Tax & Business Matters - Nigeria

Nigeria Economic Outlook: Seven trends that will shape the Nigerian economy in 2024

PwC Nigeria has released its latest Nigeria Economic Outlook, highlighting the seven key trends that will shape the nation's economic trajectory in 2024. The report projects a marginal decline in inflation and 3.1% rise in GDP, and notes that achieving sustainable growth in 2024 requires balancing ambitious fiscal reforms with effective budget implementation. It also stresses the importance of aligning fiscal and monetary policy to stabilise prices and reach target goals

Based on the report, the seven key trends that will shape the Nigerian economic outlook in 2024 are:

1. Executing fiscal reforms: balancing ambition with budgetary implementation

Nigeria's ambitious revenue targets for 2024 depend heavily on oil prices and reform implementation.

Historically, actual revenue realised has averaged less than 70% of the total budget. Achieving budgeted oil revenue in 2024 will depend on OPEC oil production quota, international oil prices, improved security in the oil-producing regions, and geopolitical factors.

The proposed fiscal reforms have potential to boost non-oil revenue and shape the economy, but success hinges on effective budgeting and execution.

2. Evolving monetary policy stance: finding the right framework and instruments to achieve price stability

CBN has deployed several monetary policy tools and instruments to achieve price stability. Despite the deployment of monetary policy tools, the inflationary pressure has persisted. To succeed, the Central Bank of Nigeria (CBN) must independently pursue inflation goals, emphasising inflation control, and maintaining a stable financial system.

Finding coherence and alignment between fiscal and monetary policy to stabilise prices may enable the achievement of statutory and policy targets in 2024. CBN clarity of policy, transparency of market operations and consistent communication will enhance stability to exchange rate price discovery and market activities.

3. Investors’ will be cautiously optimistic

Foreign portfolio investment flows to the capital market may remain cautious due to residual challenges.

Investors’ outlook may be dampened by downgrades from FTSE Russell and MSCI, specifically due to delays in capital repatriation. Despite this, Moody’s, Fitch, and S&P maintained a speculative credit rating due to drawbacks on reforms and several fiscal challenges that persist.

FDI flows are expected to improve in 2024 driven by notable expansion in the growing ICT and Manufacturing sectors.

4. Undulating pathways to unlocking productivity in the economy

Limited fiscal space for public investment and difficulty attracting private investments constrain the ability to make essential infrastructure improvements.

Infrastructure funding may remain insufficient in 2024. The allocated infrastructure spending budget for 2024 is ₦1.32 trillion, falling short of both the World Bank's suggested 70% infrastructure-to-GDP benchmark (currently at 30%) and the yearly $150 billion requirement specified in the National Integrated Infrastructure Master Plan for 2021- 2025.

Security spending in the past nine years amounted to ₦14.8 trillion. Despite increased spending, insecurity remains a challenge and jeopardises national stability, negatively affects economic activities and undermines investor confidence.

5. Persisting vulnerability to external pressures with potential of ‘shocks’

Geopolitical, economic, environmental, political and trade trends will shape the dynamics and outlook for the Nigerian economy in 2024. If the Russia-Ukraine war intensifies, it could lead to increased global energy and commodity supply risks.

Nigeria may experience increased inflation and food security challenges due to grain import disruptions and high petroleum product cost.

The outcome of elections in several countries globally, especially USA, UK, and Taiwan may shape the dynamics of trade and capital flows around the world in 2024.

6. Consumers may likely adjust better to the evolving policy and macro realities

Consumer spending may be pressured in 2024 due to rising prices of goods and services (increasing food and transportation costs), coupled with lower disposable income. However, private consumption is expected to be marginally better than 2023.

Poverty levels are projected to increase to 38.8% in 2024. Despite the low unemployment rate in the country, low consumer spending and purchasing power remains an issue, especially in the absence of commensurate increase in minimum wage to mitigate the inflationary growth in the economy.

