NIGERIA Investment Guide
Openness to Foreign Investment
Nigeria is Africa's most populous nation and the region's largest supplier of
oil to the United States. It offers a low cost labor pool, abundant natural
resources, and the largest domestic market in Sub-Sahara Africa. On the other
hand, inadequate infrastructure, corruption, and inconsistent regulations mean
that considerable time, money and managerial effort are needed for a firm to
begin operating and earn profits in Nigeria. Nigeria's basic infrastructure is
extensive but inadequate for a population of over 100 million. Problems that
complicate doing business in Nigeria include crumbling roads and bridges,
erratic telephone service, recurring shortages of fuel, water, electricity and
social unrest in some parts of the country.
After 15 years of unbroken military dictatorship, Nigeria's third democracy was
inaugurated on May 29, 1999. The new civilian Government has taken a number of
positive steps to address the structural and institutional flaws in the
Nigerian economy. For example, the Government established panels to review all
contracts awarded by previous governments, all sales of government properties,
and parastatal budgets. The Government has also shown more transparency in
contracting and procurement. Petitions from aggrieved individuals and groups
have inundated the human rights panel set up by the civilian Government.
President Obasanjo promised that those indicted on charges of official
corruption will be prosecuted.
The dual exchange rates were abolished in the 1999 budget and this remains the
case. In the year 2000 budget the Inter Bank Foreign Exchange Market (IFEM)
replaced the Autonomous Foreign Exchange Market. Under IFEM, banks, oil
companies and the CBN (Central Bank of Nigeria) can buy or sell their foreign
exchange at a market determined rate. Companies can hold domiciliary accounts
in private banks, and account holders have unfettered use of the funds. Foreign
investors may bring capital into the country to finance investments, and remit
dividends without prior finance ministry approval. In late 1998, the inflation
rate began inching upward, due partly to new deficit spending by the
Government. This trend accelerated in the first half of 1999 with most annual
inflation estimates running at 12-15 percent.
The privatization of major parastatals, including telecommunications and
electricity (Nitel and Nepa respectively), has been a declared Government
objective since 1997. The 1998 budget promised privatization with 40 percent
equity for the Government, 20 percent equity for Nigerian citizens, and
unrestricted sale of the remaining 40 percent. Invitations to invest were to be
made to specific investors with relevant expertise. In 1999, the Government
repealed and amended 11 decrees that inhibited competition or conferred
monopoly powers on public enterprises in the petroleum, telecommunications
power and mineral sectors. President Obasanjo has promised a transparent privatizaton
program after evaluating, and if necessary, rehabilitating the parastatals'
assets. Although several private telecom companies began operating successfully
in 1998, privatization of the telecommunication sector, which was slated for
the first quarter of 2000, has not happened. The Government's telecom policy released
in October 1999 was recently revised by a Telecommunications Sector Reform
Implementation Committee (TSRIC), set up in February of this year.
The revised telecom policy draft reported in the newspapers gives the NCC (Nigerian Communications Commission) powers to issue licenses to both existing and prospective telecom operators in different telecommunications services. The policy also scrapped the stipulation of a standard technology for cellular services and is silent on the introduction of a second carrier to compete with Nitel. However it does allow an operator to provide an unrestricted number of licensed services.
The introduction of GSM
technology to Nigeria has been delayed by confusion surrounding the licensing
process. The NCC revoked five previously issued licenses and suspended the
original privatization exercise. The Government has begun a new licensing round
under the guidance of a World Bank affiliate.
Dispute Settlement
Nigeria is a member of various international organizations with bodies
specifically set up to resolve disputes between member states and foreign
investors. An example is the United Nations Convention on International Trade
Law (UNITRAL)
Shortly after independence in 1960, Nigeria joined the United Nations and ratified
all United Nations resolutions. Nigeria ratified the ICSID treaty no. 8359 on
august 23, 1965. The Nigerian government legalized the enforcement of ICSID
awards within Nigeria through the ICSID decree no. 49 of 1967, which was
re-codified as one of the laws of the federation of Nigeria 1990 (chapter 189.)
However, enforcement of judgments in Nigerian courts is painstakingly slow.
