Assessing Nigeria’s business competitiveness for private sector participation, By Dipo Baruwa

Over the past three decades, Nigeria has anchored its socio-economic development strategy on the active participation of the private sector across virtually all sectors of the economy. This policy orientation has been shaped by two key factors: the global trend toward business environment liberalisation, promoted by the Bretton Woods Institutions, and the recognised inefficiencies of the public sector in managing commercially oriented enterprises. As a result, the government has repositioned itself as a business enabler, focusing on the provision of both physical and institutional infrastructure to support and facilitate private enterprise.

Consequently, Nigeria’s business landscape has evolved from a state-dominated model to a regulated, private-sector-led environment. This transition has been supported by the establishment of specialised institutions tasked with promoting, facilitating, and regulating industries in line with global best practices and Nigeria’s international commitments.

While the private sector has gradually assumed ownership and leadership in critical industries, and the government has made efforts to fulfil its role as an enabler, Nigeria’s economic development remains unsteady, characterised by significant deficiencies in attracting and retaining private investment. This instability is driven by persistent policy and political inconsistencies, lack of rule of law, vulnerability to the volatility in international commodity prices, and rapid population growth. These factors, independently and collectively, have triggered significant structural shifts across both the social and economic landscapes, alongside a rapid, often unstructured urbanisation, further complicating the pursuit of sustainable development.

In the wake of global business liberalisation, commonly referred to as globalisation, Nigeria emerged from the oil boom of the 1970s with a relatively diversified economy. The country boasted a thriving manufacturing sector, a strong agricultural base, a vibrant educational system, and a nascent but growing, responsive financial industry. At the time, the population stood at approximately 70 million.

Under the National Industrial Rolling Plans of the 1970s, Nigeria pursued a structured and coordinated approach to development. With consistent implementation, the economy experienced relative stability and was considered one of the strongest emerging economies globally. There was a clear commitment to driving industrialisation through agricultural strength, supported by institutionalised strategies aimed at fostering industrial linkages, enhancing international market access, and improving domestic productivity. During this period, the government seemingly was stronger and more efficient in its enabler role than a business operator.

Global Liberalisation and Nigeria’s Competitiveness

Political and Administrative Issues

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While the liberalisation of the business environment was promoted as a strategic shift to enhance the government’s role as an enabler, at least in Nigeria, recent realities suggest a different outcome. What was once a relatively consistent socio-economic policy framework, driven by national objectives and implemented with limited political interference, has increasingly been subject to the whims and idiosyncrasies of successive administrations. This shift has undermined long-term planning and continuity, weakening the foundation needed for sustained development.

As the world became increasingly globalised, the private sector has grown to be more competitive and dynamic, placing greater demands on government and its institutions to be proactive, adaptive, and system oriented. Unfortunately, this has not been the case in Nigeria. The federal structure has struggled to function as a cohesive federation, with each upper layer often overshadowing the lower one, creating an uncooperative and heavily imbalanced power dynamic. This has hindered the development of a layered, synchronised institutional framework capable of effectively supporting private sector growth and economic development.

A clear example of this dysfunction is the country’s taxation system. Despite the existence of the Joint Tax Board (JTB), which is mandated to harmonise tax administration across all tiers of government and eliminate the multiplicity of taxes, businesses continue to face overlapping tax regimes, inconsistent enforcement, and burdensome compliance requirements. For instance, the Manufacturers Association of Nigeria (MAN) and the Lagos Chamber of Commerce and Industry (LCCI) have consistently raised alarms about arbitrary levies imposed by state and local governments, as well as the harassment of businesses by multiple tax agents. Recent reports by PwC and the Nigeria Economic Summit Group (NESG) list over 60 different taxes and levies, many duplicative or poorly defined. Despite reforms under the Finance Acts and efforts by the JTB, there is no uniform national tax code in practice, and enforcement remains politicised and unpredictable. These inefficiencies have not only discouraged investment but have also eroded trust in the state’s ability to manage a modern, enabling business environment. This sentiment is echoed in KPMG Nigeria’s 2023 CFO Outlook Survey, where finance leaders cited tax and regulatory challenges as key factors dampening Nigeria’s investment attractiveness and economic outlook.

This brings to the fore the ongoing tax reform and its central policy thrust of “taxing the fruit and not the tree.” More than a mere slogan, I would say. This represents a strategic shift aimed at reshaping the tax framework, placing a premium on taxing high earners while protecting lower-income groups. At its core, the reform seeks to promote equity, redistribute wealth, and foster an enabling environment that supports the trickle-down effects expected in a capitalist system. However, for the country to reap the long-term benefits of this approach, the policy must be institutionalised across all tiers of government, and the underlying principles of capitalism must be consistently embraced by successive administrations as part of a broader structural transformation in the country’s political and economic governance.

