Nigeria

Market Overview
By

1. Introduction

The Federal Republic of Nigeria (“Nigeria”), the most populous country in Africa, accounts for one-sixth of Africa’s population. Nigeria also plays host to one of the continent’s fastest-growing economies. Following a contraction of 1.8% in 2020 with growth losses occasioned by the COVID-19 pandemic (“the Pandemic”), the economy rebounded and grew by 3.6% in 2021, growing faster than expected.1 In 2022, Nigeria’s GDP is predicted to grow faster than its population and will be driven by agriculture, services (trade, ICT, financial services), and the non-oil industry (construction, food).2

As countries compete for investments and economic growth it is the duty of every responsive government to provide an enabling environment for businesses to thrive and to attract foreign investments. Thus, in recent times, the focus of the Federal Government of Nigeria (FGN) has been on catalyzing a stable business environment with landmark legislative reforms, including but not limited to the Secured Transactions in Movable Assets Act No. 3 2017, the Federal Competition and Consumer Protection Commission Act No. 1 2018; the Companies and Allied Matters Act No. 3 2020 (“CAMA”); Banks and Other Financial Institution Act No. 5 2020 (“BOFIA”); the Finance Acts (2019, 2020, & 2021), the Petroleum Industry Act No. 6 2021 (“PIA”). To reinforce the positive impact of these legislations, the FGN has through executive orders, like the Executive Order on Promotion of Transparency and Efficiency in the Business Environment (2017), created more certainty and transparency to the model of doing business in Nigeria.

2. The Nigerian Business Environment: 2021-2022

After the tumultuous economic clime in the first half of 2020 characterised by the outbreak of the Pandemic and a Pandemic induced recession, the 3rd-4th Quarter of 2020 witnessed some economic improvements and deliberate attempts by the administration of President Muhammadu Buhari to enact reformative legislations including but not limited to the enactment of the CAMA and BOFIA which repealed the Companies and Allied Matters Act 1990 and the Banks and Other Financial Institutions Act 1990, the provisions of which were ill-equipped to cater to economic and technological developments of the 21st century. The Nigerian economic clime witnessed remarkable developments in sectors such as the oil and gas industry, financial services and international trade.

The oil and gas industry has continued to be the mainstay of the Nigeria economy despite Government’s best efforts at diversification. According to a new report by the National Bureau of Statistics (“NBS”), in the first quarter of 2022, Nigeria’s oil and gas sector led in volume and value of imports and exports, accounting for nearly 88% of all exported goods about 30% of total imports. The report stated that the value of crude oil exports in Q1, 2022 stood at ₦5,620.99 trillion which accounts for 79.16% share of total exports. Similarly, in Q1, 2022, revenue from gas export and feedstock sales to the Nigeria Liquefied Natural Gas Limited (NLNG) hit $243.57 million, surpassing receipts from crude oil export by 259.4%.3. In 2021, the Nigerian oil and gas industry witnessed a new dawn with the enactment of Petroleum Industry Act No. 6 2021 (“PIA”). Among the numerous changes introduced by the PIA is the (i) characterization of the Nigerian National Petroleum Corporation (NNPC) into a limited liability company in a bid to engender profitability and market competition (ii) introduction of Host Community Development Trust Fund for indigenous communities (iii) establishing dual regulators for the petroleum industry, namely, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) which is responsible for the technical and commercial regulation of the upstream petroleum operations, and the Nigerian Midstream and Downstream Petroleum Authority (the “Authority”), which is responsible for the technical and commercial regulation of the midstream and downstream petroleum operations; (iii) reduction of tax rates from 85% (or 65.75% for companies in their first 5 years of operations) under the repealed Petroleum Act and the Petroleum Profit Tax Act to tax rate of 15% to 30% for onshore and shallow waters and a 30% tax rate under the companies income tax and (iv) renaming existing licenses and leases related to the upstream petroleum operations and replacing them with the following categories: Petroleum Exploration License, Petroleum Prospecting License, and Petroleum Mining Lease.

A vibrant sub-market in the Nigerian oil and gas industry is the marginal fields which is geared at giving Nigerian indigenous oil and gas companies the opportunity to play a more active part in the exploration and production of petroleum by owning and operating oil blocks. Sequel to the marginal fields licensing round that commenced in June 2020, 161 indigenous firms out of 665 interested bidders were issued letters of award in respect of their bids for marginal field licenses by the government. From this bid, the Federal Government had so far raised about ₦175 billion. The bid was initially hindered by bureaucratic challenges, in addition to internal issues between co-awardees in incorporating special purpose vehicles (SPVs), high bid participation fees and signature bonus, inadequate data about the fields, difficulties in accessing finance from lenders, equity participation by members of respective SPVs, etc. However, the round was completed by the NUPRC with fewer complaints or litigations as against the norm.

Furthermore, the Companies Income Tax Act (CITA) as amended by the Finance Acts 2019, 2020 exempts the profits of small companies (companies with annual gross turnovers of N25m or less) from tax while the companies income tax that applies to medium-sized companies (companies with gross annual turnovers greater than N25m but less than N100 million) is limited to 20% and large companies (companies with annual gross turnovers higher than N100m) are levied companies income tax at 30%.

Another important sector of the Nigerian economy is the financial services comprising banks, capital markets, insurance and pension industries. In April 2021, the Board of the Pension Commission (Pencom), Nigeria issued a circular4 to increase the minimum regulatory shareholders capital for pension fund administrators (PFAs) from One Billion Naira to Five Billion Naira, effective 27 April 2022. On 29 April, Pencom informed all stakeholders that all PFAs have complied with the directive, albeit the exercise led to the reduction of licensed PFAs from a total of 22 to 20 vide the mergers/acquisition undertaken by certain operators in order to comply with the directive. The Nigerian banking industry progressively contributed about ₦168.4 trillion to the country’s GDP between 2017 and 2020, indicating incredible resilience and growth.5 The Nigerian banking industry witnessed a landmark regulatory development with the enactment of the BOFIA in 2022. On October 25 2021, the Central Bank of Nigeria (“CBN”) officially launched its digital currency, the E-Naira.6 In less than four weeks of its launch, almost 600,000 downloads of the ENaira application were recorded.7 In keeping with the financial inclusion strategy, the CBN, in May 2022, announced the adoption of an Unstructured Supplementary Service Data (USSD) code8 to enable intending users who do not have a bank account to leverage the E-Naira platform. Key benefits of E-Naira include easier access to capital and financial services thereby increasing economic activities at low/no interest transaction rate; a secure and cheaper diaspora remittance option; a traceability feature that limits its use for illicit or fraudulent purposes; increased financial inclusion to people/communities with inadequate banking opportunity; and presenting a more secure option as its unique identity and security structure prevents forgery or counterfeit. It also saves the CBN from the huge amount of money spent on printing Naira notes and stops the abuse of same.

