Nigeria’s Investment Climate Today
The biggest story of 2015 must be the presidential elections in which the incumbent lost and went on to congratulate his victorious opponent. The peaceful handing over by then President Goodluck Jonathan to current President Muhammadu Buhari went a long way in reassuring the business community of the country’s stability and of the safety of investments. On the economic front, the drop in the price and demand for Nigeria’s crude oil (Nigeria’s main foreign exchange earner) forced the devaluation of the naira by 30% on the official market and by 50% in the open market. The Central Bank of Nigeria (CBN), in its bid to protect the local currency, has responded with a number of capital restrictions.
However, Nigeria remains a viable investment destination for long-term investors, as it boasts vast untapped human and natural resources. Although the present government has yet to fully articulate its economic plans, it is understood that it will be focusing on corruption, unemployment, the economy, and security. It is also expected that the government will continue to open up the Nigerian economy to private sector investment, riding on the success of the privatization of the telecommunication sector and the ongoing privatization of the power sector.
During the last days of the President Jonathan administration, the National Assembly hurriedly passed 46 bills, which to that point had been pending. Notable among them are:
• Witness Protection Programme Bill;
• Whistle-blower Protection Bill;
• Anti-Torture Bill, 2015; and
• Nigerian Oil and Gas Industry Content Act 2010 (Amendment) Bill 2015
These 46 bills are yet to be assented to by the president; however, the following laws, which had previously been passed and assented to by the president, came into force.
The Cybercrime (Prohibition, Prevention, etc) Act, 2015
The Cybercrime (Prohibition, Prevention, etc) Act, 2015 is observed to be a proactive measure to protect the public when using cyberspace for transactions.
Section 1 of the Act sets out its objectives as follows:
• To provide an effective, unified, and comprehensive legal, regulatory, and institutional framework for the prohibition, prevention, detection, prosecution, and punishment of cybercrimes in Nigeria;
• To ensure the protection of critical national information infrastructure; and
• To promote cyber security and the protection of computer systems and networks, electronic communications, data and computer programs, intellectual property, and privacy rights.
Electronic commerce has continued to grow with increasing access to the internet in the country. This growth is far from its peak. Technology companies providing e-payment solutions are taking advantage of this development. Furthermore, the CBN is dedicated to promoting and sustaining a cashless economy. The Act is a timely intervention to curb the menace of internet fraud and encourage the use of online channels for business in Nigeria. The Act criminalizes certain internet-related activities, such as cybersquatting, internet stalking, unlawful access to computers, unlawful operation of cybercafés, system interference, intercepting electronic messages and emails, tampering with critical infrastructure, and computer-related forgery. The punishment upon conviction could be as high as seven years imprisonment or a fine of NGN10 million ($50,000). A widely-held view is that the proper implementation of this law will help strengthen public confidence in the use of the internet as a means of conducting business in Nigeria. Some of the other key provisions of the Act are:
• The power of the president to designate certain computer systems, networks, computer programs, computer data, and traffic data vital to Nigerian security as constituting Critical National Information Infrastructure.
• That a telecommunication/internet service provider must keep all traffic data and subscriber information as may be prescribed by the relevant authority for a period of two years.
• Creation of the National Cyber Security Fund (the “Fund”), which shall be domiciled with the CBN and into which shall be paid a levy on all electronic transactions by the businesses specified in the Second Schedule of the Act. It also allows the Fund to receive assistance from donors, bilateral and multilateral agencies, and such monies as may be appropriated for the Fund by the National Assembly. The Fund is to be directed toward the improvement of information technology in Nigeria and also act as an intervention fund in case of emergency.
• The placing of responsibility on the Office of the National Security Adviser (ONSA) for the coordination of all security and law enforcement agencies under the Act.
Immigration Act 2015 (“Immigration Act”)
In June 2015, a new Immigration Act was signed into law, repealing the 1963 Nigerian Immigration Act, which was the primary legislation on immigration and other related matters in Nigeria. The objective of the new law is to improve the regulation and administration of immigration practices in Nigeria and ensure efficiency in its enforcement. The new Act introduced the following changes, inter alia:
• Status of the Nigerian Immigration Service: Before now, the Nigerian Immigration Service was administered by a Director of Immigration who is under the general direction of the Minister of Interior and is charged with the administration of immigration matters. However, the new Act has created a legal personality, the Nigeria Immigration Service (the “Service”) with the power to sue and be sued in its own corporate name. The new Act further outlines the functions of the Service, provides for the appointment of principal officers of the Service by the president, and for the Service to be headed by a comptroller-general with defined duties.
• The adoption of Stiffer Penalties: The new Act makes provisions with regard to immigration related offenses, and provides stricter penalties for breach of its provisions. The objective of the Act in providing for stiff penalties is to serve as a deterrent to the violation of Nigerian immigration laws with impunity. Generally, penalties provided by the new Act for immigration related offenses range from a minimum of NGN500,000 to NGN2,000,000 (approximately $2,500-$10,000), imprisonment for a period of 10 years, or both fine and imprisonment.
• Under the new Act, a foreigner holding a Combined Expatriate Residence Permit and Alien Card (CERPAC) no longer requires a re-entry visa anytime he/she travels outside Nigeria. CERPAC is a document that allows a non-Nigerian to reside and work in Nigeria or to accompany a resident or citizen of Nigeria as a dependent.
