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.