Essentially a free enterprise country, Nigeria allows foreigners to own and operate businesses with minimal restriction. Except where eligible for exemption, all foreign investors are required to be incorporated as a separate entity in Nigeria and, until incorporation, shall not have a place for business in Nigeria other than for the receipt of notices and documents preliminary to incorporation of the company.
FOREIGN INVESTMENT: The laws regulating foreign investment include the Nigerian Investment Promotion Commission Act, CAP N117, Laws of the Federation of Nigeria (LFN) 2004, the Nigerian Investment Promotion Commission (NIPC) Act, the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, CAP F34, LFN 2004 (Forex Act). Registration with the NIPC is one of the conditions for the repatriation of funds by a foreign investor. The NIPC was established under the NIPC Act as a one-stop agency that coordinates all investment promotion activities in Nigeria. Under the terms of the NIPC Act, tax holiday investment incentives are extended to Pioneer Status firms which contribute to economically disadvantaged industries. To qualify for Pioneer Status, a joint venture company or a wholly foreign-owned company must apply to the NIPC within one year of commencing commercial activities. A joint venture or wholly foreign-owned applicant must have incurred a capital expenditure of not less than N5m ($31,500) within the stipulated period of one year.
DISPUTE RESOLUTION: The NIPC Act stipulates that in the event of a dispute between a foreign investor and a government agency, all efforts shall be made through discussions to reach an amicable settlement. In the event of failure to reach an amicable settlement by discussions, the dispute may be submitted to arbitration by the aggrieved party 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 international machinery for settlement that the parties agree upon. Where there is disagreement as to the method to be adopted, the International Centre for Settlement of Investment Disputes rules apply.
Regarding the importation of capital and repatriation of profits, the Forex Act establishes an autonomous foreign exchange market and provides that no foreign currency imported into Nigeria will be seized, forfeited or expropriated by the government, except as provided under the Act.
Investments are to be made with foreign currency freely imported into Nigeria through an authorised dealer (a licensed bank) and converted into naira at the official foreign exchange market. The authorised dealer subsequently issues a Certificate of Capital Importation (CCI) to the investor as evidence of the capital importation. The government guarantees foreign investors unconditional transfer of their capital, profits and dividends, attributable to their investment through authorised dealers. A condition of this is the presentation of the CCI issued to the foreign investor by an authorised dealer.
CORPORATE LAWS: Other relevant laws regulating corporate business in Nigeria include the Companies and Allied Matters Act CAP C20, LFN 2004 (CAMA), the National Office of Technology Acquisition and Promotion Act CAP N62, LFN 2004 (NOTAP Act), the Companies Income (Amendment) Tax Act 2007 (CITA) and the Value Added Tax Act 2007 (VAT Act).
The NOTAP Act establishes the National Office of Technology Acquisition and Promotion to monitor, on a continuing basis, the transfer of foreign technology to Nigeria and for that purpose to register all contracts having effect in Nigeria for the transfer of technology to Nigerian partners, not later than 60 days from the contract’s execution or conclusion.
The CITA regulates the imposition of tax on companies. It provides that tax shall, for each year of assessment, be payable at specified rates upon the profits of any company accruing in, derived from, brought into or received in Nigeria. Companies Income Tax is currently chargeable at 30% on the profits of firms in Nigeria. Newly registered companies have up to 18 months after registration, or not later than six months after the end of the first accounting period, whichever is earlier, to file tax returns.
The VAT Act requires companies to pay taxes on goods and services consumed by individuals and corporate organisations, among others. VAT is charged at the rate of 5% on the value of all goods and services except for certain exempted goods and services, and zero-rate goods. Zero-rate goods are listed in the Act as non-oil exports, goods and services purchased by diplomats and goods purchased for use in humanitarian donor-funded projects.
LABOUR LAWS: The major law governing labour activities is the Labour Act, CAP L1, LFN 2004. The Act is narrow in scope and only covers persons who fit the definition of a worker. The term is limited to mean any person who is not exercising administrative, executive, technical and professional functions; in essence, it is not applicable to executives or senior staff but applies to junior workers. All other persons not covered by the Labour Act are governed by their individual contracts of employment.
