Nigeria - Market Challenges Nigeria - Market Challenges
While Nigeria offers U.S. firms export opportunities in many sectors, it can pose some daunting challenges including the high cost of doing business in Nigeria, the need to duplicate essential infrastructure, the threat of crime and associated need for security countermeasures, corruption, the lack of effective judicial due process, and nontransparent economic decision making, especially in government procurement. Clearance of goods at ports can be slow, cumbersome, and highly bureaucratic. Reports indicate that corruption and congestion remain major issues at ports.
To mitigate these challenges, U.S. companies seeking to do business in Nigeria are encouraged to do so with incorporated companies or otherwise incorporate their subsidiaries locally. U.S. firms seeking to do so should appoint and work with competent local partners and seek the assistance of experienced commercial lawyers.
Corruption
One of President Buhari’s top priorities is to root out corruption. A recent poll conducted by NOIPolls and LEAP Africa revealed that 85% of adult Nigerians believe that the prevalence of corruption in the country is responsible for the bottlenecks that characterize the difficulty of doing business in Nigeria. Reasons given for the prevalence of corruption in Nigeria included weak government institutions (24%) and poverty (18%). Well-connected business people gain from anti-competitive practices that shield Nigeria from market forces.
The Government of Nigeria has sought to address corruption through the Economic and Financial Crimes Commission (EFCC), the Independent Corrupt Practices and Other Related Offences Commission (ICPC), and the Extractive Industries Transparency Initiative.
Local Content
Oil and Gas: U.S. businesses have significant concerns about the Nigerian Oil and Gas Industry Content Development Act of 2010.
This Act requires that preference be given to Made in Nigeria goods and services for all projects in Nigeria’s critical oil and gas sector.
The local sourcing mandates imposed under the Act apply to everything from physical materials used in construction to telecommunications, financial, and professional services used by the oil and gas industry. U.S. companies have raised concerns that the conditions and requirements for a waiver from local content provisions are subjective and lack full transparency. The local content provisions in the oil and gas sector also raise questions of Nigeria’s compliance with its World Trade Organization obligations.
Information and Telecommunications Technologies: In 2013, the National Information Technology Development Agency (NITDA) issued Guidelines for Nigerian Content Development in the ICT sector. The guidelines, while not yet fully implemented, would force local manufacturing and use of Nigerian made software, hardware and telecommunication products in a broad scope of ICT goods and services. These include maintenance of R&D departments in Nigeria, domestic hardware assembly by original equipment manufacturers, and other restrictions. Industry also has serious concerns about the future ability of the Government of Nigeria to protect data and trade secrets, due to the localization processes requiring the disclosure of source code and other sensitive design elements as a condition of doing business. These protectionist measures disrupt the global supply chain and flow of data while they increase costs and stifle innovation required to create a globally competitive industry.
Major U.S. ICT companies operating in Nigeria have pushed back strongly against several of the measures in those guidelines. The American businesses have also recommended applying a coordinated approach to revising the local content requirements to encourage economic growth. In November 2015, the NITDA informed U.S. ICT companies that it would not require in-country ICT manufacturing but would continue to request meeting capacity building targets.
Foreign Exchange Restrictions
After the decline in oil prices and the attendant depreciation of the Naira occasioned by a reduction of dollar inflows, the Central Bank of Nigeria (CBN) imposed several foreign exchange controls in 2015 in a bid to curtail the flow of dollars out of the country and maintain the value of the Naira. These measures included the suspension of forex supplies to Bureau de Change (BDC) outlets; the exclusion of 41 product categories from the official foreign exchange window for imports; and the reiteration that all goods and services in Nigeria must be priced in Naira referenced in Section 20(5) of the CBN Act. The Central Bank also restricted access to the official forex window for the purchase of foreign currency bonds, limited the amount Nigerians could spend on card-based transactions on foreign currency priced websites as well as Point of Sale (POS) and ATM transactions abroad. Despite these measures, the demand for foreign exchange remained steady with prices at the parallel market escalating well beyond the then official exchange rate of N197 to the dollar.
Sustained downward pressure on the Naira and the accompanying decrease in Nigeria’s foreign reserves caused the CBN to devalue the Naira at the official window to N305 to the dollar in 2016. Despite the devaluation, the exchange rate at the parallel market, where most Nigerian citizens and businesses access foreign exchange, continued to climb peaking at about N520 to the dollar in the first quarter of 2017. As at June 2019, the Naira traded at 361 to the dollar in the parallel market, while it traded at 360.88 to the dollar in the Investors-Exporter (IEFX) window. However, currently, the Nigeria Customs computes duty payments due using the exchange rate of 326 to the dollar.
To address mounting concerns by the business community, the Central Bank created another official window for manufacturers and importers of several goods where foreign exchange could be accessed at lower than the market rate but higher than the official rate. In addition, the CBN approved different rates ranging between the official and market rates for use in international money transfers, religious pilgrimages inter-bank lending and wire transfers for international payments. Confusion over the applicable rates, and lack of access to foreign exchange at the several official windows led to a reduction in operations of numerous import dependent businesses and the withdrawal of several foreign companies in Nigeria over repatriation concerns.
