Foreign Investments in Nigeria (Legal Framework, Incentives and Safeguards)

Nigeria still remains the single largest market in Africa, and despite the current slump in economic growth it maintains a top choice among the top  investment destinations in the continent due to its relatively high consumer sophistication and strong purchasing power. 

However, Nigeria like any other jurisdiction has its own share of complexities that include the somewhat unavailable amount of exhaustive information on the Regulatory Framework governing Foreign investments in the country. Not understanding the laws, rules, regulations and incentives governing Foreign investment in Nigeria, made clearer and straightforward as a result of the measures put in place by the Presidential Enabling Business Environment Council (PEBEC) can prove risky with resulting losses. 

So if you’re a foreigner or Diaspora-based Nigerian looking for alternative viable investment destinations considering the current global recession kicking in, or you’re a Foreign Investment firm seeking to take advantage of rising sectors in Nigeria like Real Estate and Tech, this article is for you and deals with the topics of :- 

1. What Foreign Investment is.

2. The types of Foreign Investment in Nigeria.

3. The Legal/Regulatory Framework governing Foreign investments in Nigeria.

4. The types of businesses you can and cannot engage in within Nigeria.

5. The incentives open to Foreign Investors in Nigeria.

 

What is Foreign Investment? 

Foreign Investment simply means the direct or indirect Investment in domestic businesses and assets in another country for the purpose of making a profit by a Foreign Investor. 

What are the types of Foreign Investment in Nigeria? 

Foreign Investment in Nigeria can be either: 

1. Foreign Portfolio Investments (FPIs) – which are carried out by investing in stocks and securities of an existing Nigerian company, or;

2. Foreign Direct Investments (FDIs) – which involve registering or incorporating a business entity (except when exempted by the Federal Government of Nigeria) and buying assets for the purpose of carrying on business in Nigeria . Foreign Direct Investments can be either :-

a). Horizontal FDIs – Investments by a Foreign investor taking the form of acquiring business assets in Nigerian businesses belonging to the same industry as the Foreign Investor e.g. the US Tech company Stripe & the Nigerian Fintech company Paystack; 

b). Vertical FDIs – Foreign Investments that take the form of acquisitions by a Foreign investor in a company supply chain which may or may not belong to the same industry as the investor, most times referred to as backward or forward integration e.g The Multinational Food products company Mondelez acquiring Cocoa plantations in Nigeria (backward integration) or a Nigerian food brand like Natnudo buying a South African food supermarket chain like SPAR(forward integration); 

c). Conglomerate FDIs – Investments made in Nigerian businesses belonging to totally different industries e.g South Korean manufacturing company Samsung Electronics acquiring Nigerian retailing chain Cash N Carry. 

d). Platform FDIs – Which involves investing in Nigeria to carry on the business of manufacturing for onward export to a 3rd or several other countries. e.g Tolaram West Africa being based and carrying out most of its operations in Nigeria. 

What are the laws, agencies and regulations governing Foreign Investments in Nigeria? 

The law, agencies and regulations governing Foreign Investments in Nigeria are as follows:- 

– The Companies and Allied Matters Act 2020–  which establishes and guides the Corporate Affairs Commission in charge of the registration and operation of business entities in Nigeria. 

Under this law, every foreign company intending to set up a going business venture or concern in Nigeria (except when falling under the category of companies exempted upon application to the Secretary to the Government of the Federation)must be registered as a corporate entity in Nigeria with its own legal personality. 

– The Central Bank of Nigeria:- Created by the Central Bank of Nigeria Act and which is in charge of the full spectrum of Banking operations in Nigeria from licensing to appointments as well the country’s Foreign Exchange/Currency reserve administration. 

– The Nigerian Investment Promotion Commission Act :- Responsible for the creation of the Nigerian Investment Promotion Commission which is the prime regulatory agency governing Foreign investment in Nigeria. 

– The Investment and Securities Act (ISA) :- Through which the Securities & Exchange Commission (SEC) is empowered to regulate Investments by way of Securities acquisitions as well as maintaining statutory records of FPIs in Nigeria. 

– The Foreign Exchange Monitoring and Miscellaneous Provisions Act (FEMMA)– Which is a regulatory check governing Foreign Exchange transactions on an Autonomous Foreign Exchange market also created by the act in Nigeria. 

– The National Office For Technology Acquisition & Promotion Act(NOTAPA) :- Which created the National Office For Technology Acquisition & Promotion (NOTAP), which is a government agency in charge of governing and supervising the registration of technology transfer and acquisition in Nigeria. 