The Trade Unions (Amendment) Act 2005 regulates the formation, registration and organisation of trade unions. Trade unions are any combination of workers or employers – temporary or permanent – the purpose of which is to regulate the terms and conditions of workers’ employment. Except duly registered in accordance with the Act, a trade union is prohibited from performing any act in furtherance of the purposes for which it has been formed.
The Trade Disputes Act, CAP T8, LFN 2004, which regulates the settlement of trade disputes, makes it unlawful for any person to commence an action which is the subject matter of a trade dispute or any inter- or intra-union dispute in a court of law. Any breach of this renders the offender liable to a fine or imprisonment term, or both. The settlement of trade disputes – including labour and employment disputes – is the responsibility of the National Industrial Court, which was established pursuant to the National Industrial Court Act 2006.
The Employee’s Compensation Act 2010 (ECA) regulates the payment of compensation to both public and private sector employees for injuries suffered in the course of their employment. The ECA sets out the scope of the categories of injuries making up an employer’s obligation to the employee. The ECA establishes the Employees Compensation Fund, into which employers shall make contributions as prescribed. The Fund is managed in the interest of employees and employers by the management board of the Nigeria Social Insurance Trust Fund.
Finally, the Factories Act, CAP F1, LFN 2004 requires the registration of factories in which workers are exposed to occupational hazards. The Factories Act makes provisions regarding the safety of workers, and imposes penalties for any breaches of its provisions.
IMMIGRATION: In addition to the above-mentioned legislation, foreign investors intending to employ expatriates to specifically approved job designations in Nigeria must obtain a government permit conveying permission. Expatriate Quota positions are usually granted for a period of two years, subject to renewal, except where companies qualify for and are granted not more than one Permanent Until Reviewed Quota per position.
Under the Immigration Act, CAP 11, LFN 2004, a subject to regularisation (STR) visa is required by foreigners seeking to take up employment in Nigeria. The employer is expected to apply to the Nigerian embassy or consular office in the employee’s country of residence, requesting that he/she (and accompanying spouse/children, if applicable) be issued an STR visa to enter Nigeria. The visa is issued at the Nigerian embassy in the expatriate’s home country and is valid for three months.
Once a foreigner with an STR visa enters Nigeria, it needs to be regularised by applying for a residence permit and a multiple-entry visa where the expatriate intends to work for a period exceeding three months. A temporary Combined Expatriate Residence Permit and Alien’s Card (CERPAC) application is processed at the Nigeria Immigration Service in order to obtain a residence permit.
The CERPAC is later converted to a green card (residence permit) and a brown card (alien card, which is used to monitor the expatriate’s movements in and out of the country). Where the expatriate’s services are required for a period not exceeding three months, an application will be made for a temporary work permit visa on his/her behalf.
PENSION REGIME: The Pension Reform Act 2004 is the primary legislation regulating pension administration. It requires all employers with a minimum of five employees to set up a contributory pension scheme to be managed by pension fund administrators. The total minimum contribution shall not be less than 15% of the employee’s monthly pay, with 7.5% coming from the employer and 7.5% from the employee. Employers are also to provide life assurance policies for employees for a minimum of three times the total annual emolument of the employees.
FOREIGN INVESTMENT: Nigeria has in recent years introduced new regulations to help develop critical economic sectors. The government has adopted methods such as privatisation, deregulation, concession arrangements, and the creation of tax havens and tax holidays. The deregulation of the electricity and power sector, concession of public infrastructure, creation of free trade zones and proposed deregulation of the downstream oil sector are all examples of the new approach to developing the economy. Growing demand for infrastructure development has been beyond the capacity of successive governments. Private sector participation is now seen as a viable alternative, and there is a trend at the federal and state government level to aggressively court both local and foreign private investment. Important laws on private participation in the development and maintenance of public infrastructure have been enacted in recent years.
The Infrastructure Concession Regulatory Commission Act 2005 was enacted to provide a legal framework for private sector financing of infrastructure development. All federal government organs are permitted to enter into contractual arrangements or grant concessions to duly pre-qualified project promoters on financially viable projects, subject to approval from the Federal Executive Council.
