PAPER PRESENTED AT THE WORLD TRADE CENTER, ST. LOUIS, MISSOURI, BY AMBASSADOR GEOFFREY TENEILABE
APRIL 10, 2014
Let me start by thanking you for granting me the audience to speak on the Nigerian Economy and opportunities therein.
The State of the Nigerian Economy
Nigeria has a population of 170 million people, 33.5% of whom are middle class;
It is now the biggest economy in Africa with the recent rebasing of the GDP;
The GDP is over USD509.9 bn;
The GDP growth rate is 6.5% – 7% and the economy is among the 10 fastest growing in the world;
It is also Africa’s biggest market;
By virtue of its membership of the Economic Community of West Africa State, Nigeria has further market access to 180 million more people;
The sovereign rating is BB-;
Inflation is 7.8%;
Debt to GDP ratio is now 11%;
It has transited from low income country to a middle income country;
It is one of the world’s emergent economies, classified under the acronym (MINT) Malaysia, Indonesia, Nigeria and Turkey;
Economic policy is pursued under Vision 202020 expected to transform the Nigerian economy to the 20 biggest in the world from its current 26th biggest by year 2020;
The President Goodluck Jonathan’s Administration adopted the Transformation Agenda as a platform to achieve the goals of Vision 202020, complemented by the Foreign Policy objective of Economic Diplomacy;
In 2012, Nigeria attracted USD8.7 billion investment, the highest in Africa and the 4th highest in the world;
The return on investment is very encouraging as confirmed by Aliko Dangote, business tycoon, richest black man in the world as well as a Nigerian, who emphasizes that the average return on investment in Africa is 30.2%;
Nigeria has the 4th highest rate on investment in the world;
The exchange rate of the currency, the Naira, to Dollar have been stable for over several years;
Nigeria practises the open market economy and lays emphasizes on the private sector as driver for economic growth and wealth creation;
The Government has undertaken extensive economic liberalization reforms including privatization, ease of the regulatory environment, repatriation of profits, laws for the protection of foreign investment, one-stop-shop for investors, ease of registration of companies, among others;
Nigeria has huge human and natural resources including 44 different types of minerals; over 36.5 billion barrels of crude oil and 186 trillion cubic feet of natural gas;
Areas for investment include but not limited to infrastructure development, agriculture, agro-business, waste management, education, healthcare, tourism, power, real estate, Telecoms especially broadband, petrochemicals, fertilizer production, with details as follows:
To recapture its former enviable position as a major player in the world agric market, as well as to reduce high food import of about $11 billion, create employment and generate wealth, importance is attached to revamping agricultural production as a business rather than a subsistence enterprise;
Nigeria is endowed with uncultivated fertile land of over 48 million hectares. In order words, vast opportunities exist in the agricultural sector particularly in the production of cotton, palm oil and produce, cocoa, groundnut, cassava, rubber, sorghum, gum Arabic, rice, wheat, sugar, aquaculture, rice milling, horticulture, food processing, etc.
Incentives in the agricultural sector include: liberal allocation of land to investors through partnership or under long-term leases by various State Governments, revamping the irrigation system – (42 dams and over 12 River Basin authorities of various water bodies in the country), creating a local market for products such as cassava, rice and other products, and more efficient fertilizer distribution;
Others are the distribution of hybrid seedlings; facilitation of export market for agricultural products; co-operate tax rebate; zero percent on imported agric equipment for targeted products; prohibition of the importation of some related products, i.e., cassava flour since March 31st 2012; the political will to drive agricultural production at the highest level of government with the President heading the Agricultural Transformation Council and a more liberal fiscal regime with the availability of 450 billion naira ($2.9 billion) for the agricultural sector;
Related are opportunities in agriculture business in Nigeria; from tomato paste production, making of fruit concentrate, beef canning, etc., for a market of over 170 million people.
