Nigeria is one of Africa’s largest economies which strategically positions it as a viable economic destination on the continent thus offering significant opportunities for foreign investment. According to the Nigerian Economic Summit Group, Nigeria’s foreign investment inflows increased from US$1.0 billion in Q2 2023 to US$2.6 billion in Q2 2024, even though this was below the figure achieved in the first quarter of 2024 (US$3.4 billion).
Nigeria’s economy runs on a treadmill of various sectors which include oil and gas, agriculture, finance, manufacturing, etc. It is worthy of note that each of these sectors has active foreign participation in them. However, for foreigners to actively partake in economic activities in the country, certain legal and regulatory measures must be adhered to and followed.
This article provides a detailed analysis of the legal frameworks governing foreign participation in Nigeria, detailing the business registration processes, expatriates’ employment, and strategies to ensure compliance and mitigate risks.
Legal Framework governing Foreign Participation in Nigeria
A foreigner or alien can simply be defined as someone who is not a Nigerian citizen. Foreign participation is a type of cross-border investment in which a resident of one economy has control or a significant degree of influence over the management of a resident of another economy.
As established earlier, foreigners or aliens seeking to do business in Nigeria must fulfil certain requirements before gaining legitimacy for their undertakings. Foreigners are permitted to engage in enterprise in Nigeria by Section 17 of the Nigerian Investment Promotion Commission (NIPC) which states that “A non-Nigerian, whether company or individual may invest and participate in the operation of any enterprise in Nigeria except those in the negative list”.
Also, Section 20(4) of the Companies & Allied Matters Act states that an alien or a foreign company may join in forming a company Subject to the provisions of any enactment regulating the rights and capacity of aliens to participate or undertake in a trade or business.
a. Companies & Allied Matters Act (2020)
The CAMA 2020 is the primary legislation regulating the formation and running of companies in the country. Section 78 of the Act prohibits foreigners from conducting business unless they register with the Corporate Affairs Commission (CAC) or obtain an exemption. It is noteworthy that even if a company is registered in its country, it must incorporate a separate legal entity in Nigeria to enable it to carry out its business.
Until registered, a foreign company cannot operate, have a business address, or carry out any commercial activities in Nigeria. After incorporation, the company must also obtain a Tax Identification Number (TIN) from the Federal Inland Revenue Service (FIRS) for its tax obligations, including corporate tax and VAT registration.
The Ministry of Interior issued a revised Handbook on Expatriate Quota Administration 2022 (the “Handbook”) which increased the minimum share capital requirement to NGN100,000,000 (One Hundred Million Naira) thus for a company with foreign participation to register with the Corporate Affairs Commission it must comply to this requirement.
b. Nigerian Investment Promotion Commission (NIPC) Act 1995
The Act establishes the Nigerian Investment Promotion Commission (NIPC), which is responsible for promoting and regulating foreign investment in Nigeria. The Act empowers foreigners to partake in any business except those on the negative list which includes:
1. Production of arms and ammunition;
2. Narcotics and psychotropic substances;
3. Military and paramilitary activities.
Additionally, Section 24 of the Act guarantees foreign investors the right to repatriate capital, profits, and dividends in freely convertible currency. The benefits of registering with the NIPC are numerous for investors. One of the notable benefits is that the Nigerian Investment Promotion Commission Act guarantees that no foreign-owned enterprise or establishment, shall be expropriated or nationalized by any government in Nigeria, after proper registration with the NIPC.
c. Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 1995
This Act regulates the flow of foreign capital in Nigeria. It permits the free transfer of dividends, profits, and proceeds from the sale of investments.
Foreign investors in Nigeria must obtain a Certificate of Capital Importation (CCI) from an authorized dealer to legally bring in foreign currency or assets for investment. The CCI enables them to repatriate profits, dividends, and capital freely. Without it, access to the official foreign exchange market for repatriation is restricted. All funds must comply with money laundering regulations.
Foreign businesses should also acquaint themselves with the respective regulations and laws in their industries as what is obtainable in the finance industry differs from oil and gas and so on.
Employment and Immigration Compliance for Expatriates
Foreign businesses intending to hire expatriates must secure an Expatriate Quota from the Ministry of Interior, which approves specific roles. The application process requires proof of business viability, unavailability of local labor, and a training program for Nigerian employees. Additionally, a Business Permit from the Federal Ministry of Interior is required before commencing operation.
For residency and work authorization, expatriates must obtain the Combined Expatriate Residence Permit and Aliens Card (CERPAC) from the Nigeria Immigration Service (NIS). The process involves employer sponsorship, security clearance, and payment of statutory fees.
Challenges & Prospects of Foreign Participation in Nigeria
Foreign businesses in Nigeria face several hurdles, including bureaucratic bottlenecks delays, and changing policies. Navigating business permits, expatriate quotas, and tax obligations can be a chore. Additionally, security concerns, infrastructure deficits, and compliance with local content laws create operational challenges. Corporate governance issues, including shareholder disputes and contract enforcement difficulties, also present risks.
Despite these challenges, Nigeria offers significant investment opportunities due to its large consumer market, growing middle class, and expanding sectors such as technology, manufacturing, and agriculture. The government has implemented business-friendly reforms, including improved company registration processes via the CAC and incentives for foreign investors in priority sectors such as pioneer status and duty drawback. Free Trade Zones and tax incentives further enhance investment appeal. With strategic planning and local partnerships, foreign investors can successfully navigate the market and leverage its economic potential.
Conclusion
Although challenges exist for commercial entities resident abroad to conduct business in Nigeria, proper legal compliance, due diligence, and strategic partnerships can mitigate risks and enhance business success. Foreign investors must prioritize regulatory adherence, risk management through corporate governance, and local engagement to thrive in Nigeria’s evolving business landscape. With the right approach, the country remains a promising destination for long-term investment.
Ikogho Akpomerene is a corporate and commercial attorney and the Managing partner of Mark Renee Legal Practitioners, based in Lagos State.
