By; Eseoghene Gift Aror
Foreign Direct Investments (FDI) are a form of cross-border investment where an investor from one nation establishes significant influence over an enterprise in another nation. FDI is an instrumental aspect of global economic integration, fostering lasting connections between economies. It facilitates technology transfer, enhances international trade by accessing foreign markets, and plays a vital role in economic development. This category encompasses inward and outward values for stocks, flows, and income, categorised by partner country and industry, along with FDI restrictiveness indicators.
FDI can be categorised into two: Firstly, it entails establishing a new operation in a foreign country. Secondly, FDI can occur through acquiring or merging with an existing firm in a foreign country. While FDI can stimulate significant economic change, it often demands substantial investment as firms bear the costs of establishing production facilities abroad or acquiring foreign enterprises.
FDI plays a pivotal role in driving economic growth, fostering innovation, and creating employment opportunities. In the Nigerian context, FDI holds significant promise as the country seeks to diversify its economy and attract investments across various sectors.
THE HISTORY OF FDI IN NIGERIA:
There’s no denying the allure of Nigeria for investors. Its vast consumer base, estimated at over 200 million people, offers unparalleled access to a diverse and growing market. Its natural resources, from oil and gas to fertile land and mineral deposits, provide lucrative opportunities across various sectors. Furthermore, a young and tech-savvy population fuels innovation and entrepreneurship, creating a vibrant ecosystem for new ventures.
Nigeria, Africa’s most populous nation and its largest economy, stands as a beacon of dynamism in the continent. Boasting abundant natural resources, a burgeoning young population, and a steadily improving business environment, it has become a magnet for foreign direct investments (FDIs). But navigating the intricacies of this dynamic market requires careful consideration and strategic manoeuvring.
Nigeria and the United Kingdom (UK) have had a long standing trade and investment relationship and the UK remains one of the largest investors in the country till date. Similarly in recent years, China has become one of such major investors, largely in the oil and gas sector and infrastructure development.
Regulatory Framework and Investment Incentives:
Nigeria has implemented various policies and regulations to attract and facilitate foreign investment. The Nigerian Investment Promotion Commission (NIPC) Act provides a legal framework for investment promotion and protection and it operates a One Stop Investment Centre (OSIC) through which it acts as a gateway for foreign nationals or enterprises to interact with other government agencies like the Immigration Service, Corporate Affairs Commission (CAC), and the Securities and Exchange Commission (SEC).
The Companies and Allied Matters Act (CAMA) 2020 provides in section 80 for the registration of foreign entities intending to carry on business in Nigeria. This is a necessity and cannot be bypassed unless the company falls under any of these categories:
- Foreign companies (other than those specified in paragraph (d) of the section) invited to Nigeria with the approval of the Federal Government to execute any specified individual project;
- Foreign companies which are in Nigeria for the execution of a specific individual loan project on behalf of the donor country or international organisation (such as IMF, UNICEF, World Bank, WHO);
- Foreign government-owned companies engaging solely in export promotion activities, and;
- engineering consultants and technical experts engaging in any individual specialist project under contract with any of the governments in the Federation or any of their agencies or with any other body or person where the Federal Government has approved such contract.
The Federal Government also offers incentives such as tax holidays, duty exemptions, and repatriation of profits to attract foreign investors.
Foreign investors engaged in the transfer and acquisition of foreign technology within Nigeria are mandated to register related contracts with NOTAP. This process entails submitting an application, whereby the Director of the National Office may issue or decline a Certificate of Approval.
The legislation also outlines an exhaustive list of contracts subject to registration. Both the licensor and licensee of the technology bear the responsibility for registering such contracts. It’s important to note that failure to register does not invalidate the contract. However, without a certificate of registration, repatriation of fees, royalties, or profits by or through the Central Bank of Nigeria and other authorised dealers (banks) may not be permitted when applying to repatriate funds related to such contracts.
Foreigners intending to conduct business in Nigeria must adhere to specific procedures outlined by the Nigerian Immigration Service (NIS) before they are permitted to engage in business activities within the country. These procedures entail obtaining a Visa (except for citizens of ECOWAS or countries with visa-free agreements), Expatriate Quota, Residence Permit and Business Permit.