You mentioned something about companies exempted from registration in Nigeria. Could you please shed more light on this? 

Foreign companies can be exempted from the requirement of Incorporation in Nigeria under the CAMA 2020 by virtue of being granted an exemption status. 

This grant is usually made upon an application in writing to the Secretary to the Government of the Federation and is applicable to Foreign companies that match the following criteria:- 

– Foreign companies invited to Nigeria by it with the approval of the Federal Government to execute specific projects in Nigeria. 

– Foreign companies which are in Nigeria for the execution of specific individual loan projects on behalf of a donor country or organization. 

– Foreign government-owned companies engaged solely in export promotion activities. 

– Engineering consultants and technical experts engaged in any individual specialist project under agreement with any government in Nigeria or their agencies or with any other body or person where such an agreement has been approved by the Federal Government. 

It should be noted that exemption status grants can be revoked and such revocations must be gazetted. 

It is also necessary for an exempted company to secure a Certificate of Tax exemption even though it is assumed that all exempted companies are tax-exempted. 

A foreign exempted company is required to deliver to the Corporate Affairs Commission a statutory form annually by virtue of its consequent status as an unregistered company. 

Okay. What businesses in Nigeria am i disallowed from engaging in as a Foreign Investor? 

By virtue of the Nigerian Investment Promotion Commission Act, you can’t engage in businesses that fall under the “Negative List” category which includes businesses like:- 

– The production of arms and Military hardware. 

– The production and distribution of Narcotics and Psychotropic substances. 

– Military and Paramilitary uniform,gear and accoutrement manufacturing. 

– Any other items as may be determined from time to time. 

What are the incentives in Nigeria that are open to potential Foreign investors like me? I’ve heard some not-so-nice things about Nigeria and i just want to be sure my investment will be well-protected. 

Not to worry, here are some of the incentives open to Foreign Investors in Nigeria:- 

1. The NIPC act ensures free market participation and share purchasing rights in the Nigerian Stock Market open to Foreign Investors.

It also provides the options of free transferability of funds through the country’s licensed Financial Service system in any currency as well as protection against Nationalization (public/government ownership takeover of private assets) and expopriation(Government takeover of private assets on the basis of overall public benefit). 

The act also grants statutory protection against mandated surrender of capital by Foreign Investors and provides that where National Interest acquisitions of private property and assets are deemed necessary, there must be adequate compensation and a right to seek intervention by Nigeria’s courts for the purposes of determining the investor’s interest and his subsequent accurate compensation entitlement which must be paid without delays of any sort, compensation which can be repatriated in convertible currency. 

Where this fails, a Foreign Investor can resort to International Arbitration within the framework of bilateral and multiple Investment Promotion and Protection agreements where they exist between Nigeria and the home country of the Foreign Investor or a recourse to the International Center for the Settlement of Investment Disputes (ICSID) where uncertainty as to the means of dispute resolution comes up. 

2. The Introduction of Investor Visas pursuant to the Nigerian Immigration Act, the Nigerian Immigration Regulations, and the 2020 Visa policy open to Foreign Investors importing a yearly minimum capital threshold into the country.

This Visa can be applied for at any Nigerian Embassy and has a validity span of 5 years and comes with a renewal option and resident/investment permit in Nigeria. 

3. The FEMMA allows for Capital repatriation by virtue of which any Foreign Investor can invest in any enterprise or company’s security/stock offerings with capital imported through an authorized dealer (mainly Commercial Banks) in exchange for a Certificate of Capital Importation to be given to the Foreign Investor.

Capital imported in this manner is guaranteed free transferability options in convertible currencies be it as profits or payments in respect of loan servicing and proceeds of sale remittance or the liquidation of the enterprise or as interest accrued on Investments made. 

This consequently means that Foreign Investment capital can be brought into the country and a 100% of profits can be repatriated to the Investor’s home country hitch-free, although this has to be reported to the Central Bank of Nigeria and the Minister of Finance. 

4. The Arbitration and Conciliation Act of Nigeria gives the Foreign Investor the option of recourse to Alternative Dispute Resolution methods apart from litigation within Nigeria’s Court system.

This act also grants reciprocal applicability to the Convention on the Recognition and Enforcement of Foreign Awards to any award made in any contracting state arising out of International Commercial Arbitration as long as reciprocal legislation exists in the Investor’s home country providing for the enforcement of arbitral awards made in Nigeria. 