Several factors undermine effective enforcement: available court facilities can
barely cope with the large number of cases; judgments are hand written by
judges because the courts are not computerized; court sessions adjourn due to
power outages; under prior military rule administrators and top military
officers flagrantly disobeyed court orders. In some instances decrees were promulgated
and backdated to circumvent court rulings (e.g. the failed banks tribunal
decree under which several bank chiefs were detained without trial despite
court injunctions against their continued detention.) There has been
considerable change since the advent of democracy. The failed bank decree has
been amended to accommodate trial without continued detention. Also, the
application of the rule of law has improved. People are more vocal and seek
redress without fear of reprisal. There have been no investment disputes since
the 1997 case involving Ashland oil company and the Nigerian Government which
led to the cancellation of their production sharing contract by then petroleum
minister, Dan Teeter.
The Nigerian legal system is fashioned after English common law but modified by
statutes to meet local demands and conditions. At the apex of the judicial
system is the Supreme Court consisting of 15 justices, including the chief
justice of the federation. The Supreme Court has original and appellate jurisdiction
in certain constitutional civil and criminal matters prescribed in the
constitution. In addition, there are federal and states' courts of appeal and
customary courts of appeal at the state level. The Federal High Court has
jurisdiction over revenue matters, admiralty and banking. It also has
jurisdiction over foreign exchange, other currency and monetary or fiscal
matters and suits to which the federal Government or any of its agencies is
party.
Bankruptcy law: Nigeria has a written bankruptcy law that is seldom
applied. Industry sources state that bankruptcy cases are
rarely successfully prosecuted. Even in cases where creditors have obtained
judgment against prosecuted firms, claims could not be made. The Nigerian
bankruptcy law states that where a company is declared bankrupt through a court
judgment, no person is allowed to transact business with such an organization.
However, several such businesses are known to have continued to flourish well
after such court judgments. Industry watchers and financial analysts have
continually called for a repeal of the current and the evocation of a new law.
Performance Requirements and Incentives
As stated in the December 1986 circular "industrial policy of
Nigeria," the Nigerian government maintains a system of incentives to
foster the development of particular industries, to encourage firms to locate
in economically disadvantaged areas, to promote research and development in
Nigeria, and to favor the use of domestic labor and raw materials. The industrial development (income tax relief) act
of 1971 provides incentives to "pioneer" industries deemed beneficial
to Nigeria's economic development. Companies given "pioneer" status
may enjoy a non-renewable tax holiday of five years, or seven years if the
pioneer industry is located in an economically disadvantaged area. The 1998
budget created more incentives for the gas sector under the pioneer industries
incentives program. These incentives range from tax holidays for oilfield
development to allowances for capital investments and tax deductible interest
on loans.
Technology transfer requirements: the legal authority in Nigeria is the
National Office for Technology Acquisition and Promotion (NOTAP). NOTAP is
charged with monitoring on a continual basis, transfer of foreign technology.
NOTAP implements this measure through registering contracts and agreements
dealing with transfer of foreign technology. NOTAP ensures that a foreign
investor issues:
• a license to use
trademarks and patented inventions;
• supply of technical expertise in the form of preparation of plans, diagrams, operating manuals or any other form of technical assistance of any description whatsoever;
• supply of detailed engineering drawings;
• supply of machinery and plant and;
• provision of operating staff or managerial assistance and the training of
Nigerian personnel.
Compliance with these
measures ensures that foreign investors in technical, management and
consultancy services can remit fees outside Nigeria.
The Nigeria Deposit Insurance Corporation's (NDIC) annual report in 1996 put
the total assets of Nigeria's 20 major banks at almost 497 billion naira.
(100.00 naira to one U.S. dollar) Nigerian banks' deposit base has increased
with the mandatory new capitalization minimum requirement of N500 million for
commercial and merchant banks. There are 90 banks in Nigeria. The number of
commercial banks rose from 51 in 1998 to 57 following the conversion of five
merchant banks and the licensing of one commercial bank in 1999. On the other hand,
the number of merchant banks declined from 38 to 33. Mergers and acquisitions
have not been common in the banking sector, although two mergers took place at
the peak of the liquidation exercise in 1996. In the real sector, especially in
manufacturing, many overseas investors divested during the military rule. A few
management buyouts took place. At present, the reverse is occurring as some
foreign investors have returned to their previous companies and have
re-occupied senior management positions.