Power and Energy:
The provision of electricity is a pivotal agenda of government and for that reason Government launched the Power Road Map in 2010. Electricity is central to the growth of the economy and industrialization;
The aim is to increase generating capacity from 4,000 megawatts, (but with an installed capacity of 8,000 megawatts) to 40,000 by 2020;
To this end, Government has privatized the generation and distribution of electricity to 14 companies;
National Transmission Grid is contracted to Manitoba of Canada;
It has also set up various regulatory and pricing framework to further encourage investments in the market;
It has similarly reviewed the electricity tariff regime with a view to making the sector attractive for profit.
Nigeria has no less than 44 different solid minerals of various commercial quantities including Gemstones, Gold, Uranium, Columbite, Coal, Byrites and Bitumen (oil sands), among others, that could be found in many States of the Federation. Encouraging the exploration of these minerals, the government has put in place the Solid Mineral Policy to guide investors.
Oil and Gas:
For decades, Oil and Gas have remained crucial to the Nigerian economy, as revenue earner and major export products. Nigeria has an estimated 36.5 billion barrels of oil on reserve and 186 trillion cubic feet of gas. The country has more gas than oil but the problem is that 24% or 1.5 billion cubic feet per day of gas produced is flared, resulting in colossal loss of revenue of about $2.5 billion per year and environmental pollution;
However, the government has been making efforts to reverse this unhealthy situation by putting in place the Gas Master Plan for more utilization of gas for power generation, urea fertilizer production, gas for more domestic and industrial usage and uses in petrochemical industry, etc.
There are therefore huge opportunities for investors in the areas of:
i. Gas infrastructure,
ii. Liquefaction of gas for export,
iii. Production of equipment and materials under the Local Content Act,
iv. Establishment of refineries and petrochemical,
v. Establishment of urea fertilizer plants, etc.
Nigeria is undoubtedly deficient in infrastructure required for the socio-economic development of the country. Thus the government has given priority to its development in order to close the infrastructure gap in pursuit of the Transformational Agenda as well as to facilitate the rapid development of the country, with a view to making Nigeria one of the 20 biggest economics by the year 2020;
In this regard, investors are encouraged to invest in such areas as roads, railway, communication, airport development, etc. through various forms of arrangements in liaison with the Infrastructure Concession Commission of the Federal Government;
Some State governments are also interested in the development of infrastructure in their states through Private/Public Sector partnership arrangements;
Government is working on a legislation to remove its monopoly of the ownership of railways in order to provide an enabling law for private sector participation in the sector.
With a 17 million housing deficit in Nigeria, the real estate market is one of the most robust for private sector participation – an area government is keen on the provision of infrastructure and regulatory framework for the maintenance of standards and safety as well as social housing;
The return on investment in this sector is quite encouraging especially where high standard is maintained and facilities are provided. This is not surprising because of the high taste of the Nigerian elite, the rising middle class and the demand for good quality products;
It therefore serves the interest of investors who may wish to go into the area to do so in urban areas such as Abuja, Lagos, Port Harcourt, Warri, etc., in terms of the provision of high-end and low cost accommodation for lease as well as for office use.
Manufacturing is synonymous with industrialization but in recent times, because of inadequate electricity supply and dumping of imported products there is an apparent de-industrialization in Nigeria. However, with the Transformation Agenda of government the Industrial Revolution Plan and the Auto Manufacturing Plan have been launched focusing on 15 targeted areas of manufacturing including automobile, the textile industry, petrochemical, agro allied, refineries, fertilizer, pharmaceuticals, etc.;
Other areas with great potential for growth and development are building materials, milling, paper and paper products, vegetable oil, processing of solid minerals; basic metals, ship and boat building, cement production, wood processing and furniture making, etc., are also viable investment options.