Other key developments in the banking industry include (i) improved lending to the real sector via CBN Circular Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy, dated 3 July 2019 which mandates inter alia that deposit money banks maintain a loan to deposit ratio (LDR) of 60% out of which small and medium scale enterprises, retail, mortgage and consumer lending shall be assigned a weight of 150% in the computation of the LDR (ii) licensing of payment service banks to entities especially telecommunication companies pursuant to the CBN Guidelines for Licensing and Regulation of Payment Service Banks for the purpose of leveraging mobile and digital channels to enhance financial inclusion and stimulation of economic activities at the grassroots through the provision of financial services (iii) release of the Regulatory Framework for Open Banking by the CBN in February 2021 which set out the principles for data sharing across the banking and payment system to promote innovations and broaden the range of financial products and services available to bank customers.

The Securities and Exchange Commission (the “SEC”) on 12 January 2021 released its Rules on Crowdfunding (the “Rules”) to regulate investment-based crowdfunding in Nigeria. Pursuant to the Rules, all entities that facilitate investment-based crowdfunding through online platforms (crowdfunding portals) are required to be registered with the SEC as Crowdfunding Intermediaries. Furthermore, the SEC on 11 May 2022 published its Rules on Issuance, Offering Platforms and Custody of Digital Assets (the “Digital Assets Rules”). The Digital Assets Rules sets out the approval process for issuers looking to raise funds through the capital market by offering digital assets such as tokens to the public, digital assets offering platforms, digital assets custodians, virtual assets service providers, and digital asset exchanges.

The Nigerian telecommunication, media, and technology (TMT) space also witnessed considerable development over the past 2 years on 8 September 2021 the National Policy on 5G Networks for Nigeria’s Digital Economy (the “5G Policy”) was approved by the Federal Executive Council. Sequel to the auction by the Nigerian Communications Commission (“NCC”) for the licensing of 3.5GHz Spectrum towards the deployment of 5G, the NCC announced MTN Nigeria, Mafab Communications Limited, and Airtel Networks Limited as the three qualified bidders that have met the criteria for participation in the licensing process of 3.5GHz Spectrum. After 11 rounds of bidding, MTN Nigeria and Mafab Communications Limited emerged as the two successful winners of the auction on 13 December 2021. In preparation for the rollout of the 5G network slated to commence in August 2022, the NCC, in June 2022, released draft guidelines on infrastructure deployment in the telecommunication sector.

In February 2022, the Federal government of Nigeria announced the establishment of the Nigeria Data Protection Bureau (NDPB). The NDPB is required to enforce compliance with the provisions of the Nigeria Data Protection Regulations 2019; and assist in the development of a primary legislation for data protection and privacy in Nigeria.

3. The Nigerian Comparative Advantage

With the presence of a large youthful population willing to explore new products and possibilities (combined with factors such as increased smartphone penetration and the regulatory financial inclusion policy of the government), Nigeria is home to one of the most vibrant FinTech ecosystems in Sub-Sahara Africa. In a study by McKinsey & Company, between 2014 and 2019, Nigeria’s Fintech raised more than US$600 Million in funding (including M&As), thereby attracting 25% (US$122 Million) of the US$491.6 Million raised by African tech startups in 2019 alone - second only to Kenya which attracted US$149 Million. Within a month in the first quarter of 2021, Nigerian technology firms raised US$202 Million eclipsing the entire US$170 Million raised by 82 Nigerian tech firms in 20209. By Q3 2021, out of the US$1.4 Billion raised by African Fintech firms, Nigeria was the largest recipient of about 57.9% of the investments.

Nigeria’s teeming population comprises the largest market in Africa and this is reflected in the spate of growth in the consumer goods sector. Nigeria’s largest fast-moving consumer goods (FMCG) companies saw their profits surge to a five-year high and above pre-pandemic levels in the first half of 2021. Nestle Nigeria Plc, Dangote Sugar Plc, Flour Mills Plc, Unilever Nigeria Plc, and Nascon recorded a combined profit of ₦52 billion in the first half of 2021, a 22% increase compared with ₦42.6 billion.

To ensure that residents or contracting parties do not suffer tax more than once on the same income or in two jurisdictions, Nigeria currently has operational Double Taxation Agreements (DTAs) with sixteen (16) countries including, Italy, the United Kingdom, Belgium, Pakistan, Czech, Slovakia, France, Netherlands, Romania, Canada, South Africa, China, Philippines, Sweden, Spain, and Singapore. Benefits of the DTA include relief from double taxation, treaty tax rates on income from source countries, dispute resolution mechanisms, and others.

To ensure smooth enforcement of foreign judgments on business, Nigeria ratified the International Center for Settlement of Investment Disputes (ICSID) Convention and subsequently enacted the International Center for Settlement of Investment Disputes (Enforcement of Awards) Act. The ICSID Act provides that upon filing of an ICSID award with the Supreme Court of Nigeria such award shall for all purposes have effect as if it were an award contained in a final judgment of theSupreme Court and the award shall be enforceable as such.

Nigeria is a signatory to the African Continental Free Trade Area (ACFTA) Agreement which officially came into force on 30 May 2019 and commence operations on the 1st of January 2021. The AfCFTA heralds huge economic benefits in a single market economy of 1.3 billion people and improvement in GDP of over $3.5trillion market, while lifting as many as over 30 million Africans out of poverty.10 The AFCTA will expedite efficient intra-continental trade, marked by few restrictions and less complex checks of goods across national borders and ports of entry. With the coming into full force of the ACFTA, Nigeria occupies a position of strategic strength, especially in sectors such as financial services and TMT especially taking cognizance of the fact that in the year 2021 Nigeria accounted for $6.7 billion worth of capital importation.

