which is the tomato puree company in Northern Nigeria. The scarcity of foreign exchange and increased import duties has turned the focus of manufacturing companies to sourcing of raw materials locally.
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