The law and practice of foreign investment in Nigeria

INTRODUCTION

The laws of foreign investment in the Nigerian economy was greatly liberalized in 1995 with the introduction of two principal laws by the federal government of Nigeria. Ever since the introduction of the Nigerian Investment Promotion Act and the Foreign Exchange (Monitoring & Miscellaneous) Act, the investment space of Nigeria became unusually liberalized and friendlier to foreign investors.

Most relevant to our discussion here are the Nigerian Investment Promotion Act 1995 (NIPC Act) and the Foreign Exchange (Monitoring & Miscellaneous Provisions) Act 1995 (FEMMA Act) which are the actual legislations that revolutionlised foreign investment in Nigeria. However, there are other legislations which are also applicable to foreign investment in Nigeria. This statutes induce the following:

  • The Companies & Allied Matters Act, 1990 (CAMA)
  • The Companies Income Tax Act (CITA)
  • The National Office of Technology Acquisition & Promotion Act, 1979 (NOTAP)
  • The Investment & Securities Act 1999 (ISA).

INVESTMENT INCENTIVES TO FOREIGN INVESTORS

As against the highly regulated and prohibitive investment regime prior to 1995, the Nigerian Investment Promotion Commission (NIPC) under its enabling Act have almost completely removed all the impediments and barriers militating against foreign investors’ interest. The following are of interest:

  • A foreigner can chose to do business alone in Nigeria or in partnership with Nigerians, except though, in areas that requires some measures of local content. Examples of areas requiring local content includes the investment in the oil and gas sector, as well as in broadcasting.
  • A foreigner can chose to invest or do business in any area of the economy. Except though, in areas contained in the negative list. This areas also excludes even Nigerian nationals.
  • Under the FEMMP Act, a foreign investor is at liberty to choose any authorized Nigerian bank or financial institution and can also discuss freely on terms of capital importation into Nigeria and for other lawful banking services.
  • A foreign investor also enjoys the freedom of total repatriation of capital out of Nigeria to any destination of choice.
  • A foreign business in Nigeria with loan procured from a source outside Nigeria can freely service such loan with proceeds from the business in Nigeria.
  • Total proceeds from Nigerian investment either by way of profits or dividends (net of applicable taxes) can be repatriated out of Nigeria partly or in full by a foreign investor.
  • Arbitration in Nigeria is most advanced than other jurisdiction within the African continent. So arbitration agreements and awards are very much enforceable through the existing legal system. This encourages speedy resolution of business disputes.
  • Foreign investors’ interest shall not be nationalized or expropriated by any Nigerian Government.
  • In exceptional case where the acquisition of a business is proven to be in overriding national interest or for public purpose, there is adequate legal provisions that enables the investor to approach a court of competent jurisdiction for the determination of what is lawfully in national interest or for public purpose.
  • Laws providing for acquisition of businesses or properties in Nigeria for overriding national interest or for public good also makes adequate provisions for adequate compensation as well as guaranteeing the right of affected parties to approach the court for independent assessment and determination of what compensation is adequate in a given circumstances.
  • No foreign investor who owns whether whole or in part, the capital of any enterprise shall be compelled by law to surrender his interest in the capital to any other person or persons.
  • Tax holiday for up to 7 years for qualified foreign investors, especially for investments in areas with pioneer status.
  • Tax relief for foreign investors under the double taxation treaties between Nigeria and other countries both within and outside the commonwealth.
  • Availability of Investment Tax Credit for foreign investors investing in research and development related businesses. This in some cases could be up to 25% on qualifying capital expenditure.
  • Availability of Rural Investment Allowance to foreign investors who invest in a locality lacking infrastructures such as good roads, communication facilities, electricity and water, etc, and goes ahead to provide such infrastructure.

METHODS OF INVESTING IN NIGERIA

There are basically two methods a foreigner can invest in Nigeria. Each of the two methods of foreign investments requires specific regulatory frame works that must be complied with. They are as follows:

Foreign Portfolio Investment (FPI)

This is simply an indirect way of participating in the Nigerian economy without direct participation, unless in cases where the foreign investor desires to take over the Nigerian company. What it entails is investing in an existing Nigerian company through the acquisition of shares of the company. The foreign investor will simply approach the existing Nigerian company through local solicitors and stockbrokers who will negotiate, facilitate and conclude the purchase of the company’s shares as agreed on behalf of the foreign investor. This is the shortest and the simplest way of investing in Nigeria by a foreign investor.

Foreign Direct Investment (FDI)

This is the most commonly used method of investment by foreign investors who desire direct participation in the Nigerian economy. It entails the registration of a new company in Nigeria by the foreign investor unless in rare occasions where the foreign company involved enjoys exception from local registration. In most cases such foreign company that requires no local registration is not in Nigeria for long term investment but for a short term purpose.

POLICY, PERMITS & REGULATION OF FOREIGN INVESTORS

Immigration

Many issues come under immigration requirements and the following are key to a foreign investor.

Visa: A foreign investor requires entry clearance to enter Nigeria. Depending on whether the purpose of business visit is temporary or long term, a foreign investor will need either a cable visa or STR visa respectively. For a foreigner who is just visiting Nigeria for a general visit, what is required will be a simple visiting visa which may save for a single entry or a multiple visa with various duration.

Business Permit: This is mandatory for a company operating in Nigeria with 100% foreign ownership. It is not necessary when a foreign investor is in joint venture with a Nigerian. So, depending on whether the foreign investor intends to run a business by registering a new company or takeover an existing Nigerian company, the consent of the Honourable Minister of Internal Affairs must be obtained. This is called Business Permit and it is relevant when the foreign investor or investors are registering a company without a Nigerian shareholder.

It is however, also mandatory to a foreigner who is in Nigeria to practice a profession. It is irrelevant that a Nigerian professional is also a partner in the firm. Therefore, in the case of practice of profession Business Permit is personal to individuals and not to the company and it is applicable only to a foreign professional.

Work Permit: This is required by a foreigner who is coming to Nigeria for purpose of employment. It could be of temporary or long term nature and must be obtained by an expatriate who is to be employed by a Nigerian company with existing expatriate quote.

Residence Permit: This is mandatory for foreigners who have long term business pursuit to accomplish in Nigeria. Particularly for foreign investors who are not ECOWAS citizens, an STR Visa must be exchanged with a Residence Permit offer 56 days.

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