‘Incentives necessary for stronger investment inflow’

incentives necessary for stronger investment inflow

By Merit Ibe

Incentives are becoming  increasingly recognised globally as most countries of the world irrespective of their stages of development now employ variety of incentives in pursuing their economic goals.

Incentives are often seen as a way to encourage economic development as they are efforts at providing conducive environment for foreign direct investment (FDI) inflow, protecting existing investments from unfair competition.

They are measurable economic advantages that governments provide to specific enterprises or groups of enterprises, with the goal of steering investment into preferred sectors or regions or for influencing the character of any given investments; for improvement in key sectors of the economy including manufacturing, agriculture, oil and gas, telecommunications, and power, governments deploy incentives for growth of the economy.

In light of Nigeria’s efforts at providing conducive environment for FDI inflow, protect the existing investments from unfair competition, stimulate the expansion of domestic production capacity and growth of industries, the Federal Government has continued to provide incentives to attract both local and foreign direct investments into various sectors of the economy. These are mainly fiscal (tax/non-tax) and regulatory.

Fiscal benefits are viewed as tax concessions or non-fiscal benefits in the form of grants, loans or rebates to support business development or enhance competitiveness.

Fiscal incentives have become an important element of economic policy stimulation used in most countries, especially in developing economies to attract domestic and foreign investment.

According to the United Nations Conference on Trade and Development (UNCTAD, 2000), fiscal incentives are preferred by developing countries because they serve as measures for reducing the burden on investment undertakings, and a means to induce foreign investors to invest in specific sectors or locations in an economy.

Incentive for investment is associated with lots of benefits if allowed to operate. Some of the benefits that are derivable from a successful incentive regime include, among others, offering incentives to boost those sectors that are strategically crucial for promoting export, generating employment, developing skill and adding value to domestic activities.

For the manufacturing Sector, a number of fiscal incentives have been mapped out by government to stimulate the growth in the manufacturing sub-sector and reposition it as the engine of growth in the economy. The goal is to achieve both social and economic benefits, among which increased investment, industrialisation, job creation, value addition, local content development etc.

Stakeholders advise that  Incentives monitoring structure (outfit) should be put in place to monitor and evaluate all incentive programmes with a view to modify and reforms those that are ineffective.

These special incentives in addition to infrastructural development and security of live and property have significant influence on investor’s decision to invest in a given region.

Similarly, investment by government by providing efficient physical infrastructural facilities improves the investment climate and cost of doing business .

In order to attract foreign investment to Nigeria, the business environment should be addressed to reduce cost of doing business. The business environment is currently associated with poor physical infrastructure, security challenges and weak institution.

Consequently, it would be difficult to attract investors if these infrastructural challenges are not addressed.

Executive Secretary the Nigeria Investment Promotion Commission (NIPC),  Yewande Sadiku, emphasising the love for incentives by investors noted that incentives are good, adding the more incentives you give , the more investors embrace them.

To attract more investment are necessary, everyone likes incentives. The more incentives you give, the more investors embrace them. “Before I took up this position, I’ve  always thought the best incentives was the profit potential , which is driven by a number of things like the size of the market, the ease and the capacity of the business and ability to deliver what the market wants, but that still remains. There are a number of sectors in the country where government does not have incentives, but those sectors have grown because of the share entrepreneurial  spirit of Nigerians.

‘The tech-enabled  ecosystem is one, the entertainment sector is another. So, it is true that incentives are needed and when people think of incentives, they think of financial incentives. But we can also have regulatory incentives, which effectively reduce the red tape. Government can  give fiscal incentives, which gives a sort of tax breaks.

She, however, explained that  government  gives incentives that it can afford to give.

“ But the incentive that we give needs to the one that govt can afford to give . I think the regulatory incentives are useful lever that we may want to consider leveraging  more but because of the reality of govt financial state and the impact of COVID -19, some financial and fiscal incentives may not be as realistic at this time as they may have been at other times. But certainly, we can leverage on regulatory incentives. We also believe in NIPC that we need a more data driven approach to incentives creation, so we are in the process of better understanding of incentives and which incentive will have the biggest leverage. Incentives should help  for instance to drive investment to economically disadvantaged areas in Nigeria because that would have a material and not just socio economic effect. 

For Chidi Ajaegbu, CEO, Heritage Capital Markets Ltd, incentives are good to encourage investment. There are  incentives for people coming up with original ideas like the Pioneer Status Incentive Act. It’s an incentive governed by the Industrial Development ( Income Tax Relief) Act, Cap 17 Laws of the Federation of Nigeria, It’s one of the available tax incentives in Nigeria aimed at attracting investment into critical sectors of the Nigerian economy.

  I’m not sure a lot of people are taking advantage of the provision of the act.

The Bank  of Industry (BoI) also has funds for startups, SMEs, and large enterprises, Youth Entrepreneurship Support Program and   scheme in form of grants and loans in single digit for companies generating  employment  and selling forex.

In all of this, the key incentives are basically power and security.

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