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Buhari to enact reformative legislations including but not limited to the enactment of the CAMA and BOFIA which repealed the Companies and Allied Matters Act 1990 and the Banks and Other Financial Institutions Act 1990, the provisions of which were ill-equipped to cater to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

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How to Set Up a Holding Company in Nigeria: A Comprehensive Guide for Investors by Olawunmi Ojo

A holding company remains one of the most efficient structures for investors—local or foreign—who want to centralise ownership, streamline governance and manage multiple businesses under a single entity. In Nigeria, holding companies are widely used across energy, manufacturing, fintech, real estate, hospitality and services. They are also commonly adopted by multinational groups seeking a stable corporate base for their Nigerian or West African operations. Establishing a holding company in Nigeria requires thoughtful structuring, compliance with local regulation and a clear understanding of tax, corporate and immigration implications. Below is a detailed, practical guide for investors considering this route. What a Holding Company Is (and Why Investors Use It) A holding company is a corporate entity created primarily to own shares or assets in other companies. It typically does not engage in substantial day-to-day operations itself. Instead, it controls subsidiaries, manages group strategy, holds intellectual property, and serves as the investment and governance hub of a larger corporate structure. Investors favour holding companies in Nigeria because they separate operational risk from core assets, centralise group decision-making, simplify fundraising at the group level, facilitate succession and ownership transfers and create a clearer governance and compliance framework These advantages make the holding model attractive for both local conglomerates and foreign multinational groups. Incorporating a Holding Company The process begins with the Corporate Affairs Commission (CAC), Nigeria’s company registry. A holding company is most commonly incorporated as a Private Company Limited by Shares (Ltd). Standard incorporation requirements includes proposed company name registered office in Nigeria details of directors and shareholders (foreign directors are permitted) share capital structure and allotment Memorandum & Articles of Association The company’s objects clause should reflect its holding purpose (for example: acquiring, holding and managing shares or interests in other companies, holding intellectual property, and providing group oversight). Minimum Paid-Up Capital Under Nigeria’s current regulatory practice, companies with foreign participation are expected to have a minimum paid-up share capital of ₦100,000,000 (one hundred million naira). This requirement is reflected in the Revised Handbook on Expatriate Quota Administration and has been implemented in practice by regulators and service providers. The ₦100 million threshold applies to companies with foreign participation and is a precondition for certain post-incorporation approvals such as business permits and expatriate quota applications.Regulators and banks typically expect the capital to be paid-up (not merely authorised). In many cases, only the portion owned by the foreign investor needs to be inflowed and evidenced, but practices can vary by bank and regulator so it is prudent to plan for full paid-up capital documentation. The Corporate Affairs Commission and immigration authorities have signalled enforcement through incorporation queries, post-incorporation checks and linkage to expatriate quota and business permits. Because guidance has evolved, many service providers treat this as a live requirement and advise compliance to avoid delays. Companies with foreign participation and paid-up capital below the ₦100 million threshold have been advised to bring their capital in line with the new threshold within regulatory timelines to avoid queries on future filings or regulatory actions. Transferring Subsidiaries and Assets into the Holding Structure After incorporation, a holding company can acquire shares in existing subsidiaries, inject capital into new operating entities, transfer intellectual property rights or take title to group assets. Each share transfer must be properly documented and reflected in subsidiary registers and CAC filings. When foreign capital is imported, a Certificate of Capital Importation (CCI) issued by the receiving bank is critical for future profit and capital repatriation. Proper documentation of capital inflows helps smooth foreign exchange and tax processes. Sector-Specific and Regulatory Approvals If the holding company will own controlling stakes in regulated entities, expect regulatory approval processes. Regulators that commonly require change-of-ownership notices or approvals include: Central Bank of Nigeria (CBN) for banks, payment services, and certain financial institutions Nigerian Upstream Petroleum Regulatory Commission (NUPRC)  for upstream oil interests Nigerian Communications Commission (NCC) for telecoms licence transfers National Insurance Commission (NAICOM) for insurance entities NAFDAC or SON  for pharmaceuticals and manufacturing Securities and Exchange Commission (SEC)  for companies operating in the capital markets Regulatory timelines and documentation requirements differ across sectors; early engagement prevents transactional delays. NIPC Registration and Investment Incentives Foreign-owned holding companies should register