Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
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bought many of the 122 state enterprises that were privatised between 1999 and 2012;
several foreign firms are involved in the ongoing sale of state electricity generation and
distribution companies, Nigeria’s biggest privatisation exercise to date.
Debt and equity instruments
There has been remarkable growth in the Nigerian Stock Exchange (NSE) since it was
established as the Lagos Stock Exchange in 1960, the year of Nigeria’s independence. The
bourse now has approximately 5m investors and is the third-largest in Africa by total market
capitalisation, which stands at about US$114bn (including both equity and debt securities).
The NSE trades 196 equities with market capitalisation totalling around US$75bn. Many of the
listed firms are subsidiaries of multinational companies that have been in Nigeria for many
decades, such as Cadbury, Guinness, Nestlé and Unilever. However, by far the biggest company
on the bourse by capitalisation is the indigenous Dangote Cement, with market capitalisation
of around US$21bn. The most actively traded equities on the NSE tend to be financial sector
shares.
Nigeria’s debt market is dominated by federal government securities, which account for about
80% of the roughly US$38bn total capitalisation of the bond market. There are 57 bonds
traded on the exchange, including about 18 corporate bonds and a local-currency bond issued
by the International Finance Corporation, the World Bank’s private-sector arm, in February
2013 to support the development of Nigeria’s capital market.
Policy initiatives to attract capital flows
Few legal restrictions are placed on foreign investors. The government is keen to boost
investment in Nigeria and offers incentives to investors, particularly in areas deemed crucial to
the development of the economy. Fiscal incentives are available to companies that are granted
pioneer status, including exemption from income tax for up to five years, tax free dividends
during the holiday period and investment allowances.
Companies operating in preferred industries can also benefit import duty exemptions. There is
a 20% tax credit for five years for firms that attain set minimum levels of local raw sourcing
and utilisation. Specific sectorial incentives apply to companies in manufacturing, agriculture,
solid minerals, petroleum, gas, telecommunications, electricity, tourism and transport. Nigeria
also operates a number of export processing zones in different parts of the country in which
investors enjoy generous tax exemption.
Practical reforms in Nigeria: bolstering investor confidence by strengthening the
financial system
Following the 2008-09 banking crisis, Nigeria’s financial authorities issued a raft of new
guidelines and regulations to strengthen the country’s financial system and bolster investor
confidence. Among the changes were the following: