AN ANALYSIS OF THE REGULATORY LEGAL FRAME WORK FOR FOREIGN INVESTMENT IN NIGERIA
What provoked this research is the visibilly wanning national Sovereignty and Jurisdiction of developing Countries to make choice from options in economic, social and cultural policies due to globalization. The need to unravel the challenges the regulatory Legal Frame Work for Foreign investment in Nigeria faces, its impact on our national policies and policy making mechanisms and finding solutions. The methodology employed in this research is the doctrinal research. Primary and secondary materials sourced are analyzed. Foreign investment involves the transfer of a package of resources including capital, technology, management and marketing expertise. This can generally be divided into, Foreign Direct Investment (FDI) and Portfolio Investment (PI) although loans to government (i.e. foreign debts) have also been seen as a third category. The purpose of FDI is to acquire a lasting interest and effective control in the management of an enterprise without necessarily having majority shareholding. Portfolio Investments on the other hand, are directed at earning dividends, interests, capital gains and so on without participating in management.
The Multinational Corporations (MNCs) are major sources of foreign direct investment (FDI).
The regulatory Legal Frame Work is the power of host country through its law and regulatory bodies, authorities, and agencies to control investment activities by providing conditions that affect the behaviour of investors and development of investment to ensure fair and beneficial operations. These agencies including the Nigerian Investment Promotion Commission (NIPC), National Office for Technology Acquisition and Promotion (NOTAP) and Nigeria Oil and Gas Industry Content Development. The regulatory Legal Frame Work for foreign investment in Nigeria is confronted with many issues and challenges which make it impossible to achieve the objectives of government to regulate foreign investment, such as globalization of policy-making which has led to the erosion of national sovereignty, narrowed the ability of governments and people to make choices from options in economic, social and cultural policies; negative influence of the multinational corporations (MNCs) over government policies, lack of commitment on the part of government, non enforcement of penalties and inadequate penalty regimes, ineffective administrative systems and blind adoption of economic terms “dictated” by global markets and international institutions amongst others.
Considering that the regulatory legal frame work plays a crucial role in the economic life of the nation, government should pay adequate attention to it. Consequently, investment policies and regulations should be backed by law to enhance enforcement. The findings indentified in this work show that the penalties in Nigerian Investment Regulatory Frame Work such as Section 55 CAMA and Section 15 (1)(2) NOTAP are inadequate and do not have the force of deterrence. Procedure for exemption of Foreign Company from registration in Nigeria under Section 56 (1)(a)-(d) to the effect that such application should be made to the Council of Ministers through the Secretary to the Government of the Federation. The procedure is unnecessarily cumbersome and time wasting and will discourage donor international organizations and countries willing to undertake specialist projects under contract with any of the Governments in the Federation or their agencies. The National Office for technology Acquirsion and promotion (NOTAP) Act provides for the agency to vet agreements to be submitted to it by Nigerian Companies after negotiating and concluding with the Foreign technical partners and leaves much to be desired in the quest for maximum benefit from technology transfer and Foreign Investment in Nigeria.
TABLE OF CONTENTS PAGE
Title Page i
Table of Contents vii
Table of Cases xi
Table of Statutes xii
List of Abbreviations xv
CHAPTER ONE 1
1 Background of the Study 1
1.1 The Concept and Definition of Foreign
Investment and Regulatory Legal Frame Work 4
1.1.1 Regulatory Legal Frame Work 6
1.2 Statement of the Problem 7
1.3 Justification/Significance of the study 7
1.4 The Aim and Objectives of the Study 9
1.5 Limitations/Scope of Study 9
1.6 Literature Review 9
1.7 Methodology of Research 15
1.8 Organizational Layout 16
CHAPTER TWO 17
HISTORICAL PERSPECTIVE OF REGULATORY LEGAL FRAME
WORK FOR FOREIGN INVESTMENT IN NIGERIA
2.1 Introduction 17
2.2 The Colonial Period 18
2.3 The Post Colonial Period 20
2.4 The Indigenization Period 23
2.5 The Structural Adjustment Programme (SAP) Period Till Date 27
CHAPTER THREE 29
CONTEMPORARY LAWS ON FOREIGN PARTICIPATION
IN BUSINESS IN NIGERIA
3.1 Introduction 29
3.2 Companies and Allied Matters Act, 2004 31
3.2.1 Alliens to Form Companies in Nigeria 32
3.2.2 Consequences of Carrying on Business without Registration 32
3.2.3 Incorporation of a Foreign Company in Nigeria 33
3.2.4 Foreign Companies Exempted from Registration in Nigeria 35
3.2.5 Procedure for Company Exemption from Registration 36
3.2.6 Status of Exempted Companies 37
3.2.7 The Regulation of Foreign Companies 37
3.3 The Nigerian Investment Promotion Commission Act 39
3.3.1 Registration and Obtaining of License 40
3.3.2 Guarantee of Investment 40
3.3.3 Settlement of Investment Disputes 41
3.4 Immigration Act 42
3.4.1 Basic Permits Required by an Alien to
Enter Nigeria (or enter) and work in Nigeria 43
3.4.2 Entry Permit/Visa 44
184.108.40.206 Ordinary Visa –Transit 44
220.127.116.11 Ordinary Visa – Single Journey Visit 45
18.104.22.168 The short Visit Visa 45
22.214.171.124 STR Visa (Subject to Regulation) 45
126.96.36.199 Registration of Aliens 47
188.8.131.52 Temporary Work permit (T.W.P) 47
184.108.40.206 Multiple Journey Visa 48
220.127.116.11 Gratis Courtesy 49
3.4.3 Expatriate Quota 49
3.5 Investment and Securities Act (ISA) 52
3.6 Foreign Exchange (Monitoring and
Miscellaneous Provisions) Act 53
3.7 Industrial Inspectorate Act 54
3.8 National Office for Technology Acquisition and Promotion Act 55
3.8.1 Registration of Contracts and Agreements 55
3.8.2 Effect of Registration of Contracts and Agreements 56
3.9 Incentives and Reliefs Available to Investors in
Nigerian Economy 56
3.9.1 Import and Export Incentives under Customs and
Excise Management Act 56
3.9.2 Fiscal Reliefs 58
3.9.3 The Time Factor in Incentives 60
3.10 Protectionism in Regulatory Policies 61
3.10.1 Arguments for Protectionism 62
3.11 Nigeria Oil and Gas Industry Content Development Act 67
3.11.1 First consideration for Nigerian Operators 67
3.11.2 Nigerian Local Content Monitoring Board 68
3.11.3 Content Plan 68
3.11.4 Technology Transfer Plan and Support for Technology Transfer in Nigeria 69
3.11.5 Professional Services 69
3.11.6 Offences and Penalties 69
ISSUES AND CHALLENGES OF GLOBALIZATION
4.1 Introduction 71
4.2 Present Challenges of Globalization on the 72
Nigerian Regulatory Legal Frame Work
4.2.1 The Liberalization of Trade, Finance and Investment 72
4.2.2 The Globalization of Policy-making 78
4.3 Rising inequality and the effects of globalization 83
4.4 Weaknesses of the Developing nations in facing the globalization challenge 87
4.4.1 The Repeal of Indigenisation Laws 90
4.4.2 The introduction of privatization, commercialization,
Deregulation (Liberalization) in the Nigerian economy 94
4.5 Future Challenges of Globalization on Nigerian Regulatory Legal Frame Work 96
4.5.1 Job loss in Nigeria 97
4.5.2 Impact of job loss on national Security 97
4.6 Costs and benefits of Foreign Investment to the Nigerian economy 98
4.7 Use of Multilateral Framework for Foreign Investment 103
4.7.1 General View 103
4.7.2 Lack of Realization of Anticipated Benefits for Developing Countries
from the Uruguay Round 105
4.8 Implementation challenges Faced by Developing Countries from
the Uruguay Round 108
4.9 Moves for New Issues in WTO 115
4.10 The Approach Needed 116
CHAPTER FIVE 119
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary 119
5.2 Conclusion 122
5.3 Recommendations 124
1 BACKGROUND OF THE STUDY
In the course of an indept consideration of this research topic “An
Analysis of The Regulatory Legal Frame Work for Foreign Investment in Nigeria: Issues and Challenges,” the researcher‟s mind flashed on what Martin1 Khor referred to as “globalization” of national policies and policy making mechanisms. National policies that until recently were under the jurisdiction of states and people within a nation have increasingly come under the influence of international agencies and processes or of big private corporations and economic/financial players.
This has led to the erosion of national sovereignty and narrowed the ability of governments to make choices from options in economic, social and cultural policies. Martin Khor observed that most developing countries‟ independent policy making capacity had been eroded while they now have to adopt policies made by other entities, which might be detrimental to them. While on the other hand the developed countries, where the major economic players reside which also control the processes and policies of international economic agencies, are better able to maintain control over their own national policies as well as determine the policies and practices of international institutions and the global system.2
In his study “The New Global Economy and Developing Countries: Making Openness Work”, Rodrik observed that developing nations must participate in the world economy on their own
1. Khor M. Globalization and the South: Some Critical Issues Spectrum House, Ibadan  PP.4 – 5
2. Ibid PP. 24 – 25
terms, not the terms “dictated” by global markets and multilateral institutions. While noting the premise that reducing barriers to imports and opening to capital flows would increase growth and reduce poverty in developing countries, Rodrik‟s study concludes:
The trouble is, there is no convincing evidence that openness, in the sense of low barriers to trade and capital flows, systematically produces these results. The lesson of history is that ultimately all successful countries develop their own brands of national capitalism. The states which have done best in the Post – War period devised domestic investment plans to kick – start growth and established institutions of conflict management. An open trade regime, on its own, will not set an economy on a sustained growth path. 3
Governments the world over from time to time assess the quantum of foreign investment in their countries directly or indirectly depending on their policy
objectives and desire in availing the dividend of good governance to their citizenry. The role of foreign investment in the economic development of countries especially developing nations has prominently assumed an important dimension in recent times.