4. Business Structures in Nigeria

On 15 May 2018, Nigeria witnessed a watershed event in its corporate landscape as the 8th Senate of the Federal Republic of Nigeria at its plenary session passed the Bill for an Act to repeal the 30 years old Companies and Allied Matters Act 1990 (CAMA 1990) which had become archaic and incompatible with the economic and technological advancement of the times. In place of the CAMA 1990, the government enacted the CAMA 2020 which came into force on the 7th of August 2020. The CAMA represents a bold step toward business reform and contains salient provisions that enable business registration efficiency, reduced onerous requirements for small and medium enterprises (SMEs), enhanced stakeholders’ engagement in business organizations, promote long-term investments, and establish Nigeria as the African hub for the setup and operation of businesses. The Corporate Affairs Commission (“CAC”) pursuant to the powers vested in it by the CAMA issued the Companies Regulations 2021 (the “CAMA Regulations”) which provided the regulatory framework for the implementation and operationalization of the CAMA.

Within the Nigerian legal system the business structures in utilization are as contained in Diagram1 below:

5. The Main Sector Drivers of the Economy

Nigeria’s main economic drivers include the agricultural, oil and gas, services, and non-oil sector. The agricultural sector grew by 2.1% in 2021, which spate is consistent with 2.2% growth in 2020, and is expected to grow by 3.2% in 2022. However, the oil and gas sector witnessed a further contraction of 8.3% in 2021, following a contraction of 8.9 in 2020. Oil and gas production suffered myriad technical and security issues such as pipeline leaks, equipment failure, work stoppages for non-payment, community protests over unpaid compensation, and other problems such as theft and vandalism.11

The services sector accounts for the largest share of the country’s GDP and contributed the most to GDP growth in 2021. The services sector is bolstered by subsectors such as information and communication technology (ICT) and financial services. ICT expanded by 6.5%, while financial services grew by 10.1%.12 The non-oil industry recovered from its contraction in 2020 and grew by 4.4%, strengthened by subsectors such as manufacturing and construction. Other subsectors of the non-oil industry such as cement, food, beverage and tobacco, motor vehicles and assembly, and chemical and pharmaceutical products, are predicted to grow at a lower rate as they struggle with issues like supply constraints, rising costs for inputs, and services, and foreign exchange shortages.13

6. Investments Routes in Nigeria

Foreign entities can invest in Nigeria organically or inorganically. Organically by incorporating or establishing firms in any of the business structures discussed above. Inorganically, by acquiring or merging with existing firms in Nigeria. Foreign entities may invest in Nigeria via Foreign Direct Investments (“FDI”) or Foreign Portfolio Investments (“FPI”). FDI is a measure of foreign ownership of productive assets such as factories, mines, and land. FPI is the inflow of funds into Nigeria through the subscription for securities (equities, quasi-equities, or bonds) issued by Nigerian companies.

A breakdown of the capital importation data shows that portfolio investment received the largest share at $3.4 billion, other investments at $2.6 billion, and foreign direct investment (FDI) at $698.8 million.14 In terms of sectors, banking ($1.5 billion), shares ($1.1 billion), and production ($934.1 million) received the largest shares.15 While Nigeria’s FDI inflows as a share of GDP have dropped from over 2% a decade ago to less than 1% in recent years.16 The decline in FDI in Nigeria has been driven by the weak performance of the mining, and oil and gas sectors, while the services sector has attracted the largest share of Nigeria’s FDI.17

The data available for the first quarter of 2022 revealed that Nigeria attracted a total FDI of ₦651.550 billion ($1.57 billion) in the first quarter of 2022, with about 3.6%, i.e. ₦23.982 billion ($57.79 million) being attracted by the telecommunications sector.18 According to the recently published capital importation report released by the NBS, Nigeria attracted a total of $1.6 billion in capital inflows in the first quarter of 2022, falling by 28.1% compared to $2.2 billion recorded in the previous quarter.

Restriction on Foreign Participation

While Section 17 of the Nigerian Investment Promotion Commission Act provides that foreigners can invest and participate in the operation of any enterprise in Nigeria, there are certain sector-specific restrictions may restrict the extent of foreign participation. Some of these include:

  • Private Security Guard Companies: Section 13(1)(e) of the Private Guard Companies Act No. 23, 1986 restricts the grant of a license or approval if any of the company or the person applying for approval is not a citizen of Nigeria.
  • Broadcasting: Pursuant to Section 9 of the National Broadcasting Commission Act No. 38, 1992, a broadcasting license is only granted to Companies with a majority of their equity stake owned and operated by Nigerians and which do not represent foreign interests.
  • Oil and Gas: The Nigerian Oil and Gas Industry Content Development Act No 2, 2010 (the “Local Content Act”) was enacted to promote indigenous participation in Nigeria’s oil and gas industry. In accordance with the Act all regulatory authorities, operators, contractors, subcontractors, alliance partners and other entities involved in any project, operation, activity, or transaction in the Nigerian oil and gas industry shall consider Nigerian content as an important element of their overall project development and management philosophy for project execution. The Local Content Act further defines Nigerian content as the quantum of composite value added to or created in Nigeria through the utilization of Nigerian resources and services in the petroleum industry resulting in the development of indigenous capability without compromising quality, health, safety, and environmental standards.19
  • Advertising: Only a national agency, i.e. an agency in which Nigerians own not less than 74.9% of the equity can advertise in the Nigerian market.
  • Engineering: A company engaged in engineering services must be registered with the Council for Regulation of Engineering in Nigeria (“COREN”). Before undertaking engineering business, a company must have directors that are registered with the COREN and who hold at least 55% of the shares in the company.20
  • Shipping: Cabotage waivers were introduced in the Coastal and Inland Shipping (Cabotage) Act No 5 of 2003 (the “Cabotage Act”). The objective of the Cabotage Act is to restrict the use of foreign vessels in domestic coastal trade within the Nigerian coastal and inland waters and also promote indigenously built vessels wholly owned, registered, and manned by Nigerians. In the absence of indigenous capacity, waivers are granted to foreign vessels/ships operating in Nigerian coastal waters. Under the Cabotage Act, a priority system is established for the grant of waivers as follows: (i) first to wholly-owned Nigerian vessels, then to joint venture-owned vessels, and finally to any vessel registered in Nigeria and owned by a shipping company registered in Nigeria (foreign-owned vessels).
  • NIPC Registration and Company Incorporation: The minimum share capital for a company with foreign participation is Ten Million Naira21 and the Nigerian Investment Promotion Commission Act22 requires that a company with foreign participation should be registered with the NIPC. Furthermore, while a foreigner may invest and participate in any business operation in Nigeria, certain sectors of investment (negative list) is prohibited to both foreign and Nigerial investors alike.23
  • National Office for Technology Acquisition and Promotion (NOTAP) Act: An agreement under which a foreigner is to provide foreign technology, management or assistance to a Nigerian company is required to be registered by NOTAP. Registrable agreements by NOTAP are include: (i) the use of trademarks (ii). the right to use patented inventions, (iii) the supply of technical expertise in the form of the preparation of plans, diagrams, operating manuals or any other form of technical assistance of any description whatsoever, (iv) the supply of basic or detailed engineering, (v) the supply of machinery and plant, and (vi)the provision of operation staff or managerial assistance and the training of personnel.
  • Banking: Pursuant to CBN’s Policy on Foreign Banks’ Participation in the Nigerian Banking System, no single foreign individual/institutional investor can acquire more than the share of the single largest Nigerian individual/institutional investor in any bank; provided the aggregate shareholding of the foreign investors do not exceed 10% of the total capital of the bank. In addition, any foreign bank that seeks to acquire or merge with a local bank existing in Nigeria must have operated in Nigeria for at least five years and established branches in at least 2/3 of states of Nigeria (excluding the state capital), provided the foreign bank/investors’ shareholding arising from the merger/acquisition should not exceed 40% of the total capital of the resultant entity.
  • Insurance: Under the Insurance Act24, any moveable or immovable property located in Nigeria and all imports into Nigeria must be insured by a Nigerian registered insurer. The Act further prohibits any person from transacting insurance or reinsurance business with foreign insurers/reinsurers, except with the written permission of National Insurance Commission.

