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Doing Business Simplified: Incentives to Invest in Nigeria

In our previous newsletter on managing the risks associated with foreign investments in Nigeria, we discussed practical steps that could be taken by foreign investors to mitigate risks associated with doing business in Nigeria.

Since then, the COVID-19 pandemic (which has affected several countries worldwide including Nigeria), has generally slowed down many sectors of the economy and negatively impacted investments. In spite of this, certain sectors including those which have been categorized as “essential” by the Nigerian government are likely to emerge unscathed and even more profitable after the pandemic. It is also expected that in order to improve the economy, the government is likely to promote investments in these sectors post COVID-19. These include the health sector, agriculture, food production and sales, finance sector, logistics, and start-ups using technology to provide essential services. A case in point are health-tech startups, Helium Health and 54-gene raising millions of dollars in funding despite the pandemic.

Foreign Direct Investment is considered by the Nigerian government as a key factor to the growth of the economy and investments in the sectors set out above are likely to be encouraged post Covid-19. Given the market size potential in Nigeria, it remains one of the most attractive countries in Africa for foreign investments. Investors wishing to invest in the African market may wish to consider investing in businesses in the sectors above.

Below are incentives and measures currently in place which should be taken account of in making a decision to invest in a post-COVID Nigerian economy.

  1. 100% foreign ownership in various sectors – The Nigerian government permits up to 100% foreign ownership in most sectors of the economy including the sectors we indicated above which are likely to benefit from the government’s agenda to diversify the economy.
  2. Free transferability of capital and returns– The investment regime in Nigeria guarantees investors the right to repatriate capital and profits to foreign jurisdictions, once capital is inflowed through an authorized dealer and a certificate of capital importation is obtained. This assures investors that assets would not be trapped in Nigeria. Expropriation of assets of investors by government is also prevented by the investment regime in place.
  3. Double Taxation Treaties – Nigeria has a Double Taxation Treaty with countries such as Belgium, Canada, China, France, the Netherlands, Pakistan, Philippines, Romania, South Africa, and the United Kingdom . Investors from countries with a Double Taxation Treaty with Nigeria pay a discounted percentage of 7.5% on dividends.
  4. Tax Incentives – Investors can take advantage of the various tax incentives available in several profitable sectors. For instance, companies carrying out agricultural production are exempt from income tax for a period of 5 years extendable for an additional 3 years. Investors in the health sector enjoy import duty waivers on medical equipment, pharmaceutical products, and investors in the mining sector enjoy waivers on mining equipment.
  5. Ease of Doing Business Initiatives – Several initiatives targeted at improving the state of the economy and encouraging foreign investments have been put in place recently. For example, the Presidential Enabling Business Environment Council has worked to remove obstacles to investing in Nigeria. One of such moves is the establishment of a dedicated website (www.pebec.report) where businesses and individuals can lay complaints against government institutions.
  6. Incentive for FINTECH Companies – The Central Bank of Nigeria (CBN) recently extended the Microfinance Bank recapitalization deadline. This is especially important since many companies in the fintech space in Nigeria operate with a Microfinance Bank (MFB) license. Prior to the pandemic, the CBN had required MFBs to significantly increase their capital base by April of 2020. Now, a new deadline of April 2021 has been set, thereby giving Fintech companies more time to consolidate and source for investments.

Conclusion
Although, it is not certain when the pandemic will end and with it the economic slowdown, what is certain is that investment opportunities still abound – even though on a lower scale. What is also certain is that it is those investors who identify potential investments and take the risk to invest in this climate that will emerge the post-coronavirus winners.

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