2019 Investment Climate Statements: Nigeria
Nigeria’s economy – Africa’s largest – exited recession in 2017, assisted by the Central Bank’s more rationalized foreign exchange regime. Growth is expected to remain weak in the near term however – the IMF forecasts growth of 2.1 percent in 2019 and 2.53 percent in 2020, still under Nigeria’s population growth rate of around 2.6 percent. With the largest population in Africa (estimated at over 195 million), Nigeria continues to represent a large consumer market for investors and traders. A very young country with nearly two-thirds of its population under the age of 25, Nigeria offers abundant natural resources and a low-cost labor pool, and enjoys mostly duty-free trade with other member countries of the Economic Community of West African States (ECOWAS). Nigeria’s full market potential remains unrealized because of significant impediments such as pervasive corruption, inadequate power and transportation infrastructure, high energy costs, an inconsistent regulatory and legal environment, insecurity, a slow and ineffective bureaucracy and judicial system, and inadequate intellectual property rights protections and enforcement. The Nigerian government has undertaken reforms to help improve the business environment, including making starting a business faster by allowing electronic stamping of registration documents, and making it easier to obtain construction permits, register property, get credit, and pay taxes. In 2017, these reforms helped boost Nigeria’s ranking on the World Bank’s annual Doing Business rankings from 169th to 145th place out of 190 economies. In 2018, it dropped one spot to 146th place.
Nigeria’s underdeveloped power sector remains a particular bottleneck to broad-based economic development. Power on the national grid currently averages 4,000 megawatts, forcing most businesses to generate much of their own electricity. The World Bank currently ranks Nigeria 171 out of 190 countries for ease of obtaining electricity for business. Reform of Nigeria’s power sector is ongoing, but investor confidence continues to be shaken by tariff and regulatory uncertainty. The privatization of distribution and generation companies in 2013 was based on projected levels of transmission and progress toward a fully cost reflective tariff to sustain operations and investment. However, tariff increases were reversed in 2015, and revenues have been severely impacted due to decreased transmission levels and currency devaluation, as well as high aggregate technical, commercial, and collections losses, resulting in a severe liquidity crisis throughout the power sector value chain. The Nigerian government, in partnership with the World Bank, published a Power Sector Recovery Plan (PSRP) (approved by the Federal Executive Council) in March 2017. However, two years after its launch, differing perspective on various PSRP interventions have complicated implementation. The Ministry of Finance appears to be driving the implementation effort and has convened three Federal Government of Nigeria (FGN) committees charged with moving the process forward in the areas of regulation, policy, and finances. Discussions between FGN and World Bank appear to going forward, but sector players report skepticism that the World Bank’s USD 1 billion loan will be enacted, though FGN may proceed without it. The plan is ambitious and will require political will from the administration, external investment to address the accumulated deficit, and discipline in implementing plans to mitigate future shortfalls. It is, nevertheless, a step in the right direction, and recognizes explicitly that the Nigerian economy is losing on average approximately USD 29 billion annually due to lack of adequate power.
Nigeria’s trade regime remains protectionist in key areas. High tariffs, restricted forex availability for 43 categories of imports, and prohibitions on many other import items have the aim of spurring domestic agricultural and manufacturing sector growth. Nigeria’s imports rose in 2018, largely as a result of the country’s continued recovery from the 2016 economic recession. U.S. goods exports to Nigeria in 2017 were USD 2.16 billion, up nearly 60 percent from the previous year, while U.S. imports from Nigeria were USD 7.05 billion, an increase of 68.7 percent. U.S. exports to Nigeria are primarily refined petroleum products, used vehicles, cereals, and machinery. Crude oil and petroleum products continued to account for over 95 percent of Nigerian exports to the United States in 2016. The stock of U.S. foreign direct investment (FDI) in Nigeria was USD 5.8 billion in 2017 (latest data available), a substantial increase from USD 3.8 billion in 2016, but only a modest increase from 2015’s USD 5.5 billion in FDI. U.S. FDI in Nigeria continues to be led by the oil and gas sector. There is also investment from the United States and other countries in Nigeria’s power, telecommunications, real estate (commercial and residential), and agricultural sectors.
Given the corruption risk associated with the Nigerian business environment, potential investors often develop anti-bribery compliance programs. The United States and other parties to the Organisation for Economic Co-operation and Development (OECD) Anti-Bribery Convention aggressively enforce anti-bribery laws, including the U.S. Foreign Corrupt Practices Act (FCPA). A high-profile FCPA case in Nigeria’s oil and gas sector resulted in 2010 U.S. Securities Exchange Commission (SEC) and U.S. Department of Justice rulings that included record fines for a U.S. multinational and its subsidiaries that had paid bribes to Nigerian officials. Since then, the SEC has charged an additional four international companies with bribing Nigerian government officials to obtain contracts, permits, and resolve customs disputes. See SEC enforcement actions at https://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml.
Security remains a concern to investors in Nigeria due to high rates of violent crime, kidnappings for ransom, and terrorism. The ongoing Boko Haram and Islamic State in West Africa (ISIS-WA) insurgencies have included attacks against civilian and military targets in the northeast of the country, causing general insecurity and a major humanitarian crisis there. Multiple bombings (the majority linked to the insurgent groups) of high-profile targets with multiple deaths have occurred outside of Nigeria’s northeast region as well since 2010, but the pace of such attacks has dipped significantly in recent years. In the Niger Delta region, militant attacks on oil and gas infrastructure restricted oil production and export in 2016, but a restored amnesty program and more federal government engagement in the Delta region have brought a reprieve in violence and allowed restoration of shut-in oil and gas production. The longer-term impact of the government’s Delta peace efforts, however, remains unclear and criminal activity in the Delta – in particular, rampant oil theft– remains a serious concern. Maritime criminality in Nigerian waters, including incidents of piracy and crew kidnap for ransom, has increased in recent years and law enforcement efforts have been limited or ineffectual. Onshore, international inspectors have voiced concerns over the adequacy of security measures at some Nigerian port facilities. Businesses report that bribery of customs and port officials remains common to avoid delays, and smuggled goods routinely enter Nigeria’s seaports and cross its land borders.
Freedom of expression and of the press remains broadly observed, with the media often engaging in open, lively discussions of challenges facing Nigeria. However, security services detain and harass journalists in some cases, including for reporting on sensitive topics such as corruption and security. Some journalists practice self-censorship on sensitive issues.
|TI Corruption Perceptions Index||2018||144 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report “Ease of Doing Business”||2019||146 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||118 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in Nigeria ($M USD, stock positions)||2017||$5,800||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2017||$2,100||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
In 1995 the Nigerian Investment Promotion Commission Act dismantled years of controls and limits on foreign direct investment (FDI), opening nearly all sectors to foreign investment, allowing for 100 percent foreign ownership in all sectors (with the exception of the petroleum sector, where FDI is limited to joint ventures or production sharing contracts), and creating the Nigerian Investment Promotion Commission (NIPC) with a mandate to encourage and assist investment in Nigeria. The NIPC features a One-Stop Investment Center (OSIC) that nominally includes participation of 27 governmental and parastatal agencies (not all of which are physically present at the OSIC, however) in order to consolidate and streamline administrative procedures for new businesses and investments. Foreign investors receive largely the same treatment as domestic investors in Nigeria, including tax incentives. However, without strong political and policy support, and because of the unresolved challenges to investment and business in Nigeria, the ability of the NIPC to attract new investment has been limited.
The Nigerian government has continued to promote import substitution policies such as trade restrictions and local content requirements in a bid to attract investment that would develop domestic capacity to produce products and services that would otherwise be imported. The import bans and high tariffs used to advance Nigeria’s import substitution goals have been undermined by smuggling of targeted products (most notably rice and poultry) through the country’s porous borders, and by corruption in the import quota systems developed by the government to incentivize domestic investment. Despite the government’s stated goal to attract investment, investors generally find Nigeria a difficult place to do business.
Limits on Foreign Control and Right to Private Ownership and Establishment
There are currently no limits on foreign control of investments in Nigeria. However, in some instances regulatory bodies may insist on Nigerian equity as a prerequisite to doing business. The NIPC Act of 1995 liberalized the ownership structure of business in Nigeria, so that foreign investors can now own and control 100 percent of the shares in any company (as opposed to the earlier arrangement of 60 percent – 40 percent in favor of Nigerians).
The lack of restrictions applies to all industries, except in the oil and gas sector where investment is limited to joint ventures or production-sharing agreements. Additional laws restrict industries to domestic investors if they are considered crucial to national security, such as firearms, ammunition, and military and paramilitary apparel. Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Decree of 1990. The Act prohibits the nationalization or expropriation of foreign enterprises except in cases of national interest.
Other Investment Policy Reviews
The OECD completed an investment policy review of Nigeria in May 2015. (http://www.oecd.org/countries/nigeria/oecd-investment-policy-reviews-nigeria-2015-9789264208407-en.htm ). The WTO published a trade policy review of Nigeria in 2017 which also includes a brief overview and assessment of Nigeria’s investment climate. That review is available at: https://www.wto.org/english/tratop_e/tpr_e/tp456_e.htm .
