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Conditions for Doing Business in Nigeria

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Nigeria: flow of FDI in 2018 - 2 bln US Dollars (at current prices, UNCTAD)
FDI - Foreign Direct Invetsment

Africa Capacity Index (ACI) 2019
Since 2011, the African Capacity Building Foundation (ACBF – specialized agency of the AU, located in Harara, Zimbabwe https://www.acbf-pact.org/) publishes an annual Africa Capacity Report (ACR).
The ACR measures and examines the capacity of African countries to pursue their development agenda, focusing on key determinants and components of capacity for development. ACBF defines capacity as the “ability of people, organizations, and society as a whole to manage their affairs successfully” and capacity development as the process by which “people, organizations, and society as a whole unleash, strengthen, create, adapt, and maintain capacity over time.
Capacity of African countries, examined in ACR, is reflected by Africa Capacity Index (ACI). The ACI - is a composite index computed from a quantitative and qualitative assessment of four sub-indices or indicator “clusters” on a specially designed questionnaire. “The policy environment cluster” considers the conditions that must be in place to make transformational change and development possible. “The processes for implementation cluster” assesses the extent to which countries are prepared to deliver results and outcomes. “The development results at country level cluster” refers to tangible outputs that encourage development. And “the capacity development outcomes cluster” measures change in the human condition.
Nigeria ACI 2019 Rank 11 Score 59.6
Cluster 1 Policy environment for capacity development 90.8
Cluster 2 Processes for implementation 68.1
Cluster 3 Development results at country level 66.7
Cluster 4 Capacity development outcomes 37.8

Incentives and Guarantees for foreign investors
Nigeria, Africa's most populous nation, has an estimated population of over 168 million. The country offers investors abundant natural resources, a low-cost labor pool, and potentially the largest domestic market in sub-Saharan Africa. Much of that market potential remains unrealized because of a long list of impediments to investment. These include inadequate power supply, lack of infrastructure, delays in the passage of announced legislative reforms and the drafting of related implementing regulations, an inefficient property registration system, restrictive trade policies, arbitrary policy changes, an inconsistent regulatory environment, a slow and ineffective judicial system, unreliable dispute resolution mechanisms, growing insecurity, and pervasive corruption.

Openness to Foreign Investment
The GON solicits foreign investment and has implemented various reforms to attract higher levels of investment. Authorities have loosened controls over foreign investment, and repealed or amended military government decrees inhibiting competition or conferring monopoly powers on public enterprises. The GON’s protectionist tradition remains strong despite these actions, resulting in inconsistent trade policy-- liberalizing trade one year and restricting trade the next. The GON also specifically prohibits the importation of some goods, such as cement, to foster domestic production. The GON enacted the Nigerian Content Act (NCA) in 2010 to support domestic production. The NCA requires oil and gas production and service companies to use local resources for the delivery of some goods and services currently sourced from outside the country. Concerns about the NCA include its restrictive trade practices in violation of WTO agreements as well as technology transfer requirements that violate a company’s intellectual property rights. Many local companies established to respond to the greater demand for local goods and services provided for by the NCA have suffered due to lack of new contracts caused by the delayed passage of the Petroleum Industry Bill (PIB). Laws against the re-export of equipment restrict the development of Nigeria as an oil and gas service center for the growing African oil and gas industry.

Legal Framework: The Nigerian Investment Promotion Commission (NIPC) Decree of 1995 allows 100-percent foreign ownership of firms outside the oil and gas sector, where investment stays limited to joint ventures or production-sharing agreements. Laws restrict industries to domestic investors if they are considered crucial to national security, such as firearms, ammunition, and military and paramilitary apparel. Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Decree of 1990. The decree prohibits the nationalization or expropriation of foreign enterprises except in cases of national interest.
Nigerian laws apply equally to domestic and foreign investors. These laws include, the Nigerian Content Act of 2010, Nigerian Minerals and Mining Act of 2007, Nigeria Extractive Industries Transparency Initiative (NEITI) Act of 2007, Central Bank of Nigeria Act of 2007, Electric Power Sector Reform Act of 2005, Money Laundering Act of 2003, Securities and Exchange Act of 1999, Foreign Exchange Act of 1995,Banking and Other Financial Institutions Act of 1991, and National Office of Technology Acquisition and Promotion Act of 1979.

