Foreign Direct Investment in Nigeria; Overcoming Legal and Regulatory Challenges to Foreign Direct Investments in Nigeria: Is the Nigerian Government Doing Enough?

55 Pages Posted: 19 Nov 2013

Date Written: May 1, 2013

Abstract

Brief Background: Nigeria is an investment haven for many foreign companies as well as individuals. The vast natural resources which the country possesses and its renowned status as the “Giant of Africa” natural resources, no doubt, creates an attraction of Foreign Direct Investment to foreigners all over the world. However, interestingly, statistics from institutions such as the World Bank and the International Monetary Fund reveal that the ratio of Foreign Direct Investment in Nigeria is abysmally low in comparison to its potential. As a result, promoting foreign participation in Nigeria has been a focal point for the Nigerian Government in recent times, through the implementation of various policies and issuance of directives.

There is no doubt that majority of large economies have built and strengthened their economies with the support of foreign participation. It is perhaps no wonder that (asides a few other factors which shall be discussed in this paper) the Nigerian economy still suffers immensely and the level of poverty is amazingly high, in spite of interventions from world financial institutions such as the world bank. This research paper therefore, seeks to undertake an in-depth analysis of the various challenges hampering the flow and progress of Foreign Direct Investment within the economy of the country and shall focus on the legal and regulatory bottlenecks which the successive governments have unwittingly allowed to stunt the growth of Foreign Direct Investment as well as other oblivious factors contributing to these challenges, and how these challenges can be overcome to make Nigeria an investment friendly nation similar to the United Arab Emirates and the South East Nations. Some of these legal challenges vary from restrictions on obtaining expatriate quota, embargo on importation of certain goods and clearing, obtaining business permits from the relevant authorities, issues of securing landed property, resolution of disputes and effectiveness of the judiciary, intellectual property related issues, amongst others. This paper shall further highlight some other relevant economic, social and political issues which have adversely affected the growth of Foreign Direct Investment in Nigeria.

Legal Question: Whilst it is undoubtedly necessary for a country to have stringent rules and regulations in relation to its foreign policy, enacting laws and stipulating regulations which are either uncoordinated, unstable or extremely impracticable may in the final event, do more damage than is reasonably necessary in deterring foreign investment as opposed to enhancing same. Worthy of note is the fact that many of the current regulations do not meet the modern day economic needs of the country. In actual fact, while some of these laws and regulations appear too stringent, some of them on the other hand, have been so ineffective that they merely exist. At this juncture, it is pertinent to state that it is high time the laws concerning foreign investment in Nigeria be re-visited and not only so, but also, the government needs to ensure that adequate structure be put in place to enhance the practicability of such laws, in order effectively tackle these issues. The following will be discussed in this research paper: i. The legal and regulatory constraints affecting FDI in Nigeria to wit: • Implementation of laws which violate world trade treaties • Regulatory bottle necks in obtaining requisite business permits and performing registration at different levels • Lack of effective judiciary and dispute resolution mechanism • Inconsistency and inadequacy of regulations ii. Other adverse factors such as socio-economic and political constraints

Methodology: To meet the objectives of the proposed research, this paper will examine and analyze existing literature (e.g. books, articles, reports by institutions such as the world bank and the United Nations, discussions and news reports) on the issues addressed.

Literature Review: •On regulatory bottle necks: Every foreign direct investor wishing to establish a business in Nigeria is required to cross several hurdles. Some of these hurdles include registration of the company at the corporate affairs commission, obtaining business permits, and expatriate quota, importation of technology permits, amongst others. It is worthy of note however that pursuing these various requirements can be quite cumbersome in most cases and can be quite frustrating for an unwary investor. In this vein, Nigeria has been ranked by the world bank as the 131st country in comparison to 185 other economies.

For example, a foreigner wishing to establish a business in Nigeria and wishes to employ foreigners in its corporation must obtain an expatriate quota for each foreign employee. The difficulties which arise in obtaining same stem from the restrictions on the number which can be obtained and the bureaucratic efforts required to obtain same, let alone completing the entire registration process. United States companies, being the highest number of investors in Nigeria, are reportedly confronted with difficulties in obtaining them. On the other hand, protagonists of the local content regime have argued that the use of expatriate quota have been abused arbitrarily by some quarters. While this may be true, the difficulty experienced in obtaining same cannot be overlooked. •Inconsistency and inadequacy of the laws: Whilst it appears that FDI is one of the foremost issues which the Government is willing to tackle, some of its laws are on the other hand unhelpful. Although in the past, there were a lot of restrictions and barriers on foreign investment with regards to positions to be taken by foreigners in FDI companies, the local laws have been amended from time to time to reduce these restrictions. In an effort to enhance the free flow of FDI, Nigeria became a party to several world trade treaties. Some of them include TRIMS, WTO, and GATTS. Meantime, sometime in 2010, a legislation known as the Nigerian Oil and Gas Development Act was enacted in order to promote local content in Nigeria. Although, it may be understandable why the government may feel the need to enhance local content to support the local work force, some of the provisions of this act appear to be inconsistent with the provisions of the GATTS and TRIMS which requires member states to imbibe laws which are as favourable to their locals as to foreigners.

Other shortcomings of the law in terms of inadequacy can be viewed from the stance of infringement of Intellectual Property. Nigeria is a country where infringement reigns without fear of being caught. Products of imitation are sold in stores and even in the streets on a daily basis. The trademark and patent registries for example are so technologically backwards that sometimes to get a registration may take several years, documents are lost on a daily basis and the staff are generally inefficient. The level of disregard for the laws on intellectual property is quite alarming that they seem unenforceable.

•Socio-economic and political problems: Some other problems encountered by foreigners in Nigeria are factors such as inefficient basic resources such as electricity, lack of good roads, corruption, terrorism, administrative incompetence, illiteracy and lots more. Although these may not seem connected in the first instance, all of these factors may be attributable to lack of good governance and disregard for the rule of law as well as ineffectiveness of current legislation.

Conclusion: While it is apparent that Foreign direct investment may have a positive economic impact on developing economies and can also serve as a tool to develop technology and production skills of host countries, such benefits are however not automatic. The economic, legal and social policies implemented by such economies play a huge role in determining how FDI can impact such economies. Some of the policies taken by the Nigerian government need to be revisited to suit these needs. This paper will address some of these issues and will propose viable recommendations as ways of addressing these issues.

Keywords: FDI; Nigeria; Legal; Regulatory; Challenges

Suggested Citation

Adejugbe, Aderonke, Foreign Direct Investment in Nigeria; Overcoming Legal and Regulatory Challenges to Foreign Direct Investments in Nigeria: Is the Nigerian Government Doing Enough? (May 1, 2013). Available at SSRN: https://ssrn.com/abstract=2354319 or http://dx.doi.org/10.2139/ssrn.2354319

Aderonke Adejugbe (Contact Author)

Independent ( email )

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