As Nigeria continues to position itself as a competitive investment destination, the provision of fiscal incentives remains a cornerstone of its value proposition to investors. However, recent evidence suggests that such incentives are no longer the primary drivers of investment decisions. Instead, investors are increasingly influenced by the overall tax burden and, more importantly, the ease and predictability of tax administration. The World Bank’s Doing Business 2020 report noted that tax holidays and sector-specific VAT exemptions have had limited impact in the absence of improvements in tax compliance and regulatory efficiency. KPMG’s 2023 CEO Outlook similarly observed that investors now prioritise regulatory certainty and administrative simplicity over tax breaks. PwC Nigeria’s 2022 Tax and Regulatory Outlook further highlighted persistent challenges, such as overlapping tax jurisdictions, complex CIT procedures, and delays in VAT refunds, which continue to erode investor confidence. While fiscal incentives may offer short-term benefits, they are often outweighed by systemic inefficiencies. I shall look at incentivising investments in the Nigerian context in the next article.

Physical Infrastructure

The issues outlined above underscore a major non-physical infrastructure challenge that continues to undermine Nigeria’s ability to attract, retain, and grow private capital: the political and administrative environment. However, physical infrastructure, particularly energy and intermodal transportation connectivity, remains an equally critical constraint.

Nigeria is abundantly endowed with diverse energy resources, ranging from fossil fuels to renewable sources. With vast reserves of crude oil and natural gas, numerous hydroelectric dam sites, and high solar intensity (with average daily solar irradiation levels ranging between 3.5 and 7.0 kWh/m²/day depending on the region), it is counterintuitive that the country continues to struggle with energy supply. In reality, Nigeria’s energy sector should not only meet domestic needs but also serve as a significant source of revenue and a key driver of industrial competitiveness.

For instance, in 2023, Mozambique, with a population of approximately 33.9 million and a GDP of US$20.95 billion, earned an estimated US$458.44 million from electricity exports to South Africa alone. This revenue came from selling 9,079 GWh of electricity, representing nearly 80 per cent of Mozambique’s total electricity exports and around 2.19 per cent of its foreign earnings that year. By contrast, Nigeria, despite its larger population and economy, exported electricity worth about US$225 million between January and September 2024 to neighbouring countries like Niger, Benin, and Togo under regional agreements. While these exports are guided by diplomatic arrangements and capped at no more than 6 per cent of national grid output to safeguard domestic supply, the contrast remains stark. Mozambique has leveraged electricity exports as a strategic revenue stream, while Nigeria continues to grapple with insufficient domestic supply and payment defaults from its electricity trading partners.

With over 16,000 MW of installed electricity-generating capacity, Nigeria only generates about 4,000 MW, leaving over 20,000 MW in unmet daily demand. This reflects a system with high installed capacity but very low available capacity. Further analysis reveals underperforming public thermal plants and completely idle National Integrated Power Project (NIPP) sites.

Several factors contribute to this energy gap, with the primary one being the insufficient capacity of the national transmission line. The national transmission network spans just over 20,000 km (combined 330kV and 132kV) with a nominal capacity of 8,100 MW, though it reliably wheels only between 5,500 and 6,000 MW. This is grossly inadequate for a country aspiring to rank among the world’s top 20 economies by 2050 and seeking to attract a minimum of US$80 billion annually in private capital, representing 80 per cent of the US$100 billion annual investment estimated in Agenda 2050 for sustainable socio-economic development.

When Nigeria’s energy sector was deregulated, many expected it to mirror the transformative success of the telecommunications industry. However, this promise remains largely unfulfilled. Despite recent investments and upgrades, Nigeria’s electricity sector continues to face systemic challenges that impede reliable power supply. These challenges are compounded by a weak regulatory framework, excessive government interference in the administration of the DisCos, insufficient investment capacity among DisCo operators, underinvestment in transmission infrastructure, and the high indebtedness of end-users. A notable example of such interference occurred in 2022 when the Bureau of Public Enterprises (BPE) and the Nigerian Electricity Regulatory Commission (NERC) intervened in the management of several DisCos – including Benin, Kaduna, and Kano – after core investors defaulted on loan repayments. In collaboration with creditor banks, notably Fidelity Bank and AFREXIM Bank, the government unilaterally appointed interim management teams, bypassing existing boards. While framed as a financial restructuring effort, the move raised serious concerns about regulatory overreach, affecting investor confidence and the integrity of Nigeria’s power sector reforms.

To unlock the sector’s full potential, Nigeria must undertake concerted and coordinated efforts to modernise its energy infrastructure, enhance operational efficiencies, and implement robust, independent regulatory frameworks. Only through sustained reforms and strategic capital investment can Nigeria achieve its energy security goals and unlock the full economic potential of its vast energy resources to drive its industrial aspiration.

