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.

2016 witnessed continuing declines in stock market value owing to Nigeria’s economic recession: the equity market declined 6.12 percent in 2016, following a 17.6 percent decline in 2015. As of December 2016, the NSE claimed over 247 listed companies and a total market capitalization of USD 53.1 billion, a 4.8 percent decline from 2015. Roughly half of that figure is represented by the market capitalization value of just four companies. The GON has considered forcing companies in certain sectors 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, with the GoN issuing bonds of various maturities ranging from two to 20 years since the return to civilian rule in 1999. The GoN has issued bonds to restructure the GoN 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 22 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 Central Bank of Nigeria (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 “Systematically Important Banks” (SIBs) given 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. Although Nigerian Deposit Insurance Corporation (NIDC) officials have estimated non-performing loans stood at 10 percent of outstanding loans at the end of 2016, the actual figure is likely higher. NDIC also reported 13.5 percent non-performing loans in September 2017. GoN 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. Both Jaiz Bank International Plc and Stanbic IBTC Plc have established Islamic banking operations in Nigeria. Jaiz Bank International commenced operations in 2012. There are five licensed merchant banks.

The CBN has issued regulations for foreign banks for mergers with or acquisitions of existing local banks in the country. Foreign institutions’ aggregate investment must not be more than 10 per cent of the latter’s total capital.

Foreign Exchange and Remittances

Foreign Exchange

Foreign currency for most transactions is procured through local banks in the inter-bank market. The official Central Bank of Nigeria (CBN) window for procuring foreign exchange, namely the Retail Dutch Auction System, was discontinued for most of 2015 and 2016 in conjunction with the CBN’s systematic restrictions on foreign exchange undertaken to support the value of the naira in the face of weaker forex inflows. Local banks also issue foreign currency-denominated debit cards to customers who have domiciliary accounts. ATM naira-denominated cards issued by local banks can be used internationally for transactions and cash withdrawals, but such transactions have a ceiling of the daily local cash withdrawal limit of Naira 150,000 (approximately USD 750). Low value foreign exchange may also be procured at a premium from foreign exchange bureaus, called Bureaus De Change (BDCs).

The CBN’s foreign exchange reserves varied during 2016, falling as low as $23 billion but ending the year at $29 billion, approximately the same level it held at the end of 2015 With the decline in oil prices, the CBN has closely managed the interbank forex market in order to prop up the naira – a move that has created dollar shortages and a vigorous parallel currency market with prices that varied widely from the official interbank rate. After a year of Central Bank efforts to peg the currency at 196-199N/$1, in June 2016 the Central Bank allowed the naira to depreciate substantially from 199N/$1 to 282N/$ 1 and finally to 310-320N/$1. The naira subsequently depreciated even further on the parallel market, falling to 460-480N/$1 by the end of the year with the official rate stabilizing between 310/-320N/$1. Nigerian, American, and other foreign businesses frequently have 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. 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 41-item list as temporary, the restriction remains in place with no indication it will be removed. In February 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/dollar in January 2017 to around 390/dollar as of April 2017.

Remittance Policies

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 externalizing dividends from Nigeria. Money transfers usually take no more than 48 hours, if individuals provide the necessary documentation. In 2015, the CBN implemented restrictions on foreign exchange remittances. All such transfers must occur through banks. Such remittances may take several weeks depending of 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 ).

Nigeria is not a member of the Financial Action Task Force. It is a member of Intergovernmental Action Group Against Money Laundering in West Africa (GIABA).

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. It’s most recent annual report (calendar year2015) reported total assets of USD 1.1billion, a 20.1 percent increase from 2014. It was created to receive, manage and grow a diversified portfolio that will eventually replace government revenue 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.