Economic Free Zones:
Economic Free Zones are areas clearly demarcated within the territorial boundaries of sovereign states for economic activities under specific rules and regulations. In Nigeria, four kinds of export processing zones exist, namely: Special Trade Zone, Free Trade Zone, Export Processing Zone and Special Economic Zone. Currently, 24 of such zones exist;
Six others border Trade Free Zones are also being proposed. Investors, as private sector operators, could also take advantage of the numerous available advantages stated here below, besides government participation;
Incentives available at the export processing zones are:
i. Complete tax holiday from all Federal, State and Local government taxes, rates, customs duties and levies;
ii. One-stop approvals for all permits, operating licenses and incorporation papers;
iii. Duty-free introduction of capital goods, consumer goods, machinery, equipment and furniture; and;
iv. Permission to sell some of the manufactured, assembled or imported goods into the domestic Nigerian market;
v. 100% repatriation of capital, profits and dividends;
vi. Waiver of all import and export licenses;
vii. Waiver on all expatriate quotas for companies operation in the zones;
viii. Prohibition of strikes and lockouts; and
ix. Rent free land at construction stage within the zone.
Nigerian tourism sector remains pristine and largely unexplored;
Nigeria is rich in culture and arts with principalities and ancient nation states spread across the over 250 ethnic groups;
Besides the sun, sands and beaches along the Atlantic coast in places such as Badagry, Lekki, Calabar, Port Harcourt, there are also other areas of tourism attractions, namely the Yankari Game Reserve, Obudu cattle ranch, National war museum, Imuhia ancient Kano dying pits, the River Niger-Benue confluence, the Terracotta of Kaduna State, Arugugu fishing festival, Olumo rock, ancient art work of Benin and Ife, etc.;
There is inadequate tourism infrastructure in the country including hotels, rest houses and resorts;
Other areas for attention are infrastructure for the development of specific tourism sites, establishment of tour agencies as tour operators, infrastructure for safari games reserve and gorilla viewing.
In April 2006, Nigeria became the first African country to pay off its $30 billion dollar debt. Nigeria is regarded today as under-borrowed country and now occasionally borrows from the international financial market through the issuance of Bonds at attractive interest rates of between 15.05% to 16.16%. The Bonds are normally over-subscribed but investors could still be interested to check out the bond options particularly at the London and New York financial markets.
Generally, besides sectors-specific incentives, general investment incentives include the following:
a) Grant of Pioneer Status (tax holidays for 7 year period);
b) Tax Relief for R & D (expenses on R & D are Tax deductible);
c) Capital allowances (up to 75% in a year);
d) In-plant Training (2% tax concession for a period of 5 years);
e) Investment in Infrastructure (20% of expenses is tax deductible);
f) Investment in Economically Disadvantaged Areas (100% tax holiday for 7 years and 5% capital depreciation allowance);
g) Labour Intensive Mode of Production (Graduated tax concessions are applicable);
h) Local Value Added (10% tax concession for 5 years);
i) Minimum Local Raw Materials Utilization (Tax credit of 20% is granted for 5 years);
j) Export Expansion Grant (EEG);
k) One-stop Investment centre.
The challenges facing the Nigerian business sector include the following:
i) Inadequate Power;
ii) Weak access to production inputs especially finance;
iii) Expectation of unearned rewards;
iv) Multiplicity of Taxes and levies plus red tape;
v) Low access to information;
vi) Low capacity to invest in R & D, ICT & E-commerce;
vii) Restricted access to credit;
viii) Infrastructural deficiency and weak logistics to support supply chain;
ix) Inadequate export-oriented manufactures and low productive capacity;
x) Poor standardization of product (quality, labeling, packaging);
xi) High production costs;
xii) Lack of export culture.
Beside the above, perhaps the greatest challenge being faced by Nigeria today is the Boko Haram menace. It should however be noted that Boko Haram operation is limited to only a small part of Nigeria not more than three of out of the 36 states and the Federal Capital Territory;
The United States and other friendly countries and development partners are in collaboration with the Nigerian government to find a solution to the Boko Haram menace. The optimism is that it will soon be an issue of the past – an optimism shared by the United States Under Secretary of State for Political Affairs, Wendy Sherman in a Press Interview granted on his recent visit to Nigeria.
CONSULATE-GENERAL OF NIGERIA