with the Nigerian Investment Promotion Commission (NIPC). NIPC registration is important for formal recognition as an enterprise with foreign participation and for accessing potential incentives, clarifying repatriation rules and documenting the foreign investment for treaty protections. Tax Considerations A holding company offers tax planning opportunities but also attracts scrutiny on inter-company transactions. Key tax points: Dividends: Dividends received by a holding company from Nigerian subsidiaries are generally exempt from further Nigerian tax if structured correctly. Transfer pricing: Inter-company services, management fees and loans must meet arm’s length standards under Nigeria’s transfer pricing rules. Proper documentation is essential. Withholding tax, VAT and CGT: These may apply in different circumstances and should be considered in structuring group flows. Filing obligations: Holding companies must file annual tax returns and audited financial statements in Nigeria. Immigration, Staffing and Corporate Governance If the holding company will employ expatriates for group oversight roles such as group CFO, regional CEO or technical directors  ensure you obtain: Business Permit from the Ministry of Interior (where applicable) Expatriate Quota approval for specified roles STR/CERPAC and visa regularisation for incoming expatriates A holding company is an ideal place to centralise group policies on governance, risk management, compliance and HR. Centralised policies help harmonise standards across subsidiaries and make regulatory reporting more straightforward. Why Investors Choose Holding Structures in Nigeria A properly structured holding company supports streamlined fundraising at the group level, asset protection and separation of liabilities, easier portfolio reorganisation or exit planning, consolidated governance and reporting and efficient expansion and brand management across sectors These benefits explain why many of Nigeria’s leading business groups and multinationals operate holding company models. Conclusion Establishing a holding company in Nigeria remains a strategic decision for investors looking for oversight, tax efficiency, and clear structure. With the new minimum paid-up capital requirements for foreign investors, careful planning around capital importation, regulatory approvals, and tax strategies is more crucial than ever. Engaging local advisors early—such as corporate, tax, and immigration experts—will help ensure your holding structure is compliant, operationally sound, and well positioned to support growth across Nigeria and the surrounding region. For further enquiries, please contact Olawunmi Ojo on [email protected], +2348038954988  
The Trusted Advisors - November 28 2025
Corporate Law

Setting up a Branch Office or Representative Office in Nigeria Written by Olawunmi Ojo

Introduction Nigeria remains one of Africa’s most attractive business destinations, with many foreign companies choosing to gradually enter the market by establishing either a branch office or a representative office before making a long-term commitment. Both structures allow an international business to maintain a presence in the country without immediately setting up a full Nigerian subsidiary, though they serve different purposes. Understanding how each functions and how to set them up properly is crucial for navigating Nigeria’s regulatory environment and ensuring compliance. A branch office is essentially an extension of the foreign parent company. It conducts the same business activities as the parent organization and is authorized to generate income in Nigeria, enter into contracts, and engage in commercial operations. In contrast, a representative office is much more limited. It cannot conduct business, earn revenue, or execute contracts in Nigeria. Its functions are restricted to promotional activities, market research, customer liaison, and acting as a communication channel. Many foreign companies use a representative office as a preliminary step to understand the Nigerian market before establishing a trading entity. Setting up either structure begins with understanding Nigeria’s regulatory requirements for foreign company registration. Under Nigerian law, foreign entities carrying on business in the country must register with the Corporate Affairs Commission (CAC). However, the CAC recognises that some companies wish to operate in a limited capacity for liaison or research purposes. As a result, it permits the registration of branch offices and representative offices, provided the parent company remains the legal entity responsible for activities carried out in Nigeria. The application process typically starts with preparing the necessary corporate documents. These include the parent company’s certificate of incorporation, constitutional documents, details of directors, a registered address and a board resolution authorising the establishment of the Nigerian office. The CAC also requires the appointment of a local representative who will act as the authorised contact person within Nigeria. At this stage, it is important to be clear about the intended scope of activities, because choosing between a branch office and a representative office has both legal and tax implications. A company intending to conduct actual business operations in Nigeria, whether trading, supplying goods, or providing services, must register a branch office and comply with the regulatory requirements applicable to foreign companies. A representative office, by design, is not allowed to engage in profit-making activities. Using the wrong structure can easily create compliance