BUSINESS DAY
When Donald Trump introduced tax reforms in 2017, the effects rippled across the globe, with emerging economies like Nigeria taking a direct hit. As Trump pushes for similar changes again, Nigeria’s banking sector may face heightened risks, potentially curbing foreign direct investment (FDI) and disrupting key industries that banks depend on.
Small business credit schemes
The proposed U.S. tax cuts and tariffs, including reducing the corporate tax rate from 21 percent to 15 percent, are intended to strengthen the U.S. economy. However, they may have unintended consequences for emerging markets, a phenomenon often referred to as the ‘beggar-thy-neighbour’ policy.
By incentivising U.S. firms to repatriate capital, these reforms could reduce investment flows into countries like Nigeria. In 2017, the Tax Cuts and Jobs Act, which lowered the corporate tax rate from 35 percent to 21 percent, prompted U.S. companies to bring back over $777 billion in foreign earnings, according to the U.S. Federal Reserve. This led to a dramatic drop in FDI into Nigeria—from $4.65 billion in 2017 to just $2.23 billion in 2018, as reported by the United Nations Conference on Trade and Development (UNCTAD).
Along with tax cuts, Trump’s tariffs could further strangulate trade between the U.S. and Nigeria, particularly in sectors like oil and agriculture. With tariffs raising costs for Nigerian exporters, banks that finance these industries could see reduced profits and liquidity pressures.
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