7. Economy

Against the backdrop of heightened inflationary pressures, the CBN in May 2022 raised the monetary policy rate by 150 basis points to 13%. However, the effectiveness of the monetary policy is reduced by the CBN’s development financing interventions at subsidized interest rates and its FX management which leaves substantial amounts of local currency liquidity waiting to exit.25

Foreign Exchange

The various rates applicable to the forex regime in Nigeria are: (i)the CBN Official Rate: The central foreign exchange authority in Nigeria is the CBN and in 2016, the CBN introduced the managed floating system due to increased demand pressure. Under the new regime, the value of the naira in the inter-bank forex market is largely driven by the forces of demand and supply and forex policies of the CBN; (ii) Import and Export Foreign Exchange Window: The Import and Export forex window is the market trading segment for investors, exporters and end-users that allows for forex trades to be made at exchange rates determined based on prevailing market circumstances; (iii)Nigerian Autonomous Foreign Exchange (NAFEX) Rate: NAFEX rates are determined by the FMDQ after pooling rate submissions by the 10 contributing banks who bid for forex on behalf of their clients. NAFEX is a polled rate based on the submissions of ten (10) contributing banks and calculated using a trimmed arithmetic mean. Upon receipt of quotes, the individual contributing banks’ submission is ranked in descending order. The lowest and highest two (2) quotes are eliminated from the ranked rates leaving only the middle six (6) rates. The arithmetic mean of the remaining rates are then calculated to two (2) decimal places and disseminated as the NAFEX Spot Rate. (iv) Parallel Market Foreign Exchange Rates: This refers to the financial rate in a dual system or to the black-market rate in a black-market system. Parallel Market operators who sell on the streets determine their prices simply by adding a premium on the prevailing exchange rate regardless of the official forex rates.

The exchange rate policy in 2022 remains focused on maintaining the IEFX rate and the official exchange rate artificially stable through foreign exchange restrictions and administrative measures.

The CBN maintains a complete restriction of FX supply to import about 45 products, and firms report limited FX supply availability for other imports. Despite the recovery in exports and economic activity in 2021, the CBN’s FX supply in the I&E window declined by 41 percent in 2021 relative to 2020. At the same time, the NAFEX remained broadly stable in 2021, and the parallel exchange rate depreciated by as much as 16 percent in the context of FX scarcity. As a result, the premium between the parallel exchange rate and the NAFEX widened from 21 percent to 37 percent. The CBN has also signaled that it would stop selling FX to commercial banks by end2022 and has introduced an FX repatriation rebate program in February in conjunction with the Bankers’ Committee.26

The CBN took steps to unify multiple exchange rates by adopting the IEFX window rate as its official exchange rate in May 2021. However, different windows still exist, and the parallel rate premium continues to climb, reaching 39 percent over the official IEFX rate in March 2022. The CBN continues to supply FX to at least four windows, sometimes at varying rates: (i) the I&E window; (ii) the secondary market intervention sales retail window; (ii) the small and mediumsized enterprises (SME) window; and (iv) the window for Invisibles.27

The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act and extant Forex regulations in Nigeria provide that that any person may invest in a Nigerian enterprise with foreign currency imported into Nigeria through an authorised dealer (usually a bank licensed to deal in foreign exchange) by telegraphic transfer, cheques or other negotiable instruments converted into naira. The authorised dealer is required to issue a Certificate of Capital Importation (“CCI”), evincing receipt of investment capital within 24 hours of receipt of imported funds. The CCI assures the unhindered remittance of investment capital and yields thereon, in any convertible currency through official channels. In September 2017, the Central Bank of Nigeria introduced the issuance of electronic CCI’s and directed all Nigerian banks to replace the issue of physical CCI’s with electronic CCI’s to facilitate the tracking of investments across banks, eradicate the wear and tear as well as the risks of loss of physical CCIs.

Inflation rate

Nigeria’s inflation has steadily increased since the closure of the borders. Prior to the start of the Ukrainian war higher inflation pushed an estimated 8 million Nigerians into poverty between 2020 and 2021. In 2021, inflation averaged 17%, rising above that of the previous four years and ranking among the highest in the world.. World Bank reports estimate the “inflation shock” to result in about 15 million more Nigerians living in poverty between 2020 and 2022.28 The headline inflation rate rose to 16.8% year-on-year in April 2022, from 15.6% in January, while food inflation increased from 17.2% to 18.4%. Core inflation which has risen due to the scarcity of petrol and other fuels (diesel, household kerosene, and jet fuel) remained steady at 14.2%.