Additional legislation exists in some states, such as the Lagos State Public-Private Partnership Law 2011 (PPP Law), which was enacted to establish the Office of Public-Private Partnerships (PPP Office) and enhance infrastructure and service development in Lagos State. Under the PPP Law, one of the functions of the PPP Office is to initiate procurement of PPPs for the development of public infrastructure and public assets by conducting a pre-qualification process for private investors willing to enter into PPPs with the state based on requests for expressions of interest. The PPP Office is also responsible for determining the framework for the engagement of consultants, specialists and advisers for PPPs. Similar legislation exists in other states, as they are all becoming increasingly alert to the immense benefits of tapping funds from the private sector for the overall development of infrastructure.
The Concession Agreement under the PPP Law usually covers any contract for the construction, maintenance, operation or management of a highway, bridge, road or associated facilities. Examples of such agreements include design, build, operate and transfer; build, own, operate and transfer; rehabilitate, operate and transfer; joint development agreement; and operation and maintenance.
The desire to make investment in infrastructure development attractive is also the driving force behind the Companies Income Tax (Exemption of Profits) Order 2012, which grants tax exemption on 30% of the costs incurred by companies in the provision of infrastructure or facilities of a public nature. These include power, water, health, education and sports facilities, as well as roads and bridges.
SOLID MINERALS: The government has also realised that the economy can only reach its maximum potential if other minerals apart from crude oil are harnessed. To help achieve this, corporate bodies are encouraged to engage in mining and solid minerals activities with a number of incentives.
For instance, the Mining and Minerals Act 2007 permits the holder of a mining licence to determine its profits, deduct from its assessable profits, and provides an allowance of 95% of the qualifying capital expenditure incurred by the company on expenditure and infrastructure costs in the year in which the investment is made. The Act also provides a tax relief period of three years for any company that is granted a mineral title, which can be extended for a further period of two years. The government has also introduced several incentives for solid minerals investment, such as the provision in the 2013 budget that any machinery and equipment imported for the purpose of development of solid minerals is to attract 0% import duty and 0% VAT. Nigeria has substantial non-oil mineral resources, with each state possessing at least two different minerals.
BANKING: The banking industry is regulated by the Central Bank of Nigeria (CBN), with the primary responsibility being to protect the interests of investors and depositors. The system consists of the CBN and commercial, merchant and specialised banks, including non-interest, development, mortgage and microfinance banks.
The laws regulating banking include: the Central Bank of Nigeria Act 2007 (CBN Act), the Banks and Other Financial Institutions Act Cap B3 LFN 2004 (BOFIA) and the Nigerian Deposit Insurance Corporation Act Cap N102 LFN 2004 (NDIC Act).
The CBN Act established the CBN for the promotion of a sound financial system and to act as banker and provide economic and financial advice to the federal government. The CBN Act charges the CBN with the overall control and administration of the monetary and banking policies of the federal government both within and outside Nigeria, including the maintenance of the country’s external reserves.
The BOFIA attempts to provide a legal framework and conditions for the establishment and operations of banks. It regulates banking and other financial institutions by prohibiting the carrying on of business in Nigeria as a financial institution except under licence and by a company so incorporated.
The CBN is empowered by the BOFIA to regulate the operations of banks and other financial institutions. It exercises control by issuing directives on cash reserves, power of supervision and examination, official management and control of failing banks and the ultimate power to grant and revoke banking licences. Its regulatory role over other financial institutions is to supervise activities and prescribe the minimum paid-up capital requirement.
The National Deposit Insurance Corporation (NDIC) Act establishes the NDIC for the purpose of insuring all deposit liabilities of licensed banks and other financial institutions. Other functions of the NDIC include guaranteeing payments to depositors in case of imminent or actual suspension of payments by insured banks or other financial institutions, and assisting monetary authorities in the formulation and implementation of banking policy so as ensure sound banking practice.
UNIVERSAL BANKING LICENCE REVOCATION: With the issuance and publication of the Regulation on the Scope of Banking Activities and Ancillary Matters, No. 3 of 2010 (the Regulation), the CBN brought an end to the practice of the Universal Banking Model, which allowed banks to obtain a uniform licence for the practice of diverse and specialised banking models. With the adoption of the Regulation, banks are only permitted to operate as commercial, merchant or specialised banks, which includes non-interest, development, mortgage and microfinance banks.