and tax challenges. Once CAC registration is complete, the company must fulfill additional obligations applicable to any legal presence in Nigeria. This includes obtaining a Tax Identification Number from the Federal Inland Revenue Service (FIRS). Even though a representative office does not earn income, it still requires a tax registration for administrative purposes. A branch office, on the other hand, is subject to Nigerian tax laws, including corporate income tax, withholding tax, and value-added tax, depending on its operations. Companies should also review whether sector-specific approvals are required. Industries such as banking, insurance, petroleum, pharmaceuticals, shipping, manufacturing, and telecommunications are heavily regulated. Entities operating in these sectors may require approvals from regulators such as the Central Bank of Nigeria (CBN), the Nigerian Communications Commission (NCC), NUPRC, NAFDAC, or the Standards Organisation of Nigeria (SON). Ensuring these licences are in place is a key part of establishing a compliant foreign presence. Practical considerations also matter when setting up a branch office or representative office in Nigeria. Securing a physical office, opening a Nigerian bank account and engaging local or expatriate staff are all part of the process. Foreign employees will require appropriate immigration permits, and companies intending to employ expatriates must apply for Expatriate Quota approval from the Ministry of Interior. This is a critical step that new entrants often overlook. Foreign companies should also be mindful of how liability flows from operations in Nigeria. A branch office is treated as an extension of the foreign company and may expose the parent organisation to legal or financial obligations arising from activities in the country. A representative office provides more insulation from liability but offers fewer commercial opportunities. Many investors begin with a representative office and later transition to a Nigerian subsidiary once they gain clarity and traction in the market.   Conclusion Setting up a branch office or representative office in Nigeria is relatively straightforward once the regulatory requirements and operational realities are well understood. The real success lies in choosing the structure that aligns with the company’s objectives while meeting all legal, tax, and sector-specific obligations. With Nigeria’s expanding consumer base, strategic location, and strong economic potential, establishing the right kind of presence can create a valuable pathway into one of Africa’s most dynamic markets. For further enquiries, kindly reach out to Olawunmi Ojo via [email protected], +2348038954988  
The Trusted Advisors - November 28 2025
Banking and Financial Services Regulation Law

How to Establish a Microfinance, Lending, or Payment Company in Nigeria

Overview If you’re thinking about launching a microfinance bank, lending company, or payment platform in Nigeria, this guide is written from the ground up based on real-world experience. I’ll walk you through every stage—from registering your company, to understanding the paperwork and capital requirements, to dealing with the Central Bank of Nigeria (CBN) and staying compliant for the long haul. The aim is to demystify the process with practical advice, insights, and a checklist you can genuinely use if you’re serious about building a compliant financial business in Nigeria. In short, you’ll need to: Register your business with the Corporate Affairs Commission (CAC); Prepare strong governance documents and a business plan; Apply to the CBN for the right licence (microfinance, finance company, or payment services); Put your compliance systems (like AML/KYC and IT controls) in place; and Secure the CBN’s Approval-in-Principle, meet any further requirements, then get your final licence.   Which licence do you need? Microfinance Bank (MFB): This is your route if your goal is to accept deposits and provide microloans to the public. There are three major categories namely;unit, state, and national. Each with its own capital requirements. You’ll be dealing directly with the CBN for licensing and ongoing oversight. Finance / Lending Company: If you mainly want to lend money (to individuals or businesses) but don’t plan to accept deposits, you’ll be looking at a finance company licence. These companies have their own set of rules under the CBN. Payment Solution Provider (PSP or PSSP): If your focus is on processing payments, running wallets, handling remittances, or building APIs for banks and businesses, you’ll need a CBN payment licence. There are several categories , each with different activities allowed and capital requirements. Be sure to check which fits your business model. Step-by-step Guide Choose your company structure and register with CAC Start by registering a limited liability company. This is the most common choice for founders. If you have foreign partners, be prepared for additional paperwork and potentially higher minimum capital. You’ll need to choose a business name, prepare your Memorandum and Articles of Association, and obtain your CAC certificate and Tax ID (TIN).   