The International Air Transport Association (IATA) has issued a warning to the Central Bank of Nigeria (CBN) about the potential withdrawal of foreign airlines from the Nigerian market if urgent action is not taken regarding the $790 million ticket revenue currently trapped in the country.

Kamil Alawadhi, IATA Regional Vice President, Africa & Middle East, conveyed this concern on Thursday during a media presentation at the IATA Global Media Day in Geneva, Switzerland.

Alawadhi stated that Nigeria currently holds the highest amount of airline-trapped funds globally, totaling $792 million. He said there is a need for engagement between relevant parties, including the CBN Governor and the aviation minister, to address the issue.

Despite the CBN’s intervention in 2022, releasing $265 million to affected airlines, the challenge, which is significantly influenced by Nigeria’s ongoing forex crisis, persists.

Last November, Emirates Airlines suspended its flight operations to Nigeria for the second time due to the failure to repatriate the company’s earnings trapped alongside other foreign airlines’ funds. Emirates’ trapped fund at that time was $85 million.

The IATA VP urged proactive measures to prevent further withdrawals by foreign carriers.

According to him, Nigeria tops the list of countries with the highest amount of airlines’ blocked funds, totaling $792 million. Following closely are Egypt with $348 million, Algeria with $199 million, the AFI zone with $183 million, and Ethiopia with $128 million.

The VP noted that while Ethiopia has devised a plan to settle the debt, Nigeria has not taken any action to address its blocked funds.

“Ethiopia is seeking a way to resolve this issue even though the blocked fund is rising. The first step for us to solve these blocked funds is for both parties to engage. If parties don’t engage, it is very difficult to move forward. I have not been able to engage with Nigeria’s CBN Governor.

“He said he would engage with me when he had a solution. He is not promising but I have engaged with the Aviation Minister who is very understanding, new to the position, or maybe wowed by the situation he inherited will help to resolve the matter,” he said.

The IATA VP expressed concern that airlines in Africa are collectively owed $34 million, which is currently blocked. The delay in releasing these funds has led to depreciation, resulting in a loss of $10 million. This situation is deemed unfair by the airlines, as they have fulfilled all financial obligations to airport operators, including carrying Nigerian officials on their flights. He lamented that despite meeting their dues, the airlines find themselves unable to access the funds rightfully owed to them.

The IATA chief commented on Nigeria’s aviation sector, highlighting significant challenges faced by airlines in the country. He mentioned the burden of a 25 percent interest rate on loans, exorbitant airport taxes, and insurance premiums six times higher than global standards. These factors collectively hinder the profitability of Nigerian airlines.

Al-Awadhi disclosed that any airline operating beyond Nigeria’s borders operates with lower operating costs and offers more competitive prices compared to domestic Nigerian carriers.

Furthermore, he pointed out that despite Lagos and Abuja airports having infrastructure that falls short of optimal standards, they are ranked as the most expensive gateways in the region, exacerbating the difficulties faced by airlines operating within the country.

“… Nigeria has two most expensive airports; their fuel is higher than elsewhere in the world, and insurance is six times more expensive than anywhere else in the world.

“The interest on loans is 25%. It is ridiculous. It is the highest interest I have ever seen. When you set up these airlines, you are already disadvantaged. Any airline in Nigeria operating outside of Nigeria has a cheaper operating cost and better prices than Nigerian airlines. You can see why it is difficult for African airlines to make profit,” he said.

Nevertheless, Al-Awadhi conveyed IATA’s unwavering commitment to pinpointing and mitigating the factors that contribute to the elevated operating costs in Nigeria. The organization aims to work collaboratively to create a more favorable and conducive environment that enables airlines to prosper within the country.

“We are expecting that the operating costs of the African airlines will be lowered and they can become profitable”, he said.

The Corporate Affairs Commission (CAC) has rescinded its earlier directive mandating companies with foreign involvement in Nigeria to maintain a minimum paid-up capital of N100 million. 

This reversal comes after significant criticism and opposition from financial experts and company founders.

The commission issued a circular shared on its official account, retracting its initial notice titled “Minimum Paid-Up Capital for Companies with Foreign Participation.” The CAC clarified that the initial notice was based on the Federal Ministry of Interior Handbook on Expatriate Quota Administration 2022 Revised Edition, which referenced paid-up capital rather than issued capital.

In its statement, the commission advised its customers and the public to disregard the earlier notice and announced its intention to issue a revised notice in due course, indicating a more updated stance on the matter.

“Our dear esteemed customers and the general public are hereby advised to disregard our earlier issued notice titled “Minimum Paid-Up Capital for Companies with Foreign Participation”, the commission said.

Our dear esteemed customers and the general public are hereby advised to disregard our earlier issued notice titled "Minimum Paid-Up Capital for Companies with Foreign Participation"

— Corporate Affairs Commission (@cacnigeria1) December 8, 2023

Previously, the CAC had indicated its implementation of the requirement for companies with foreign involvement to maintain a minimum paid-up capital of N100 million. 

“The Commission wishes to notify the General Public that it has, in line with the Revised Handbook on Expatriate Quota Administration (2022), commenced the implementation of the requirement of N100,000,000 (One Hundred Million Naira) MINIMUM PAID-UP CAPITAL for Companies with foreign participation.” 

This directive, in line with the Revised Handbook on Expatriate Quota Administration (2022), stated that any application for incorporating a company with foreign participation would not be processed unless it complied with the specified capital requirement.

The directive, which shot up the cost of market participation by 900 percent, riled up the Nigerian business section on social media.

Before now, the minimum paid-up capital for such foreign companies to participate in the Nigerian market was N10 million. That is even considered high compared to other places.

“A country that is seeking foreign investment is requesting a minimum paid-up capital of $100k for foreigners to set up business in Nigeria. Even if Nigeria was Heaven, nobody is paying that amount,” a Nigerian said. “Delaware costs like $50 to register a new entity. If you even add agents and stuff, max $500. The UK is less than $500. Even Cayman or BVI doesn’t cost more than $3k to incorporate in as a foreigner.”

A country that is seeking foreign investment is requesting a minimum paid-up capital of $100k for foreigners to set up business in Nigeria. Even if Nigeria was Heaven, nobody is paying that amount.

??????

Delaware costs like $50 to register a new entity. If you even add… pic.twitter.com/jEVxnjuySU

— Brother Bernard (@MikaelCBernard) December 7, 2023

Analysts believe the decision to increase the market participation cost is “short-sighted” and makes the idea of a $1 trillion economy being pushed by the current administration laughable.

“THIS IS WRONG, this is a terrible idea,” financial expert, Kalu Aja noted. “You are essentially saying I must incorporate with N100m, PAID UP before I can get a foreign partner. The focus on PAID UP capital shows they are targeting IGR not FDI. This is so short sighted. Who is making these rules? Is the coordinating minister of the economy aware of this?”

He added that laws like that are part of the reasons Nigerians are leaving CAC to incorporate their startups in the US. 

“This is why 80% of Nigerian startups are flocking to Delaware to incorporate; it’s far CHEAPER,” he said.

“You are here arguing that US investors should pay N100m to FG before they can invest in Nigeria. This is 2023 not 1981. It’s now a global village. You are competing with the Mexico, Vietnam and Rwanda. Grow up.”