In addition, the Regulation prohibits banks from engaging in other activities such as insurance; the acquisition of real estate or other immovable property other than for use as its business premises; the grant of loans for the purpose of investing in the primary issues of stocks of any bank; and the grant of loans to facilitate the acquisition of a subsidiary or associate from which a bank is divesting in compliance with the Regulation.
ASSET MANAGEMENT CORPORATION OF NIGERIA: undefined Following the global financial crisis that began in 2008 and the large volume of non-performing loans (NPLs) in the banking sector, the Asset Management Corporation of Nigeria (AMCON) was established further to the AMCON Act 2010 with the mandate to soak up bad loans and help recapitalise the banks. AMCON was initially set to exist for 10 years, but there have been indications by the CBN of a willingness to extend its lifespan beyond this.
AMCON has prevented a systemic crisis in the financial services industry and the liquidation and collapse of several banks. It has acquired more than 12,500 banking sector NPLs worth N1.65trn ($10.4bn) and purchased over 95% of NPLs in the banking industry. It also restructured N600bn ($3.78bn) of NPLs acquired in 2011. AMCON currently owns three banks, Keystone Bank, Enterprise Bank and Mainstreet Bank, which it had acquired through a bridging process at a total cost of N765.3bn ($4.82bn), preventing them from liquidation. It is currently in the process of divesting its interests in these banks. In addition to the banking sector, AMCON has expended a total of N400bn ($2.52bn) in the purchase of NPLs in the downstream oil and gas sector, and N31bn ($195m) in the agricultural sector.
ENERGY REFORMS: The Petroleum Industry Bill (PIB) aims to establish a progressive fiscal framework that encourages investment in the petroleum industry while optimising government revenues; deregulates and liberalises the downstream sector; promotes transparency in administration; and promotes Nigerian content via an effective regulatory framework.
The PIB includes the division of the Nigerian National Petroleum Corporation into various entities. This will create a new national oil company, assembled as an independent and registered organisation, which will take over responsibilities related to oil and gas industry infrastructure. The PIB also sets out clear procedures as to the bidding processes and retention of licences and leases, which are not all set out under the existing laws. The PIB also includes a shift in emphasis to rents and royalties for petroleum revenue, rather than the current focus on taxes.
The PIB requires each upstream petroleum company to remit on a monthly basis 10% of net profit to the Host Community Fund. Any act of vandalism or sabotage that occurs in a community will lead to a forfeiture of the community’s portion of the Fund up to the amount sufficient to repair and remediate the damage caused. Contributions made to the Fund will be available as credit against fiscal rent obligations such as royalties, Nigerian Hydrocarbon Tax and Companies Income Tax, although no order of offset is provided for (see analysis).
NIGERIAN CONTENT DEVELOPMENT ACT: Due to the domination of the oil and gas sector by foreign-owned multinational entities with largely expatriate workers deployed in locations onshore and offshore Nigeria, the government enacted the Nigerian Oil & Gas Industry Content Development Act 2010 (LCA).
The LCA mandates operators to submit a Nigerian Content Plan as a condition for bidding for a licence, permit or other oil and gas interest. The plan must contain provisions that give first consideration to the utilisation of Nigerian goods and services, and first consideration for the training and employment of Nigerians in the work programme for which the plan was submitted. It provides that a Nigerian firm, defined as a company registered under the CAMA and having not less than 51% Nigerian shareholdings, is to be given first consideration in the award of oil blocks, oilfield licences, oil lifting licences and all project awards in the Nigerian oil and gas sector.
Exclusive consideration is to be given to Nigerian indigenous service companies that demonstrate ownership of equipment and capacity to execute the required work in bids for contracts and services as contained in the schedule to the LCA. This provision is applicable even where the indigenous firm is not the lowest bidder, provided it has the capacity to execute the required work.
