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 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 NIPC as well as the Securities Exchange Commission (SEC) Rules permit 100% foreign ownership of businesses except in the oil and gas industry, which is restricted by the provisions of the Nigerian Oil and Gas Industry Content Development Act (NOGICDA), 2010.
There is also a restriction on foreign investment in items on the negative list such as the production of arms, ammunition, production of and dealing in narcotic drugs and psychotropic substances, and production of military and paramilitary clothing and accoutrements including those of the police and the customs, immigration and prison services. The items on the negative list are crucial to national security and so such foreign and local investments are prohibited.
Also, investments through the Nigerian export free zones established by the Nigerian Export Processing Zones Authority (NEPZA) have, since the issuance of the Investment Procedures, Regulations and Operational Guidelines for Free Zones in Nigeria in 2004 provided that an approved enterprise can engage in approved activities as stipulated by the Act and for which NEPZA has granted it permission to engage in the Zone provided the approved enterprise’s investment in the approved activity is of the value of at least US$500,000.00 and the operation of the approved activity does not cause damage to human life and property, damage the environment, constitute a threat to public peace and order or national security. “Approved enterprise” has been defined under the Nigeria Export Processing Zones Act 1992 to mean any enterprise established within a zone and approved by the Nigerian Export Processing Zones Authority.
With respect to foreign transactions, the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, 1995 established an Autonomous Foreign Exchange Market to govern transactions in foreign exchange which also empowers the Central Bank of Nigeria to make guidelines to regulate the procedure for transactions in the foreign exchange market. The current national policy issued by the Central Bank of Nigeria is the Monetary, Credit, Foreign Trade and Exchange Guidelines for Fiscal Years, 2018/2019 and the same contains key provisions on the review of foreign transactions as it relates to national security and interest.
Nigeria’s strong points in terms of attracting FDI
- Important size of its domestic market (Africa’s most populous country)
- Africa’s highest GDP;
- Important hydrocarbon resources and high agricultural potential;
- Relatively low public and external debt;
- The Nigerian Government’s policy of economic liberalisation, promoting public-private partnerships and strategic alliances with foreign companies.
Obstacles to FDI in Nigeria
- Poorly developed transport and energy infrastructure (lack of electricity), which result in high operating costs;
- An inefficient judicial system and unreliable dispute settlement mechanisms;
- A high tax burden;
- With oil and gas accounting for over 90% of export revenues, the economy is vulnerable to volatility on global markets and to large swings in energy prices;
- The federal government is hampered by the strength of state and tribal authorities. Deep ethnic, religious and regional divisions provide risks to political stability;
- An increasing lack of security, especially in connection with the extremist group Boko Haram operating in the north-east of the country.
Bilateral investment conventions signed by Nigeria
Nigeria has signed bilateral investment agreements with Algeria, Bulgaria, China, Egypt, France, Finland, Germany, Italy, Jamaica, Montenegro, Netherlands, North Korea, Romania, Serbia, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Turkey, Uganda and United Kingdom. Only four treaties (France, Netherlands, South Korea and United Kingdom) have been ratified by both parties, the ratification process has been hesitant and poorly organised. The government has expressed an interest in negotiating a bilateral investment treaty with the United States.