Privatization: The Privatization and Commercialization Act of 1999 established the National Council on Privatization, the policy-making body overseeing the privatization of state-owned enterprises (SOEs), and the Bureau of Public Enterprises (BPE), the implementing agency for the designation privatizations. The BPE has focused on the privatization of key sectors, including telecommunications and power, and calls for core investors to acquire controlling shares in formerly state-owned enterprises. The BPE has raised over four billion dollars since 1999 by privatizing and concessioning more than 140 enterprises, including an aluminum complex, a steel complex, cement manufacturing firms, hotels, a petrochemical plant, aviation cargo handling companies, and vehicle assembly plants. The National Assembly has questioned the propriety of some of these privatizations, with one case related to an aluminum complex recently finding its way to the Supreme Court. The GON established the Infrastructure Concession Regulatory Commission (ICRC) in 2008 to identify greenfield projects for concessioning. Authorities granted the Lagos-Ibadan Expressway, a major highway in the southwestern part of the country, as a concession to Bi-Courtney Highway Services under a Design-Build-Operate-Transfer scheme for 25 years. The GON also plans to use a Public-Private-Partnership Framework for future infrastructure provision.

Passage of the Electric Power Sector Reform Act in 2005 created the Nigerian Electricity Regulatory Commission (NERC), a power regulator with responsibility for tariff regulation and economic and technical regulation of the electricity supply industry. The NERC has issued 34 licenses to Independent Power Producers and began implementing a Multi-Year Tariff Order (MYTO) for the determination of tariffs for electricity generation, transmission, and distribution on July 1, 2008. The Electric Power Sector Reform Act of 2005 provides for the deregulation of the power sector and removal of many major roadblocks to the development of the sector have been removed. The formal power sector reform “road map” establishes: market-based ratemaking; privatization of power plants and electricity distribution companies; the commercialization of the national transmission company; the establishment of a bulk electricity purchaser; a partial risk guarantee in the form of a $500 million sovereign fund; and the creation of the Nigerian Electricity Liability Management Company (NELCOM), which is already taking over the Power Holding Company of Nigeria's (PHCN) stranded assets and liabilities. The government has also released $380 million to cover PHCN liabilities. President Goodluck Jonathan approved establishment of the Nigeria Bulk Electricity Trading Company (NBETCO) on August 16, 2011. NEBTCO, as the prime purchaser of electricity produced by Nigerian power plants, will serve a critical intermediary role in the successful liberalization of the power sector. The country only produces 3,700 megawatts due to a lack of natural gas pipeline infrastructure, diversified power sources, and transmission capacity. The GON seeks to increase production to 14,000 megawatts by 2013 -- an ambitious goal that requires increased private sector participation.

