Investment in Nigeria: basic information on tax and business regulatory issues
Nigeria is a mono-cultural economy, which is largely dependent on oil. The oil and gas sector accounts for about 90% of the country’s foreign exchange earnings, about 22% of its budgetary revenue, and about 10.29% of its real GDP. In terms of contribution to GDP. Nigeria’s economy is composed of three sectors, namely Agriculture, Industries and Services.
The sectors contributed 24.18%, 21.52% and 54.30%, respectively, to the country’s GDP in 2015; and 20.48%, 24.33% and 55.20%, respectively, at the end of Quarter 1 (Q1) 201610.
The Nigerian banking and telecommunications industries (part of the Services sector) have burgeoned over the last decade due to successful reforms of the sectors. The country’s agricultural sector has also witnessed increased growth in recent years due to bold reforms being implemented by the FMARD (Federal Ministry of Agriculture and Rural Development). However, the Industries sector continues to struggle largely due to the infrastructural challenges, regulatory constraints and the high cost of capital in the country.
In 2015, headline inflation11 was in the single-digit region throughout the year, ending the year at 9.6%12. Headline inflation and core inflation13 rates were 15.58% and 15.05%, respectively, as at May 2016. The CBN operates a tight monetary policy to control inflation in Nigeria. The “Monetary Policy Rate (MPR)” was introduced in December 2006 to replace the Minimum Rediscount Rate. The MPR was set at 10 per cent, using the prevailing rate of inflation and the expected inflation rate outcome of 9.0 per cent at that time as a guide, to ensure that interest rates remained positive in real terms. This translated into an upper limit of 13 per cent, which was the Repo rate, and a lower limit of 7 per cent, which was the rate at which the CBN took deposits from banks at the time.
Since the introduction of the MPR, a number of changes have been made to the monetary policy process, and the MPR has been varied several times by the Monetary Policy Committee of the CBN in response to developments in the economy – especially as indicated by inflation rate and exchange rate trends. The MPR was 12% at the end of June 2016.
This publication sets out the basic information on tax and business regulatory issues that new investors need to know when investing in Nigeria. It also provides information about the country, its institutions and infrastructure.
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