The United Nations Council on Trade and Development (UNCTAD) published an investment policy review of Nigeria and a Blue Book on Best Practice in Investment Promotion and Facilitation in 2009 (available at unctad.org). The recommendations from its reports continue to be valid: Nigeria needs to diversify FDI away from the oil and gas sector by improving the regulatory framework, investing in physical and human capital, taking advantage of regional integration and reviewing external tariffs, fostering linkages and local industrial capacity, and strengthening institutions dealing with investment and related issues. NIPC and the Federal Inland Revenue Service (FIRS) developed a compendium of investment incentives which is available online at: https://nipc.gov.ng/compendium
Although the NIPC offers the One-Stop Investment Centre, Nigeria does not have an online single window business registration website, as noted by Global Enterprise Registration (www.GER.co). The Nigerian Corporate Affairs Commission (CAC) maintains an information portal, and in 2018 the Trade Ministry launched an online portal for investors called ‘iGuide Nigeria’ (https://theiguides.org/public-docs/guides/nigeria). While many steps for business registration can be completed online, the final step requires submitting original documents to a CAC office in exchange for final registration. On average, it takes eight procedures and 10 days to establish a foreign-owned limited liability company (LLC) in Nigeria (Lagos), significantly faster than the regional average for Sub-Saharan Africa at 23 days. Time required is likely to vary in different parts of the country. Only a local legal practitioner accredited by the Corporate Affairs Commission can incorporate companies in Nigeria. According to the Nigerian Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, foreign capital invested in an LLC must be imported through an authorized dealer, which will issue a Certificate of Capital Importation. This certificate entitles the foreign investor to open a bank account in foreign currency. Finally, a company engaging in international trade must get an import-export license from the Nigerian Customs Service.
Although not online, the One-Stop Investment Center co-locates relevant government agencies in one place in order to provide more efficient and transparent services to investors. Investors may pick up documents and approvals that are statutorily required to establish an investment project in Nigeria. The Center assists with visas for investors, company incorporation, business permits and registration, tax registration, immigration, and customs issues. The Nigerian government has not established uniform definitions for micro, small, and medium enterprises (MSMEs) with different agencies using different definitions, so the process may vary from one company to another.
The Nigerian Export Promotion Council administered an Export Expansion Grant (EEG) scheme to improve non-oil export performance, but the government suspended the program in 2014 due to concerns about corruption on the part of companies who collected the grants but did not actually export. After a period of re-evaluation and revision, the program was relaunched in 2018. The federal government set aside 5.12 billion naira (roughly USD 14.2 million) in the 2019 budget for the EEG scheme. The Nigerian Export-Import (NEXIM) Bank provides commercial bank guarantees and direct lending to facilitate export sector growth, although these services are underused. NEXIM’s Foreign Input Facility provides normal commercial terms of three to five years (or longer) for the importation of machinery and raw materials used for generating exports.
Agencies created to promote industrial exports remain burdened by uneven management, vaguely-defined policy guidelines, and corruption. Nigeria’s inadequate power supply and lack of infrastructure coupled with the associated high production costs leave Nigerian exporters at a significant disadvantage. Many Nigerian businesses fail to export because they find meeting international packaging and safety standards is too difficult or expensive. Similarly, firms often are unable to meet consumer demand for a consistent supply of high-quality goods in quantities sufficient to support exports as well as the domestic market. Therefore, the vast majority of Nigeria’s manufacturers remain unable or uninterested in competing in the international market, especially given the size of Nigeria’s domestic market.
2. Bilateral Investment Agreements and Taxation Treaties
The Nigerian government signed a Trade and Investment Framework Agreement (TIFA) with the United States in 2000. U.S. and Nigerian officials held their latest round of TIFA talks in April 2016. In 2017, Nigeria and the United States signed a Memorandum of Understanding to formally establish the U.S. – Nigeria Commercial and Investment Dialogue (CID), a new bilateral policy instrument focused on improving trade and investment between the two nations. The aim of the CID is to promote increased, diverse, and sustained trade and investment with an initial focus on infrastructure, agriculture, digital economy, investment, and regulatory reform.
Nigeria has bilateral investment agreements with Algeria, Austria, Bulgaria, Canada, China, Egypt, Ethiopia, France, Finland, Germany, Italy, Jamaica, the Republic of Korea, Kuwait, Morocco, the Netherlands, Romania, Russia, Serbia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Turkey, Uganda, and the United Kingdom. Fifteen of these treaties (those with China, France, Finland, Germany, Italy, the Republic of Korea, The Netherlands, Romania, Serbia, South Africa, Spain, Sweden, Switzerland, Taiwan, and the United Kingdom) have been ratified by both parties. Nigerian government officials blame treaty partners for the lack of ratification, but the ratification process within Nigeria has not proven proactive or well-organized.
Nigeria is a party to double taxation agreements with the following 23 countries: Belgium, Canada, China, Czech Republic, France, Ghana, Italy, Kenya, the Republic of Korea, Mauritius, the Netherlands, Pakistan, the Philippines, Poland, Qatar, Romania, Singapore, Slovakia, South Africa, Spain, Sweden, United Arab Emirates, and the United Kingdom. The most recent agreement was signed with Ghana in July 2018; however, it and a number of the other agreements remain to be ratified. Nigeria does not have such an agreement with the United States.
3. Legal Regime
Transparency of the Regulatory System
Nigeria’s legal, accounting, and regulatory systems comply with international norms, but enforcement remains uneven. Opportunities for public comment and input into proposed regulations sometimes occur. Professional organizations set standards for the provision of professional services, such as accounting, law, medicine, engineering, and advertising. These standards usually comply with international norms. No legal barriers prevent entry into these sectors.
Ministries and regulatory agencies develop and make public anticipated regulatory changes or proposals and publish proposed regulations before their application. The general public has the opportunity to comment through targeted outreach, including business groups and stakeholders, and during the public hearing process before a bill becomes law. There is no specialized agency tasked with publicizing proposed changes and the time period for comment may vary. Ministries and agencies do conduct impact assessments, including environmental assessments, but impact assessment methodology may vary. The National Bureau of Statistics reviews regulatory impact assessments conducted by other agencies. Laws and regulations are publicly available.
Fiscal management occurs at all three tiers of government: national, 36 state governments and Federal Capital Territory (FCT), and 774 local governments. Revenues from oil and non-oil sources are collected into the federation account and then shared among the different tiers of government by the Federal Account Allocation Committee (FAAC) in line with a statutory sharing formula. All state governments are allowed to collect internally generated revenues, which vary from state to state. However, the fiscal federalism structure does not compel states to be accountable to the federal government or transparent about revenues generated or received from the federation account. The national government’s finances are more transparent as budgets are made public and the financial data are published by agencies such as the CBN, Debt Management Office, and the National Bureau of Statistics. However, the financial dealings of the state-owned oil company, the Nigerian National Petroleum Corporation, are very opaque.
The Debt Management Office (DMO) puts Nigeria’s total debt stock at USD 79.4 billion as of December 2018 – USD 25.2 billion or nearly 32 percent of which is external. Debts owed by state governments rose 110 percent from USD 5.92 billion between 2014 and 2017, during which the national government had allocated USD 4.8 billion to bail out several states that could not pay salaries. The total debt figures presented by the DMO usually do not include off-balance-sheet financing such as sovereign guarantees.
International Regulatory Considerations
Foreign companies operate successfully in Nigeria’s service sectors, including telecommunications, accounting, insurance, banking, and advertising. The Investment and Securities Act of 2007 forbids monopolies, insider trading, and unfair practices in securities dealings. Nigeria is not a party to the WTO’s Government Procurement Agreement (GPA). Nigeria generally regulates investment in line with the WTO’s Trade-Related Investment Measures (TRIMS) Agreement, but the government’s local content requirements in the oil and gas sector and the ICT sector may conflict with Nigeria’s commitments under TRIMS.
In December 2013, the National Information Technology Development Agency (NITDA), under the auspices of the Ministry of Communication, issued the Guidelines for Nigerian Content Development in the ICT sector. These guidelines require original ICT equipment manufacturers, within three years from the effective date of the guidelines, to use 50 percent local manufactured content and to use Nigerian companies in providing 80 percent of value added on networks. The guidelines also require multinational companies operating in Nigeria to source all hardware products locally; all government agencies to procure all computer hardware only from NITDA-approved original equipment manufacturers; and ICT companies to host all consumer and subscriber data locally, use only locally manufactured SIM cards for telephone services and data, and to use indigenous companies to build cell towers and base stations. Enforcement of the guidelines is largely inconsistent. The Nigerian government generally lacks the capacity and resources to monitor labor practices, technology compliancy, and digital data flows. There are reports that individual Nigerian companies periodically lobby the National Assembly and/or NITDA to address allegations (warranted or not) against foreign firms that they are in non-compliance with the guidelines.