The GON has substantially opened Nigeria's telecommunications sector. The Telecommunications Act of 2001 authorized the Nigerian Communications Commission (NCC) to issue licenses to existing and prospective service providers. Nigeria’s state-owned telecommunications operator, Nigerian Telecommunications Limited’s (NITEL) mobile subsidiary, MTEL, and four private companies, MTN, Airtel, Globacom, and Etisalat, have mobile licenses. Globacom won mobile, fixed, and international gateway licenses as Nigeria's second national telecommunications operator in mid-2002. According to the NCC, the total number of telephone numbers (both mobile and landline) in Nigeria increased from 81.9 million and a teledensity of 58.52 at the end of August 2010 to 93.5 million with a teledensity of 66.76 at the end of September 2011. . The government cancelled licenses for the 2.3 GHz spectrum, awarded through a competitive bidding process in May 2009, due to alleged administrative procedures not adhered to by the NCC. The NCC will initiate a fresh bidding round, with full details expected soon. The government awarded three carriers in the 800 MHz spectrum band to Visafone Communications in a competitive auction process in July 2007 that included Visafone Communications, GiCell Wireless Limited, Multilinks Telecommunication Limited, and TC Africa Telecoms Network Limited. Officials issued four licenses for a 10 MHz lot in the 2 GHz spectrum to Alheri Engineering Company Limited, Celtel Nigeria Limited, Globacom Limited, and MTN Nigeria Communications Limited in March 2007.
The GON made a third attempt at privatizing NITEL and MTEL in February 2010. Both the preferred bidder and the reserve bidder, however, failed to provide the necessary down payments and this privatization attempt failed. The GON has begun considering an alternative method for privatizing NITEL. Such efforts failed in 2001, and again in 2006, when the preferred bidders also failed to provide the necessary down payment or purchase price.

The NCC commenced the unified licensing regime in May 2006, awarding the first batch of unified licenses to four telecommunications service providers. The unified license permits telecommunications companies to offer services across-the-board in telecommunications, including landline, wireless, data services, and so forth. This action marks the end of the five-year exclusivity incentive granted to mobile telephone licensees in 2001. Telecommunications deregulation has led to the issuance of licenses for fixed wireless networks, internet services, and VSAT (very small aperture terminal) satellite telecommunications equipment services. The GON's hefty fees and inadequate power supply, however, slow the impact and implementation of these technologies.

The ICT sector received a boost in 2010 and 2011 when three broad-band cables, from Glo-One, MainOne and the West African Cable System (WACS), landed in Lagos. WACS comprises a consortium of companies led by MTN. Nigeria’s previous broad-band capacity was limited to the SAT-3 cable with 350 gigabits. The Glo-One, MainOne, and WACS cables increased Nigeria’s broad-band capacity by 2.5 terabits, 1.92 terabits, and 5.12 terabits, respectively, bringing total capacity to 9.89 terabits. All three cables provide broad-band data and internet capacity, which will increase the country's Internet density and capacity. Such actions will likely reduce the cost of broad-band to a fraction of the current cost.

The GON has worked to modernize and open the civil aviation sector. The GON, for example, signed the U.S.-Nigeria Air Transport (Open Skies) Agreement in 2000 and a U.S.-Nigeria Air Marshals Memorandum of Understanding in April 2010, authorizing the introduction of U.S. Air Marshals on U.S. flights to and from Nigeria. Shortly thereafter, the Nigerian Civil Aviation Authority earned U.S. Federal Aviation Administration Category 1 flight safety status in August 2010. This designation allowed qualified domestic airlines (to date, only Arik) to operate their own flights between Nigeria and the United States. Finally, the Ministry of Aviation authorized additional U.S. airlines to operate new routes between the U.S. and Nigeria. As a result of these developments, direct flights now connect air travelers from New York, Houston and Atlanta to Lagos and from New York to Abuja via Accra. Such increased routes should facilitate increased trade, investment, and tourism in 2012 and beyond.

Conversion and Transfer Policies
The Foreign Exchange Monitoring Decree of 1995 opened Nigeria's foreign exchange market. Nigeria adopted a Wholesale Dutch Auction System (WDAS) in February 2006, in accordance with its plan to liberalize the foreign exchange market. The WDAS provides greater control of the foreign exchange market, although the Central Bank still retains its supervisory role over the market.
Foreign companies and individuals can hold non-naira-denominated accounts in domestic banks. Account holders have unlimited use of these funds, and foreign investors may repatriate capital without restrictions. Authorities have established a $4,000 quarterly Personal Travel Allowance for foreign exchange and a $5,000 quarterly Business Travel Allowance per individual for naira-denominated accounts. Commercial banks usually issue foreign exchange for travel in cash, while some authorized dealers also issue pre-paid credit cards for use at Automatic Teller Machine (ATM) terminals worldwide. Purchase of foreign exchange for business purposes, such as for importing equipment and raw materials, and for paying school fees abroad, must be routed through banks, Nigeria’s only licensed foreign exchange agents. Such transactions can only occur with proper documentation, such as filling out the "Form M" and presenting copies of the certificate of incorporation of the company.

