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Navigating Nigeria's economic landscape
Tax reforms, labour challenges, and infrastructure developments shaping the nation's future
Samuel Okocha
November 11, 2024
Welcome to this Monday's edition of 234Digest, where we delve into the intricate tapestry of Nigeria's economic and business landscape. Today's dispatch serves a dual purpose: it not only captures the pulse of the nation's current affairs but also compensates for our missed Sunday deep dive.
As we navigate through the complexities of Nigeria's economic resurgence, we find ourselves at a critical moment. The unused food import tariff moratorium, despite soaring inflation, paints a picture of a nation grappling with the delicate balance between protecting local producers and alleviating the cost-of-living crisis. This paradox is further accentuated by the ongoing exodus of oil majors, a trend that could reshape the backbone of our economy.
In the realm of fiscal policy, the proposed tax reforms promise a potential doubling of government revenue. However, as with any significant change, this comes with its own set of challenges and opposition. The power sector, long a thorn in the side of Nigeria's development, sees a glimmer of hope with Lagos' ambitious plans for new power plants.
These developments, along with the human rights commission's findings on military conduct, form a mosaic of a nation in transition. As we unpack these stories, we aim to provide you with not just information, but insights that contextualize Nigeria's position in the global economic landscape.
Let's dive in.
Word for word:
"If we are moving from 9% to 18%, that means we are doubling it."
Today’s briefs
Nigeria's proposed tax law changes could potentially double government revenue as a share of GDP within two to three years, according to Taiwo Oyedele, head of the government's tax reform committee. The reforms, which include centralizing tax collection and simplifying the process, aim to curb debt service costs that consumed nearly all government revenue in 2023. However, state governors oppose the proposals, fearing a reduction in their powers and revenues.
Shifting focus to the food sector, Nigeria has failed to take advantage of a six-month duty-free window for importing key food items, despite facing a severe cost-of-living crisis. The initiative, announced by President Bola Tinubu in July, was intended to ease food inflation, which had topped 40% annually. However, senior officials claim the moratorium wasn't embraced to avoid hurting local producers. The duty-free window is unlikely to be renewed due to slightly eased price pressures and optimism about domestic harvests.
In the energy sector, Nigerian regulators have approved the sales of units belonging to Eni SpA and Equinor ASA, marking another step in the exodus of oil majors from the country. Oando will acquire Eni's Nigerian Agip Oil Company Ltd, while Project Odinmim Investments Ltd will take over Equinor's assets. The deals, delayed for months due to due diligence, are set to be signed in the coming days. Similar divestments by Shell Plc and Exxon Mobil Corp are in various stages of finalization.
This shift follows a decade-long trend of international oil companies (IOCs) divesting from onshore and shallow water blocks—a challenging operating environment, where infrastructure damage from crude theft is a regular occurrence—to domestic producers. The exit of these major players highlights the persistent security and operational difficulties in these areas, while opening opportunities for local companies to step in and manage these assets.
Meanwhile, the Nigeria Labour Congress (NLC) has given state governments until December 1, 2024, to implement the new minimum wage. The NLC also accused fuel marketers of inflating petrol prices, claiming the pump price is significantly higher than the actual market value. This, they argue, is contributing to the exploitation of Nigerians amid severe economic hardships, further compounded by government policies pushing many into destitution. The NLC called for an urgent reassessment of these "anti-people" policies to alleviate the burden on citizens. In July 2024, President Bola Tinubu approved an increase in the minimum wage for Nigerian workers from N30,000 ($18) to N70,000 ($42). However, the implementation across states has been gradual, with some still yet to adopt the new minimum wage
Turning to human rights, an investigation by Nigeria's human rights commission has found no evidence to support allegations that the Nigerian military deliberately attacked women and children or conducted secret abortions in its fight against Islamist insurgents in the northeast. The 18-month investigation interviewed 199 witnesses, including military officials and former militants.
Finally, in infrastructure news, Lagos, Nigeria's commercial capital, has invited bids for the construction of up to 4,000 megawatts of gas-fired power plants to address the national grid shortfall. The state, which requires 6,000 MW but receives only 2,000 MW at most, has allocated four hubs for power station construction under its Clean Lagos Electricity Market plan. This initiative follows President Bola's decision to allow state governments to generate and distribute their own power.
Deeper dive: Nigeria bets on tax reform
Nigeria is betting big on tax reform to reshape its economy, but the plan faces significant hurdles.
Why it matters: The success or failure of this reform could determine Nigeria's economic trajectory and provide lessons for other developing economies.
The big picture: President Bola Tinubu's administration aims to double government revenue as a share of GDP within three years, a move that could transform Nigeria's fiscal position.
The plan would consolidate over 60 taxes into just six.
It includes doubling VAT to 15% over six years and reducing corporate tax to 25%.
Personal income tax for high earners would increase to 25%.
By the numbers:
Current tax-to-GDP ratio: 9%
Target tax-to-GDP ratio: 18%
Timeframe: 2-3 years
Yes, but: Nigeria's large informal sector and weak tax compliance pose significant challenges.
Between the lines: State governors oppose the reforms, fearing loss of autonomy and revenue. This resistance highlights the tension in Nigeria's federal system. Nigeria's debt service costs consumed nearly all government revenue in 2023, underscoring the urgent need for fiscal reform.
What to watch: Implementation will be key. Nigeria's track record with policy execution is mixed, and overcoming entrenched interests will be crucial.
The bottom line: This tax reform represents more than just fiscal policy — it's a fundamental reimagining of the social contract between Nigeria and its citizens.
Quote of the day:
"The only limit to our realization of tomorrow is our doubts of today." - Franklin D. Roosevelt
Photo of the day
A POS operator counts cash at his makeshift roadside shed in Abuja, surrounded by the tools of his trade – a basic mobile phone, power bank, and POS machine. This image captures the essence of Nigeria's informal economy, showcasing the resilience and innovation of everyday citizens. In the face of economic challenges, these micro-entrepreneurs form the backbone of financial services in many communities, bridging the gap between the banked and unbanked populations. This scene, common across the country, highlights the critical role of grassroots actors in sustaining and propelling the Nigeria's dynamic economy forward. Photographer: Samuel Okocha/234Digest
And that's a wrap for today. Thank you for joining me for this edition of 234Digest. As we continue to navigate Nigeria's complex and dynamic economic landscape, your engagement and feedback remain invaluable. Remember, our newsletter now comes to you three times a week. Until next time, stay well and keep thriving.