The goal is to promote development of domestic production of ICT products and services for the Nigerian and global markets, but the guidelines pose impediments and risks to foreign investment and U.S. companies by interrupting their global supply chain, increasing costs, disrupting global flow of data, and stifling innovative products and services. Industry representatives remain concerned about whether the guidelines would be implemented in a fair and transparent way towards all Nigerian and foreign companies. All ICT companies, including Nigerian companies, use foreign manufactured products as Nigeria does not have the capacity to supply ICT hardware that meets international standards.
Nigeria is a member of the Economic Community of West African States (ECOWAS), which implemented a Common External Tariff (CET) beginning in 2015 with a five-year phase in period. An internal CET implementation committee headed by the Fiscal Policy/Budget Monitoring and Evaluation Department of the Nigeria Customs Service was set up to develop the implementation work plans that were consistent with national and ECOWAS regulations by the year 2020. The country has also put in place a CET monitoring committee, domiciled at the Ministry of Finance consisting of a number of Ministries, Departments and Agencies (MDAs) that have issues related to the CET. Under the CET, Nigeria applies five tariff bands: zero duty on capital goods, machinery, and essential drugs not produced locally; 5 percent duty on imported raw materials; 10 percent duty on intermediate goods; 20 percent duty on finished goods; and 35 percent duty on goods in certain sectors such as palm oil, meat products, dairy and poultry that the Nigerian government seeks to protect. Under the CET, ECOWAS member governments are permitted to assess import duties higher than the maximum allowed in the tariff bands (but not to exceed a total effective duty of 70 percent) for up to 3 percent of the 5,899 tariff lines included in the ECOWAS CET.
Legal System and Judicial Independence
Nigeria has a complex, three-tiered legal system comprised of English common law, Islamic law, and Nigerian customary law. Common law governs most business transactions, as modified by statutes to meet local demands and conditions. The Supreme Court sits at the pinnacle of the judicial system and has original and appellate jurisdiction in specific constitutional, civil, and criminal matters as prescribed by Nigeria’s constitution. The Federal High Court has jurisdiction over revenue matters, admiralty law, banking, foreign exchange, other currency and monetary or fiscal matters, and lawsuits to which the federal government or any of its agencies are party. The Nigerian court system is slow and inefficient, lacks adequate court facilities and computerized document-processing systems, and poorly remunerates judges and other court officials, all of which encourages corruption and undermines enforcement. Judges have frequently failed to appear for trials. In addition, the pay for court officials is low, and they often lack proper equipment and training.
Although the constitution and law provide for an independent judiciary, the judicial branch remains susceptible to pressure from the executive and legislative branches. Political leaders have influenced the judiciary, particularly at the state and local levels.
The World Bank’s publication, Doing Business 2019, ranked Nigeria 92 out of 190 on enforcement of contracts, a significant improvement from previous years. The Doing Business report credited business reforms for improving contract enforcement by issuing new rules of civil procedure for small claims courts which limit adjournments to unforeseen and exceptional circumstances but noted that there can be variation in performance indicators between cities in Nigeria (as in other developing countries). For example, resolving a commercial dispute takes 476 days in Kano but 447 days in Lagos. In the case of Lagos, the 447 days includes 40 days for filing and service, 265 days for trial and judgment and 142 days for enforcement of the judgment with total costs averaging 42 percent of the claim. In Kano, however, filing and service only takes 21 days with enforcement of judgement only taking 90 days, but trial and judgment accounts for 365 days with total costs averaging lower at 28.4 percent of the claim. In comparison, in OECD countries the corresponding figures are an average of 582 days and averaging 21.2 percent of the claim and in sub-Saharan countries an average of 655 days and averaging 42.3 percent of the claim.
Laws and Regulations on Foreign Direct Investment
The NIPC Act of 1995 allows 100 percent foreign ownership of firms, except in the oil and gas sector where investment remains limited to joint ventures or production-sharing agreements. Laws restrict industries to domestic investors if they are considered crucial to national security, such as firearms, ammunition, and military and paramilitary apparel. Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Decree of 1990. The Act prohibits the nationalization or expropriation of foreign enterprises except in cases of national interest, but the Embassy is unaware of specific instances of such interference by the government.
Competition and Anti-Trust Laws
After years of debate, the Nigerian government enacted the Federal Competition and Consumer Protection Act in February 2019. The bill repealed the Consumer Protection Act of 2004 and replaced the previous Consumer Protection Council with a Federal Competition and Consumer Protection Commission while also creating a Competition and Consumer Protection Tribunal to handle issues and disputes arising from the operations of the Act. Under the terms of the Act, businesses will be able to lodge anti-competitive practices complaints against other firms in the Tribunal. The bill prohibits agreements made to restrain competition, such as agreements on price fixing, price rigging, collusive tendering, etc. (with specific exemptions for collective bargaining agreements and employment, among other items). The bill empowers the President of Nigeria to regulate prices of certain goods and services on the recommendation of the Commission.
The law prescribes stringent fines for non-compliance. A general fine imposed by this law for offences committed by companies is an amount up to 10 percent of the company’s annual turnover in the preceding business year. The law will supersede previous systems whereby particular regulatory agencies had consumer protection oversight and the Investment and Securities Act had provisions on competition.
Expropriation and Compensation
The Nigerian government has not expropriated or nationalized foreign assets since the late 1970s, and the NIPC Act of 1995 forbids nationalization of a business or assets unless the acquisition is in the national interest or for a public purpose. In such cases, investors are entitled to fair compensation and legal redress. A U.S.-owned waste management investment expropriated by Abia State in 2008 is the only known U.S. expropriation case in Nigeria.
ICSID Convention and New York Convention
Nigeria is a member of the International Center for Settlement of Investment Disputes and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (also called the “New York Convention”). The Arbitration and Conciliation Act of 1988 provides for a unified and straightforward legal framework for the fair and efficient settlement of commercial disputes by arbitration and conciliation. The Act created internationally-competitive arbitration mechanisms, established proceeding schedules, provided for the application of the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules or any other international arbitration rule acceptable to the parties, and made the New York Convention applicable to contract enforcement, based on reciprocity. The Act allows parties to challenge arbitrators, provides that an arbitration tribunal shall ensure that the parties receive equal treatment, and ensures that each party has full opportunity to present its case. Some U.S. firms have written provisions mandating International Chamber of Commerce (ICC) arbitration into their contracts with Nigerian partners. Several other arbitration organizations also operate in Nigeria.
Investor-State Dispute Settlement
Nigeria’s civil courts have jurisdiction over disputes between foreign investors and the Nigerian government as well as between foreign investors and Nigerian businesses. The courts occasionally rule against the government. Nigerian law allows the enforcement of foreign judgments after proper hearings in Nigerian courts. Plaintiffs receive monetary judgments in the currency specified in their claims.
Section 26 of the NIPC Act of 1995 provides for the resolution of investment disputes through arbitration as follows:
- Where a dispute arises between an investor and any Government of the Federation in respect of an enterprise, all efforts shall be made through mutual discussion to reach an amicable settlement.
- Any dispute between an investor and any Government of the Federation in respect of an enterprise to which this Act applies which is not amicably settled through mutual discussions, may be submitted at the option of the aggrieved party to arbitration as follows:
- in the case of a Nigerian investor, in accordance with the rules of procedure for arbitration as specified in the Arbitration and Conciliation Act; or
- in the case of a foreign investor, within the framework of any bilateral or multilateral agreement on investment protection to which the Federal Government and the country of which the investor is a national are parties; or
- in accordance with any other national or international machinery for the settlement of investment disputes agreed on by the parties.
- Where in respect of any dispute, there is disagreement between the investor and the Federal Government as to the method of dispute settlement to be adopted, the International Centre for Settlement of Investment Dispute Rules shall apply.
Nigeria is a signatory to the 1958 Convention on Recognition and Enforcement of Foreign Arbitral Awards. Nigerian courts have generally recognized contractual provisions that call for international arbitration. Nigeria does not have a bilateral investment treaty or free trade agreement with the United States.
International Commercial Arbitration and Foreign Courts
Reflecting Nigeria’s business culture, entrepreneurs generally do not seek bankruptcy protection. Claims often go unpaid, even in cases where creditors obtain judgments against defendants. Under Nigerian law, the term bankruptcy generally refers to individuals whereas corporate bankruptcy is referred to as insolvency. The former is regulated by the Bankruptcy Act of 1990, as amended by the Bankruptcy Decree 109 of 1992. The latter is regulated by Part XV of the Companies and Allied Matters Act Cap 59 1990 which replaced the Companies Act, 1968. The Embassy is not aware of U.S. companies that have had to avail themselves of the insolvency provisions under Nigerian law.