Protection of
Property Rights
Nigeria is a member of the World Intellectual Property Organization (WIPO) and
a signatory to the Universal Copyright Convention (UCC), the Berne convention,
and the Paris Convention (Lisbon text). Nigeria, therefore, is a party to most
of the major international agreements on Intellectual Property Rights (IPR).
Cases involving copyright infringement of non-Nigerian materials have been
successfully prosecuted in Nigeria. In 1997, there were sporadic reports of
raids in Lagos on video stores renting pirated tapes. However, enforcement of
existing laws remains weak, particularly in the patent and trademark areas.
Despite active
participation in international conventions and the apparent interest of the
Government in IPR issues, its efforts have been ineffectual in curtailing the
widespread production and sale of pirated tapes, videos, computer software, and
books in Nigeria. Recently, a local Microsoft agent with the aid of law
enforcement officers recovered several pirated Microsoft software during raids
on the premises of private computer companies dealing in computer accessories.
The patents and design decree of 1970 governs registration of patents. The Nigerian standards organization is responsible for issuing patents,
trademarks, and copyrights. Once conferred, a patent gives the patentee the
exclusive right to make, import, sell, or use a product or to apply a patented process. The trademarks act of 1965
governs the registration of trademarks. Registering a trademark gives its holder
the exclusive right to use the registered mark for a specific product or class
of products. IPR lawyers are currently pressing the GON to review the present
copyright law to make it more effective.
Nigeria's recent statutes include the copyright act of 1988 (amended in 1992);
the national film and video censors board act of 1993 (which reinforced the
measures of the copyright act); and the Nigerian film policy law of 1993 (which
encouraged the development of the Nigerian film industry). IPR problems in
Nigeria increased with the government's 1981 nationalization of the film
industry (including distribution), although this policy has been officially
abandoned. Motion Picture Association (MPA) member companies were not paid the
contractual compensation that was promised by the Nigerian government.
Moreover, the companies were unable to repatriate their assets from Nigeria.
Therefore, there has been no trade in recent years between MPA member companies
and Nigeria. The estimated accumulated losses to MPA member companies exceed
$25 million.
Nigerian companies, including filmmakers, formed the Proteus Entertainment
Agency to protect copyright laws in the music, video, and other industries. The
copyright decree of 1988, based on WIPO standards and U.S. copyright law,
currently makes counterfeiting, exporting, importing, reproducing, exhibiting,
performing, or selling any work without the permission of the copyright owner a
criminal offense. Progress on enforcing the 1988 law has been slow. The expense
and time necessary to pursue a copyright infringement case to its conclusion
deter prosecuting such cases.
Attorneys active in IPR issues have formed the industrial property law interest
group (IPLIG) to educate and lobby on industrial IPR issues. They have sponsored
several copyright conferences throughout Nigeria and credit themselves for
including an IPR course at the Lagos law school. In the past, few companies
have secured trademark or patent protection in Nigeria because it was generally
considered ineffective. Nigeria is considered to be Africa's largest market for
pirated products. Losses from poor IPR protection, though difficult to
estimate, are substantial. Most of the sound recordings and videotapes sold in
Nigeria are pirated. Satellite signal piracy is also common. The manufacture
and sale of counterfeit pharmaceuticals and auto parts are emerging problems.
Transparency of Regulatory System
In 1995, Nigeria promulgated the Nigerian investment promotion commission
(NIPC) decree, which liberalized the foreign investment regime. In 1999 Nigeria
fully deregulated the foreign exchange market. The dual exchange rate (official
and AFEM) were scrapped and replaced with the inter bank foreign exchange
market (IFEM.) Since January 2000 IFEM operates daily and rates are market
determined. Current IFEM rates are about 103 naira to a dollar. Under IFEM
banks, including the CBN, can buy or sell their foreign exchange. In addition,
oil companies are now allowed to sell their foreign exchange outside the CBN.