Authors

Adeleke Alex-Adedipe – Managing Partner
Seye Ayinla – Partner
Simisola Olasunbo Eyisanmi – Managing Associate
Tracy Idemudia – Associate
Amanze Izundu – Associate

Foonotes

1. World Bank Group, “Nigeria Development Update: The Continuing Urgency of Business Unusual”, June 2022, p9.
2. Ibid.
3. Obas Esiedesa, “Gas Export Revenue Surpasses Oil Receipts by 259.4%”, Vanguard, May 5, 2022.
4. Pencom circular dated 28 April 2021 (PENCOM/INSP/SURV/2021/568) to all MDs/CEOs of all licensed Pension Fund Operators
5. Ailemen Anthony, “Nigeria’s Banking Sector Contributes ₦168.4trn to GDP in 4 Years”, Business Day, March 4, 2022.
6. The E-Naira is the second Central Bank Digital Currency (CBDC) fully open to the public after the Bahamas.
7. Moses-Ashike Hope, “What more to CBN’s E-Naira after Launch?” Business Day, April 5 2022.
8. The USSD code 997 is adopted for all E-Naira transactions.
9. Business Day Newspaper 23rd March 2021, pp 1 and 31 “Nigerian Tech Startups $202 Million in March Beats Entire 2020”
10. Edeh Harrison, “AFCTA: As Nigeria Resorts to ‘Services’ on Weak Infrastructure, Analysts Say Competitiveness in ‘Goods’ the Real Deal”, Business Day, January 12, 2021.
11. Supra, n.1, p10
12. Ibid. p,11.
13. Ibid.
14. Bunmi Bailey, “Foreign Investment in Nigeria Drops to $6.7 billion in 2021, Lowest in 5 Years”, Business Day, March 25, 2022.
15. Ibid.
16. Supra n.1
17. Supra, n.1.
18. https://www.nipc.gov.ng/2022/06/09/nigeria-records-n23-982-billion-fdi-from-telecom-sector-in-the-first-q1-of-2022/
19. For the purpose of the Local Content Act, Nigerian Company was defined in Section 106 of the Act as “a Company formed and registered in Nigeria in accordance with the provisions of the Companies and Allied Matters Act with
not less than 51% equity shares by Nigerians”
20. See the requirements for the registration of engineering consulting firms in Nigeria, available at https://www.coren.gov.ng/index.php?option=com_content&view=article&id=78:ecopacce&catid=3:newsflash&Ite
mid=50
21. Corporate Affairs Commission Operations Checklist
22. Section 20
23. Section 18 and 31 of the NIPC Act. The negative list include: (a) production of arms, ammunition, etc.; (b) production of and dealing in narcotic drugs and psychotropic substances;(c) production of military and para-military
wears and accoutrement, including those of the Police and the Customs, Immigration and Prison Services; and (d) such other items as the Federal Executive Council may, from time to time, determine.
24. Section 65 (7), 67 and 72
25. Supra, n1 p17
26. Ibid, p18
27. Ibid.
28. Ibid. p3

Firms in the Spotlight
Interviews
ViewView
Comparative Guides
ViewView
News & Developments
ViewView
Corporate & Commercial