Arbitral awards pursuant to reciprocal enforcement treaties and ICSID arbitration are binding and enforceable irrespective of the country in which they are made upon application to the court . 

5. The Companies Income Tax Act (CITA) provides Tax relief incentivized earned in Commonwealth member countries that are also liable to Tax in Nigeria.

6. The Industrial Development Income Tax Relief Act grants a number of Tax relief incentives that include:-

– Pioneer status-related Tax relief for Foreign Investors for 3-5 years or outright Tax exemptions. Pioneer Status certificates are to be issued by the NIPC. 

– 7-year Tax holidays for Industries located in poor or relatively backward Local Government Areas(LGAs) 

– Tax holiday incentives under this act are open to Industries which include those in Rubber plantation and processing, Real Estate development and utilities, Pharmaceuticals manufacturing, Telecommunications, Iron & Steel manufacture from Iron Ore, Cement production,Gas cylinder manufacturing and Solar Energy equipment. 

Dividend payments in the possession of shareholders are not liable to Tax where Pioneer Status companies pay dividends during their Pioneer Status window periods. In the event of losses during the Pioneer status window period, such losses can be used going forward to offset against future profits after the Tax exemption period. 

7. Export Processing Zones(EPZs) –

Foreign Investors are entitled to remit profits and dividends earned on Investments within Export Processing Zones as well 100% Foreign Investment ownership, rent-free land(construction stage) & Import/Export Licence waivers. 

EPZ participation also grants exemptions from all Government-level taxes in Nigeria as well as concessions on Expatriate quota requirements for companies operating in the EPZ regarding the employment of foreign managers and qualified expatriate staff. 

EPZ participation lastly comes with Duty-free Tax concessions on raw material components of goods to be exported. 

8. Industries that carry out Research and Development (R & D) are entitled to a 20% Investment Tax concession where the research is aimed at business profits or will be marked-off against profit by virtue of being classified as Capital expenditure where research is long-term oriented.

9. The CITA also grants incentives to Foreign Investors where they provide basic facilities (roads, potable water systems, Solar Energy provision, healthcare,etc) within 20km of their Industry/Factory/Business locations that are ordinarily the responsibility of the government, though the cost of providing these facilities to the tune of 20% is Tax-deductible.

10. Investment Tax relief incentives similar to those under the Rural Investment Allowance provided by CITA but is only available for a term of 3 years where the beneficiary company lacks Pioneer status.

11. Foreign Investors that achieve a minimum required amount of Local raw material content are entitled to a 5-year Tax credit incentive of 20%.

12. Foreign Investors are entitled to Tax concessions of 6%-15% when they employ labour to the tune of 100-1000 staff.

13. Foreign Investors who are citizens of countries that are signatories to agreements with Nigeria on Double Taxation prevention enjoy Capital Gains Tax relief.

14. Foreign Investors who are citizens of Countries that are signatories to Investment Promotion & Protection Agreements (IPPAs) with Nigeria are entitled to Investment protection in Nigeria. This applies to citizens of countries that include Holland, Canada,the UK and France.

15. The  ECOWAS (Economic Community of West African States) Trade Liberalization Scheme & African Continental Free Trade Agreement (ACFTA) to which Nigeria is a signatory party opens more opportunities to Foreign Investors by :-

a). Establishing a single market bloc made up of 54 countries in Africa which allows for free movement of Investments and traveling as well as a conceptual single Customs union for the purpose of Continental Investment attraction in the medium and long run; 

b). Providing protection against arbitrary Nationalization without established grounds of national interest or sufficient compensation; 

c). Providing for the elimination of duties on the import and export of goods made in the ECOWAS zone as well as impediments in the form of tariffs; 

16. Foreign Investment protection granted by virtue of Nigeria being a signatory party to a number of International conventions and agreements aimed at promoting and safeguarding Foreign Investments such as the ICSID convention and the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York convention).

17. The Grundnorm (The Constitution of the Federal Republic of Nigeria) which guarantees to Foreign Investors the same rights guaranteed to Nigerian citizens, rights which include the right to life, association, owning property and the option to seek Legal redress in Court.

Conclusion:- It can be seen from the above write-up that the Regulatory and Incentive Framework for Foreign Investment in Nigeria has been greatly improved, providing a world of opportunities to Foreign Investors that have the right professional guidance and diligent Legal Counsel close by to enable them make the right Investment decisions backed by adequate due diligence going forward.