4. Industrial Policies
The Nigerian government maintains different and overlapping incentive programs. The Industrial Development/Income Tax Relief Act, Cap 17, Laws of the Federation of Nigeria, 2004 provides incentives to pioneer industries deemed beneficial to Nigeria’s economic development and to labor-intensive industries, such as apparel. There are currently 99 industries and products that qualify for the pioneer status incentive through the NIPC, following the addition of 27 industries and products which were added to the list in late 2017. The government has added a stipulation calling for a review of the qualifying industries and products to occur every two years. Companies that receive pioneer status may benefit from a tax holiday from payment of companies income tax for an initial period of three years, extendable for one or two additional years. A pioneer industry sited in an economically disadvantaged area is entitled to a 100 percent tax holiday for seven years and an additional 5 percent depreciation allowance over and above the initial capital depreciation allowance. Additional tax incentives are available for investments in domestic research and development, for companies that invest in local government areas (LGAs) deemed disadvantaged, for local value-added processing, for investments in solid minerals and oil and gas, and for a number of other investment scenarios. For a full list of incentives, refer to the Nigerian Investment Promotion Commission website at: https://www.nipc.gov.ng/investment-incentives/.
The Nigerian Export Promotion Council administers an Export Expansion Grant (EEG) scheme to improve non-oil export performance. The program was suspended in 2014 due to concerns about corruption on the part of companies who collected the grants but did not actually export, but was revised and relaunched in 2018. The federal government set aside 5.12 billion naira (roughly USD 14.2 million) in the 2019 budget for the EEG scheme. The Nigerian Export-Import (NEXIM) Bank provides commercial bank guarantees and direct lending to facilitate export sector growth, although these services are underused. NEXIM’s Foreign Input Facility provides normal commercial terms for the importation of machinery and raw materials used for generating exports. Repayment terms are typically up to seven years, including a moratorium period of up to two years depending on the loan amount and the project being finance. Agencies created to promote industrial exports remain burdened by uneven management, vaguely-defined policy guidelines, and corruption.
The NIPC states that up to 120 percent of expenses on (R&D) are tax deductible, provided that such R&D activities are carried out in Nigeria and are connected with the business from which income or profits are derived. Also, for the purpose of R&D on local raw materials, 140 percent of expenses are allowed. For cases in which the research is long-term, it will be regarded as a capital expenditure and will be written off against profit.
Foreign Trade Zones/Free Ports/Trade Facilitation
The Nigerian Export Processing Zone Authority (NEPZA) allows duty-free import of all equipment and raw materials into its export processing zones. Up to 100 percent of production in an export processing zone may be sold domestically based on valid permits and upon payment of applicable duties. Investors in the zones are exempt from foreign exchange regulations and taxes and may freely repatriate capital. The Nigerian government also encourages private sector participation and partnership with state and local governments under the free trade zones (FTZ) program, resulting in the establishment of the Lekki FTZ (owned by Lagos state), and the Olokola FTZ (which straddles Ogun and Ondo states and is owned by those two states, the federal government, and private oil companies). Workers in FTZs may unionize, but may not strike for an initial ten-year period.
Nigeria ratified the WTO Trade Facilitation Agreement (TFA) in 2016 and the Agreement entered into force in February 2017. Nigeria already implements items in Category A under the TFA and has identified, but not yet implemented, its Category B and C commitments. In August 2016, Nigeria requested additional technical assistance to implement and enforce its Category C commitments. (See https://www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm )
Performance and Data Localization Requirements
Foreign investors must register with the NIPC, incorporate as a limited liability company (private or public) with the Corporate Affairs Commission, procure appropriate business permits, and register with the Securities and Exchange Commission (when applicable) to conduct business in Nigeria. Manufacturing companies sometimes must meet local content requirements. Long-term expatriate personnel do not require work permits, but they remain subject to needs quotas requiring them to obtain residence permits that allow salary remittances abroad. Expatriates looking to work in Nigeria on a short-term basis can either request a temporary work permit, which is usually granted for a two-month time period but can be extended up to six months, or a business visa, if only traveling to Nigeria for the purpose of meetings, conferences, seminars, trainings, or other brief business activities. Authorities permit larger quotas for professions deemed in short supply, such as deep-water oil-field divers. U.S. companies often report problems in obtaining quota permits. The Nigerian government’s Immigration Regulations 2017 introduced additional means by which foreigners can obtain residence in Nigeria. Foreign nationals who have imported an annual minimum threshold of capital over a certain period of time may be issued a permanent residence permit, as long as the investment is not withdrawn. The Nigerian Oil and Gas Content Development Act, 2010 (NOGCDA) restricts the number of expatriate managers to 5 percent of the total number of personnel for companies in the oil and gas sector.
Technology Transfer Requirements
The National Office of Industrial Property Act of 1979 established the National Office for Technology Acquisition and Promotion (NOTAP). NOTAP’s main objective is to regulate the international acquisition of technology while creating an environment conducive to local technology. To this end, NOTAP recommends local technical partners to Nigerian users in a bid to reduce the level of imported technology, which currently accounts for over 90 percent of technology in use in Nigeria. One of NOTAP’s major activities is the review of Technology Transfer Agreements (TTAs), a requirement for importing technology into Nigeria and for companies operating in Nigeria to access foreign currency. NOTAP reviews three major aspects prior to approval of TTAs and subsequent issuance of a certificate:
- Legal – ensuring that the clauses in the agreement are in accordance with Nigerian laws and legal frameworks within which NOTAP operates;
- Economic – ensuring prices are fair for the technology offered; and
- Technical – ensuring transfer of technical knowledge.
One of the chief complaints among American firms concerning the TTA is the length of the approval process which can take up to three months. NOTAP took steps to automate the TTA approval process in order reduce the approval process to one month or less. However, total number of days for processing TTAs by NOTAP from the date of filing the application to the issuance of confirmation of reasonableness is still 60 business days. See https://notap.gov.ng/sites/default/files/stages_involved.pdf .
The NOGCDA has technology-transfer requirements that may violate a company’s intellectual property rights.
The Guidelines for Nigerian Content Development in the ICT sector issued by the National Information Technology Development Agency (NITDA) on December 3, 2013, require ICT companies to host all consumer and subscriber data locally to ensure the security of government data and promote development of the ICT by mandating all government ministries, departments and agencies to source and procure software from only local and indigenous software development companies. Enforcement of the guidelines is largely absent as the Nigerian government lacks capacity and resources to monitor digital data flows. Federal government data is hosted locally in data centers that meet international standards. In 2019 NITDA updated the 2013 Guidelines for Data Protection (https://nitda.gov.ng/wp-content/uploads/2019/01/Nigeria percent20Data percent20Protection percent20Regulation.pdf) and rolled out the regulatory framework for providers of public internet access services such that only registered, verified and vetted providers can provide public internet access service in Nigeria.
The Nigerian Customs Service (NCS) and the Nigerian Ports Authority (NPA) exercise exclusive jurisdiction over customs services and port operations. Nigerian law allows importers to clear goods on their own, but most importers employ clearing and forwarding agents to minimize tariffs and lower landed costs. Others ship their goods to ports in neighboring countries, primarily Benin, after which they transport overland and smuggle into the country. The Nigerian government implements a destination inspection scheme whereby all inspections occur upon arrival into Nigeria, rather than at the ports of origin. In December 2013, the NCS regained the authority to conduct destination inspections, which had previously been contracted to private companies. NCS also introduced the Nigeria Integrated Customs Information System (NICIS) platform and an online system for filing customs documentation via a Pre-Arrival Assessment Report (PAAR) process but the NCS still carries out 100 percent cargo examinations and shipments take more than 20 days to clear through the process.
Shippers report that efforts to modernize and professionalize the NCS and the NPA have largely been unsuccessful – port congestion persists and clearance times are long. The 2017 presidential directive for the Apapa Port, which handles over 40 percent of Nigeria’s legal trade, to run a 24-hour operation and achieve 48-hour cargo clearance is not effective. The port is congested, inefficient and the proliferation of customs units incentivizes corruption from official and unofficial middle men who complicate and elongate the clearance process. Freight forwarders usually resort to bribery of customs agents and port officials to avoid extended delays clearing imported goods through the NPA and NCS. Other ports are not viable or efficient and are virtually idle. Smuggled goods routinely enter Nigeria’s seaports and cross its land borders.
Investors sometimes encounter difficulties acquiring entry visas and residency permits. Foreigners must obtain entry visas from Nigerian embassies or consulates abroad, seek expatriate position authorization from the NIPC, and request residency permits from the Nigerian Immigration Service. In 2018, Nigeria instituted a visa-on-arrival system, which generally works relatively well, but still requires lengthy processing at an embassy or consulate abroad before an authorization is issued. Some U.S. businesses have reported being solicited for bribes in the visa-on-arrival program. Visa on arrival is not valid for employment or residence. Investors report that the residency permit process is cumbersome and can take from two to 24 months and cost from USD 1,000 to USD 3,000 in facilitation fees. The Nigerian government announced a new visa rule in August 2011 to encourage foreign investment, under which legitimate investors can obtain multiple entry-visas at points of entry into Nigeria. Obtaining a visa prior to traveling to Nigeria is strongly encouraged.
5. Protection of Property Rights
The Nigerian government recognizes secured interests in property, such as mortgages. The recording of security instruments and their enforcement remain subject to the same inefficiencies as those in the judicial system. In the World Bank Doing Business 2019 Report, Nigeria ranked 184 out of the 190 countries surveyed for registering property, a decline of five points over its 2018 ranking. In Lagos, property registration required an average of 12 procedures over 105 days at a cost of 11.1 percent of the property value while in Kano registering property averages 11 procedures over 47 days at a cost of 11.8 percent of the property value.
