The Private Equity and Venture Capital Association of Nigeria (PEVCA), in its midyear review and strategic outlook for 2024, expressed concerns that the recent policies of President Bola Tinubu’s administration may discourage investment into the country.
The report argues that these policies are not well-coordinated and could create an environment that hampers both local and foreign investments.
PEVCA’s analysis indicates that the administration’s policies reflect competing objectives, particularly between short-term revenue generation and the goal of creating a business-friendly environment. This conflict, the report suggests, may serve as a deterrent for investors looking for consistency and predictability in government regulations.
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The report states, “The introduction of policies with competing goals and interests will remain a deterrence for investors. Policies lack consistency and, in some cases, appear to be more of a knee-jerk reaction rather than a well thought out plan. Specifically, a number of short-term revenue generation goals continue to compete with the goal of creating a favorable business environment that attracts investors.”
Short-term Revenue Generation vs. Investment Climate
One of the key critiques from PEVCA is that Tinubu’s administration is prioritizing short-term revenue generation strategies, which could undermine efforts to create a stable and attractive environment for investment. While boosting revenue is crucial, especially given Nigeria’s current economic challenges, the report highlights that these short-term measures often come at the expense of longer-term goals, such as fostering a thriving private sector and attracting foreign direct investment (FDI).
PEVCA notes that these short-term fiscal policies, designed to increase government revenue, conflict with the need for stable, transparent, and investment-friendly policies that encourage the entry and expansion of businesses.
Policies Mitigating Against Investments
Several policies were flagged by PEVCA as harmful to the investment climate. One of the most prominent examples cited is the expatriate levy, which was initially introduced for companies operating in Nigeria but later suspended due to pushback from the business community. The report also referenced the cybersecurity levy as another example of a policy that, while intended to raise revenue, could deter companies from operating in Nigeria due to increased regulatory costs.
According to the report, these policies exemplify a government that does not adequately collaborate with the private sector before implementing reforms. The lack of dialogue and engagement between the government and the business community is seen as a significant factor in the misalignment of policies with investor interests.
Governance and Delays in Appointments
PEVCA also pointed to the ongoing issue of key government agencies lacking leadership due to Tinubu’s decision to dissolve statutory boards across ministries, agencies, and departments in June 2023. The Securities Exchange Commission (SEC) is one such critical institution that remains without a board, leading to a stagnation of economic activities within these regulatory bodies.
According to the report, the absence of leadership in these agencies has created a regulatory vacuum, where key decisions that affect both local businesses and foreign investors are delayed. This has compounded the challenges facing the investment climate, as businesses lack clarity and confidence in the regulatory framework.
Economic Impact of Tinubu’s Reforms
Upon assuming office, President Tinubu implemented significant reforms in sectors like energy and foreign exchange, aiming to revitalize the Nigerian economy. However, these reforms have resulted in unintended ripple effects—notably, a surge in inflation and a rapid devaluation of the naira. As these reforms took effect within the first month of Tinubu’s administration, the shockwaves have contributed to economic instability, which has, in turn, affected business confidence.
To mitigate the fallout from these reforms, the administration has introduced various short-term revenue generation strategies. Among these is the controversial proposal to introduce a windfall tax on foreign exchange revaluation gains by banks, initially set at 50% but later increased to 70% by the National Assembly during deliberation. While this measure aims to generate immediate revenue for the government, economists warn that it risks alienating investors in the financial sector by imposing sudden and significant tax burdens.
In light of these developments, PEVCA’s report suggests that the short-term focus of the Tinubu administration may be at odds with the longer-term goal of establishing Nigeria as a prime destination for investment. The introduction of unpredictable levies and taxes, combined with the absence of leadership in key regulatory bodies, could further erode investor confidence in the country’s economic management, it said.
The association’s outlook highlights the lack of policy consistency as a major deterrent for both local and international investors, who typically seek a stable regulatory environment before committing capital to a market. The ad-hoc nature of many of the government’s recent policies, PEVCA argues, undermines efforts to attract sustainable investment.
Nigeria’s economic challenges, including a declining revenue base, are no doubt prompting the government to seek immediate fiscal solutions. However, PEVCA’s report highlights that these short-term revenue strategies, if pursued at the expense of creating a predictable and investor-friendly environment, could lead to a long-term investment drought.
For the Tinubu administration to regain investor confidence, PEVCA advises a more collaborative approach with the private sector, emphasizing the need for well-considered policies that align revenue generation with the broader goal of promoting investment. Failure to strike this balance, the report warns, may result in diminished foreign investment and stunted economic growth for Nigeria in the years to come.