Deregulated Nigerian Economy: An Attraction for Foreign Investors – By Osita Oparaugo

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This paper traces the evolution of the deregulation of the Nigerian economy. The paper asserts that investors may participate freely in Nigeria either directly or indirectly by port folio investment. The paper concludes by examining the various opportunities for investor that participates in Nigeria economies.

Osita Oparaugo

Osita Oparaugo

Nigerian Enterprises Promotion Decree 1972 made it mandatory for Nigerians to own majority shares in companies registered in Nigeria. This position was reinforced by the famous indigenization Decree of 1977 which “Nigerianised” all foreign Companies operating in Nigeria.The Decree prescribed indigenous shareholding dominance and required a portion of key management positions in such companies to be occupied by Nigerians. The aftermath of these expropriatory Decrees was an exodus of foreign investors from Nigeria. The consequence of this was substantial capital flight and diminution of foreign investment in Nigeria.

This was the prevailing situation until 1987 when the then military government set legal machineries in motion to begin the process of wooing foreign investors to return to Nigeria, through a guided deregulation of the economyNigerian Enterprises Promotion (Issue of Non-Voting Equity Shares) Decree which allowed foreign investors to own non-voting paid up shares in publicly quoted companies. The achievement of this Decree was very insignificantNo.34 of 1987.The Nigerian Investment Promotion Commission Decree (now Act) as well as the Foreign Exchange (Monitoring and Miscellaneous Provisions) Decree No. 16 of 1995.

Foreign investors may now participate in Nigerian enterprises by foreign direct investment (FDI) or foreign portfolio investment (FPI) either wholly or in partnership with Nigerians in any sector of the economy subject only to the matters on the negative list.

This works will highlight briefly the various benefits and opportunities for foreign investors.

  • Settlement of investment Dispute: the dispute may be submitted to arbitration at the option of the aggrieved party as follows in the case of a Nigerian investor, in accordance with the Arbitration and Conciliation Act. In the case of a foreign investor, within the frame work of any bilateral or multilateral agreement on investment protection to which the Federal Government and the country of which the investor is a national are parties; or in accordance with any other national or international machinery for the settlement of  Investment dispute agreed on by the parties.
  • Importation of the capital through an authorized dealer and obtaining certificate of capital importation. This enables investor to get the foreign currencies converted by the Central Bank of Nigeria at free convertible cost. It also enables the investor to service loan and repatriate profits in the preferred currency. A foreign investor wishing to buy shares or import foreign capital for doing business in Nigeria should freely import the capital through an Authorized Dealer, which currency is convertible into the Naira at the official foreign exchange market. The Authorized Dealer especially Banks designated by Central Bank of Nigeria will deliver a certificate of Capital importation issued by the CBN which guarantees unconditional transferability and repatriation of funds with regard to both earnings and capital.

Pioneer status certificate is issued by NIPC to the effect that the qualified and eligible company is exempted from payment of tax for  between 3-5 and 7 years. Thus, the incentive for pioneer company is to enjoy tax holidays for the stipulated period. The 7 years tax holiday is reserved for pioneer industries located in economically disadvantaged local government area of the Federation. This is to enable the industry to make reasonable level of profit within its formative years.

  • Tax relief on Double Taxation Treaties

Where a Nigerian registered Foreign Company has paid or is liable to pay tax, proves that it has paid the tax in a commonwealth or another country that has double taxation agreement with Nigeria the company will be entitled to relief from tax paid or payable by it. Companies Income Tax Act (CITA)

  • Investment Tax Credit

Companies and other organisations that are engaged in Research and Development (R&D) activities for commercialization are allowed 20% investment tax credit on their expenditure[1].

  • Rural Investment Allowance

By section 34 (1) (2) CITA, where a company incurs capital expenditure on the provisions of facilities such as electricity, water, tarred road or telephone for the purpose of a trade or business which is located least 20kilometer away from such facilities provided by the government, it would be granted a further allowance specified as follows

Level of development                                Rate No %

No facilities                                                    100%

No electricity                                                   50%

No water                                                         30%

No tarred road                                               15%

No telephone                                                  5%

The road investment allowances is tied to the profits of the year in which the date completion of the investment falls and should not be carried over to the next year

343) CITA 

  • Tax Relief on Foreign Loan

Section 11 (1) CITA provides for tax exemption /relief on foreign loan which complies with v12: the loan must not be less than N150,000, the loan must be for a foreign company to any person carrying on trade, business, profession in Nigeria, if the loan is to be replaced after 10 years, the interest is exempted from Tax, if the loan is to be repaid between 5-10 years, then the tax on the interest accruing should be half of the chargeable tax.

  • Importing the foreign loan through an authorized Dealer and obtaining certificate of capital importation (CCI) entitles the foreign investor to:

i. Open a foreign currency Domicinary Account

ii. Open a special non-resident Naira account

iii. Buy shares in Nigerian companies out of the naira account repatriate the capital, dividends & income at autonomous mark

iv. Profits made is exempted from taxation

v. Dividends are tax free

  • Tax Exemption on profits

Section 23 (1) CITA prescribes the various profits of corporate bodies exempted from taxation  

  • Bonus for Filing Retours on Time

Section 56 CITA provides that a company files returns within the stipulated time for filing is granted a bonus one percent of the tax payable.

  • Local Raw materials Utilisation

Tax concession is granted to industries that attain minimum local raw materials utilization

A tax credit of 20% is granted for 5 years to industries that attain minimum levels of local raw materials sourcing and utilisation in their respective sectors in this proportion for Agro-allied 70% ; Engineering 60%, Chemicals 60% Petrochemicals 70%   

  • Labour Intensive Mode of Production

Tax concession is granted to industries with high Labour /Capital ratio.  These are industries with Plants, equipment and machinery which essentially are operated with minimal automation.

The rate of tax concession here is graduated ; in that a company employing 1000 persons or more enjoy 15 percent tax concession, an industry employing 200 persons will enjoy 7 percent, 100 persons enjoy 6 percent etc.

Local conduct Act 2011

  • Duty Draw Back /Suspension Scheme:

This deals with a situation where a manufacturing company has no raw materials to manufacture its product in Nigeria, thus depends on imported raw materials. The company pays import duty on the raw materials imported .if the raw material is utilized for production of goods to be exported, at the point of exportation o f the finished goods, the initial import duties paid in respect of the raw material will down back (recovered) by the manufacturing company. Exports (tribute and Miscellaneous Provision) Act Cap LTN 200 and Customs Duties Act cap C48 LTN  200. Duty Drawback application must be within a maximum of two years from the date of exportation


[1]Section 26 (3) CITA. For fabrication of spare parts and equipment for local consumption and export, it is usually 25% ITC – 5 .38 (1) CITA    




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