Tax and Repatriation Strategies for Foreign-Owned Nigerian Businesses

By Olawunmi Ojo Introduction: Profitability Is Not Enough, Repatriation Is Key For many foreign investors entering Nigeria’s fast-growing markets, profitability is only half the battle. The real challenge lies in how much of those profits can be legally repatriated and how much will be eroded by taxes, regulatory delays, or foreign exchange restrictions. This article outlines the tax regimes highlighting the new 2025 tax reforms, planning strategies, and repatriation channels that foreign-owned businesses and foreign investments in Nigeria should understand from day one. Understanding Nigeria’s Corporate Tax Framework Nigeria operates a multi-layered corporate tax system governed by the Companies Income Tax Act (CITA), the Finance Acts (which amend tax laws annually), and regulations issued by the Federal Inland Revenue Service (FIRS). As of the latest update under the Finance Act 2024, the current corporate income tax regime is as follows: 0% for small companies with an annual turnover of ₦25 million or less. 20% for medium-sized companies with a turnover between ₦25 million and ₦100 million. (Small companies (turnover below NGN 100 million, fixed assets less than NGN 250 million) are now fully exempt from CIT, CGT, and the new Development Levy. 30% for large companies with turnover above ₦100 million. (Recent reforms aim to reduce the standard CIT rate to 5% by 2026 and 25% by 2027 for large companies. Tertiary Education Tax (TET):5% of assessable profit. National Information Technology Development Agency (NITDA) Levy: 1% for companies in specific sectors like telecoms, banking, and ICT. Capital Gains Tax: Increase from 10% to 30% for companies, aligning with CIT Withholding Tax (WHT): 10% on dividends, interests, royalties, and rent (5% for individuals/local entities). Reduced rates under double tax treaties (DTTs) may apply. Minimum Effective Tax Rate (ETR) Multinational companies (turnover greater than NGN 50 billion or group turnover greater than EUR 750 million) must ensure a 15% ETR, with a “top-up” tax to meet the threshold Investors must also register for Value Added Tax (VAT), which is currently at 7.5%, and ensure compliance with Transfer Pricing Regulations for related-party transactions. Tax Planning for Foreign Investors Foreign investors can legally optimize their tax obligations in Nigeria through: Tax Incentives & Reliefs: Pioneer Status Incentive (PSI): Offers a 3 to 5-year tax holiday for companies in eligible sectors. Export Expansion Grant (EEG): Incentive for exporters through tax credits. Free Trade Zones (FTZs): Companies operating in FTZs enjoy 100% tax exemptions and unrestricted capital repatriation. Double Tax Treaties (DTTs): Nigeria has treaties with countries like the UK, China, South Africa, etc., reducing withholding tax rates and preventing double taxation. Group Structuring: Holding companies in tax-efficient jurisdictions like Mauritius or the Netherlands can help manage tax exposure. Structuring with Special Purpose Vehicles (SPVs) for capital raising, project finance, or asset protection. Strategic Use of Transfer Pricing: Ensure all intercompany transactions are conducted at arm’s length. Prepare and maintain appropriate documentation to avoid penalties. Capital Allowances & Investment Deductions: Leverage accelerated depreciation on qualifying capital expenditure to reduce taxable income. How Foreign Investors Can Legally Repatriate Their Profits Out of Nigeria Foreign investors in Nigeria are permitted to repatriate capital, dividends, interest, and profits through legitimate channels, provided they comply with the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act and Central Bank of Nigeria (CBN) regulations. Key Repatriation Channels and Requirements: Certificate of Capital Importation (CCI): Issued by Nigerian banks on behalf of the CBN within 24–48 hours of capital inflow. It is the primary evidence that funds were imported through official channels and is mandatory for repatriation of proceeds. Dividend and Profit Repatriation: Profits, dividends, and interest earned can be repatriated net of applicable taxes (WHT and corporate tax). Dividends attract a 10% withholding tax (or a lower rate under DTTs). Sale or Liquidation Proceeds: In the event of divestment or liquidation, the proceeds (capital and gains) may be repatriated upon presentation of the CCI and tax clearance. Loan Repayments and Interest: Foreign loans must be registered with the CBN via Form M and be backed by proper agreements. Interest payments can be repatriated, subject to applicable WHT (usually 10%). Use of Authorized Dealers: All remittances must be processed through licensed banks (authorized dealers) and must comply with anti-money laundering and tax compliance documentation. Investment via Free Zones: Businesses operating in Free Zones enjoy unrestricted repatriation without FX restrictions. Common Pitfalls to Avoid Failure to Obtain CCI: Without a CCI, capital and returns may be trapped or face regulatory delays. Non-compliance with Transfer Pricing: Can lead to audits, penalties, and disallowance of intercompany expenses. Inadequate Tax Planning: May lead to higher tax exposure and repatriation delays. Misalignment with BOFIA and SEC Regulations: Especially for financial and capital market investments. FAQs: Tax and Repatriation in Nigeria Q1: Can foreign investors repatriate 100% of their profits from Nigeria? A: Yes, provided they obtained a Certificate of Capital Importation (CCI) and have fulfilled all tax obligations, including withholding and corporate income taxes. Q2: What happens if I didn’t get a CCI? A: Repatriation becomes difficult or impossible. A CCI is a precondition for legal remittance of funds abroad. Q3: What are the new tax updates in the Finance Act 2023? A: Key updates include increased tertiary education tax from 2% to 2.5%, clarification on digital service taxes, and tax reliefs for startups and MSMEs. Q4: Are there sectors where tax holidays apply? A: Yes, under the Pioneer Status Incentive, eligible sectors such as manufacturing, agro-processing, ICT, and infrastructure may enjoy 3 to 5 years of tax holidays. Q5: Are capital gains from foreign investors taxed when exiting investments? A: Yes, capital gains tax at 10% applies unless exemptions under restructuring provisions or tax treaties apply. Q6: How long does it take to repatriate profits? A: Typically 1–2 weeks, depending on documentation completeness and bank processing times. Q7: Can I repatriate in foreign currency? A: Yes. CBN allows repatriation in the currency of the original investment, often USD, EUR, or GBP. Conclusion: Plan Repatriation Now to Keep Your Profits Tax and repatriation planning can't be an afterthought—you need to build it into your investment structure. With Nigeria’s reforms coming into effect by January 2026, preparation today is essential for tomorrow’s success. At The Trusted Advisors, we specialise in tax structuring, repatriation strategy, and cross-border investment planning to protect your returns and secure your investment. Ready to map out your repatriation plan? Let’s get started. Contact Olawunmi Ojo: [email protected] Tel: +2348038954988
The Trusted Advisors - August 27 2025
Dispute Resolution