The NIPC guarantees investors unrestricted transfer of dividends abroad (net a 10-percent withholding tax). Companies must provide evidence of income earned and taxes paid before receiving remittances from Nigeria. Money transfers usually take no more than 48 hours, if individuals provide the necessary documentation. All transfers must occur through banks.

Performance Requirements/Incentives
Nigeria regulates investment in line with the World Trade Organization's Trade-Related Investment Measures (TRIMS) Agreement. Foreign companies operate successfully in Nigeria's service sector, including telecommunications, accounting, insurance, banking, and advertising. The Securities and Exchange Act of 1988, amended and renamed the Investment and Securities Act in 1999, forbids monopolies, insider trading, and unfair practices in securities dealings.

Foreign investors must register with the NIPC, incorporate as a limited liability company (private or public) with the Corporate Affairs Commission, procure appropriate business permits, and register with the Securities and Exchange Commission (when applicable) to conduct business in Nigeria. Manufacturing companies sometimes must meet local content requirements. Expatriate personnel do not require work permits, but they remain subject to "needs quotas" requiring them to obtain residence permits that allow salary remittances abroad. Authorities permit larger quotas for professions deemed in short supply, such as deepwater oilfield divers. U.S. companies often report problems obtaining quota permits. The Domestic Content Act of 2009 (DCA) restricts the number of expatriate managers to five percent of the total number of personnel for companies in the oil and gas sector.

The GON maintains many different and overlapping incentive programs. The Industrial Development/Income Tax Relief Act Number 22 of 1971, amended in 1988, provides incentives to pioneer industries deemed beneficial to Nigeria's economic development and to labor-intensive industries, such as apparel. Companies that receive pioneer status may benefit from a non-renewable, 100-percent tax holiday of five years (seven years, if the company is located in an economically-disadvantaged area). Industries that use 60 to 80 percent of local raw materials in production may benefit from a 30-percent tax concession for five years, and investments employing labor-intensive modes of production may enjoy a 15-percent tax concession for five years. Additional incentives exist for the natural gas sector, including allowances for capital investments and tax-deductible interest on loans. The GON encourages foreign investment in agriculture, mining and mineral extraction (non-oil), oil and gas, and the export sector. In practice, these incentive programs meet with varying degrees of success.

Technology Transfer Requirements: The National Office of Industrial Property Act of 1979 established the National Office of Technology Acquisition and Promotion (NOTAP) to facilitate the acquisition, development, and promotion of foreign and indigenous technologies. NOTAP registers commercial contracts and agreements dealing with the transfer of foreign technology and ensures that investors possess licenses to use trademarks and patented inventions and meet other requirements before sending remittances abroad. In cooperation with the Ministry of Finance, NOTAP administers 120-percent tax deductions for research and development carried out in Nigeria and 140-percent tax deductions for research and development using local raw materials. As mentioned earlier, the recently-passed Domestic Content Act of 2010 (DCA) has technology-transfer requirements that appear to violate a company’s intellectual property rights.

NOTAP has shifted its focus from regulatory control and technology transfer to technological promotion and development. With the assistance of the World Intellectual Property Organization (WIPO), NOTAP has established a patent information and documentation center for the dissemination of technological information to end-users. The center has a mandate to commercialize institutional research and development with industry.

