Nigeria

Executive Summary

Nigeria’s economy – Africa’s largest – exited recession in 2017, assisted by the Central Bank of Nigeria’s more rationalized foreign exchange regime. No growth is expected in the near term and although 2019 ended with a real growth rate of 2.3 percent this is still below Nigeria’s population growth rate of 2.6 percent. With the largest population in Africa (estimated at nearly 200 million), Nigeria continues to represent a large consumer market for investors and traders. Nigeria has a very young population with nearly two-thirds under the age of 25. It 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 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. Reforms undertaken since 2017 have helped boost Nigeria’s ranking on the World Bank’s annual Doing Business rankings to 131 out of 190.

Nigeria’s underdeveloped power sector remains a 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 169 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 Nigerian Government, in partnership with the World Bank, published a Power Sector Recovery Plan (PSRP) in 2017. However, three years after its launch, differing perspectives on various PSRP interventions have delayed implementation. The Ministry of Finance is driving the implementation effort and has convened three Federal Government of Nigeria committees charged with moving the process forward in the areas of regulation, policy, and finances. Discussions between the government and the World Bank are continuing, but some 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 44 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 2019, largely as a result of the country’s continued recovery from the 2016 economic recession. U.S. goods exports to Nigeria in 2018 were valued at USD 2.7 billion, up nearly 23 percent from the previous year, while U.S. imports from Nigeria totaled USD 5.6 billion, a decrease of 20.3 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 2018 (latest data available). The stock of U.S. foreign direct investment (FDI) in Nigeria was USD 5.6 billion in 2018, 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.

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 Organization 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 U.S. Securities Exchange Commission (SEC) and U.S. Department of Justice rulings in 2010 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. Militant attacks on oil and gas infrastructure in the Niger Delta region 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 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 kidnapping for ransom, has increased in recent years, and law enforcement efforts have been ineffectual. International inspectors have voiced concerns over the adequacy of security measures at some Nigerian port facilities onshore. Businesses report that bribery of customs and port officials remains common to avoid delays, and smuggled goods routinely enter Nigeria’s seaports.

Although the constitution and laws provide for freedom of speech and press, the government frequently restricts these rights. A large and vibrant private, domestic press frequently criticizes the government, but critics report being subjected to threats, intimidation, and sometimes violence as a result. Security services increasingly detain and harass journalists, including for reporting on sensitive topics such as corruption and security. As a result, some journalists practice self-censorship on sensitive issues. Journalists and local NGOs claim security services intimidate journalists, including editors and owners, into censoring reports perceived to be critical of the government.

Table 1: Key Metrics and Rankings
Measure	Year	Index/Rank	Website Address
TI Corruption Perceptions Index	2019	146 of 180	http://www.transparency.org/ research/cpi/overview
World Bank’s Doing Business Report	2019	131 of 190	http://www.doingbusiness.org/ en/rankings
Global Innovation Index	2019	114 of 129	https://www.globalinnovationindex.org/ analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions)	2018	USD 5.6 billion	https://apps.bea.gov/international/ factsheet/
World Bank GNI per capita	2018	USD 1,960	http://data.worldbank.org/indicator/ NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Nigerian Investment Promotion Commission (NIPC) Act of 1995 dismantled controls and limits on FDI, allowing for 100 percent foreign ownership in all sectors, except the petroleum sector where FDI is limited to joint ventures or production-sharing contracts. It also created the 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) 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. The NIPC’s ability to attract new investment has been limited because of the unresolved challenges to investment and business.

The Nigerian government continues to promote import substitution policies such as trade restrictions, foreign exchange restrictions, and local content requirements in a bid to attract investment that would develop domestic production capacity 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. The government began closing land borders to commercial trade in August 2019 to try and curb smuggling. Investors generally find Nigeria a difficult place to do business despite the government’s stated goal to attract investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are currently no limits on foreign control of investments; however, Nigerian regulatory bodies may insist on domestic equity as a prerequisite to doing business. The NIPC Act of 1995 liberalized the ownership structure of business in Nigeria allowing foreign investors to own and control 100 percent of the shares in any company except the petroleum industry. Ownership prior to the NIPC Act was limited to a 60/40 percentage in favor of majority Nigeria control. The foreign control of investments applies to all industries minus a few exceptions. Investment in the oil and gas sector is limited to joint ventures or production-sharing agreements. Laws also control investment in the production of items critical to national security (i.e. firearms, ammunition, and military and paramilitary apparel) to domestic investors. Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Decree of 1990. The NIPC Act prohibits the nationalization or expropriation of foreign enterprises except in case of national interest.

Other Investment Policy Reviews

The OECD completed an investment policy review of Nigeria in 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 published a compendium of investment incentives which is available online at https://nipc.gov.ng/compendium .

Business Facilitation

Although the NIPC offers the OSIC, 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 ). Many steps for business registration can be completed online, but the final step requires submitting original documents to a CAC office to complete registration. On average, a foreign-owned limited liability company (LLC) in Nigeria (Lagos) can be established in 10 days through eight steps. This average is significantly faster than the 23-day average for Sub-Saharan Africa. Timing may vary in different parts of the country. Only a local legal practitioner accredited by the CAC 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 (NCS).

Although not online, the OSIC co-locates relevant government agencies to provide more efficient and transparent services to investors. The OSIC assists with visas for investors, company incorporation, business permits and registration, tax registration, immigration, and customs issues. Investors may pick up documents and approvals that are statutorily required to establish an investment project in Nigeria. 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.

Outward Investment

The Nigerian Export Promotion Council (NEPC) 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 that collected grants but did not actually export. The program was revised and re-launched in 2018 when 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 sufficient quantities to support exports and meet domestic demand. Most Nigerian manufacturers remain unable to or uninterested in competing in the international market, given the size of Nigeria’s domestic market.

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
Economic Data	Year	Amount	Year	Amount
Host Country Gross Domestic Product (GDP) ($M USD)	N/A	N/A	2019	$448 billion	www.worldbank.org/en/country
Foreign Direct Investment	Host Country Statistical source		USG or international statistical source		USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions)	N/A	N/A	2018	$5,630	BEA data available at https://www.bea.gov/international/ direct-investment-and-multinational- enterprises-comprehensive-data
Host country’s FDI in the United States ($M USD, stock positions)	N/A	N/A	2018	$75	BEA data available at https://www.bea.gov/international/ direct-investment-and-multinational- enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP	N/A	N/A	2018	25.1%	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	Amount	100%	Total Outward	Amount	100%
Bermuda	15,684	17%	Data Not Available
The Netherlands	14,185	15%
United Kingdom	11,714	13%
France	10,913	12%
United States	9,058	10%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data not available.

Custom Report Excerpts:

Nigeria

Executive Summary

1. Openness To, and Restrictions Upon, Foreign Investment

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

U.S. Department of State

The Lessons of 1989: Freedom and Our Future