The Legal Roadmap for Tech Startups Entering the Nigerian Market

Written by Olawunmi Ojo Introduction Nigeria, often referred to as Africa’s largest economy and most populous nation, presents immense opportunities for tech startups looking to expand into West Africa. With a fast-growing digital population, youthful demographics, and a burgeoning startup ecosystem, the country continues to attract foreign investors and technology entrepreneurs. However, succeeding in this promising yet complex market requires a well-informed understanding of the legal and regulatory landscape. Why Nigeria? Before diving into the legalities, it’s essential to understand why global investors are paying close attention to Nigeria: Large Market Size: Over 200 million people, with a growing middle class and increasing urbanization. Vibrant Startup Ecosystem: Nigeria’s startup scene, especially in fintech, healthtech, edtech, and logistics, continues to attract multi-million-dollar funding rounds. Policy Reforms: Pro-investment reforms, such as the Companies and Allied Matters Act (CAMA 2020), Finance Act amendments, and startup legislation, have improved the regulatory environment. Strategic Location: As a West African hub, Nigeria offers a launchpad for regional expansion. This guide provides a clear, practical roadmap for foreign tech startups seeking to establish a compliant and successful presence in Nigeria. It outlines key legal considerations, regulatory obligations, and strategic actions necessary to navigate the Nigerian tech ecosystem. Understanding Nigeria’s Corporate Legal Framework Before launching operations, it is essential for startups to understand the corporate laws governing business entities in Nigeria. The Companies and Allied Matters Act, 2020 (CAMA 2020) is the primary legislation that regulates business formation and corporate governance in the country. Startups looking to set up in Nigeria typically register as: Private Companies Limited by Shares (Ltd) – the most common and preferred structure for tech startups due to its flexibility. Public Companies (PLC) – ideal for scaling enterprises with intentions of raising capital from the public or listing on a stock exchange. Incorporated Trustees or NGOs – suitable for non-profit ventures, research-focused initiatives, or social impact-driven enterprises. The Corporate Affairs Commission (CAC) is the regulatory body responsible for company registration and compliance. Key requirements include: At least one shareholder and one director (they may be the same person) A registered business address in Nigeria Minimum share capital of ₦100,000 for local entities and N100,000,000 for wholly foreign owned entities (although many tech startups register with higher capital for credibility and investment purposes) Appointment of a company secretary (mandatory for public companies) Business Permits and Sector-Specific Licences Depending on your startup’s area of focus whether fintech, healthtech, agritech, or e-commerce you may be required to obtain sector-specific licenses. For example: Fintech startups offering payment solutions must obtain approval from the Central Bank of Nigeria (CBN), including Payment Service Provider (PSP) or Switching licenses. Healthtech startups must comply with regulations from the National Health Insurance Authority (NHIA) and the Medical and Dental Council of Nigeria (MDCN). E-commerce startups may need to adhere to consumer protection regulations issued by the Federal Competition and Consumer Protection Commission (FCCPC). In addition to sector-based permits, foreign-owned entities must also obtain: Business Permit – authorizing the employment of foreign nationals Intellectual Property Protection Safeguarding your brand, technology, and innovations is critical. Nigeria operates a "first-to-file" system, making it essential to register your IP rights as early as possible. Key registrations include: Trademarks – under the Trademarks Act Patents and Industrial Designs – via the Patents and Designs Act Copyrights – governed by the Nigerian Copyright Act (recently amended in 2023) These rights are administered by the Trademarks, Patents and Designs Registry (Federal Ministry of Industry, Trade and Investment) and the Nigerian Copyright Commission Data Privacy and Cybersecurity With the rise of digital services, data privacy is a crucial compliance area. Startups handling user data must comply with the Nigeria Data Protection Regulation (NDPR) issued by the National Information Technology Development Agency (NITDA). Startups are required to: Conduct regular data audits Obtain user consent before collecting data Appoint a Data Protection Officer (DPO) if handling large-scale data File compliance reports with NITDA Non-compliance could lead to penalties of up to 2% of annual gross revenue, especially for companies with a large user base. Taxation and Incentives Startups operating in Nigeria must register with the Federal Inland Revenue Service (FIRS) for tax purposes. The key taxes applicable include: Company Income Tax (CIT): 30% for large companies; 20% for medium companies (annual turnover between ₦25 million and ₦100 million); startups with a turnover below ₦25 million are exempt. Value Added Tax (VAT): 7.5% Withholding Tax (WHT): typically 5% to 10% depending on the transaction Personal Income Tax (PIT): for employees, based on a progressive scale up to 24% Under Nigeria’s new Finance Act (2024), additional digital tax provisions have been introduced, including the taxation of non-resident digital service providers. Startups offering digital services from offshore locations should assess their tax exposure and compliance obligations carefully. Nigeria also offers incentives for pioneer tech companies under the Pioneer Status Incentive Scheme, which may include up to 3- to 5-year tax holidays. Foreign Exchange and Capital Repatriation The Central Bank of Nigeria (CBN) regulates the inflow and outflow of foreign exchange. Startups bringing in foreign capital must do so through an authorized dealer (usually a Nigerian bank), which issues a Certificate of Capital Importation (CCI) within 24–48 hours. The CCI is critical—it guarantees the investor’s ability to repatriate dividends, loan repayments, and capital without restrictions. Employment Laws and Compliance: Hiring in Nigeria requires adherence to local labour laws governed by the Labour Act and the National Industrial Court Act. Key compliance steps include: Drafting legally compliant employment contracts Enrolling staff with the National Pension Commission (PENCOM) Making monthly contributions to the Nigeria Social Insurance Trust Fund (NSITF) and Industrial Training Fund (ITF) Foreign-owned startups must also comply with immigration rules when hiring expatriates, including securing a valid Expatriate Quota and Combined Expatriate Residence Permit and Aliens Card (CERPAC) Strategic Tips for Market Entry Partner with local firms: Joint ventures or strategic alliances help mitigate regulatory friction and provide access to local networks. Use professional service providers: Engage lawyers, accountants, and compliance officers familiar with the Nigerian tech space. Stay agile: The Nigerian regulatory environment is dynamic. Having a responsive compliance strategy is essential. Leverage innovation hubs: Establishing in Lagos or Abuja allows access to accelerators, investor networks, and grants. Conclusion Nigeria offers unmatched opportunities for tech startups with scalable solutions. However, success in this market demands strong legal and regulatory planning. From company formation to tax, IP protection, and data compliance, having the right legal framework is the bedrock of a thriving operation. Whether you're a startup founder exploring new markets or an investor supporting portfolio companies, working with local legal experts ensures you're not only compliant but also strategically positioned for growth. FAQs: Legal Entry into Nigeria for Tech Startups What is the best legal structure for a foreign tech startup in Nigeria? A Private Company Limited by Shares is generally preferred due to its simplicity and flexibility. Can I fully own a Nigerian company as a foreigner? Yes. Foreigners can own 100% of a Nigerian company, provided the business complies with immigration, tax, and investment regulations. How long does it take to register a company in Nigeria? Typically 5–10 business days, depending on how complete and accurate your documentation is. Do I need any special licenses to run a tech company? This depends on the sector. Fintech, healthtech, and edtech ventures may require regulatory approvals from CBN, NHIA, or NUC respectively. 5. How can I repatriate profits from Nigeria? You must bring in capital through a licensed bank to obtain a Certificate of Capital Importation (CCI). This enables lawful repatriation of profits and dividends. Are there any tax incentives for startups? Yes. The Pioneer Status Incentive and SME tax exemptions provide significant relief for qualifying startups. What are the major risks for foreign startups? Key risks include policy changes, currency volatility, and lack of regulatory clarity in emerging tech sectors. Engaging local advisors mitigates these challenges. Ready to Launch or Scale Your Startup in Nigeria? At The Trusted Advisors, we’ve guided numerous tech startups and international investors through Nigeria’s legal and regulatory landscape ensuring compliance, minimizing risk, and accelerating go-to-market strategies. Whether you're incorporating your first entity, navigating equity structuring, or securing regulatory approvals, our team is ready to support your success. Reach out to us today for a consultation on your startup or market-entry strategy, for tailored guidance on market entry and compliance, get in touch with our legal team at The Trusted Advisors. Email: [email protected] | Phone: +2348038954988
The Trusted Advisors - August 27 2025
Dispute Resolution

Expanding a Startup into Nigeria: Key Legal and Regulatory Considerations for Foreign Investors