Draft a detailed business plan & governance documents Your business plan isn’t just a formality. Regulators want to see that you’ve thought things through and have a real strategy. Make sure you include: Market analysis and product suite (savings, micro-loans, wallet, merchant acquiring). Financial projections (3–5 years), capital injection schedule, and stress tests. Risk management & AML/CFT framework, IT systems, disaster recovery, and outsourced vendor management. Corporate governance: board structure, CVs of directors/promoters, fit-and-proper declarations. Meet minimum capital & financial requirements Capital thresholds have changed historically and vary by licence: For microfinance banks (MFB), the capital you’ll need depends on your chosen tier: ₦20 million for unit, ₦100 million for state, and ₦2 billion for national licenses are common figures. Finance companies have lower capital requirements than banks, but you’ll still need to follow the CBN’s prudential guidelines. Payment service providers (like PSPs and PSSPs) have different capital requirements depending on exactly what you want to do. These have changed recently, so double-check the latest CBN guidelines to make sure you’ve budgeted enough. Required Documents The list of required documents will depend on your license, but here’s what you’ll almost certainly need: CAC certificate of incorporation, Memorandum & Articles, Form of Allotment. Detailed business plan & financial projections. Board and management CVs, passports/IDs, police good conduct where applicable, and fit-and-proper forms. Evidence of paid-up capital / bank statements showing capital injection. AML/CFT policy, KYC procedure, IT security policy, data protection compliance (NDPR), internal controls/policies. For PSP/PSSP: software architecture, API specifications, PCI/DSS compliance plan (if card acceptance), risk management. Apply to CBN: AIP, then final licence Most financial licences follow a two-stage process: First comes the Approval-in-Principle (AIP): The CBN will review your documents and, if you meet their requirements, will issue a provisional approval. Be ready to pay a non-refundable application fee and submit your financial documents (audited or projections, depending on your stage). Once you’ve met all pre-licence conditions (like showing your capital is in the bank and your IT systems are set up),the CBN will then issue your final licence subject to meeting other requirements and you’re ready to operate. Processing times vary depending on the completeness of the application and regulator workload.   Implement compliance & operational readiness Before you go live, make sure you’ve done the following: Deploy KYC/AML onboarding. Register with Nigeria’s Financial Intelligence Unit (NFIU) where required. Put in place transaction monitoring, suspicious activity reporting (SAR) frameworks. Establish vendor contracts, PCI/DSS compliance (if you handle cards), and robust cybersecurity controls. Run pilot / sandbox if deploying novel fintech services , engage the CBN on sandbox options if available. Post-licence obligations After you get your licence, don’t relax, there’s ongoing work to stay compliant: Submit periodic prudential reports and audited accounts to CBN. Maintain minimum capital & liquidity ratios prescribed. Keep up AML training and independent audits. Notify CBN of significant corporate changes (shareholders, directors).   Compliance & risk highlights (must-do list) Anti-money laundering (AML/CFT): You must have systems for customer due diligence, transaction monitoring, reporting suspicious activities, and appointing a compliance officer Data protection: Nigeria’s NDPR applies to you if you’re collecting or processing personal data. Cybersecurity and third-party risk: Have clear contracts (SLAs) with your tech providers, run penetration tests regularly, and be sure you have an incident response plan in place. Consumer protection: Be upfront about your fees and lending terms, and stick to any interest rate caps that apply. Outsourcing and agents: If you use agents or third parties (like in agent banking), get CBN approval and monitor their activities closely.   Practical tips for founders & foreign investors Work with a good lawyer and compliance pro from the start. CBN is strict about who runs and owns these companies, and about your governance setup. Be conservative in projections and explicit on capital sources. Regulators want verified evidence of funds. Consider partnerships: partnering with an existing PSP or MFB can reduce time-to-market for some services (but check regulatory limits). Plan for NDPR & PCI/DSS if holding customer data/cards. Check recent CBN circulars just before application. Capital and procedural rules have been updated several times; always rely on the latest CBN guidance.   FAQs Q: How long does it take to get a microfinance bank licence in Nigeria? A: With complete documentation, expect 3–12 months, but bank-level or national authorisations can take longer. Always factor time for capital verification and regulatory back-and-forth. Q: Can a foreigner own 100% of a Nigerian microfinance or fintech company? A: Foreign participation is permitted but comes with specific CAC and sectoral requirements; some licences may require local presence or minimum local shareholding depending on the activity, confirm with CAC and CBN. Q: What’s the difference between a PSP and a Payment Service Bank (PSB)? A: PSPs/PSSPs generally provide payment processing services (merchant acquiring, payment gateways, wallets) and are licensed accordingly. A Payment Service Bank or Payment Solution Bank often has a broader remit (deposit taking within preset limits) and different capital rules. Check the CBN payment guidelines for exact scopes.   For further enquiries, kindly contact Olawunmi Ojo on [email protected]  
The Trusted Advisors - November 28 2025
Financial Services Regulation Law

Obtaining a Crypto or Fintech Licence in Nigeria: What Foreign Companies Should Know (Written by Olawunmi Ojo)

