Nigeria’s new tax credit regime promises long-term incentives for investors, but economists warn it won’t be a silver bullet for attracting foreign direct investment without fixing structural bottlenecks like infrastructure, security, and policy credibility.
Nigeria’s sweeping tax reforms sweetens the investment case for the country but it’s only a piece of the puzzle.
The gains from Nigeria’s latest tax credits aimed at attracting investors may prove limited unless the government tackles deeper structural challenges, according to economists familiar with the matter.
“Tax credit is just one component, but not the major factor,” one economist told BusinessDay when asked if the new incentives would be a game changer for FDI.
But as far as tax regimes, aimed at attracting investments, go, Nigeria has upped the ante.
In new laws approved by President Bola Tinubu last month, Nigeria now offers a 5 percent tax credit on investments for up to 20 years, depending on the sector.
What global research shows and lessons from other countries
According to a 2024 systematic review by Mohammad Shaiful and Ahmed Beloucif, “Many countries around the world are opening their economy to foreign investors, restructuring and liberalising their FDI regimes, and offering various fiscal and non‑fiscal incentives to attract the optimal level of FDI.”
Their study further notes that market size, trade openness, infrastructure quality, labour cost, macroeconomic stability and corporate taxation consistently shape foreign investment decisions.
In countries such as Malaysia, India, and Australia, corporate tax rates are a significant determinant of FDI. Other factors, however, also play critical roles, including the size of the market, trade openness, interest rates, and the overall investment climate.
Before now, in Nigeria, factors such as human capital, infrastructure development, inflation, and energy consumption have been identified as significant drivers of FDI. According to Nigerian economist Panshak Yohanna, data from 1981 to 2010 show that these factors had a strong influence on the level of FDI during that period.
Exchange rate stability and the role of FPI
Many economists also see exchange rate stability as a prerequisite for attracting FDI. They argue that Nigeria’s recent foreign exchange reforms, described as a “necessary shock”, have laid the foundation for future stability. “Removal of historic FX, multiple FX rates, which foregone premiums up to 65–70 percent, was historically bold,” says Tayo Aduloju, CEO of the Nigerian Economic Summit Group (NESG).
As of the first quarter (Q1) of 2025, FDI and Foreign Portfolio Investment (FPI) contributed $11.41 billion to Nigeria’s foreign exchange market, a 53.84 per cent increase compared with the corresponding quarter in 2024. Christian Ebeke, IMF Resident Representative in Nigeria, attributes the surge to stability in the FX market, “The country has received so far an enormous amount of Foreign Portfolio Investment (FPI), and thanks to the stability that Nigeria is now enjoying, what we hope to see is this conversion from FPI to Foreign Direct Investment (FDI).”
Such a transition, he notes, would provide the productive capital Nigeria needs to power long‑term growth.
Building the foundations for sustainable FDI
However, such a transformation will not happen overnight. Economists have argued that FPI is often a precondition for attracting FDI, but trust and transparency must first be established. For Nigeria, true stability, as itemised by Tayo Aduloju, requires a type of growth that is deliberate, inclusive and multidimensional.
He identifies security, diversification, productivity, and technology as the four critical levers of sustainable growth. Security, in his view, must go beyond policing and include energy and food security, key to stabilising industries and reducing the cost of living. Diversification, particularly of non-oil exports, is equally urgent as Nigeria seeks to compete under the African Continental Free Trade Area. On productivity, Aduloju stresses the need to put more Nigerians to work through a clear jobs plan jointly developed by the public and private sectors. And in an increasingly digital world, he argues that technology, especially broadband access, must be scaled rapidly to drive financial inclusion and economic competitiveness.
Aduloju warns that social investments alone are not enough. “At scale, you can’t use social investments to solve scale problems,” he said. For Nigeria to move forward, it must channel investments into sectors that create jobs, raise incomes, and expand economic opportunities, especially for its young and growing population.
Tax credit is only one piece of the puzzle
Just as this article began, tax credit is only one of the components of an effective FDI strategy. Others include the broader issues of sustained growth, productivity, investment in human capital and security at all levels.
Given the experience of other countries, Nigeria’s tax credit incentives take it a step closer to actualising its FDI ambitions, but the road ahead still demands deliberate implementation of the new tax law, structural stability and a holistic approach to economic growth.
