Nigeria - Performance Requirements and Investment Incentives Nigeria - Performance Requirements
Nigeria is not a party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO).
Many aspects of Nigeria's regime for regulating investment raise questions of consistency with the World Trade Organization's Trade-Related Investment Measures (TRIMS) Agreement. This is particularly true of the GoN’s local content requirements in the oil and gas sector along with guidelines applying local content requirements to the information technology sector. While many foreign companies have found ways to operate in Nigeria's service sector, including telecommunications, accounting, insurance, banking, and advertising, complying with local content requirements are a challenge, and a disincentive to investment.
The Investment and Securities Act of 2007 forbids monopolies, insider trading, and unfair practices in securities dealings.
On December 3, 2013, the National Information Technology Development Agency (NITDA), under the auspices of the Federal Ministry of Communication Technology (MCT), issued the Guidelines for Nigerian Content Development in the ICT sector. These guidelines require ICT original equipment manufacturers to use 50 percent local manufactured content within three years from the effective date of the guidelines, and for ICT companies to use Nigerian companies for 80 percent of all value added services on networks within three years. In addition, the guidelines require multinational companies operating in Nigeria to source all hardware products locally; all government agencies to source and procure all computer hardware only from NITDA-approved original equipment manufacturers; and ICT companies to host all consumer and subscriber data locally, to use only locally manufactured SIM cards for telephone services and data, and to use indigenous companies to build cell towers and base stations.
The goal is to promote development of domestic production of ICT products and services for the Nigerian and global markets, but the guidelines post impediments and risks to foreign investment and U.S. companies by interrupting their global supply chain, increasing costs, disrupting global flow of data, and stifling innovative products and services.
Concerns remain as to whether the guidelines will be implemented in a fair and transparent way towards all Nigerian and foreign companies. All ICT companies, including Nigerian companies, currently use foreign manufactured products as Nigeria does not have the capacity to produce ICT products.
In October 2015, MCT and NITDA published a notice requiring government service and ICT service, network and equipment companies to report their local integration status by November 16. On November 5, 2015, NITDA informed U.S. ICT companies that it would not require in-country product manufacturing due to the difficult business environment in Nigeria, but noted that it would continue to press for local ICT capacity building programs. The GoN’s history of mixed signals on enforcement of the local content requirements and their implications continues to create uncertainty over local content requirement enforcement.
The GoN maintains different and overlapping incentive programs. The Industrial Development/Income Tax Relief Act Number 22 of 1971, amended in 1988, provides incentives to pioneer industries deemed beneficial to Nigeria's economic development and to labor-intensive industries, such as apparel. There are currently 71 industries defined as pioneer industries for the purposes of this incentive. Companies that receive pioneer status may benefit from a non-renewable, 100 percent tax holiday of five years (seven years, if the company is located in an economically-disadvantaged area). Industries that use 60 to 80 percent of local raw materials in production may benefit from a 30 percent tax concession for five years, and investments employing labor-intensive modes of production may enjoy a 15 percent tax concession for five years. Additional tax incentives are available for investments in domestic research and development, for companies that invest in local government areas (LGAs) deemed disadvantaged, for local value added processing, for investments in solid minerals and oil and gas, and for a number of other investment scenarios. For a full list of incentives please, refer to the Nigerian Investment Promotion Council website at nipc.gov.ng.
The Nigerian Export Promotion Council administered an Export Expansion Grant (EEG) scheme to improve non-oil export performance, but the government shut down the program in 2014 due to concerns about corruption on the part of companies who collected the grants but did not actually export. The Nigerian Export-Import (NEXIM) Bank provides commercial bank guarantees and direct lending to facilitate export sector growth, although these services are underused. NEXIM’s Foreign Input Facility provides normal commercial terms of three to five years (or longer) for the importation of machinery and raw materials used for generating exports.
Agencies created to promote industrial exports remain burdened by uneven management, vaguely-defined policy guidelines, and corruption. Nigeria's inadequate power supply and lack of infrastructure and the associated high production costs leave Nigerian exporters at a significant disadvantage. Many Nigerian businesses fail to export because they find meeting international packaging and safety standards to be too difficult or expensive. The vast majority of Nigeria’s manufacturers remain unable to compete in the international market.
