Doing Business in Nigeria

Doing Business in Nigeria

eMAIL 1With a population of over 170 million people, Nigeria is obviously the largest market in sub Saharan Africa with reasonably skilled and potential manpower for the efficient and effective management of investment projects within the country. It is well connected by a wide network of motorable all-season roads, railway tracks, inland waterways, maritime and air transportation.

Nigeria is a country covering a total area of 356,667 square miles in Africa. Nigeria is the seventh-most populous country and the most populous black nation in the world. And it’s people are known to be the Happiest people on earth .

Nigeria is a country comprising thirty-six states and one Federal Capital Territory. The states are further divided into 774 Local Government Areas (LGAs).

Atlantic Ocean forms the southern limits of Nigerian Territory. The 800km of coastline, confers on the country the potentials of a maritime power. Land is in abundance in Nigeria for agricultural, industrial and commercial activities.

Nigeria’s economy could be aptly described as most promising. It is a mixed economy and accommodates all comers, individuals, corporate organisations and government agencies, to invest in almost all range of economic activities.

Nigeria has become the largest economy in Africa and 26th largest in the world following the rebasing of its Gross Domestic Product from 1990 to 2010 constant prices. Following the recalculation, the Statistician General of the Federation announced on Friday, April 4, 2014m that the country’s GDP emerged at $509.9 billion in 2013 up from $285.56 billion, an 89.2% increase. Accordingly, Nigeria’s GDP per capita has almost doubled from $1,437 to $2,688.

The new figures show a significant shift in the country’s economic structure, reflecting expected structural change in the growth phases. The share of agriculture declined from 33% to 22%, services increased from 26% to 51%, manufacturing increased from 2% to 7%, and mining (including oil) declined from 39% to 20%. New sectors such as the entertainment (including Nollywood) and telecommunication accounted for 8.7% and 1.4% of GDP, respectively. These suggest that the economy is reflecting a structural shift toward a higher phase of growth where the share of agriculture declines while services increase.

 

Foreign Investments

A total of $5.8 billion (N903.9 billion) foreign investments flowed into the Nigerian economy in the second quarter of 2014 according to latest figures released by the Nigerian Bureau of Statistics (NBS) , bringing total foreign investments inflow in the first six months of 2014 to $9.70 billion or N1.51 trilion. According to the statistics office, foreign investments inflow had risen by 48.6 per cent or $1.89 billion in the second quarter of the year compared to $3.9 billion capital imported into the Nigerian economy in the first three months of the year.

The federal government of Nigeria has developed a package of incentives for various sectors to accelerate growth and development and reduce poverty by providing enabling environment that is conducive to the growth and development of industries, inflow of Foreign Direct Investment (FDI), shield existing investments from unfair competition, and stimulate the expansion of domestic production capacity.

Nigeria has signed bilateral investment promotion and protection agreements (IPPAs) with several countries, which guarantee the safety of investments in the event of; war, revolution, expropriation or nationalisation. Investors are also free to transfer interests, dividends, profits and other incomes. This inevitably translates to a stable and safe business and investment environment for all, especially for international investors.

For intelligent business people, especially foreign investors looking for new market to boost sales, to invest in and/or to manufacture in, Nigeria has the perfect environment for that.  Nigeria is virgin territory for most investments, which translates to various incentives to invest, including but not limited to low cost of production, developing and one of the fastest growing economies, developing service sector and huge market.

Investment Opportunities in Nigeria

Low Tax rate for Corporate Tax Rate, Personal Income Tax Rate and Sales Tax Rate at 30%, 24%, 5% respectively.

