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Limitations of foreign investments in Nigeria – by Resolution Law Firm

Newsliks by Newsliks
December 29, 2020
in Analysis, Special Report
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President Muhammadu Buhari

President Muhammadu Buhari

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President Muhammadu Buhari

Foreign investment in Nigeria may be in the form of foreign direct investment or foreign portfolio investment. Foreign investments are pivotal to the growth and development of the national economy. However, there are various limitations to foreign investments in Nigeria. Some of these limitations will be briefly discussed below.

Factors that Limit Foreign Investment in Nigeria

Foreign Companies must register another company as a separate legal entity to carry on business in Nigeria – By Section 78 of the Companies and Allied Matters Act 2020, any foreign company that intends to carry on business in Nigeria must incorporate another company for that purpose in Nigeria unless such a company qualifies for exemption under the Act. The statutory exemptions are confined to companies formed to carry on specific government-approved projects. Therefore, a foreign company cannot engage in any business or open a bank account in Nigeria without firstly registering a subsidiary of such a business in Nigeria. Furthermore, under the Company Regulations 2021, a company owned by a foreigner cannot be classified as a small company, as Nigeria law does not permit alien to set up a small or non-viable company in Nigeria. Also, every foreign-owned company must have a minimum of N10 Million share capital to be eligible for expatriate quotas application with the Federal Ministry of Interiors.

Foreign directors must obtain a work permit to work in Nigeria or be a signatory to a Nigerian bank account – Having a registered company does not automatically qualify a foreigner to commen Foreign directors must obtain a work permit to work in Nigeria or be a signatory to a Nigerian bank account – ce work or open a bank account in Nigeria. A foreign director or expatriate staff who intends to migrate to Nigeria to work here or become a signatory to a bank account in Nigeria must first obtain the work permit, otherwise known as the Combined Expatriate Residence Permit and Aliens Card (CERPAC) before such a person can be allowed to either work or become a signatory to a bank account in Nigeria.

Foreigners can not solely register or own an upstream oil and gas company in Nigeria – by section 2 of the Petroleum Act, an oil prospecting or exploration license or an oil mining lease can only be granted to a company incorporated in Nigeria, there is no express provision for such a company to be controlled by Nigerians. However, the Nigerian Oil and Gas Industry Content Development Act, 2010 (the “Local Content Act”) provides that preference be given to Nigerian independent operators in the award of oil blocks, oil field licenses, oil lifting licenses and, in all projects for which contract is to be awarded in the Nigerian oil and gas industry subject to the fulfilment of certain conditions specified by the Minister of Petroleum. The above provision has made it impracticable for foreigners to solely register or own an upstream oil and gas company in Nigeria, thus any foreigner who intends to register an upstream oil and gas company must partner with at least a Nigerian citizen who will have a majority stake in the company.

Foreigners cannot be granted an aviation license or other related permit and authorization for commercial air operations within Nigeria – By virtue of Section 33 of the Civil Aviation Act, for an individual to qualify for the grant of an aviation license or other related permit and authorization for commercial use, the Nigerian Civil Aviation Authority has to be satisfied that the applicant is a Nigerian citizen or in the case of a corporate body, it is a company registered in Nigeria and which is controlled by Nigerian nationals, it is worthy to note that this provision conflicts with the provision of paragraph 10 of the Nigeria Civil Aviation Regulations which does not require foreign air operators to incorporate a Nigerian company to engage in commercial operations in Nigeria and that notwithstanding this conflict, foreign commercial operators have been authorized to operate in Nigeria without the need to incorporate a Nigerian company.

A foreigner cannot own land in some States in Nigeria – In some States in Nigeria, foreigners cannot generally own land or acquire an interest in land unless Governor consent is sought and obtained upon payment of the prescribed fees. However, a foreigner may directly acquire an interest in Nigerian real estate through a registered company, since a company registered in Nigeria is considered a resident legal entity.

Foreigners and foreign companies are restricted from participating in coastal and cabotage trade in Nigeria- Under the Nigerian law, no vessel which is not wholly owned and registered in Nigeria is permitted to engage in domestic coastal carriage of cargo and passengers within the coastal, territorial inland waters, island, or any point within the exclusive economic zone of Nigeria. Vessels that are not wholly-owned by Nigerians are prohibited from engaging or trading in any domestic trading in the inland waterways. Notwithstanding these restrictions, the law empowers the Minister in charge of shipping to grant waivers and as such he can authorize a foreign vessel to engage in the prohibited activities where he is satisfied that no wholly-owned Nigerian vessel is available and suitable to provide the required services.

In conclusion, although the Nigeria government has opened up all sectors of the Nigerian economy to foreign participation except those businesses contained in the negative list such as the production of arms and ammunition, dealing in narcotics drugs and psychotropic substances, production of military and para-military wears, foreigners are still restricted or limited to fully engage in some sectors of the economy.

Resolution Law Firm – Olusola Jegede and Benedette Bassey

First published on Lexology

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