Import Policies: Import tariffs provide the GON its second largest, although much less significant, source of revenue after oil and gas exports. The GON issued the 2008-2012 Common External Tariff (CET) Book in September 2008. The CET harmonizes Nigeria’s tariffs with its West African neighbors under the Economic Community of West African States (ECOWAS) CET. The 2008 – 2012 CET established five tariff bands that include: 1) zero duty on capital goods, machinery, and essential drugs not produced locally; 2) 5 percent on imported raw materials; 3) 10 percent on intermediate goods; 4) 20 percent on finished goods; and 5) 35 percent on goods in certain sectors. Authorities reduced import duties on various items, including rice, cigars, and manufactured tobacco. A November 2010 review of the import prohibition list resulted in the removal of textiles, toothpicks, and cassava from the import prohibition list. The age limit on imported used vehicles also increased from 10 years to 15 years. Items that remain banned include: frozen poultry; pork; beef; pasta; fruit juice in retail packs; soaps and detergents; refined vegetable oil; beer; non-alcoholic beverages; and plastics. Nigeria uses non-tariff measures to achieve self-sufficiency in certain commodities under its "backward integration" program. The government used this strategy in cement production and plans to use it in other identified commodities, such as rice and sugar. President Jonathan mentioned at a September 5, 2011, event that “policies being prepared by the Economic Management Team will have tenure of five years so that investors can plan for the long-term. For instance, only those who are in large-scale rice or sugar production will be allowed to import rice or sugar on a quota to be determined by appropriate authorities similar to the current policy in the cement sector.” President Jonathan announced several new tariff measures during the December 13, 2011 presentation of the proposed 2012 Budget to the National Assembly. These include: a ban on imported cassava flour as of March 31, 2012; the imposition of a 65 percent levy on imported wheat flour and an increase to a 15 percent levy on imported wheat grain as of July 1, 2012; a rise to a 30 percent levy on imported brown rice as of July 1, 2012; and an increase to a 50 percent levy on imported polished (milled) rice as of 1 July 2012, with a final escalation to 100 percent on December 31, 2012.

The Nigerian Customs Service (NCS) and the Nigerian Ports Authority (NPA) exercise exclusive jurisdiction over customs services and port operations. Nigerian law allows importers to clear goods on their own, but most importers employ clearing and forwarding agents. Many importers under-invoice shipments to minimize tariffs and lower their landed costs. Others ship their goods to ports in neighboring countries, such as Benin and Togo, after which they are transported overland and smuggled into the country. The GON implements a destination inspection scheme whereby all imports are inspected upon arrival into Nigeria, rather than at the ports of origin. Authorities announced guidelines for the scheme in 2006, and three companies each received seven-year contracts to act as inspection agents at Nigeria's seaports, border posts, and airports. The companies include Cotecna, SGS, and Global Scan. The exclusive contract will expire at the end of 2012, when NCS officials would have completed training on the new scheme and handling of the necessary scanning machines, to be handed over to the NCS at the expiration of the contract.

Shippers report that efforts to modernize and professionalize the NCS and the NPA have reduced port congestion and clearance times. These efforts include an ongoing program to achieve the stated goal of 48-hour cargo clearance, particularly at Lagos' Apapa Port, which handles over 40 percent of Nigeria's legal trade. Nevertheless, bribery of customs and port officials remains common, and smuggled goods routinely enter Nigeria's seaports and cross its land borders. Efficient functioning of concessioned container terminals has significantly reduced container ship wait times, but the final release of containers still can take four weeks or longer due to delays in NCS container-processing and clearing. Dr. Ngozi Okonjo-Iweala, the newly-appointed Minister of Finance, ordered in October 2011 that eight agencies, including the National Agency for Food and Drug Administration and Control (NAFDAC) and the Standards Organization of Nigeria (SON), should vacate the ports within two months to facilitate easier and faster goods clearance. Dr. Okonjo-Iweala described her aim as reducing the cost of doing business in the Nigerian ports by reducing the current number of agencies in the ports from fourteen to six. Some of the banned agencies continued to resist their expulsion from the ports, as of the end of 2011.