Fee simple property rights remain rare. Owners transfer most property through long-term leases, with certificates of occupancy acting as title deeds. Property transfers are complex and must usually go through state governors’ offices, as state governments have jurisdiction over land ownership. Authorities have often compelled owners to demolish buildings, including government buildings, commercial buildings, residences, and churches, even in the face of court injunctions. Therefore, acquiring and maintaining rights to real property can be problematic.
Clarity of title and registration of land ownership remain significant challenges throughout rural Nigeria, where many smallholder farmers have only ancestral or traditional use claims to their land. Nigeria’s land reforms have attempted to address this barrier to development but with limited success.
Intellectual Property Rights
Nigeria’s legal and institutional infrastructure for protecting intellectual property rights (IPR) is in need of further development and funding. Even though there are laws for enforcing most IPR, the legislation is deficient with respect to online piracy, geographical indications, and plant and animal breeders’ rights. A bill to establish the Industrial Property Commission to oversee the registration of trade marks, patents, designs, plant varieties, animal breeders and farmers’ rights, as well as supervise the new registries created under the Industrial Property Act, has been in the works since 2016. No new IPR legislation has been enacted.
Copyright protection in Nigeria is governed by the Copyright Act of 1988, as amended in 1992 and 1999, which provides an adequate basis for enforcing copyright and combating piracy. The Act is administered by the Nigerian Copyright Commission (NCC), a division of the Ministry of Justice. The International Anti-Counterfeiting Coalition (IACC) has long noted that the Copyright Act should be amended to provide stiffer penalties for violators. Nigeria is a member of the World Intellectual Property Organization (WIPO) and in 2017 passed legislation to ratify the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty, both of which it signed in 1997. These treaties have becoming increasingly relevant since they address important digital communication and broadcast issues. The 2016 Draft Copyright Bill was revised to bring it into compliance with these two treaties and was sent to the National Assembly in December 2017.
Local content guidelines issued by the Ministry of Communication Technology (MCT) in 2013 and titled the Guidelines for Nigerian Content Development in Information and Communications Technology have raised IPR concerns about the future ability of the Nigerian government to protect data and trade secrets since the localization processes require the disclosure of source code and other sensitive design elements as a condition of doing business. The IT industry in Nigeria has pushed back strongly against several of the measures in those guidelines, which remain in effect but have not been fully enforced. While the National Information Technology Development Agency (NITDA) does not currently require in-country product manufacturing due to the difficult business environment in Nigeria, it has noted that it would continue to press for local information and communications technology (ICT) capacity building programs.
Violations of Nigerian IPR laws continue to be widespread due in large part to a culture of inadequate enforcement. That culture stems from several factors, including insufficient resources among enforcement agencies, lack of political will and focus on IPR, porous borders, entrenched trafficking systems that make enforcement difficult (and sometimes dangerous), and corruption. The NCC, which has primary responsibility for copyright enforcement, is widely viewed as understaffed and underfunded relative to the magnitude of the IPR challenge in Nigeria. Nevertheless, the NCC continues to carry out enforcement actions on a regular basis. According to its report for 2018, the NCC conducted five anti-piracy operations and seized 288 copyrighted works, including DVDs, books, MP3s, and software. Anti-piracy operations in 2018 led to seven arrests.
The Nigeria Customs Service (NCS) has general authority to seize and destroy contraband. Under current law, copyrighted works require a notice issued by the rights owner to Customs to treat such works as infringing, but implementing procedures have not been developed and this procedure is handled on a case-by-case basis between the NCS and the NCC. Once seizures are made, the NCS invites the NCC to inspect and subsequently take control of the fake goods for further investigation since the NCC has the statutory responsibility to investigate and prosecute copyright violations. The NCC is responsible for the cost of moving and storing infringing goods. If, after investigations, any persons are identified as associated with the infringing materials, a decision may be taken to prosecute. When no person is identified, the NCC may obtain an order of court to destroy such works. The NCC works in cooperation with rights owners’ associations and stakeholders in the copyright industries on such matters.
Many U.S. government agencies, including the Department of Justice, the U.S. Patent and Trademark Office, the U.S. Copyright Office, the Department of Homeland Security, the Internal Revenue Service, and others have recently led or participated in IPR capacity building efforts that have included participants from Nigeria’s Economic and Financial Crimes Commission, the Nigerian Customs Service, the Nigerian Police, the Nigerian Copyright Commission, the Nigerian Trademarks, Patents, and Designs Registry, the Standards Organization of Nigeria, and the National Agency For Food and Drug Administration and Control.
Nigeria was not included in the United States Trade Representative (USTR) 2019 Special 301 Report or the 2018 Notorious Markets List.
For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
6. Financial Sector
Capital Markets and Portfolio Investment
The NIPC Act of 1995 liberalized Nigeria’s foreign investment regime, which has facilitated access to credit from domestic financial institutions. Foreign investors who have incorporated their companies in Nigeria have equal access to all financial instruments. Some investors consider the capital market, specifically the Nigerian Stock Exchange (NSE), a financing option, given commercial banks’ high interest rates and the short maturities of local debt instruments.
After a strong performance in 2017, the NSE experienced significant contractions and decline in 2018, losing nearly 20 percent on its all-share index year-on-year. The stark reverse in performance was mostly attributed to government regulatory uncertainty and the 2019 presidential elections. As of December 2018, the NSE had 169 listed companies and a total market capitalization of USD 32.5 billion, a 13.9 percent decrease from 2017. The Nigerian government has considered requiring companies in certain sectors such as telecoms, oil and gas or over a certain size to list on the NSE, as a means to encourage greater corporate participation and sectoral balance in the NSE, but those proposals have not been enacted to date.
The government employs debt instruments, issuing bonds of various maturities ranging from two to 20 years. Nigeria has issued bonds to restructure the government’s domestic debt portfolio from short-term to medium- and long-term instruments. Some state governments have issued bonds to finance development projects, while some domestic banks have used the bond market to raise additional capital. The Nigerian Securities and Exchange Commission (NSEC) has issued stringent guidelines for states wishing to raise funds on capital markets, such as requiring credit assessments conducted by recognized credit rating agencies.
Money and Banking System
The Central Bank of Nigeria (CBN) currently licenses 21 deposit-taking commercial banks in Nigeria. Following a 2009 banking crisis, CBN officials intervened in eight of 24 commercial banks (roughly one-third of the system by assets) due to insolvency or serious undercapitalization and established the government-owned Asset Management Company of Nigeria (AMCON) to address bank balance sheet disequilibria via discounted purchases of non-performing loans. The Nigerian banking sector emerged stronger from the crisis thanks to AMCON and a number of other reforms undertaken by the CBN, including the adoption of uniform year-end IFRS financial reporting to increase transparency, a stronger emphasis on risk management and corporate governance, and the nationalization of three distressed banks. In 2013 the CBN introduced a stricter supervision framework for the country’s top eight banks, identified as “Systemically Important Banks” (SIBs) as they account for more than 70 percent of the industry’s total assets, loans and deposits, and their failure or collapse could disrupt the entire financial system and the country’s real economy. These eight banks are: First Bank of Nigeria, United Bank for Africa, Zenith Bank, Access Bank, Ecobank Nigeria, Guaranty Trust Bank, Skye Bank, and Diamond Bank. Under the new supervision framework, the operations of SIBs are closely monitored with regulatory authorities conducting stress tests on the SIBs’ capital and liquidity adequacy. Moreover, SIBs are required to maintain a higher minimum capital adequacy ratio of 15 percent. In September 2018, the CBN revoked the operating license of Skye Bank Plc, due to the deterioration of its share capital and its board’s failure to recapitalize the bank. The CBN reported that total non-performing loans (NPLs) grew by 14.8 per cent in 2017 while they dropped to 14.2 percent of outstanding loans at the end of 2018. Nigerian government and private sector analysts assess that the volume of non-performing loans may be higher than these figures, owing in part to banks not reporting non-performing insider loans made to banks’ owners and directors.
The CBN supports non-interest banking. Several banks have established Islamic banking operations in Nigeria including Jaiz Bank International Plc, Nigeria’s first full-fledged Non-Interest Bank which commenced operations in 2012. There are five licensed merchant banks – Altitude Microfinance Bank Limited, Coronation Merchant Bank Limited, FBN Merchant Bank, FSDH Merchant Bank Ltd and Rand Merchant Bank Nigeria Limited.
The CBN has issued regulations for foreign banks regarding mergers with or acquisitions of existing local banks in the country. Foreign institutions’ aggregate investment must not be more than 10 percent of the latter’s total capital.
Foreign Exchange and Remittances
Foreign Exchange Policies
Foreign currency for most transactions is procured through local banks in the inter-bank market. Low value foreign exchange may also be procured at a premium from foreign exchange bureaus, called Bureaus De Change. Nigerian, American, and other foreign businesses have frequently expressed strong concern about the CBN’s foreign exchange restrictions, which they report prevent them from importing needed equipment and goods and from repatriating naira earnings. Foreign exchange demand remains high because of the dependence on foreign inputs for manufacturing and refined petroleum products.