The process involves interested foreign investors applying to the NIS with the required information/documents, and paying the applicable application fees. The Comptroller General of Immigration will then review the application and approve or disapprove as the case may warrant. If Approved, the foreigner will be issued a Combined Expatriate Residence Permit and Aliens Card (CERPAC) along with an Expatriate Quota. These documents grant them the authority to reside and conduct business activities in Nigeria.
Key Sectors for Foreign Investment:
Several sectors in Nigeria present lucrative opportunities for foreign investors, including the oil and gas industry, telecommunications, agriculture, manufacturing, and infrastructure development. With a growing population, abundant natural resources, and a rising middle class, Nigeria offers immense potential for investment across diverse sectors. Nigeria’s massive domestic market makes it a foreign investment hotspot.
Challenges and Opportunities:
Despite its potential, Nigeria faces several challenges that impede the inflow of FDI, some of these are:
- 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;
- Regulatory bottlenecks
- Political instability;
However, these challenges also present opportunities for investors to innovate, collaborate, and contribute to sustainable development initiatives in the country.
Case Studies and Success Stories:
Numerous success stories highlight the transformative impact of FDI in Nigeria, from multinational corporations investing in large-scale projects to small and medium-sized enterprises driving innovation and job creation.
The United States takes pride in being one of the largest foreign investors in Nigeria, with foreign direct investment reaching $5.6 billion in 2022. Technology continues to play an increasingly significant role in strengthening the U.S.-Nigeria relationship and our connections across the continent.
Chinese FDI, on the other hand, primarily focuses on a select number of high-profile projects, notably associated with the Belt and Road Initiative, which Nigeria joined in 2018 during the Forum on China-Africa Cooperation Summit in Beijing. One prominent example is the construction of the Lagos-Ibadan railway, costing $1.5 billion.
Nigeria’s deficient infrastructure has provided China with an opportunity to exert geopolitical influence in the country. Despite initial commitments to finance the Kaduna-Kano railway for $22.8 billion, the China Exim Bank withdrew funding in 2020. Subsequently, Abuja sought alternative financing, initially from Standard Chartered, until the Nigeria Senate approved the China Development Bank as a replacement financier in April 2023.
These case studies underscore the importance of strategic partnerships, risk mitigation strategies, and local community engagement in fostering successful investment ventures.
Government Strategies and Future Outlook: How the government can boost foreign investment in Nigeria.
The Nigerian government has unveiled various strategies and initiatives to attract and retain foreign investment, including the Economic Recovery and Growth Plan (ERGP), the National Investment Promotion Policy (NIPP), and sector-specific reform agendas.
The Nigerian Investment Promotion Commission Act eliminated previous controls on foreign direct investment (FDI), allowing 100 percent foreign ownership in all sectors except petroleum, where FDI is restricted to joint ventures or production sharing contracts. The Act also established the Nigerian Investment Promotion Commission (NIPC) to facilitate and promote investment in Nigeria. The NIPC operates a One-Stop Investment Center with the participation of 27 governmental and parastatal agencies to simplify administrative procedures for new businesses and investments. While foreign investors enjoy similar treatment as domestic investors, challenges in Nigeria limit the NIPC’s ability to attract new investments.
To enhance FDI, the Nigerian Government has implemented various programs, particularly in agriculture, mining, oil and gas, and export sectors. Tax incentives are granted to industries contributing to economic development and employment, with allowances for capital investments and interest deductions for gas companies. Nigeria has signed bilateral investment agreements with several countries, but only four treaties have been ratified by both parties, and the ratification process has been slow. The government aims to negotiate a bilateral investment treaty with the United States.
Moving forward, Nigeria must prioritise infrastructure development, policy coherence, and institutional reforms to enhance its competitiveness as an investment destination and achieve sustainable development goals.
Foreign Direct Investment remains a critical driver of Nigeria’s economic transformation agenda, offering opportunities for inclusive growth, technology transfer, and sustainable development. By addressing regulatory challenges, strengthening public-private partnerships, and leveraging its demographic dividend, Nigeria can unlock the full potential of FDI and accelerate its journey towards prosperity and resilience in the global economy.
Disclaimer: This article is intended to provide a general guide on this subject matter and does not by itself constitute legal advice to readers. Please seek advice based on specific circumstances.
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Eseoghene Gift Aror
Junior Associate of the firm who specialized in Commercial Law Practice