Nigeria’s intermodal transportation system, comprising inland waterways, road and rail networks, and air transport, holds immense potential to transform the country’s economic landscape. Historically, the federal government has been the principal investor in these infrastructures. Although the Infrastructure Concession Regulatory Commission (ICRC) has developed various models to encourage private sector involvement, inconsistent policies and weak institutional understanding have deterred significant private investment.

While each mode holds transformative potential, their current underperformance undermines the country’s economic ambitions. A fully integrated and efficient transport system would unlock regional trade, reduce logistics costs, attract investment, and drive inclusive growth across agriculture, industry, and services.

The country boasts over 8,600 kilometres of inland waterways centred on the Niger and Benue Rivers, one of Africa’s most expansive systems. Yet this vast resource remains underutilised due to inadequate infrastructure, limited investment, and poor management. These waterways, which link northern and southern regions, offer a low-cost, energy-efficient alternative for moving cargo and passengers, with the potential to ease road congestion and improve connectivity.

Some states, most notably Lagos, have begun expanding water transport, but significant investment is still needed in safety, reliability, and modern terminal facilities. A revitalised inland waterway system could unlock economic opportunities, boost tourism, create jobs, and expand access to underserved areas.

Road and rail remain the backbone of Nigeria’s domestic transport network. The country’s 4,174-kilometre rail system, once a vital link between ports and industrial zones, has suffered from years of neglect. Meanwhile, Nigeria’s 195,000-kilometre road network, only 31 per cent of which is paved, faces chronic underinvestment and poor maintenance, significantly hampering logistics efficiency. While recent efforts to revitalise these sectors are commendable, they must be sustained and strategically focused on developing trade corridors and connecting agricultural hubs.

Air transport, particularly for cargo, remains grossly underdeveloped in Nigeria. Despite a network of airports, inadequate infrastructure hinders the efficient handling of high-value and time-sensitive exports, contributing to frequent export rejects and limiting trade competitiveness. Ongoing aerotropolis and cargo hub projects across Lagos, Ogun, Abuja, Port Harcourt, and Lafia are critical to bridging this gap and positioning Nigeria as a leading regional air freight and logistics hub.

Access to Capital

Access to affordable finance remains a major constraint to investment in developing countries, including Nigeria. Although Nigeria’s financial sector has significantly evolved over the past decade – through capitalisation, mergers, and acquisitions – it remains largely private-sector-led, with the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) providing regulatory oversight and insurance.

Despite Nigeria’s industrial policies recognising the central role of finance in driving economic development through cost-effective lending, banks continue to prioritise short-term, quick-return transactions. This preference persists even as the sector posts impressive profits and adopts advanced technologies.

Several factors contribute to the persistently high cost of funds, including weak credit infrastructure and the absence of a robust, centralised identification system — leading to a high incidence of non-performing loans. The implementation of the National Collateral Registry and consolidation of national identity systems are therefore critical to strengthening credit risk assessment and expanding access to finance.

With the Monetary Policy Rate (MPR) at 27.5 per cent as of May 2025, Development Financial Institutions (DFIs) such as the Bank of Industry (BOI) and Bank of Agriculture (BOA) have become the most viable sources of medium- to long-term capital. Their continued relevance underscores the enabling capacity of the state to support long-term investments.

This credit market gap has left vital sectors, like agriculture, manufacturing, and infrastructure, consistently underfunded, stifling inclusive growth and structural transformation. It marks a departure from the early post-independence era when financial priorities were more closely aligned with long-term development goals.

While Nigeria’s financial sector has grown more sophisticated, its bias towards short-termism remains a major bottleneck to broader economic development. Addressing this requires not only stronger regulation and public financing mechanisms but also innovative financial instruments and risk mitigation tools tailored to the needs of the real sector.

Conclusion

Despite Nigeria’s strides in liberalising its economy and encouraging private sector participation, systemic challenges, including policy inconsistency, inadequate infrastructure, and a financial sector skewed toward short-term gains, continue to hinder business competitiveness. Although notable institutional and sectoral reforms have been achieved, the broader enabling environment remains fragmented and unpredictable.

To realise its economic aspirations and effectively compete in the global marketplace, the government and its agencies must be restructured to move beyond merely promoting private enterprise and become consistently proactive enablers. This demands a deliberate and sustained commitment to building an ecosystem where policy coherence, institutional alignment, regulatory transparency, and infrastructure development are harmonised across all levels of government. Enabling the private sector is not simply about stepping aside; it involves actively creating the conditions under which private capital, innovation, and enterprise can thrive sustainably.

Nigeria’s global competitiveness hinges on urgent, coordinated reforms across three foundational pillars: a stable, forward-looking political and institutional framework; modern, integrated infrastructure; and a financial system that is inclusive, innovative, and supportive of long-term investment. Reimagining and strengthening the state’s enabling role in these areas is essential, not only to unlock private capital and harness the country’s demographic advantage, but also to drive inclusive, resilient, transformative, and sustainable development.

Oladipupo Baruwa is a business climate development analyst.