In 2015 the CBN published a list of 41 product categories which could no longer be imported using official foreign exchange channels; the number of categories has since been increased to 43. Affected businesses (American and Nigerian) have complained publicly and privately that the policy in effect bans the import of some 700 individual items and severely hampers their ability to source inputs and raw materials. While the CBN has often referred to the list as temporary, the restriction remains in place, with an additional item added in 2018, bringing the number to 43. In February 2019, the Governor of the Central Bank commented that the Bank is currently considering adding more items to the list and bringing the number as high as 50 items.
In 2017, the CBN began providing more foreign exchange to the interbank market via wholesale and retail forward contract auctions, in order to meet some of the demand that had been forced to the parallel market. These actions satisfied some of the pent-up demand for dollars in the economy and resulted in a strengthening of the naira at the parallel market from a low of 520 naira to the dollar in January 2017 to around 390 naira to the dollar in April 2017. The CBN also established an “investors and exporters” window in 2017 which allows trades through that window to occur at around 360 naira to the dollar. This, combined with increased oil revenue, has boosted CBN reserves and helped stabilize the foreign exchange market. Most trade happens at the investors and exporters window, which provides the value of the naira quoted by financial markets globally, while the CBN continues to peg the official interbank rate at 305 naira to the dollar for government transactions. The CBN also maintains separate window for “invisibles” such as education and medical expenses abroad, and a retail window which subsidizes imports of petroleum products, raw materials, agricultural equipment and the aviation sector.
The NIPC guarantees investors unrestricted transfer of dividends abroad (net a 10 percent withholding tax). Companies must provide evidence of income earned and taxes paid before repatriating dividends from Nigeria. Money transfers usually take no more than 48 hours. In 2015, the CBN implemented restrictions on foreign exchange remittances. All such transfers must occur through banks. Such remittances may take several weeks depending on the size of the transfer and the availability of foreign exchange at the remitting bank. Transfers of currency are protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7).
Sovereign Wealth Funds
The Nigeria Sovereign Investment Authority (NSIA) is the manager of Nigeria’s sovereign wealth fund. It was created by the Nigeria Sovereign Investment Authority Act in 2011 and began operation the following year with seed capital of USD 1 billion. Its most recent annual report (calendar year 2017) reported total assets of nearly USD 533.88 million, an almost 27 percent increase over 2016. It was created to receive, manage, and grow a diversified portfolio that will eventually replace government revenue currently drawn from non-renewable resources, primarily hydrocarbons.
The NSIA is a public agency that subscribes to the Santiago Principles which are a set of 24 guidelines that assign “best practices” for the operations of Sovereign Wealth Funds globally. The NSIA invests through three funds: the Future Generations Fund for diversified portfolio of long term growth, the Nigeria Infrastructure Fund for domestic infrastructure development, and the Stabilization Fund to act as a buffer against short-term economic instability. NSIA does not take an active role in management of companies. The Embassy has not received any report or indication that the activities of the NSIA limit private competition.
7. State-Owned Enterprises
The Nigerian government does not have an established practice that is consistent with the OECD guidelines on Corporate Governance for State-Owned Enterprises (SOEs), but SOEs do have enabling legislation that governs their ownership. To legalize the existence of SOEs, provisions have been made in the Nigerian constitution under socio-economic development in section 16 (1) of the 1979 and 1999 constitutions respectively. The government has privatized many former SOEs to encourage more efficient operations, such as the state-owned telecommunications company, Nigerian Telecommunications (NITEL) and its mobile subsidiary Mobile Telecommunications, (MTEL) in 2014.
Nigeria does not operate a centralized ownership system for its SOEs. The enabling legislation for each SOE stipulates its ownership and governance structure. The Boards of Directors are usually appointed by the President on the recommendation of the relevant Minister. The Boards operate and are appointed in line with the enabling legislation which usually stipulates the criteria for appointing Board members. Directors are appointed by the Board within the relevant sector. In a few cases, however, some Board appointments have been viewed as a reward to political affiliates.
In the case of Nigeria’s most prominent SOE, the Nigerian National Petroleum Corporation (NNPC), Board appointments are made by the presidency but the day-to-day running of business is overseen by the Group Managing Director (GMD). The GMD reports to the Minister of Petroleum and although in the current administration the President has retained that ministerial role for himself, the appointed Minister of State for Petroleum acts as the de facto Minister of Petroleum in the President’s stead. Nigeria’s National Assembly passed a Petroleum Industry Governance Bill in March 2018 but the President sent it back to the National Assembly, requesting amendments to the bill. The bill would clarify regulatory, policy, and operational roles in the petroleum sector and pave the way for partial privatization of NNPC.
Responsible for exploration, refining, petrochemicals, products transportation, and marketing, the NNPC is Nigeria’s biggest and arguably most important state-owned enterprise. It owns and operates Nigeria’s four refineries (one each in Warri and Kaduna and two in Port Harcourt), all of which operate far below their original installed capacity. Nigeria’s tax agency receives taxes on petroleum profits and other hydrocarbon-related levies, while the Department of Petroleum Resources collects rents, royalties, license fees, bonuses, and other payments. In an effort to provide greater transparency in the collection of revenues that accrue to the government, the Buhari administration requires these revenues, including some from the NNPC, to be deposited in the Treasury Single Account.
Another key SOE is the Transmission Company of Nigeria (TCN), responsible for the operation of Nigeria’s national electrical grid. Private power generation and distribution companies have accused the TCN grid of significant inefficiency and inadequate technology which greatly hinder the nation’s electricity output and supply. The TCN emerged from the defunct National Electric Power Authority (NEPA) as an incorporated entity in November 2005. It was the only major component of Nigeria’s electric power sector not to have been privatized in 2013.
The Privatization and Commercialization Act of 1999 established the National Council on Privatization, the policy-making body overseeing the privatization of state-owned enterprises (SOEs), and the Bureau of Public Enterprises (BPE), the implementing agency for designated privatizations. The BPE has focused on the privatization of key sectors, including telecommunications and power, and calls for core investors to acquire controlling shares in formerly state-owned enterprises.
Since 1999, the BPE has privatized and concessioned more than 140 enterprises, including an aluminum complex, a steel complex, cement manufacturing firms, hotels, a petrochemical plant, aviation cargo handling companies, vehicle assembly plants, and electricity generation and distribution companies. The electricity transmission company remains state-owned. Foreign investors can and do participate in BPE’s privatization process. The BPE also retains partial ownership in some of the privatized companies. (It holds a 40 percent stake in the power distribution companies, for instance.)
The National Assembly has questioned the propriety of some of these privatizations, with one ongoing case related to an aluminum complex privatization the subject of a Supreme Court ruling on ownership. In addition, the failure of the 2013 power sector privatization to restore financial viability to the sector has raised criticism of the privatized power generation and distribution companies. Nevertheless, the government’s long-delayed sale in December 2014 of the state-owned NITEL and MTEL shows a continued commitment to the privatization model.
8. Responsible Business Conduct
There is no specific Responsible Business Conduct (RBC) law in Nigeria. Several legislative acts incorporate within their provisions certain expectations that directly or indirectly regulate the observance or practice of Corporate Social Responsibility. In order to reinforce responsible behavior, various laws have been put in place for the protection of the environment. These laws stipulate criminal sanctions for non-compliance. There are also regulating agencies which exist to protect the rights of consumers. While the Nigerian government has no specific action plan regarding OECD RBC guidelines, most government procurements are done transparently and in line with the Public Procurement Act which stipulates advertisement and a transparent bidding process.
Nigeria participates in the Extractive Industries Transparency Initiative (EITI) and is an EITI compliant country. Specifically, in February 2019 the EITI Board determined that Nigeria had made satisfactory progress overall with implementing the EITI Standard after having fully addressed the corrective actions from the country’s first Validation in 2017. The next EITI Validation study of Nigeria will occur in 2022.
The Department of Petroleum Resources (DPR), an arm of the Ministry of Petroleum Resources, also ensures comprehensive standards and guidelines to direct the execution of projects with proper consideration for the environment. The DPR Environmental Guidelines and Standards (EGAS) of 1991 for the petroleum industry is a comprehensive working document with serious consideration for the preservation and protection of the Niger Delta.
The Nigerian government provides oversight of competition, consumer rights, and environmental protection issues. The Federal Competition and Consumer Protection Commission (FCCPC), the National Agency for Food and Drug Administration and Control, the Standards Organization of Nigeria, and other entities have the authority to impose fines and ensure the destruction of harmful substances which otherwise may have sold to the general public. The main regulators and enforcers of corporate governance are the Securities and Exchange Commission (SEC) and the Corporate Affairs Commission (which register all incorporated companies). Nigeria has adopted multiple reforms on corporate governance. Environmental pollution by multinational oil companies has resulted in fines being imposed locally while some cases have been pursued in foreign jurisdictions resulting in judgments being granted in favor of the oil producing communities.