Export Incentives: The GON has abolished most export incentives. The Nigerian Export Promotion Council, however, continues to implement the Export Expansion Grant (EEG) scheme to improve non-oil export performance. The Nigerian Export-Import (NEXIM) Bank provides commercial bank guarantees and direct lending to facilitate export sector growth, although these practices are underused. NEXIM’s Foreign Input Facility provides normal commercial terms of three to five years (or longer) for the importation of machinery and raw materials used for generating exports. Agencies created to promote industrial exports remain burdened by uneven management, vaguely-defined policy guidelines, and corruption. Nigeria's inadequate power supply and lack of infrastructure and the associated high production costs leave Nigerian exporters at a significant disadvantage. The vast majority of Nigeria’s manufacturers remain unable to compete in the international market. Many of these are also unable to compete with low cost imports coming from Asia, especially China. The Dangote Cement Company will likely become a major recipient of the EEG as soon as it completes its domestic capital-expansion projects and implements its plan to export large volumes of domestically-manufactured cement to ECOWAS countries.

Government Procurement: The GON awards contracts under an open-tender system, advertising tenders in Nigerian newspapers and a “tenders” journal, and opening the tenders to domestic and foreign companies. Procurement has become slightly more transparent, but corruption persists in the awarding of government contracts. Procurement for capital projects often suffers from over-invoicing, which permits improper payments or "kick-backs" to private and public sector officials. Many U.S. companies claim they remain disadvantaged in obtaining GON contracts, even when they appear to have submitted the best bids in technical and financial terms. Unsuccessful U.S. bidders sometimes allege collusion between foreign competitors and key GON officials.

The Public Procurement Law of 2007 established the Bureau of Public Procurement (BPP) as the successor agency to the Budget Monitoring and Price Intelligence Unit (BMPIU). The BPP acts as a clearinghouse for government contracts and procurement and monitors the implementation of projects to ensure compliance with contract terms and budgetary restrictions. Procurements above 50 million naira (about $322,580) undergo full "due process," as the process is called. Some of the 36 states of the federation have also passed public procurement legislation.

Visa Requirements: Investors sometimes encounter difficulties acquiring entry visas and residency permits. Foreigners must obtain entry visas from Nigerian embassies or consulates abroad, seek expatriate position authorization from the NIPC, and request residency permits from the Nigerian Immigration Service. Investors report that this cumbersome process can take from two to 24 months and cost from $1,000 to $3,000 in facilitation fees. The GON announced a new visa rule in August 2011 to encourage foreign investment, under which legitimate investors can obtain multiple entry visas at the point of entry into Nigeria.

Right to Private Ownership and Establishment
The GON supports competitive business practices and protects private property in accordance with the NIPC Decree of 1995.

Foreign Trade Zones/Free Trade Zones
The GON established the Nigerian Export Processing Zone Authority (NEPZA) in 1992 to attract export-oriented investment. NEPZA allows duty-free import of all equipment and raw materials into its export processing zones. Up to 25 percent of production in an export processing zone may be sold domestically upon payment of applicable duties. Investors in the zones are exempt from foreign exchange regulations and taxes and may freely repatriate capital. Only two export processing zones established under NEPZA, those in Calabar and Onne, function properly. In 2001, authorities converted both into free trade zones (FTZ). The Tinapa Free Trade Zone, owned by the Cross River state government, was commissioned during the first quarter of 2007, and several shops and bank branches are operating there. Oil and gas companies use the Onne FTZ as a bonded warehouse for supplies and equipment and for the export of liquefied natural gas. The GON also encourages private sector participation and partnership with state and local governments under the FTZ program, resulting in the establishment of the Lekki FTZ (owned by Lagos state), and the Olokola FTZ (owned by the federal government, Ogun state, Ondo state, and private oil companies and straddling Ogun and Ondo states). These zones remain under construction. Workers in FTZs may unionize, but may not strike for an initial ten-year period.

http://www.state.gov/e/eb/rls/othr/ics/2012/191211.htm