However, the CBN still manages the foreign exchange market through its open
market operations and prudential guidelines for banks. Essentially, banks must
meet their reserve requirements and have proper documentation of foreign
exchange transactions in order to be eligible to participate in IFEM. Nigeria's
private sector has access to various credit instruments operated by banks in
the economy. In addition the capital market has generated more credit recently
than banks. Now, the private sector is turning to the capital market to raise
funds due to very high lending rates by the banks. Also, there is a tendency
for banks in Nigeria to concentrate on short term lending. However, the
Nigerian capital market is not deep. Most trading is in shares (rights and
warrants), debt instruments (bonds) and government securities (treasury bills.)
Financial derivatives such as futures and options are lacking in the market.
For instance, market operators have lobbied for years for a commodity exchange.
To date there has been no enabling act.
Nigeria has been notified that its measures for agreement on trade-related
investment, and local content requirements in the economy in general, are
inconsistent with its WTO obligations. Proper notification allows
developing-country WTO members to maintain such measures for a five-year
transitional period. Nigeria, therefore, should have eliminated these measures
before Jan. 1, 2000. Nigeria still imposes bans on a number of goods. In
addition, the WTO valuation agreement has not yet been implemented in the
country. Nigeria still uses Brussels definition of value (BDV.) However,
Nigerian customs officials state that a new valuation scheme which will replace
BDA is imminent. The external trade department of the Nigeria commerce ministry
is receiving technical assistance from the WTO secretariat to facilitate this
process which will include training for local staff.
Political Violence
Tensions in the Niger-Delta region continue to worsen. Decades of neglect by
previous governments and dislocations caused by energy projects have aggravated
socio-economic unrest. Violent inter-ethnic strife, sabotage of
pipelines/installations, and kidnapping of Nigerian and expatriate oil workers
are on the rise. In 1999 during communal fighting in Warri, over 400 people
lost their lives. President Obasanjo's administration announced a 13 percent
revenue allocation to the oil producing areas from the federation account. In
addition, the Niger delta development commission bill forwarded by the
executive to the national assembly was passed into law in May 2000. Niger-Delta
indigenes remain highly skeptical of Government promises, and continue to seek
direct payments from the oil companies.
Corruption and Crime
Nigeria has promulgated a money-laundering decree to inhibit this practice as
well as a decree on advance-fee fraud, known as 419 schemes after the
so-numbered Nigerian law, to track methods of fraud.
Labor
Nigerian workers, except members of the armed forces and employees designated
essential by the Government, may join trade unions and strike. Essential
employees include firefighters, police, employees of the central bank, the
security printers (printers of currency, passports, and Government forms), and
customs and excise staff. Nigeria has signed and ratified the International
Labor Organization's (ILO) convention on freedom of association. However, prior
(military) rulers recognized a single central labor body, the Nigerian Labor
Congress (NLC), thereby delegitimizing other unions. Under Nigerian law, any
non-agricultural enterprise that employs more than 50 people must recognize
trade unions and pay or deduct dues for union members. In the past, the
Government has threatened to withdraw the dues check off provision and make
union dues voluntary if unions pursue strikes. The Abubakar administration
accepted an ILO fact-finding mission and took other steps to correct the abuses
that led to ILO censure during the Abacha regime.
Collective bargaining is common in many sectors of the economy. Nigerian law protects
workers from retaliation by employers for labor activity through an independent
arm of the judiciary, the Nigerian industrial court. Trade unionists have
complained, however, that the judicial system's slow handling of labor cases
constitutes a denial of redress. The Government retains broad authority over
labor matters, and can intervene forcefully in disputes it feels challenge
political or economic objectives. In 1996, for example, the Abacha regime
banned the university lecturers' union to force an end to their strike, and in
1994 it dismissed the executive councils of the NLC and the two leading
petroleum sector unions. The Government replaced the leadership of these unions
with government-appointed "sole administrators." the Abubakar
administration returned these bodies to direct union control in 1998. The Obasanjo
Government has in the last one year taken bold steps to reactivate several
labor parastatals that have been inactive for years. The Government has
reconstituted the boards of the national social insurance trust fund, the
industrial arbitration panel and the national industrial court.
The 1974 labor decree
and the 1979 constitution prohibit forced or compulsory labor. While this
prohibition is generally observed, forced labor has been "employed"
in some community clean-up projects.