The Companies Allied Matter Act 1990 (CAMA) and the Investment Securities Act provide basic guidelines on company listing. More detailed regulations are covered in the Nigeria Stock Exchange Listing rules. Publicly listed companies are expected to disclose indicate their level of compliance with the Code of Corporate Governance in their Annual Financial Reports.
Foreign companies, whether incorporated in Nigeria or not, may bid on government projects and generally receive national treatment in government procurement, but may also be subject to a local content vehicle (e.g., partnership with a local partner firm or the inclusion of one in a consortium) or other prerequisites which are likely to vary from tender to tender. Corruption and lack of transparency in tender processes has been a far greater concern to U.S. companies than discriminatory policies based on foreign status. Government tenders are published in local newspapers, a “tenders” journal sold at local newspaper outlets, and on occasion in foreign journals and magazines. The Nigerian government has made modest progress on its pledge to conduct open and competitive bidding processes for government procurement with the introduction of the Nigeria Open Contracting Portal (NOCOPO) in 2017 under the Bureau of Public Procurement (BPP).
The Public Procurement Law of 2007 established the BPP as the successor agency to the Budget Monitoring and Price Intelligence Unit. The BPP acts as a clearinghouse for government contracts and procurement and monitors the implementation of projects to ensure compliance with contract terms and budgetary restrictions. Procurements above 100 million naira (about USD 277,550) reportedly undergo full “due process,” but government agencies routinely flaunt public procurement requirements. Some of the 36 states of the federation have also passed public procurement legislation.
The reforms have also improved transparency in procurement by the state-owned Nigerian National Petroleum Company (NNPC). Although U.S. companies have won contracts in a number of sectors, difficulties in receiving payment are not uncommon and can deter firms from bidding. Supplier or foreign government subsidized financing arrangements appear in some cases to be a crucial factor in the award of government procurements. Nigeria is not a signatory to the WTO Agreement on Government Procurement.
In July 2016, Nigeria announced its participation in the Open Government Partnership (OGP), a potentially significant step forward on public financial management and fiscal transparency. In December 2016, the Ministry of Justice presented Nigeria’s National Action Plan (NAP) for the OGP. Implementation of its 14 commitments has been slow, but some progress has been made, particularly on the issues such as tax transparency, ease of doing business, and asset recovery. The NAP, which runs through 2019, covers five major themes: ensuring citizens’ participation in the budget cycle, implementation of open contracting and the adoption of open contracting data standards, increasing transparency in the extractive sectors, adopting common reporting standards like the Addis Tax initiative, and improving the ease of doing business. Full implementation of the NAP would be a significant step forward for Nigeria’s fiscal transparency, although Nigeria has not fully completed any commitment to date.
Businesses report that bribery of customs and port officials remains common, and often necessary to avoid extended delays in the port clearance process, and that smuggled goods routinely enter Nigeria’s seaports and cross its land borders.
Domestic and foreign observers identify corruption as a serious obstacle to economic growth and poverty reduction. Nigeria scored 27 out of 100 in Transparency International’s 2018 Corruption Perception Index (CPI), placing it in the 144th position out of the 180 countries ranked, a one-point decline from its 2016 score of 28 and a stagnant score from 2017. The Economic and Financial Crimes Commission (EFCC) Establishment Act of 2004 established the EFCC to prosecute individuals involved in financial crimes and other acts of economic “sabotage.” Traditionally, the EFCC has encountered the most success in prosecuting low-level internet scam operators. A relative few high-profile convictions have taken place, such as a former governor of Adamawa state, a former governor of Bayelsa State, a former Inspector General of Police, and a former Chair of the Board of the Nigerian Port Authority. However, in the case of the convicted governor of Bayelsa State, the President of Nigeria pardoned him in March 2013. The case of the former governor of Adamawa, who was convicted in 2017, is under appeal and he is currently free on bail.
Since taking office in 2015, President Buhari has focused on implementing a campaign pledge to address corruption, though his critics contend his anti-corruption efforts often target political rivals. Since then, the EFCC arrested a former National Security Advisor (NSA), a former Minister of State for Finance, a former NSA Director of Finance and Administration and others on charges related to diversion of funds intended for government arms procurement.
The Corrupt Practices and Other Related Offences Act of 2001 established an Independent Corrupt Practices and Other Related Offences Commission (ICPC) to prosecute individuals, government officials, and businesses for corruption. The Act punishes over 19 offenses, including accepting or giving bribes, fraudulent acquisition of property, and concealment of fraud. Nigerian law stipulates that giving and receiving bribes constitute criminal offences and, as such, are not tax deductible. Since its inauguration, the ICPC has secured convictions in 71 cases (through 2015, latest data available) with nearly 300 cases still open and pending as of July 2018. In April 2014, a presidential committee set up to review Nigeria’s ministries, departments, and agencies (MDAs) recommended that the EFCC, the ICPC, and the Code of Conduct Bureau (CCB) be merged into one organization. The federal government, however, rejected this proposal to consolidate the work of these three anti-graft agencies.
Nigeria gained admittance into the Egmont Group of Financial Intelligence Units (FIUs) in May 2007. In September 2018, the Egmont Group lifted its suspension of Nigeria’s membership, put in place in July 2017 due to concerns about the Nigeria FIU’s operational autonomy and ability to protect classified information. The suspension was lifted due to the Nigerian government’s efforts to address the concerns, through the passage of the Nigerian Financial Intelligence Agency Act in July 2018.
The Paris-based Financial Action Task Force (FATF) removed Nigeria from its list of Non-Cooperative Countries and Territories in June 2006. In October 2013, the FATF decided that Nigeria had substantially addressed the technical requirements of its FATF Action Plan and agreed to remove Nigeria from its monitoring process conducted by FATF’s International Cooperation Review Group (ICRG). Nigeria, as a member of the Inter-governmental Action Group Against Money Laundering in West Africa (GIABA), is an associated member of FATF.
The Nigeria Extractive Industries Transparency Initiative (NEITI) Act of 2007 provided for the establishment of the NEITI organization, charged with developing a framework for transparency and accountability in the reporting and disclosure by all extractive industry companies of revenue due to or paid to the Nigerian government. NEITI serves as a member of the international Extractive Industries Transparency Initiative (EITI), which provides a global standard for revenue transparency for extractive industries like oil and gas and mining. Nigeria is party to the United Nations Convention Against Corruption. Nigeria is not a member of the OECD and not party to the OECD Convention on Combating Bribery.
Resources to Report Corruption
Economic and Financial Crimes Commission
Headquarters: No. 5, Fomella Street, Off Adetokunbo Ademola Crescent, Wuse II, Abuja, Nigeria. Branch offices in Ikoyi, Lagos State; Port Harcourt, Rivers State; Independence Layout, Enugu State; Kano, Kano State; Gombe, Gombe State.
Hotline: +234 9 9044752 or +234 9 9044753
Independent Corrupt Practices and Other Related Offences Commission:
Abuja Office – Headquarters
Plot 802 Constitution Avenue, Central District, PMB 535, Garki Abuja
Phone/Fax: 234 9 523 8810
10. Political and Security Environment
Political, religious, and ethnic violence continue to affect Nigeria. The Islamist group Jama’atu Ahl as-Sunnah li-Da’awati wal-Jihad, popularly known as Boko Haram, and the Islamic State in West Africa (ISIS-WA) have waged a violent campaign to destabilize the Nigerian government, killing tens of thousands of people, forcing over two million to flee to other areas of Nigeria or into neighboring countries, and leaving more than seven million people in need of humanitarian assistance in the country’s northeast. Boko Haram has targeted markets, churches, mosques, government installations, educational institutions, and leisure sites with improvised explosive devices (IEDs) and suicide vehicle-borne IEDS across nine Northern states and in Abuja. In 2017, Boko Haram employed hundreds of suicide bombings against the local population. Women and children carried out many of the attacks. There were multiple reports of Boko Haram killing entire villages suspected of cooperating with the government. ISIS-WA targeted civilians with attacks or kidnappings less frequently than Boko Haram. ISIS-WA employed targeted acts of violence and intimidation against civilians in order to expand its area of influence and gain control over critical economic resources. As part of a violent and deliberate campaign, ISIS-WA also targeted government figures, traditional leaders, and contractors.
President Buhari has focused on matters of insecurity in Nigeria and in neighboring countries. While the two insurgencies maintain the ability to stage forces in rural areas and launch attacks against civilian and military targets across the Northeast, Nigeria is also facing increased rural violence in the Middle Belt.
Due to challenging security dynamics in the North, the U.S. Diplomatic Mission to Nigeria has significantly limited official travel north of Abuja. Such trips occur only with security measures designed to mitigate the threats of car-bomb attacks and abductions.