  • Low Value Added Tax (VAT) at flat rate of 5%: The government offers Pioneer status, which is a concession to pioneer companies located in economically disadvantaged areas, providing a tax holiday period of five to seven years. 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.
  • Tax relief for Research and Development (R&D): Up to 120% of expenses on R&D are tax deductible provided that such R&D activities are carried out in Nigeria and are connected with businesses to which allowances are granted. The result of such research could be patented and protected in accordance with internationally accepted Intellectual property rights. Nigeria remains the number one destination for Foreign Investment in Africa and one of the fastest growing economies in the world. Recent examples of foreign interests in Nigeria: Tiger brand recently acquired Aliko Dangote’s stake in Dangote flour. MTN South Africa recently mopped up shares of MTN Nigeria and Wal-Mart has moved heavily into Nigeria through its subsidiary, Shoprite. GlaxoSmithKline U.K. has increased its stake in GlaxoSmithKline Nigeria PLC. General Electric is partnering with power generation companies in Nigeria to boost the nation’s power supply. Chinese companies are partnering with Nigerian companies to setup manufacturing plants right here in Nigeria. An example of such is Innoson Vehicle Manufacturing company in Nnewi. Nissan has also established auto manufacturing plant in Nigeria. The list goes on and on.
  • Local raw materials utilisation: The government offers 30% tax concession for five years to industries that attain minimum local raw materials utilisation as follows:
    • Agro 80%
    • Agro Allied 70%
    • Engineering 65%
    • Chemical 60%
    • Petro-chemical 70%
  • Labour intensive mode of production: 15% tax concession for five years: The rate is graduated in such a way that an industry employing one thousand persons or more will enjoy 15% tax concession while an industry employing one hundred will enjoy only 6%, while those employing two hundred will enjoy 7%, and so on.
  • Local value added: 10% tax concession for five years: This applies essentially to engineering industries, where some finished imported products serve as inputs. This is aimed at encouraging local fabrication rather than the mere assembly of completely knocked down parts.
  • In-plant training: 2% tax concession for five years of the cost of the facilities for training.
  • Import duty rebate: A 25% import duty rebate was introduced in 1995 to ameliorate the adverse effect of inflation and to ensure increase in capacity utilisation in the manufacturing sector. Investors are however, advised to ascertain the current operative figures at the time of making an investment, because these concessions have undergone amendments in the past few years.

 

  • Re-investment allowance: This incentive is given to manufacturing companies that incur capital expenditure for purpose of approved expansion of production capacity; modernisation of production facilities; diversification into related products. It is aimed at encouraging re-investment of profits.
  • Investment tax allowance: Under this scheme, a company would enjoy generous tax allowance in respect of qualifying capital expenditure incurred within five years from the date of the approval of the project. Dividend derived from manufacturing companies in petro-chemical and liquefied natural gas sub-sector are exempted from tax. 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 into manufacturing. Dividend from companies in manufacturing sector with turnover of less than N100 million is tax-free for the first five years of their operation.
  • Investment guarantees/effective protection: Transferability of funds section 24 of NIPC decree provides that a foreign investor in an enterprise shall be guaranteed unconditional transferability of funds through an authorised dealer in freely convertible currency of Dividends or profit (net of taxes) attribute to the investment; Payments in respect of loan servicing where a foreign loan has been obtained; Remittance of proceeds (net of all taxes) and other obligations in the event of a sale or liquidation of the enterprise or any interest attributable to the investment.
  • Guarantees against expropriation: By the provision of section 25 of the same NIPC decree, no enterprise shall be nationalised or expropriated by any government of the federation, unless the acquisition is in the national interest or for public purpose; and no person who owns either wholly oor in part, the capital of any enterprise shall be compelled by law to surrender his interest in the capital to any other person.
  • 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.
  • Population: There are over 150 million people resident in Nigeria and the population in Nigeria is been predicted to overtake that of United States by 2050. This means that the market is big enough to absorb any product, provided enough marketing and awareness is created. Another positive impact of this population statistics is that there is cheap labour. One of the reasons China grew to become an industrial hub is because of her large population, which in turn brought down the cost of labour. Nigeria is fast developing and there is a huge need for innovative products. Economically and technologically, Nigeria is growing. Nigeria is currently riddled with challenges such as falling oil prices, security infrastructural decay, unemployment, power failure, corruption, fall in education standard, accommodation, etc. However, people with entrepreneurial mindset know that these problems are opportunities which can turn into profitable businesses. The government is working to improve the economic condition of the country, by implementing several policies aimed at encouraging local content production and small scale enterprises.

 

 

 

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