7. Improved sectoral development riding on reforms

GDP may grow marginally by 3.1% in 2024 on the back of sustained policy reforms. The growth projection is driven by ongoing reforms, recovering oil production, and a proactive policy environment.

Possible downside risks to this projection include sustained rise in fiscal debt, elevated interest rates, high inflationary levels, foreign exchange liquidity pressures, high exposure to shocks in the global value chain, poor non-oil revenues and sector development.

In terms of sectoral growth, the main drivers of GDP growth in the last 12 months have been the financial services, information and communication, and utilities sectors. The firm expects these sectors to continue to drive growth in the short term. Further, sectoral growth will be driven by a combination of demand dynamics, investment, government reforms and trade dynamics.

 

Please read the full report here:

Download PwC 2024 strategy& release

FG waives VAT and Customs Duties on gas and gas equipment

In December 2023, the Ministry of Finance (MoF) released a Circular on fiscal incentives for the gas sector. This Circular is in line with the Presidential Gas for Growth Initiative which aims to improve the investment climate in Nigeria and to increase the utilisation and supply of gas in the domestic market. The Circular contains incentives and directives to the Nigerian Customs Service (NCS) and the Federal Inland Revenue Service (FIRS).

Key highlights:

1. The Circular reiterates the Customs Duties exemption in the law applicable on machinery, equipment or spare parts imported into Nigeria for the exploration, processing or power generation through the utilisation of Nigerian gas. Further to this, the Circular lists 41 equipment categories which qualify for this import duty waiver, including CNG and LPG conversion kits, cascades, dispensers; gas washing machines, gas leak detectors, regulators, storage tanks of all sizes, dedicated LPG vehicles and dedicated CNG vehicles.

2. The Circular also directs the FIRS and the NCS to apply a zero percent VAT rate on the following items:

• Feed Gas for all processed gas
• Compressed Natural Gas (CNG)
• Imported Liquefied petroleum gas (LPG)
• LPG and CNG equipment components, conversion and installation services
• All equipment relating to the expansion of CNG, LPG and the Presidential CNG initiative, including conversion kits

Some new exemptions were introduced such as the exemption of imported LPG from VAT, compared to the VAT Modification Order (VMO) 2021 which only exempted locally produced LPG. Also, the circular exempts “feed gas for all processed gas”. This should mean that natural gas is now exempt from VAT.

There may be some questions around the legal basis of the Circular. However, we expect that it would have practical effect because it grants incentives rather than impose new obligations.

Please see the Circular and our TAx Alert below:

Download PwC Tax Alert - FG waives VAT and Customs Duties on gas and gas equipment

Download MoF Circular on VAT exemption

 

 

FIRS postpones commencement of the automated collection of VAT on imported goods purchased through digital platforms

The Federal Inland Revenue Service (FIRS) has postponed its intended commencement of the automated collection of Value Added tax (VAT) on imported goods purchased through digital platforms.

 

 

You may recall that the 2020 Finance Act amended the Value Added Tax (VAT) Act to require non-residents that make taxable supplies of goods and services to Nigerian customers to register and account for VAT on supplies to Nigeria. Following this amendment, the FIRS issued "Guidelines on Simplified Compliance Regime for Value Added Tax (VAT) for Non-Resident Suppliers" on 11 October 2021, with an effective date of 1 January 2022 with respect to supply of services and intangibles, and 1 January 2024 for goods. 

 

The FIRS had initially planned to roll out the regime with respect to supply of goods by non-resident suppliers, by 1 January 2024. However, the FIRS has decided to postpone it, to afford more time to develop a seamless process and collaborate more effectively with key stakeholders - for example the Nigeria Customs Service. Pending any next steps, the FIRS has stated that the existing guidelines for services and intangibles provided by non-resident suppliers, continue to remain in effect. 

 

See PwC Alert on the existing guidelines for the supply of services and intangibles by non-resident suppliers.