Operators are also required to comply with minimum specifications for Nigerian content as contained in the schedule to the LCA. The schedule specifies the criteria for minimum specifications, which include the number of Nigerian man-hours utilised in relation to the duration of the project, tonnage, size and volume of certain goods, level of certification obtained and the total local expenditure in relation to the procurement of local goods and services. Non-compliance with the provisions of the LCA constitutes an offence punishable upon conviction in the payment of a 5% fine of the project sum for each project in which the offence is committed, or cancellation of the project.
GAS MASTER PLAN: With the lack of infrastructure across the value chain and the low cost of domestic gas, which does not cover the huge costs usually associated with gas development, the gas investor is at a disadvantage, as the PIB provides few incentives to support investments in the sector.
As part of Nigeria’s resolve to become a major player in the international gas market as well as to lay a solid framework for gas infrastructure expansion within the domestic market, the Nigerian Gas Master Plan (GMP) was approved on February 13, 2008. The GMP is aimed at growing the gas market in the domestic economy; optimising the country’s presence and competitiveness in high value gas export markets by focusing on gas pricing policy; the creation of guidelines and regulation for the gas industry; and the creation of a gas infrastructure blueprint for the country.
Key operators in the country’s hydrocarbons industry have noted that the initiative had lost its original drive and would need to be swiftly bolstered by the government to achieve its objectives.
RENEWABLE ENERGY: Further to the federal government’s stated objective to develop and implement strategies for a clean, reliable energy supply, the National Renewable Energy Masterplan Project was introduced in 2006 under the auspices of the Federal Ministry of Environment. The main goal of the project is the reduction of energy use by 20% by 2020 and to also meet 20% of the nation’s electricity needs with Class 1 renewable energy sources by 2020. It is anticipated that the combination of energy efficiency, conservation, and renewable energy resources will allow Nigeria to meet any future increase in energy demand without increasing its reliance on non-renewable resources.
The major barrier to renewable energy and energy efficiency development is the lack of a clear policy backed up with supporting legislation. Progress can be made through the development of an effective policy and legislation to rejuvenate this sector.
ELECTRICITY REFORMS: In early 2013 the government announced it was looking to boost generation capacity to 10,000 MW by the end of the year, up from 6442 MW as of 2012. Various measures are being put in place to revamp the electricity sector.
The Electricity Sector Reform Act 2005 (ESRA) was enacted to provide for the formation of companies to take over the functions, assets, liabilities and staff of the National Electric Power Authority (NEPA); develop competitive electricity markets; establish the Nigeria Electricity Regulatory Commission (NERC); provide for the licensing and regulation of the generation, transmission, distribution and supply of electricity; enforce performance standards, consumer rights and obligations; and provide for the determination of tariffs and related matters.
The ESRA established the Power Holding Company of Nigeria (PHCN) to take over all the assets, liabilities, functions and staff of NEPA and address that body’s shortfalls. Under the ESRA, an interim licence valid for 18 months was to be issued by the NERC to PHCN after which the National Council on Privatisation (NCP) shall – not later than eight months after the formation of PHCN – establish “successor companies” (limited by shares) to succeed PHCN in the generation, transmission, trading, distribution and bulk supply and resale of electricity in Nigeria. The ESRA provides that shares in these successor companies shall be jointly held in the name of the Ministry of Finance Incorporated and the Bureau of Public Enterprises for and on behalf of the federal government. In addition, the ESRA envisages that NEPA’s assets and liabilities be transferred from PHCN to the successor companies as may be specified.
On April 3, 2013 the NCP set up Transition Committees for 15 successor companies to ensure a smooth transition and the eventual handover of the management and operational control of the successor companies to the 14 successful bidders. The successor companies are required to apply for substantive licences within six months of the granting of an interim licence. Following this, the NCP may at any time and by such means as it deems appropriate begin the privatisation of the successor companies. The NPC has invited private investors to bid for the majority shareholding in the successor companies. In February 2013 the share sale agreements were executed between the preferred bidders and the Bureau of Public Enterprises. At time of press PHCN was still responsible for electricity generation, transmission, distribution and supply as the unbundling process had not fully taken place. Successor companies have yet to commence operations and PHCN is yet to transfer its assets to them.
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