A key regional player in West Africa, Nigeria accounts for about half of West Africa’s population, with about 202 million people and one of the largest populations of youth in the world.
It has the highest GDP in Africa, standing at $514.05 billion in 2021, and with an abundance of natural resources it is Africa’s biggest exporter of oil.
However, Nigeria is grappling with socio-economic challenges that have continued to sabotage the country’s development process, says Osayaba Giwa-Osagie, senior partner at Giwa-Osagie & Co, Nigeria.
This includes security concerns, a high rate of unemployment and poverty, and political unrest.
He says the government recently launched the 2021-2025 development plan in a move to address some of these challenges.
“The broad objectives of the plan are economic diversification, investment in infrastructure, security and good governance, an educated and healthy population, poverty alleviation and economic social development.”
Promising opportunities
Information, communication and technology is currently the fastest-growing sector in Nigeria and holds vast opportunities for investors.
Further, there are several recent events that will open up opportunities for business growth and expansion in the country.
The Africa Continental Free Trade Agreement will create access to a large market for trade, and portends profitable opportunities for business entrepreneurs, says Giwa-Osagie.
“Another event worthy of note is the enactment of the Petroleum Industry Act 2021, a law directed to reform the oil and gas sector and make it profitable and attractive to investors.”
He says major deals are already happening in the oil sector, which indicates that businesses are beginning to strategically reposition themselves to grasp the opportunities that the PIA will open up.
For example, Seplat, an indigenous oil and gas company in Nigeria, recently announced that it has entered into a sale and purchase agreement, for the acquisition of multinational oil giant ExxonMobil’s entire offshore shallow water business.
Currency woes
The Nigerian currency, the naira, has recently depreciated drastically, triggered by a series of unfortunate events.
Among these, the Covid-19 pandemic caused a significant drop in the global price of oil, which affected the foreign exchange inflows into Nigeria and exerted pressure on the Naira, says Giwa-Osagie.
“The oil sector plays a significant role in the Nigerian economy; it accounts for 90% of the country’s foreign exchange earnings and 70% of budgetary revenue.
“With the shortage in oil earnings, the naira has been on a free fall as demand for dollars outweighs supply.”
He says the over-reliance on petroleum is inimical to the development and growth of the Nigerian economy.
And the fact that Nigeria is an import-dependent nation that consumes more than it produces has worsened the situation.
“The currency issues and constant depreciation of the naira can be best tackled through diversification of the Nigeria economy.”
He says the government has to develop and encourage investment in other sectors like agriculture, information technology and manufacturing.
Economic outlook
The Nigeria economy was greatly affected by Covid-19 and slipped into recession at the peak of the pandemic.
“However, the country has quickly emerged from recession, mostly due to the increased activities in agriculture and the ICT sector, which offset the negative impact from the drop in oil price,” says Giwa-Osagie.
“Since exiting recession, the economy has recovered modestly.”
He says the price of crude oil has recovered after the Covid-19 slump with a corresponding improvement in foreign exchange inflows.
“The borders which were erstwhile closed have also been re-opened to trade and this is expected to further ease up the inflation in the country.
“The Central Bank has also introduced several policies and operations that have helped improve the foreign exchange reserves.”
He says the Nigerian economy in 2021, attained a 3.4% GDP growth, which is said to be the strongest recorded since 2014.
Moving forward, the performance of the economy will be largely determined by the successful implementation of the 2022 budget, he added.
Investment opportunities
The implementation of the government’s 2021-2025 development plan is to be funded through various sources including concessions, says Ivy Osiobe, executive associate at Giwa-Osagie & Co.
“This opens up an opportunity for investors to enter into a public-private partnership with the government.
“The mining and agricultural sectors have been identified as pivotal sectors for the Nigerian economic recovery plan and the government has introduced several incentives to encourage investments in these sectors.”
In 2021, the government unveiled special incentives for investors in the agricultural sector including tax holidays, exemptions and reliefs.
And for the mining sector, there are provisions for tax holidays for the initial three years from the commencement of operation and two years thereafter, she says.
“It is pertinent to note that the Nigerian business environment encourages foreign investment through laws that allow companies in Nigeria to be wholly owned by foreigners and restrict expropriation and nationalisation.”
In the event that expropriation is necessary due to national interest, the law provides for compensation. It also provides for the free entry and exit of foreign funds, she says.
Regulatory changes
In the finance sector, the Central Bank of Nigeria (CBN) has issued several guidelines that regulate activities and encourage new business entrants.
The CBN Guidelines on Mobile Money Services in Nigeria and the Guidelines for Licensing and Regulation of Payment Service Bank (PSB) allow non-financial companies to provide financial services, says Osiobe.
“These guidelines liberalise the sector and allow the convergence of industry players from the fintech, banking sector and telecommunication sector to provide mobile money services and digital bank services,” says Osiobe.
“In a bold move to facilitate settlement and payment of cross border transactions, the Central Bank has also issued the Guidelines on the Operations of Pan African Payments and Settlement System (PAPSS) in Nigeria.”
She says in January this year, the CBN issued a guideline on e-evaluator and e-invoicing for imports and exports in Nigeria.
The guideline was to have taken effect from 1 February 2022, but the House of Representatives directed the apex bank to halt implementation in order to sensitise the public on the policy and enable appropriate adjustments to be made so as not to destabilise the economy.
“The Federal Government has also introduced a single trade window to facilitate trade and improve access to resources and services of the various government agencies,” says Osiobe.
“The single trade window platform is expected to enhance the ease of doing business in the country.”
As mentioned earlier, a significant milestone was reached with the enactment of the Petroleum Industry Act, which is expected to drive investment in the sector, she says.
Also, in a bid to establish a more efficient insurance sector and restore public trust, the National Insurance Commission (NAICOM) issued a directive for the recapitalisation of insurance companies.
This will create healthy and financially stable insurance companies that will instil confidence in the sector, stimulate consumer interest in insurance products and attract investors to the sector, says Osiobe.
“There is also a drive to diversify revenue generation by widening the tax base to capture non-resident digital companies, and to this end the significant economic presence (SEP) rule was introduced.
“The SEP rule provides that companies with a significant economic presence in Nigeria are required to pay income tax.”
Other laws that have been enacted in recent years to drive investment, encourage the growth of SMEs – who contribute about 48% to the country’s GDP – and improve the ease of doing business in Nigeria,
These laws are the Finance Act 2020, 2021 and the Companies and Allied Matters Act (CAMA) 2020.
The government also recently enacted the Electoral Act 2022, which, it is believed, will pave the way for a better electoral process and the emergence of efficient governance, says Osiobe.
Giwa-Osagie & Co is a leading firm in Nigeria that offers a wide array of legal services. The firm provides services in banking, capital markets, debt & equity, mergers & acquisitions, restructuring and insolvency, and project development in energy and infrastructure.
