In 2022, GDP growth was 3.5% (3.6% in 2021). As in the past, enormous disparities remain in the distribution of income. The ambitious goal set by the Government of returning to the top 20 economies in the world by 2020 has not been achieved: the Nigerian economy is currently in 30th place.
Nigeria implements protectionist policies in favor of the weak national industry, through bans on imports and ad valorem duties on various types of goods. Due to widespread corruption, many goods can be found locally albeit at high prices contributing to a substantial increase in inflation.
The Central Bank of Nigeria reintroduced strict control over the exchange rate regime after the crises of 2008-2009. This has allowed the proliferation of a parallel foreign exchange market, tolerated by the Central Bank. The official exchange rate between Naira and US$ is, as of January 2023, 460 Naira to 1 USD. The forecast for 2023 sees the Naira depreciate further to reach 490 Naira per USD. As of January 2023, the parallel exchange rate between the two currencies is approximately 780 Naira per 1 USD.
Even after the 2005-2006 banking sector recapitalization, several banks were nationalized, recapitalized, and readmitted to the market under different corporate names. The phenomenon has caused concern about the robustness of the entire system. For this reason, the Central Bank has made every effort to carry out controls that ensure the correct application of the capitalization, loan and bank reserve management policies. The main credit institutions operating in the country have been included in the “List of banks” section.
Main sectors of industry
The Nigerian economy has long suffered from an almost complete lack of diversification. From the beginning of the military dictatorships until recent years, 2/3 of the national GDP was made by the agricultural and mining/extractive sectors.
Today, however, economic indicators highlight a greater distribution of GDP: 22% agricultural sector; 14% oil & gas; 48% tertiary sector (wholesale and retail trade, financial services, real estate, etc.) industry 7%, telecommunications 9%.
The economy has enjoyed sustained economic growth for a decade, with annual real GDP rising about 7%; it was 6.3% in 2014. The non-oil sector was the main driver of growth, with services contributing about 57%, while manufacturing and agriculture, respectively, contributed about 9% and the 21%. The economy is diversifying and becoming more service oriented particularly through the wholesale and retail trade, real estate, information and communication.
Oil is the mainstay of the economy. Its current production capacity is approximately 2 million barrels per day. Oil and gas contribute 40% of the national GDP, and constitute 80% of the government’s total tax revenues and over 90% of its exports.
Taxation for businesses in Nigeria
Taxation of legal entities
Corporate Tax affects all companies, businesses and firms that have their headquarters in Nigeria. The tax system is based on the principle of the “fixed office” on Nigerian territory for companies governed by local law and on the principle of “permanent establishment” for foreign companies operating in Nigeria. The ordinary rate is 30%.
For companies operating in the oil field, it can vary up to 85% (reduction to 65.75% in the first five years of activity and to 50% if the operations are carried out through collaboration agreements).
Alternatively, a Minimum Tax calculated on the turnover, assets or income is applied. In particular:
if the turnover is less than NGN 500,000 (approximately Euro 2,300.00) the minimum tax to be paid will be equal to the higher of: 0.5% of the profit, 0.5% of the net fixed assets, 0.25% of the paid-in capital or 0.25% of turnover
if the turnover is greater than NGN 500,000, a surcharge equal to 0.125% is due on the difference.
The Minimum Tax is not due in the first four years of activity and for companies that carry out activities in the agri-food sector in joint ventures with foreign companies.
There are taxes on education equal to 2% of the taxable income of the companies. Social contributions are equal to 15% of total wages.
There are numerous tax exemptions (zero tax) for foreign companies investing in Nigeria in the manufacturing sector or in sectors considered strategic (almost all). Tax reductions are foreseen for research and development activities.
There are Free Trade Zones that are exempt from any income tax. In this regard, two specific competent authorities have been created:
- the Nigerian Export Processing Zone Authority (NEPZA)
- the Oil & Gas Free Zone Authority (OGFZA – specific to the oil sector).
Investing in Nigeria
Electricity, gas, steam and air conditioning (also from renewable sources)
Nigeria has a huge energy deficit. Local sources fix production at around 4,000 MW of capacity against a requirement of at least 40,000 MW. Strong shortcomings are also recorded in the transmission networks and in distribution. The Government has initiated the privatization of all public production companies, also opening opportunities for other companies involved in the same field to invest in strengthening what is already present.
The potential returns are enormous, considering the vastness of the needs for industry, agriculture and for residential purposes in a country with over 205 million people. The government intends to help and protect investors with a bulk-trader, responsible for the purchase of the electricity produced, and a single operator, controlled by the state, for transmission. Plenty of room for subsisting investments in the field of hydroelectric production with small plants and off-grid distribution for rural areas. Basically, Nigeria’s energy needs are chronic. The exploitation of the huge reserves of natural gas is only at the beginning.
Products of agriculture, fishing and forestry
The diversification of the Nigerian economy in regards to the development and growth of Nigeria remains one of the prominent themes. During his electoral campaign, President Buhari presented an ambitious plan for the development of agriculture and agro-industry in order to revive a sector that decades ago was highly productive and consequently to reduce the current heavy imports of foodstuffs while creating jobs. In the 1960s, Nigeria was a major producer and exporter of the following agricultural products: palm oil, cocoa, peanuts and cotton. Nigeria accounted for 42% of all world peanut exports, 27% of palm and 18% of those of cocoa. Currently, agricultural production is not sufficient for the needs of the internal market, with the consequent need to also import basic food products.