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BusinessDay

4 laws that could shape Nigeria’s economy this year

The year 2019 was an eventful one for lawmaking in Africa’s largest economy. It was a year of harmonious relationship between the legislative and executive arms of the Federal Government which led to enactment of several laws that have the capacity to spur growth in Nigeria’s fragile economy.

BusinessDay tracked a total of 14 such bills that were passed by the legislature and assented by the president in the past year, excluding many others passed by the 9th National Assembly but still awaiting presidential assent.

Of the 14 bills assented by the president in 2019, BusinessDay notes four that analysts say could have a significant impact on businesses and the economy in 2020 and beyond.

Minimum Wage Amendment Act 2019

Amid concerns on the impact of declining allocations to states owing to falling crude oil prices, President Muhammadu Buhari, in April last year, signed the Minimum Wage Amendment Act of 2019.

The new law repealed the National Minimum Wage Act No.6, 1981 as amended CAP N61 Laws of the Federation of Nigeria, 2004.

Among other things, the Minimum Wage Act, 2019 reviewed upward, by 67 percent, of the amount paid to the least workers in the country – from N18,000 to N30,000.

The upward review was necessitated by agitations from the labour unions who held the view that the N18,000 minimum wage was long overdue for an increase in the wake of higher inflation and naira devaluation that have eroded the real value of money.

Analysts, however, doubt the sustainability of the new minimum wage. They argue that it would inflict more injury on the finances of states which, to a large extent, have depended on monthly allocations from Abuja to meet their obligations.

Despite having revenues from combined sources (Internally Generated Revenue+FAAC), Nigerian state governors got financial bailouts last year from the Federal Government to the tune of N614 billion. This shows how states’ finances are stressed out already as many are struggling to pay back.

As of today, only Lagos, Jigawa, Adamawa, Kebbi, Borno, Kaduna, Kano, Katsina, and Bauchi States have approved the new wage increase, while others have only expressed willingness to. This is despite the December 31, 2019 deadline stipulated in the agreement on the implementation of the new wage.

On several occasions, the labour union had said it would not guarantee industrial harmony in states that failed to meet the December 31, 2019 deadline, noting that it was a law that must be obeyed by governors.

Whether or not the states implement and sustain the N30,000 new minimum wage this year would surely have an impact on the overall economy.

Police Trust Fund Act

In order to increase funding for the police and improve security in the state, President Buhari on June 24, 2019 assented to the Nigerian Police Trust Fund Act.

With the new law, companies operating in Nigeria will now have to pay a levy of 0.005 percent of their net profit into the funds.

Analysts say though a 0.005 percent levy (N5 per N100,000) of net profits may not be very significant, it could place additional burden on corporate taxpayers who have seen weak sales owing to low consumer purchasing power.

The analysts noted also that since the levy is imposed on companies operating a business in Nigeria, it may also apply to establishments of foreign companies which might hurt direct investments more.

Another aspect of the law stipulates that the Fund will also consist of 0.5 percent total revenue accruing to the Federation Account, in addition to proceeds from grants, intervention funds, aids, donations, and investment income.

The Act also calls for the winding up of the Fund six years after its establishment with assets and liabilities transferred to the Nigeria Police Force.

Deep Offshore (and Inland Basin Protection Sharing Contract) Act

The Deep Offshore and Inland Basin Production Sharing Contract (Amendment) Bill 2019 was signed in 2019 to repeal the old Act of 1993.

The amendment, among other things, introduces the provisions for price reflective royalties, eight-year periodic review of the Production Sharing Contracts (“PSCs”) and penalties of no less than N500 million and/or at least a five years imprisonment for non-compliance with the Act.

Under the newly amended law, there is a revision of how royalties are calculated.

Under the old Act, royalties were calculated based on the water depth of the field. This ranged from 12 percent to zero percent.

However, the amendment has eliminated the zero percent rates as royalties would now be calculated on a field basis, dependent on the chargeable volume of the crude and condensates produced per field. The new rates are 10 percent (for fields in the deep offshore – greater than 200m water depth) while that of the frontier or inland basin is 7.5 percent as opposed to 10 percent under the old Act.

The amendment also imposes an additional royalty rate to account for an increase in the price of crude above $20 per barrel.

The government through the law is hoping to shore up its revenue stream by raising around $500 million in 2020 and over $1 billion in 2021 from new taxes levered into the fiscal terms of the contract.

This has generated mixed reactions across the country, with some stakeholders holding the opinion that the new levies would make deep offshore projects less profitable and result in lower investment.

The global consulting firm, PricewaterhouseCoopers, in a note said the review of royalty rates and the flexibility of the government to renegotiate the PSCs might impact the future cash flows of companies.

The Asset Management Corporation of Nigeria (Amendment) Act 2019

The AMCON Act of 2019 was signed into law on August 7 as a measure to recover debts owed to the Asset Management Corporation of Nigeria (AMCON), which is currently set at over N5 trillion.

With the new law, AMCON is granted unfettered access to the electronic or mechanical device of any debtor for the mechanical purposes of establishing the location of funds belonging to the debtor, with the elimination of confidentiality and banking secrecy as grounds for denial of access to the debtor’s records.

Analysts say although the new law would make the corporation perform its role of acquiring the non-performing loans from banks and other financial institutions more effectively and aid the resolution of capital inadequacy challenges, which is necessary to make the Nigerian economy stronger and viable, there are concerns of likely infringement of the right of the debtors to privacy.

This, they say, does not appear to fall within the statutory exceptions provided in the 1999 Constitution which are “the interest of defence, public safety, public order, public morality or public health; or to protect the rights and freedom or other persons”.