Decades of neglect, persistent poverty, and environmental damage caused by oil spills have left Nigeria’s oil rich Niger Delta region vulnerable to renewed violence. Though each oil-producing state receives a 13 percent derivation of the oil revenue produced within its borders, and several government agencies, including the Niger Delta Development Corporation (NDDC) and the Ministry of Niger Delta Affairs, are tasked with implementing development projects, bureaucratic mismanagement and corruption have prevented these investments from yielding meaningful economic and social development in the region. Niger Delta militants have demonstrated their ability to attack and severely damage oil instillations at will as seen when they cut Nigeria’s production by more than half in 2016. Attacks on oil installations have since decreased due to a revamped amnesty program and continuous high-level engagement with the region.
Other security challenges facing Nigeria include increasing rural violence caused by criminal actors and by conflicts between migratory pastoralists and farmers, and thousands of refugees fleeing to Nigeria from Cameroon’s English-speaking region due to tensions there.
11. Labor Policies and Practices
Nigeria’s skilled labor pool has declined over the past decade due to inadequate educational systems, limited employment opportunities, and the migration of educated Nigerians to other countries, including the United Kingdom, the United States, and South Africa. The low employment capacity of Nigeria’s formal sector means that almost three-quarters of all Nigerians work in the informal and agricultural sectors or are unemployed. Companies involved in formal sector businesses such as banking and insurance possess an adequately skilled workforce. Manufacturing and construction sector workers often require on-the-job training. The result is that while individual wages are low, individual productivity is also low which means overall labor costs can be high. The Buhari Administration is pushing reforms in the education sector to improve the supply of skilled workers, but this and other efforts run by state governors are in their initial stages.
Labor organizations in Nigeria remain politically active and are prone to call for strikes on a regular basis against the national and state governments. While most labor actions are peaceful, difficult economic conditions fuel the risk that these actions could become violent.
The Right of Association
Nigeria’s constitution guarantees the rights of free assembly and association, and protects workers’ rights to form or belong to trade unions. Several statutory laws, nonetheless, restrict the rights of workers to associate or disassociate with labor organizations. Nigerian unions belong to one of three trade union federations: the Nigeria Labor Congress (NLC), which tends to represent junior (i.e., blue collar) workers; the United Labor Congress of Nigeria (ULC), which represents a group of unions that separated from the NLC in 2015; and the Trade Union Congress of Nigeria (TUC) representing the “senior” (i.e., white collar) workers. According to figures provided by the Ministry of Labor and Employment, total union membership stands at roughly 7 million. A majority of these union members work in the public sector, although unions exist across the private sector. The Trade Union Amendment Act of 2005 allowed non-management senior staff to join unions.
Collective bargaining occurred throughout the public sector and the organized private sector in 2018. However, public sector employees have become increasingly concerned about the Nigerian governments’ and state governments’ failure to honor previous agreements from the collective bargaining process.
Collective bargaining in the oil and gas industry is relatively efficient compared to other sectors. Issues pertaining to salaries, benefits, health and safety, and working conditions tend to be resolved quickly through negotiations.
Workers under collective bargaining agreements cannot participate in strikes unless their unions comply with the requirements of the law, which includes provisions for mandatory mediation and referral of disputes to the Nigerian government. Despite these restrictions on staging strikes, unions occasionally conduct strikes in the private and public sectors without warning. Localized strikes occurred in the education, government, energy, power, and healthcare sectors in 2018. The law forbids employers from granting general wage increases to workers without prior government approval, but the law is not often enforced. Major negotiations between the main labor unions and the federal government occurred in 2018 regarding the minimum wage and the unions’ demands for it to be raised from 18,000 naira (USD 50) per month to 30,000 naira (USD 83) per month. The National Assembly passed the 2019 Appropriations bill which included the newly agreed upon minimum wage in January 2019, though it has yet to be fully implemented. The minimum wage bill awaits the president’s assent although several state governments already announced their inability to pay.
The Nigerian Minister of Labor and Employment may refer unresolved disputes to the Industrial Arbitration Panel (IAP) and the National Industrial Court (NIC). In 2015, the National Industrial Court launched an Alternative Dispute Resolution Center. Union officials question the effectiveness and independence of the NIC, believing it unable to resolve disputes stemming from Nigerian government failure to fulfill contract provisions for public sector employees. Union leaders criticize the arbitration system’s dependence on the Minister of Labor and Employment’s referrals to the IAP.
Nigeria’s laws regarding minimum age for child labor and hazardous work are inconsistent. Article 59 of the Labor Act of 1974 sets the minimum age of employment at 12, and it is in force in all 36 states of Nigeria. The Act also permits children of any age to do light work alongside a family member in agriculture, horticulture, or domestic service.
The Federal 2003 Child Rights Act (CRA) codifies the rights of children in Nigeria and must be ratified by each state to become law in its territory. To date, 24 states and the Federal Capital Territory have ratified the CRA, with all 12 of the remaining states located in northern Nigeria.
The CRA states that the provisions related to young people in the Labor Act apply to children under the CRA, but also that the CRA supersedes any other legislation related to children. The CRA restricts children under the age of 18 from any work aside from light work for family members; however, Article 59 of the Labor Act applies these restrictions only to children under the age of 12. This language makes it unclear what minimum ages apply for certain types of work in the country.
While the Labor Act forbids the employment of youth under age 18 in work that is dangerous to their health, safety, or morals, it allows children to participate in certain types of work that may be dangerous by setting different age thresholds for various activities. For example, the Labor Act allows children age 16 and older to work at night in gold mining and the manufacturing of iron, steel, paper, raw sugar, and glass. Furthermore, the Labor Act does not extend to children employed in domestic service. Thus, children are vulnerable to dangerous work in industrial undertakings, underground, with machines, and in domestic service. In addition, the prohibitions established by the Labor Act and CRA are not comprehensive or specific enough to facilitate enforcement. In 2013, the National Steering Committee for the Elimination of the Worst Forms of Child Labor in Nigeria (NSC) validated the Report on the Identification of Hazardous Child Labor in Nigeria. The report has languished with the Ministry of Labor and Employment and still awaits the promulgation of guidelines for operationalizing the report.
The Nigerian government adopted the Trafficking in Persons (Prohibition), Enforcement, and Administration Act of 2015 on March 26, 2015. While not specifically directed against child labor, many sections of the new law support anti-child labor efforts. The Violence against Persons Prohibition Act was signed into law in on May 25, 2015 and again while not specifically focused on child labor, it covers related elements such as “depriving a person of his/her liberty,” “forced financial dependence/economic abuse,” and “forced isolation/separation from family and friends” and is applicable to minors.
Acceptable Conditions of Work
Nigeria’s Labor Act provides for a 40-hour work week, two to four weeks of annual leave, and overtime and holiday pay for all workers except agricultural and domestic workers. No law prohibits compulsory overtime. The Act establishes general health and safety provisions, some of which specifically apply to young or female workers, and requires the Ministry of Labor and Employment to inspect factories for compliance with health and safety standards. Under-funding and limited resources undermine the Ministry’s oversight capacity, and construction sites and other non-factory work sites are often ignored. Nigeria’s labor law requires employers to compensate injured workers and dependent survivors of workers killed in industrial accidents.
Draft legislation, such as a new Labor Standards Act which includes provisions on child labor, and an Occupational Safety and Health Act that would regulate hazardous work, have remained under consideration in the National Assembly since 2006.
Admission of foreign workers is overseen by the Federal Ministry of the Interior. Employers must seek the consent of the Ministry in order to employ foreign workers by applying for an “expatriate quota.” The quota allows a company to employ foreign nationals in specifically approved job designations as well as specifying the validity period of the designations provided on the quota.
There are two types of visas which may be granted, depending on the length of stay. For short-term assignments, an employer must apply for and receive a temporary work permit, allowing the employee to carry out some specific tasks. The temporary work permit is a single-entry visa, and expires after three months. There are no numerical limitations on short-term visas, and foreign nationals who meet the conditions for grant of a visa may apply for as many short-term visas as required.
For long-term assignments, the employer should apply for a “subject-to-regularization” visa (STR). To apply for an STR, an employer must apply for and obtain an expatriate quota. The expatriate quota lists positions in the company that will be occupied by expatriate staff. Upon arrival in Nigeria, the employee will need to validate his or her visa by applying for a work and residence permit.
12. OPIC and Other Investment Insurance Programs
The U.S. Overseas Private Investment Corporation (OPIC) offers all its credit and risk products to U.S. investors in Nigeria. OPIC has a number of active projects in Nigeria, which primarily include power generation, finance (micro and SME), insurance, and education (including the American International School in Abuja). Nigeria concluded an investment incentive agreement with OPIC in 1999.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($B USD)||2018||$355,000||2017||$375,750||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in Partner Country ($M USD, stock positions)||2018||N/A||2016||$2,480||BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm|
|Host Country’s FDI in the United States ($M USD, stock positions)||2018||N/A||2016||$53||BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm|
|Total Inbound Stock of FDI as % host GDP||2018||N/A||2017||26.0%||UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx|
Table 3: Sources and Destination of FDI
|Direct Investment From/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$78,322||100%||No Data Available|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
Data not available.
14. Contact for More Information
Trade and Investment Officer
Plot 1075 Diplomatic Drive
Telephone: +234 9 461 4000