Nigeria’s improving investor pitch runs into a tax problem

Uncertainty over Nigeria’s capital gains tax is emerging as a major concern for offshore investors, threatening to undermine improved sentiment towards the country’s economic reforms, according to Cordros Securities.

The investment firm said foreign fund managers it met during a recent weeklong engagement were significantly more positive about Nigeria than they were in 2023, but raised concerns about the lack of clarity surrounding the administration of the capital gains tax.

“The issue is no longer about whether it was the right thing or at the right time,” Cordros said in a market note on Wednesday.

“It is now about both the lack of communication since the tax became effective this year and the opacity around its implementation.”

Africa’s most populous country has tripled its capital gains tax from 10 percent to 30 percent, following a major tax overhaul that came into effect on the 1st of January, 2026.

That move has since created anxiety amongst foreign equity investors and saw the stock market shed its biggest losses since 2010 in November.

The concerns highlight a growing divide between investors’ improved assessment of Nigeria’s broader economic reforms and their uncertainty over how individual policies will be implemented.

Cordros said investors now broadly regard Nigeria as being ahead of other African and frontier markets in “doing the right things”, marking a significant shift from the scepticism it encountered during its previous meetings with fund managers in 2023.

Yet many foreign funds remain undecided about returning to Nigeria.

Most of the investors Cordros met were still net sellers of Nigerian equities, with only a few having bought stocks recently, revealing their sentiments on the tax policy even though the market has returned nearly 60 percent year-to-date.

The investors also questioned whether the current reform momentum can be sustained beyond President Bola Tinubu’s administration, with the 2027 elections featuring prominently in their discussions.

Read also: Nigeria’s tax uncertainty now biggest concern for foreign investors

Banks face regulatory concerns

Tax uncertainty was not the only policy concern raised by investors.

Cordros said offshore fund managers also viewed Nigerian banks as being subject to excessive regulation, citing the windfall tax on banks’ foreign-exchange revenues, the Central Bank of Nigeria’s directive on holding-company recapitalisation and a 45 percent cash reserve requirement.

Investors considered the holding-company recapitalisation directive unnecessary except for banks presenting the greatest risks, while describing the 45 percent cash reserve ratio as too high.

They questioned the compatibility of such a high reserve requirement with the recent banking recapitalisation exercise and the government’s ambition to build a $1 trillion economy.

Despite the concerns, foreign investors said they did not consider Nigerian equities overvalued and acknowledged that corporate earnings had broadly kept pace with share-price gains.

Banks, telecommunications companies, oil and gas firms and consumer companies were among the sectors attracting interest, while investors also sought information on Dangote Refinery’s operations and its planned initial public offering, as well as the wider pipeline of Nigerian IPOs.

Cordros said the re-inclusion of Nigerian equities in frontier-market indexes should also stimulate foreign buying interest.

The investment firm said investors were impressed by the resilience of domestic investors, who have sustained the equity market despite the reduced role of foreign portfolio investors.

The findings suggest that Nigeria’s challenge is increasingly shifting from convincing investors that reforms are necessary to providing sufficient clarity and predictability for foreign capital to return.

Cordros said the improved reception of Nigeria’s reforms was clear, but many funds had yet to make up their minds about returning to the market.