Nigeria has become one of Africa’s most active markets for fintech and digital assets, shaped by a youthful population, deep mobile penetration, and a strong appetite for innovative financial solutions. While the market is dynamic, entering the Nigerian fintech or crypto space requires a grounded understanding of the regulatory landscape. Foreign companies often discover that licensing, particularly for crypto-related operations, is not a fast or mechanical process. It demands patience, strategy and an evident appreciation of how Nigeria’s regulators approach emerging financial technologies. Unlike some jurisdictions that operate a single, consolidated “fintech licence,” Nigeria regulates fintechs based on the nature of services they intend to offer. Payment companies fall under the Central Bank of Nigeria (CBN), while the Securities and Exchange Commission (SEC) regulates digital asset and virtual asset businesses. This means that foreign companies may need to engage with different regulators depending on whether they offer payments, digital wallets, mobile money, crypto exchange services, token issuance or brokerage activities. For crypto-focused firms in particular, the SEC’s “Rules on Digital Assets and Virtual Asset Service Providers” form the core regulatory framework. Under these rules, a company intending to operate as a Virtual Asset Service Provider (VASP) must register with the SEC. However, this process is evolving. To date, the SEC has issued only a limited number of VASP registrations, and most applicants remain in preliminary stages of engagement, incubation or assessment. Rather than opening the floodgates to mass licensing, the SEC has taken a cautious, measured approach, preferring to vet applicants more deeply and coordinate closely with other financial regulators before issuing additional approvals. For foreign companies, this means that compliance preparedness and understanding of local regulations are more important than ever. The licensing journey typically begins with establishing a legal presence in Nigeria. Most companies incorporate a Nigerian subsidiary through the Corporate Affairs Commission (CAC), as this simplifies regulatory engagement, banking arrangements, and local compliance. Some seek approval to operate as a foreign entity, but for fintechs and VASPs, a local company structure is generally the smoother path. Once the corporate structure is in place, the real work begins. A fintech looking to operate as a payment processor, mobile money operator, switching company, or payment solution provider must engage the CBN under clearly defined licensing categories, each with its own capital requirements, technology standards, and governance expectations. These requirements often include maintaining a minimum paid-up capital, implementing strong cybersecurity controls, submitting operational manuals, and demonstrating the ability to carry out AML/CFT monitoring. For crypto and digital asset companies, interaction with the SEC is more detailed. The regulator requires robust documentation: governance structures, thorough risk management frameworks, cybersecurity protocols, internal policies, AML/KYC procedures, descriptions of digital asset offerings, technology architecture and disclosures on cross-border arrangements. The SEC also conducts a “fit and proper” assessment of key personnel, which is consistent with global standards for virtual asset regulation. Foreign companies should be aware that Nigerian regulators are not only focused on compliance paperwork. They assess whether applicants understand the risks associated with digital assets, whether their systems can withstand cyber threats, and whether they can demonstrate a clear commitment to consumer protection. Nigeria has seen an uptick in digital fraud and platform vulnerabilities, and regulators are increasingly sensitive to operational resilience and customer safeguarding. Tax compliance is another critical element of market entry. Depending on the structure, companies may be subject to corporate income tax, VAT, withholding tax, stamp duties, and sector-specific levies. Engaging a local tax adviser early helps avoid structural mistakes that could affect repatriation of profits or overall operational efficiency. It is also important to recognise that the regulatory landscape has shifted in recent years. The CBN’s earlier restrictions on crypto-related transactions were softened in 2023, allowing banks to open accounts for regulated VASPs. Meanwhile, the SEC continues refining its digital asset rules and supervising the regulatory incubation of potential VASP applicants. For now, only a handful of companies have secured SEC registration, and most of the market is watching closely for the next phase of approvals. Given these dynamics, many foreign companies adopt a phased market entry strategy. Some partner with existing licensed Nigerian fintech operators to begin operations more quickly. Others engage consulting and legal teams early to lay the groundwork for licensing, knowing that regulators expect thorough internal systems before approval. A well-prepared application stands a far stronger chance in Nigeria’s selective licensing climate. Conclusion Nigeria remains one of the most promising fintech markets on the continent. For foreign companies, obtaining a crypto or fintech license is possible, but it requires time, clarity of purpose, and strong regulatory alignment. With the right strategy and compliance foundation, foreign entrants can establish a sustainable presence in a market that continues to evolve and attract global attention. For further enquiries, contact Olawunmi Ojo via [email protected]. +2348038954988
The Trusted Advisors - November 28 2025