• The new Act creates an immigration court for easier resolution of immigration-related disputes.
• International carriers (including ships, trains, or buses) have been given the responsibility to ensure that passengers hold the correct documents prior to each journey. Violation of this law carries a fine of NGN2,000,000 (approximately $10,000) and the responsibility to remove the illegal immigrant.
• The new Act also domesticates provisions of the United Nations Convention on Organized Crime (otherwise known as the Palermo Convention, including the United Nations Protocol Against Smuggling of Migrants), ratified by Nigeria on June 28th, 2001. A major achievement of the convention is that for the first time in a global international instrument, a definition of smuggling of migrants (otherwise known as human trafficking) was developed and agreed upon. The convention, amongst other things, aims at preventing and combating the smuggling of migrants, as well as promoting cooperation among state parties, while protecting the rights of smuggled migrants and preventing their exploitation
Equipment Leasing Act, 2015
The Equipment Leasing Act, 2015 is the pioneering legislation on equipment leasing and related matters in Nigeria. Highlights include:
• Establishment of the Equipment Leasing Registration Authority (ELRA), which has the responsibility of registering equipment lease agreements and licensing companies carrying on the business of equipment leasing. The Act further provides that an equipment lease agreement, irrespective of the value of the leased equipment, must be registered with the ELRA, otherwise it is invalid.
• Participation in equipment leasing business in Nigeria is restricted to companies incorporated in Nigeria.
• The Act provides that the title or interest of the lessor in leased equipment shall prevail against claims by third parties including a creditor of the lessee.
• The Act prohibits the removal of leased equipment outside of Nigeria without the consent of the lessor.
(ii) Recent Central Bank of Nigeria (CBN) Monetary Policies
The global fall in oil prices and the resulting reduction in the foreign exchange earnings of the country has put pressure on the Nigerian economy and threatened the value of the naira. The high demand for foreign exchange continued to negatively impact the naira, compelling the CBN to take steps to cushion the effect. In response, the CBN:
• Has prohibited the use of foreign currency for the settlement of local obligations.
• On July 1st, 2015, the CBN published a list of imported items that would no longer be eligible for foreign exchange through the official channels. Amongst these items are rice; cement; palm kernel/palm oil products/vegetable oils; meat and processed meat products; poultry — chicken, eggs, turkey; textiles; finished aluminum cans; euro bond/foreign currency bond/share purchases; galvanized steel sheets; margarine; private airlines/jets; incense; roofing sheets; wheel-barrows; head-pans; enamelware; steel drums; steel pipes; wire rods (deformed and not deformed); iron rods and reinforcing bars. Importers of such items must source foreign exchange independently.
• Imposed a daily and an annual limit of $300 and $50,000 respectively (or their equivalent in other currencies) on the use abroad of naira-denominated debit cards, and also prohibited the deposit of cash into foreign currency domiciliary accounts in Nigeria.
• Treasury Single Account (TSA) — The new government implemented the TSA policy. The TSA is a consolidated government account maintained by the CBN into which government agencies and parastatal entities are required to remit all revenues accruing to the government. Hence, commercial banks are no longer permitted to hold accounts for any governmental body or agency. The federal government had identified this as source of leakage of state revenues. Commercial banks now collect and remit the Federal Government’s revenues to the TSA at the end of each business day. It was reported that banks have so far moved about NGN2 trillion (approximately $10 billion) of the government’s funds into the TSA.
• To ameliorate the effect of the TSA on the banks, the CBN adjusted the Monetary Policy Rate (MPR) and the Cash Reserve Ratio (CRR) from 13.0% and 31% to 11.0% and 20% respectively. These were changed to ensure that commercial financial institutions are sufficiently liquid to continue lending at a reduced interest rate.
(iii) Corporate Affairs Commission E-Registration
The Corporate Affairs Commission (CAC), Nigeria’s company registry, has launched its e-services platform. Although the platform has yet to offer a complete alternative to physical interface with the CAC at its offices, it is expected to ease the process of registration and management of companies in Nigeria.
(iv) Regulatory Agencies Enforcing More Strictly
The inauguration of a new administration with a clear intention to strictly apply the law has moved Nigerian regulatory agencies to becoming stricter in the enforcement of their respective mandates. The Nigerian Communication Commission (NCC) recently sanctioned several mobile network operators for breaches ranging from the sale of pre-registered SIM cards, to failure to deactivate SIM cards that are incompletely and/or are improperly registered.
In addition, although the tax regime in Nigeria has not been modified, there is likely to be greater enforcement of existing tax laws.
As the regulatory regime becomes stricter, investors, now more than ever, require well-articulated, bespoke business solutions and advice.
(v) Dispute Resolution
Many of the courts in Nigeria have adopted the “front-loading” of court processes and arguments to enhance and facilitate the speedy resolution of disputes. The establishment of the Tax Appeal Tribunal (with eight panels around the country) has meant that disputes with tax authorities are being dealt with quicker. For commercial disputes, arbitration is becoming a preferred mode of dispute resolution. In Lagos, the commercial center of the country, the arbitrating bodies of the Regional Centre for International Commercial Arbitration (established by the federal government) and the Lagos Court of Arbitration (established by the state government) both offer facilities.