Ogbe Armstrong
Posted on: Mon, 14 Jan 2008
Since its return to democratic rule in 1999 many investors started to return to Nigeria, eager to exploit the multitude of opportunities that the country presents. Ogbe Armstrong looks at the change in Nigeria's economic climate over the past years and points out the government's strategies to lure investment in the various non-oil sectors.
Economic reform
On assumption of office in May 1999, the democratic government of former Nigerian President, Olusegun Obasanjo, resolved that for the political transition that had been accomplished to be meaningful, it must translate into the economic transformation of the nation.
Therefore, it was imperative to immediately create an enabling environment for investment to thrive, and launch the country to the level of prosperity required to deliver democratic dividends to the citizenry.
The federal government has already repealed two key laws that were considered as constraints to foreign investment inflow into the country. They are the Nigerian Enterprises Promotion Act 1972 and 1978, as well as, the Foreign Exchange Act of 1962.
It therefore took steps to strengthen the Nigerian Investment Promotion Commission (NIPC) to drive the programme of consciously marketing Nigeria among international investors, Nigerians in the Diaspora, while encouraging Nigerians at home to invest in the economy.
The NIPC under the previous administration of Sani Abacha could not achieve much owing to the pariah status of the nation. By the time the Olusegun Obasanjo government was inaugurated in May 1999, Nigeria had been subjected to an unbroken 15-year military rule; had assumed notoriety for massive corruption; a near-total collapse of infrastructure; breakdown of law and order; and arbitrariness in conduct of public affairs.
Worse still, the economic climate was characterized by inconsistency of policy formulation and implementation, multiple taxation and a crop of civil servants that had no sense of duty and would frustrate any would-be investor, local or foreign.
"Summation of these gives a graphic and frightening picture of the perception of the international business and investing community in Nigeria as at 1999", the Executive Secretary of the NIPC, Engr. Bello Mustafa, told a gathering of investment stakeholders at a conference in Abuja, in 2004.
The government gave a guarantee against nationalisation or expropriation by the administration. These are in addition to various forms of tax concessions to foreign investors.
The NIPC is to proactively position and promote Nigeria as the preferred investment haven with the objective to coordinate, monitor, encourage and provide necessary assistance and guidance for the establishment and operation of enterprises in Nigeria.
A one-stop desk has been created by the NIPC to fast-track business registration, with the organisation promising to make registration of new businesses "as easy as would even surprise the promoters". The desk has officials from all approving agencies. NIPC wants business registration achieved within 24 hours.
With the repeal of the Nigerian Enterprises Promotion Act 1972 and 1978, as well as, the Foreign Exchange Act 1962 foreigners can have 100% ownership of their businesses, and repatriate their capital at will.
Incentives
In addition to removing these restrictions, the federal government has put in place, an array of incentives. They include various forms of tax relief such as the Pioneer Status, capital allowances, relaxed immigration requirements for companies that require a expatriate quota, graduated tax concessions for labour intensive mode of production (the larger the labour force, the higher the tax concession), and a tax credit of 20% for five years to industries that attain the minimum level of local raw material sourcing and utilization. The minimum levels of local materials sourcing and utilization by sectors are: agro-allied 70%, engineering 60%, chemicals 60%, and petrochemicals 70%.
Only recently the NIPC announced that over 200 countries have been granted the Pioneer Status. Beneficiaries would enjoy a five-year tax holiday, meaning that they would not pay Companies Income Tax and the Value Added Tax (VAT) for five years.
According to Chief Executive Officer of the NIPC, "the federal government has expanded the list of activities and products on which industrialists could enjoy the Pioneer Status to include information and communications technology, tourism, real estate, and utility services".
Case study: Obajan Cement Company
It is common knowledge that the nation has the potential to earn more funds, apart from oil, but the opportunities remain largely untapped owing to neglect of the sectors.
The Obajan Cement Company (OCC) is an example of the new lease of life for the growth of Nigeria's non-oil sector of the economy.
The project which commenced in 2002 is a success story of several partnerships between local and foreign investors in Nigeria. Initiated by business mogul, Mr Aliko Dangote, the US$1-billion cement company has been completed and now feeds the Nigerian market. The bulk of financing of the investment in OCC was provided by the International Finance Corporation (IFC) and a syndicate of Nigerian banks.
OCC is described as the single largest cement plant in Africa with a capacity to produce close to 7.5-million tons of cement per annum. It commenced production in May and directly employs over a 1 000 people.
The plant centrally located in Obajana, a small village in Kogi State. It is only a three-hour drive from Abuja, Nigeria's capital, which is the highest cement market in the country being the youngest and fastest growing city in Nigeria.
The Managing Director, Mr DVG Edwin, explained the rationale behind establishing the company. "The Dangote Group decided to venture into full-fledged manufacturing of cement and invested in the Benue Cement Company (BCC) in the year 2000. In view of delay in the take-over of the BCC, the Dangote Group decided to go into a greenfield cement project in the year 2002. We are proud to highlight that, besides gypsum, all the required raw materials for producing the cement is readily available in our Obajana Mines, in one location."
The cement company will save Nigeria about US$385-million in foreign exchange annually from cement imports. It will also substantially reduce gas flaring in the country and promote its use as a major source of fuel for industries. OCC will consume 68-million standard cubic feet of gas daily."
The company receives gas from the gas manifold at Ajaokuta Steel Complex.
There are also plans to take the company to the Nigerian Stock Exchange thereby making it available for both Nigerian and foreign investors to buy into it.
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