Since peaking at about N520 on the parallel market, the exchange rate began to rebound in line with increased oil prices and higher production. The exchange rate at the parallel market is currently about N361 to the dollar while the official rate has remained constant at N306.90. The current market rate is closer to the exchange rates mandated by the CBN for international transfers and payments as well as on card transactions. The foreign reserves, which had dropped by about 37% from January 2014 to June 2016 due to reduced oil receipts and CBN’s actions in holding the exchange rate at an artificial rate, have also rebounded. Foreign Exchange Reserves in Nigeria decreased to $45.071 Billion in June from $45.123 Billion in May of 2019. The CBN has continued to open several official windows for businesses to access foreign exchange at different rates. In April 2017, the CBN established an Investors’ and Exporters’ (I&E) FX Window and another window for small and medium enterprises. In June 2017, the CBN released a circular further liberating the foreign exchange market at the inter-bank level by allowing trading of excess foreign currency by authorized dealers without recourse to the CBN.
The CBN continues to intervene in the market to keep the official rate from depreciating further while ensuring the harmonization of the multiple exchange rates currently obtainable in the market. However, the exclusion of importers of selected 41 product categories from the official window is still in place, and in fact has been increased to 43 items with discussions that it may be further extended to 50 items.
More information about CBN’s directives and interventions in the foreign exchange market may be found at: CBN's Website
Government Procurement
Nigeria is not a signatory to the WTO Agreement on Government Procurement. Foreign companies incorporated in Nigeria receive national treatment in government procurement. Government tenders are published in local newspapers, and a “tenders” journal is sold at local newspaper outlets. Although corruption is endemic in Nigeria, the Nigerian Government has made modest progress on its pledge to conduct open and competitive bidding processes for government procurement. Reforms have also improved transparency in procurement by the state-owned Nigerian National Petroleum Company (NPPC). Although U.S. companies have won contracts in many sectors, difficulties in receiving payment are not uncommon and can inhibit firms from bidding. Supplier- or foreign government-subsidized financing arrangements appear in some cases to be a crucial factor in the award of government procurements. Persistent transparency shortcomings create challenges for a fair bidding process and often lead to allegations of corruption, including that some ministries and agencies may prefer to grant contracts to firms that pay bribes.
Intellectual Property
Enforcement of intellectual property rights (IPR) remains a problem in Nigeria, despite official pronouncements, existing copyright laws, and enforcement efforts. Nigeria’s legal and institutional infrastructure for protecting intellectual property rights remains in need of further development and more funding, even though there are laws on the books to deal with enforcing most IPR violations. The absence of updated IPR legislation means some newer IPR categories are not currently addressed in Nigerian law, including online piracy, geographical indications, and plant and animal breeders’ rights. Legislation has previously been proposed to fill these gaps but has not been passed.
Violations of Nigerian IPR laws continue to be widespread, due in large part to a culture of inadequate enforcement. That culture stems from insufficient resources among enforcement agencies, lack of political will and focus on IPR, porous borders, entrenched trafficking systems that make enforcement difficult (and sometimes dangerous), and corruption.
There is also a low level of public awareness of IPR laws including among rights holders themselves and those who violate those rights. Nigeria’s domestic creative industries are growing fast, including the “Nollywood” film industry. The Nigerian economy has more to lose than ever before from inadequate IPR protections, including weak online digital piracy.
Regional Security
Nigeria’s government is contending with a deadly insurgency in the North-East and oil theft in the South, all while trying to improve infrastructure for Nigerians. The extremist group, Boko Haram, has targeted churches, schools, mosques, government installations, educational institutions, and entertainment venues in Adamawa, Bauchi, Borno, Gombe, Kaduna, Kano, Plateau, Taraba, the Federal Capital Territory, and Yobe States. Thousands of Nigerians have been displaced because of violence in the North-East.
Following successes by Nigeria and its neighbors in regaining territory seized by Boko Haram in Nigeria’s North-East, the terrorist group has increased the use of asymmetrical attacks. This includes expanding attacks in Chad and Niger, both of which sent forces to Nigeria earlier in the year to fight Boko Haram. President Buhari has sought to address these issues head on and with assistance from the international community.
Kidnappings remain a security concern throughout the country. Criminal elements throughout Nigeria orchestrate kidnappings for ransom; extremists, operating predominantly in the North, also have been known to conduct kidnappings. Criminals or militants have abducted foreign nationals, including U.S. citizens, from off-shore and land-based oil facilities, residential compounds, airports, and public roadways. In 2015, six U.S. citizens were kidnapped in separate incidents in the states of Kogi, Ondo, Anambra, Plateau, and Imo. Attacks by pirates off the coast of Nigeria in the Gulf of Guinea have increased substantially in recent years. Armed gangs have boarded both commercial and private vessels to rob travelers.