Nigeria business environment worsens as policy gaps in tax, power, oil laws drive rising costs

Policy gaps in Tax Act, PIA, Electricity Law raise investor concerns, threaten Nigeria business environment recovery

Nigeria business environment is coming under renewed pressure as policy gaps across key economic laws begin to drive up costs, create uncertainty, and weaken investor confidence.

From foreign exchange losses to rising compliance burdens and unreliable power supply, companies are navigating a system that—despite recent reforms—is still struggling to deliver a truly enabling business environment.

Now, the Nigeria Economic Summit Group (NESG) is warning that unless urgent amendments are made to critical laws, the situation could worsen—undermining Nigeria’s economic recovery efforts.

A Reform Agenda Under Pressure

At the centre of the debate are three major laws that define Nigeria’s current economic reform framework:

• The Nigeria Tax Act
• The Petroleum Industry Act (PIA)
• The Electricity Act

These laws were designed to modernise fiscal policy, attract investment, and improve governance across key sectors.

But according to NESG, cracks are already showing.

Rather than simplifying the business landscape, inconsistencies across these laws are creating friction—forcing companies to deal with overlapping regulations, unclear compliance requirements, and rising operational costs.

Tax Law Gaps: Where Businesses Are Losing Money

FX Pressure and Cost Recovery Challenges

One of the most immediate concerns for businesses is foreign exchange.

Companies that source dollars outside official channels often do so at significantly higher rates—but current tax rules do not fully reflect this reality when calculating deductible expenses.

NESG argues that this creates a hidden cost burden, as businesses are unable to fully recover what they spend.

Allowing deductions based on official rates from the Central Bank of Nigeria (CBN) or approved channels, the group says, would ease pressure and improve financial sustainability.

MSMEs Caught in Regulatory Confusion

Even more concerning is the mismatch in how “small businesses” are defined.

The Tax Act does not align with the Companies and Allied Matters Act (CAMA), creating confusion that could affect eligibility for incentives and compliance requirements.

For Nigeria’s millions of small businesses—the backbone of employment and economic activity—this is not a minor issue.

It is a survival risk.

Electricity Reform Without Reliable Power

Decentralisation Alone Is Not Enough

The Electricity Act 2023 was expected to transform Nigeria’s power sector by decentralising authority and encouraging private investment.

But reality has been slower to change.

Businesses across the country continue to grapple with unreliable electricity, forcing many to depend on costly alternatives such as diesel and petrol generators.

Structural Bottlenecks Persist

NESG highlights the need for stronger collaboration between state governments and distribution companies to address:

• Poor metering
• Energy theft
• Weak revenue collection
• Infrastructure protection

Without resolving these issues, the promise of electricity reform risks remaining largely theoretical.

Industry voices, including Adetayo Adegbemle, a Executive Director at PowerUp Initiatives For Electricity Rights (PowerUp Nigeria), have stressed that policy must translate into actual supply—not just regulatory change.

PIA: Progress Slowed by Gaps

The Petroleum Industry Act was meant to reset Nigeria’s oil and gas sector, improve transparency, and attract investment.

To a large extent, it has succeeded in providing a clearer framework.

But gaps remain.

According to Colman Obasi, the law is a strong starting point—but not a finished product.

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As global energy markets evolve and competition intensifies, Nigeria cannot afford regulatory inefficiencies that discourage investment in one of its most critical sectors.

When Good Policies Clash

The Hidden Risk of Reform Overlap

One of the biggest challenges facing Nigeria’s reform agenda is not the absence of policy—but the collision of multiple policies.

Tax rules, energy laws, and sector-specific regulations are increasingly intersecting in ways that create confusion rather than clarity.

For investors, this raises key concerns:

• What taxes apply across sectors?
• How do regulations interact?
• What compliance standards take priority?

In an environment where clarity drives investment, uncertainty becomes a major deterrent.

The Real Impact: Cost Pressure and Economic Strain

For businesses and households, the effects are already being felt.

As compliance costs rise and infrastructure gaps persist, companies are being forced to:

• Increase prices
• Cut costs
• Delay expansion

This feeds directly into inflation—raising the cost of goods and services for consumers already struggling with economic pressures.

Small businesses are particularly vulnerable, with many operating on thin margins that leave little room for additional regulatory or operational costs.

Execution Gap: Nigeria’s Recurring Challenge

A recurring theme across stakeholder responses is the gap between policy design and implementation.

Even well-crafted laws cannot deliver results without:

• Strong institutions
• Clear coordination
• Effective enforcement

As Obasi noted, improving legislation is important—but execution will ultimately determine success.

What Needs to Change

NESG’s recommendations go beyond simple amendments.

They call for a more coordinated approach to reform—one that ensures:

• Alignment across laws
• Clarity for businesses
• Reduced compliance costs
• Stronger institutional capacity

Without this, Nigeria risks undermining its own reform efforts.

Reform Must Work, Not Just Exist

Nigeria’s economic reform agenda is ambitious—but ambition alone is not enough.

The Tax Act, PIA, and Electricity Act represent significant progress, but gaps in alignment and execution are limiting their impact.

NESG’s warning is clear:

If these laws are not refined and harmonised, the cost will be borne by businesses, investors, and ultimately, everyday Nigerians.

In an economy already facing inflation, FX volatility, and infrastructure challenges, the stakes could not be higher.

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