Research and Development
The NIPC states that up to 120 percent of expenses on (R&D) are tax deductible, provided that such R&D activities are carried out in Nigeria and are connected with the business from which income or profits are derived. Also, for the purpose of R&D on local raw materials, 140 percent of expenses are allowed. For cases in which the research is long-term, it will be regarded as a capital expenditure and will be written off against profit.
Foreign investors must register with the NIPC, incorporate as a limited liability company (private or public) with the Corporate Affairs Commission, procure appropriate business permits, and register with the Securities and Exchange Commission (when applicable) to conduct business in Nigeria. Manufacturing companies sometimes must meet local content requirements. Expatriate personnel do not require work permits, but they remain subject to needs quotas requiring them to obtain residence permits that allow salary remittances abroad. Authorities permit larger quotas for professions deemed in short supply, such as deep-water oil-field divers. U.S. companies often report problems in obtaining quota permits. The Nigerian Oil and Gas Content Development Act, 2010 (NOGCDA) restricts the number of expatriate managers to five percent of the total number of personnel for companies in the oil and gas sector.
Technology Transfer Requirements
The National Office of Industrial Property Act of 1979 established the National Office of Technology Acquisition and Promotion (NOTAP) to facilitate the acquisition, development, and promotion of foreign and indigenous technologies. NOTAP registers commercial contracts and agreements dealing with the transfer of foreign technology and ensures that investors possess licenses to use trademarks and patented inventions and meet other requirements before sending remittances abroad. In cooperation with the Ministry of Finance, NOTAP administers 120 percent tax deductions for research and development carried out in Nigeria and 140 percent tax deductions for research and development using local raw materials. The NOGCDA has technology-transfer requirements that appear to violate a company’s intellectual property rights.
The Nigerian Customs Service (NCS) and the Nigerian Ports Authority (NPA) exercise exclusive jurisdiction over customs services and port operations. Nigerian law allows importers to clear goods on their own, but most importers employ clearing and forwarding agents to minimize tariffs and lower their landed costs. Others ship their goods to ports in neighboring countries, primarily Benin, after which they transport overland and smuggle into the country. The GoN implements a destination inspection scheme whereby all imports are inspected upon arrival into Nigeria, rather than at the ports of origin. In December 2013, the NCS regained the authority to conduct destination inspections, which had previously been contracted to private companies. NCS also introduced an online system for filing customs documentation via a Pre-Arrival Assessment Report (PAAR) process.
Shippers report that efforts to modernize and professionalize the NCS and the NPA have reduced port congestion and clearance times. These efforts include an ongoing program to achieve 48-hour cargo clearance, particularly at Lagos' Apapa Port, which handles over 40 percent of Nigeria's legal trade. Nevertheless, bribery of customs agents and port officials remains common, and smuggled goods routinely enter Nigeria's seaports and cross its land borders.
Investors sometimes encounter difficulties acquiring entry visas and residency permits. Foreigners must obtain entry visas from Nigerian embassies or consulates abroad, seek expatriate position authorization from the NIPC, and request residency permits from the Nigerian Immigration Service. Investors report that this cumbersome process can take from two to 24 months and cost from USD 1,000 to USD 3,000 in facilitation fees. The GoN announced a new visa rule in August 2011 to encourage foreign investment, under which legitimate investors can obtain multiple entry-visas at points of entry into Nigeria. These changes have not been fully implemented, and the costs to obtain multiple entry visas on entry are not clearly set or standardized with each point of entry. U.S. businesses have reported being solicited for bribes in the visa on entry program. Obtaining a visa prior to traveling to Nigeria is strongly encouraged.
The Guidelines for Nigerian Content Development in the ICT sector issued by NITDA on December 3, 2013 require ICT companies to host all consumer and subscriber data locally and for government ministries, departments and agencies to source and procure software from only local and indigenous software development companies.