Nigeria's 1974 labor decree prohibits employment of children under 15 years of age in commerce and industry and restricts other child labor to home-based agricultural or domestic work. The law further stipulates that no person under the age of 16 may be employed for more than eight hours per day. The decree allows the apprenticeship of youths under specific conditions. Primary education is compulsory in Nigeria, though rarely enforced. Actual enrollment is declining due to the continuing deterioration of public schools. Increasing poverty and the need to supplement meager family incomes have also forced more children into the employment market.
Nigeria's 1974 labor
decree established a 40-hour workweek, prescribed two to four weeks of annual
leave, set a minimum wage, and stipulated that workers are to be paid extra for
hours worked over the legal limit. The decree states that workers who work on
Sundays and legal holidays must be paid a full day's wage in addition to their
normal pay. There is no law prohibiting excessive compulsory overtime. In May,
the federal government approved a new national minimum wage for both federal
and state employees. Under the approved wage, federal workers are to receive a
minimum monthly wage (salary and allowance) of N7, 500.00 (US$75) while state
employees would receive N5,500 as a minimum monthly wage. The new wage review
has, however, set many state governments and their employees on a collision
course. While some states claim that they cannot afford the stipulated N5,500,
labor unions and state workers insist their wages should be the same as those
of federal workers. The Abubakar regime carried out the last minimum wage
review in 1998. The 1974 decree contains general health and safety provisions.
Employers must compensate injured workers and dependent survivors of those
killed in industrial accidents but enforcement of these laws by the ministry of
labor is largely ineffective.
Worker rights in
petroleum, chemicals and related products, primary and fabricated metals,
machinery, electric and electronic equipment, transportation equipment, and
other manufacturing sectors are not significantly different from those in other
major sectors of the economy.
International
Investment Agreements
Nigeria is a member of the British Commonwealth, the United Nations and several
of its affiliated organizations, the World Bank, and the African Development
Bank. It is party to several international commodity arrangements, including
the Organization of Petroleum Exporting Countries (OPEC), the International
Cocoa Organization, the International Cotton Advisory Committee, the
International Institute for Cotton, the West African Groundnut Council, and the
International Tin Council. Treaties and agreements in force between the United
States and Nigeria relating to consular matters, aviation, mutual security,
economic and technical cooperation, extradition, property, and trademarks, were
concluded originally between the United States and the United Kingdom, and were
recognized by Nigeria following independence in 1960.
Nigeria is a signatory to the Lome Convention, which provides certain exports duty-free entry into the European Union (EU), and is also a member of the General Agreement on Tariffs and Trade (GATT), requiring a nondiscriminatory import tariff. There have been frequent complaints, however, that Nigeria does not fully meet its obligations under such agreements.
Nigeria is a member of
the Economic Community of West African States (ECOWAS), allowing free movement
of people, goods and services within the region.
Foreign Trade Zones
The establishment of a Nigerian Export Processing Zone Authority (NEPZA) in
1992 was an additional effort to attract foreign investment. The first and only
zone is in eastern Nigeria in the port city of Calabar. After five years and
$50 million in investment, the zone is essentially non-operational. Although
the Government reports that 16 firms have provisional authority to operate
there, only six firms have begun test production runs, and no exports have been
generated. The export free zone at Onne is only for oil and gas products.
Taxation
The corporate income tax rate in Nigeria is 35 percent. A 20 percent income tax
rate applies to agricultural, mining, and manufacturing companies with a
turnover less than N 1 million for the first five years of operations. New
manufacturing companies that derive most of their revenues from export and
mining enterprises may be eligible for exemption from income tax for the first
three years of operations if it operates. Petroleum companies are also eligible
for a three-year tax holiday and significant incentives for the following
years. A 10 percent tax is imposed on capital gains. Dividends and interest are
both subject to a 10 percent withholding tax.
Stock Market
The Nigerian Stock Exchange (NSE) in Lagos was established in 1960. By the end
of the 1990s, it had 194 listed companies. The NSE's Automated Trading System
has been launched.
There is another exchange that began operation in 2000, the Stock Exchange of
Nigeria (SEN) in Abuja. However, little data is available at this time on the
SEN.
For more information on Nigeria please visit:
For more information about investment in Nigeria visit: http://www.nipc-nigeria.org
For more information about commerce in Nigeria visit: http://www.commerce.gov.ng/.