The Nigerian startup ecosystem is brimming with opportunity. With over 200 million people, increasing mobile penetration, and a growing appetite for digital solutions, it’s no wonder international investors and founders are turning their attention to Africa’s most populous nation. Yet, despite the enthusiasm, many startups especially foreign-backed ones  often run into avoidable legal hurdles that stall or sink their market entry plans. Understanding the legal landscape from the outset is critical to protecting your capital, your innovation, and your team. In this article, we highlight the legal requirements for foreign investors in Nigeria, Nigeria market entry guide,   Nigeria Startup expansion legal guide and most common legal mistakes startups make when entering Nigeria  and how to avoid them. Failing to Choose the Right Legal Structure One of the first decisions startups must make is the legal form of their Nigerian entity. Many default to a simple private limited company (Ltd), which may be sufficient for early-stage operations. However, foreign participation  even at minority levels  introduces regulatory obligations under the Companies and Allied Matters Act (CAMA) and guidelines from the Nigerian Investment Promotion Commission (NIPC). Common Mistake: Registering as a local company without complying with foreign ownership requirements, or failing to obtain a business permit from the Ministry of Interior. Solution: If foreign investors or founders hold shares, register the company with the Corporate Affairs Commission (CAC) as a company with foreign participation, and ensure post-incorporation filings (NIPC registration, Business Permit, Tax ID) are properly handled. Neglecting Regulatory Licensing Nigeria’s regulatory environment can be complex, particularly for fintechs, healthtechs, and edtechs. Depending on the sector, licenses may be required from bodies like: Central Bank of Nigeria (CBN) National Information Technology Development Agency (NITDA) Nigerian Communications Commission (NCC) Nigerian Data Protection Commission (NDPC) Common Mistake: Launching products or services without the appropriate licenses, assuming it can be sorted later. Solution: Conduct a regulatory mapping exercise before launch. For fintechs, this may include applying for a Payment Solution Service Provider license or participating in CBN’s Regulatory Sandbox. Tech-enabled health or education startups may need to engage the relevant ministry Improper Equity Structuring and Cap Table Management Founders often give away equity too quickly, too informally, or without proper documentation. This creates confusion during future fundraising rounds or exits. Common Mistake: Issuing shares to early employees or advisors without a formal agreement or vesting schedule. Solution: Structure equity clearly from the outset. Use instruments like shareholders’ agreements, option plans, and founder vesting arrangements. Ensure your cap table reflects every issuance and is legally enforceable in Nigeria. Ignoring Local Employment and Labour Laws Hiring your first employees in Nigeria? It’s not just about offering a salary. Employment contracts must comply with Nigerian labour laws, and startups must register for mandatory statutory contributions, including: Pension contributions Industrial Training Fund (ITF) Employee Compensation Scheme (NSITF) National Housing Fund (NHF) Common Mistake: Using offer letters without proper legal contracts, or engaging talent as “independent contractors” to avoid compliance. Solution: Issue compliant contracts, register with the necessary agencies, and build a talent strategy that aligns with Nigerian law while remaining startup-friendly. Overlooking Intellectual Property (IP) Protection Your brand, tech, and content are core assets. Yet many startups fail to register trademarks, protect proprietary code, or define IP ownership particularly when using freelancers or development agencies. Common Mistake: Launching without trademark protection or failing to assign IP created by developers to the company. Solution: Register your trademarks with the Trademarks Registry. Include IP clauses in all employment, consultant, and partnership agreements. If IP is developed offshore, ensure ownership is transferred to the Nigerian entity or holding structure. Non-Compliance with Tax and Regulatory Filings Even pre-revenue companies must comply with periodic filings from tax returns to annual returns with the CAC and reports to the NIPC (for foreign entities). Common Mistake: Delaying tax registrations, or missing filings and accruing penalties. Solution: Obtain a Tax Identification Number (TIN) early, register for VAT (if applicable), and engage a local accountant or law firm to manage filings and compliance calendars. Frequently Asked Questions (FAQs) Q1: Can I operate in Nigeria without incorporating a company? No. You must incorporate a company to do business in Nigeria, particularly if you plan to open a bank account, hire staff, or sign contracts. Q2: How long does incorporation take for a startup with foreign shareholders? On average, 10–15 working days. However, post-incorporation registrations (NIPC, Business Permit, etc.) may add another 2–4 weeks. Q3: Are there tax incentives for tech startups? Yes. Nigeria offers pioneer status incentives through the NIPC, which can grant tax holidays of up to 5 years for qualifying sectors. Q4: Can I fully own a Nigerian company as a foreigner?Yes. Nigeria allows 100% foreign ownership in most sectors, except for a few restricted areas like military or narcotics. Final Thoughts: Get It Right from Day One Entering the Nigerian market offers unmatched upside, but legal missteps can undermine your growth or scare off investors. As a founder, your energy should be focused on product and traction — not regulatory firefighting. At The Trusted Advisors, we help startups, investors, and scale-ups navigate Nigeria’s legal and regulatory terrain. From company setup to licensing, employment, and compliance, we offer tailored legal solutions that grow with your venture. Need help setting up or reviewing your Nigerian operations? Let’s talk contact or email us at [email protected], +2348038954988 for a free consultation.
The Trusted Advisors - August 27 2025
Press Releases

Duale, Ovia & Alex-Adedipe Advises Yikodeen Company Limited on an Equity Investment from Aruwa Capital Fund II

We are pleased to have acted as legal counsel to Yikodeen Company Limited ("Yikodeen"), the subsidiary of Yikodeen Africa Corporation, the Mauritius-incorporated holding company and a prominent manufacturer of quality footwear and leather products in Nigeria. This engagement was in connection with a strategic equity investment by Aruwa Capital Fund II. This significant investment is poised to enhance Yikodeen’s factory operations, facilitate the acquisition of new machinery, boost production capacity, and strategically expand its market presence. This transaction represents a significant milestone in Nigeria's manufacturing landscape and demonstrates growing investor confidence in African industrial enterprises. We remain committed to supporting businesses like Yikodeen that are driving economic growth and employment opportunities across the African continent. The transaction was led by our Mergers, Acquisitions and Private Equity team comprising Simisola Eyisanmi, Melody Ibegbulam, Chukwuebuka Okoli-Akirika and Wuraola Oyeniyi.
Duale, Ovia & Alex-Adedipe - July 4 2025