Consequent upon this, the regulatory legal frame work for foreign investment in Nigeria should reflect aspirations of the country for the common good of its citizens. The legal instruments must as a matter of necessity be the basis for entering into any venture as the consequences of flouting the law could at times be grave, hence the absence of regulations to human activities could be a direct invitation to anarchy and chaotic environment will in a matter of time result.
It is in view of this that laws have been enacted from time to time to regulate the business and investment environment so that parties could have clearer policy directions with a view to fostering growth and economic development of the society. It also gives some measure of control and direction, without which there cannot be a sustained economic growth. The level of participation by
3. Washington DC, Overseas Development Council (1999) P.15; Also see Khor M. Globalization and the South:
some Critical Issues, Spectrum House, Ibadan (2005) PP. 24 – 25.
foreigners in the economic development of a country is often times dictated by the state of that nation in focus in terms of its social – political development; economic policy amongst others.
These instruments do not work in isolation, and there must be some kind of balancing in order to achieve the expected growth. 4
Over the years especially from independence the successive governments in Nigeria had grappled with major problems that have hindered investment in this country which include inconsistent policies, and unfriendly investment laws amongst others.
In the world today the process of deepening and widening markets had produced new global and national institutions and new behavioural patterns amongst international investors. The global competition for limited global capital is fiercer and the challenge for attracting and retaining foreign capital very great. 5
Consequent upon these global challenges, in 1986, Nigeria began implementing the Structural Adjustment Programme [SAP] with liberalization and deregulation of the economy. This policy shifts and institutional changes were targeted at inflow of foreign capital.
This puts the regulatory environment for foreign investment in Nigeria in perspective.
4. Sofowora, M.O Foreign Private Investment – Legal Regimes. A Paper Presented at the Conference of the Central
Bank of Nigeria, held at Hamdala Hotel, Kaduna from September 1 – 5, (2003) PP. 137 – 138
5. Garba A.G. The Impact of Globalisation on Foreign Private Investment in Nigeria. A Paper Presented at the
Conference of the Central Bank of Nigeria, held at Hamdala Hotel, Kaduna from September 1 – 5 (2003) P. 175.
This research work is designed to examine the phenomenon of globalization of national policies and policy making mechanisms and its effect on foreign investment regulation in Nigeria.
The inspiration to choose this research topic is borne out of the visibilly wanning national sovereignty, and jurisdiction of developing countries to make choices from options in economic, social and cultural policies due to globalization.
The study is on the challenges the regulatory legal frame work for foreign investment in Nigeria faces, its impacts on our national policies and policy making mechanisms. It involves a review of legislations, the work of some known scholars, researchers, authors and so on in this area.
1.1 THE CONCEPT AND DEFINITION OF FOREIGN INVESTMENT;
AND REGULATORY LEGAL FRAME WORK
Foreign Investment according to Guobadia6 can be generally divided into two thus, Foreign Direct Investment [FDI] and Portfolio Investment [PI] [although loans to government [i.e. foreign debts] have also been seen as a third category], and also defined as involving the transfer of a package of resources including capital, technology, management and marketing expertise. Such resources usually have the effect of extending the production capabilities of the recipient country. 7
According to the same writer, “the purpose of direct foreign investment is to acquire a lasting interest and effective control in the management of an enterprise without necessarily having majority shareholding”.
Portfolio investment on the other hand are directed at earning dividends, interest, capital gains and so on without participating in management. Quoting Robert Pritchard, Guobadia stated that when Portfolio Investment carries control, it becomes foreign direct investment [FDI]. 8
In the same vein, according to Krishna Foreign Private Investment can be classified as Foreign Direct Investment [FDI] and Foreign Portfolio Investment [FPI].
FDI is an investment in real assets where real assets consist of physical things such as factories, land, capital, goods, infrastructure and inventories. The Multinational Corporations [MNCS] is chief source of FDI.
6. Guobadia D.A Issues In Facilitating Investment For National Development in Nigeria. In Jimoh AA. [e.d] Modern Practice Journal of Finance and Investment Law MPJFIL. Lagos October  Vol.2. No. 2 P.39
» Bank Branch Deposits, ATM/online transfers (Amount: ₦3,000 NGN)
|Bank: FIRST BANK Account Name: OMOOGUN TAIYE Account Number: 3116913871 Account Type: SAVINGS Amount: ₦3,000 AFTER PAYMENT, TEXT YOUR TOPIC AND VALID EMAIL ADDRESS TO 07064961036 OR 08068355992 OR Click Here|
|Bank: ACCESS BANK Account Name: OMOOGUN TAIYE Account Number: 0766765735 Account Type: SAVINGS Amount: ₦3,000 AFTER PAYMENT, TEXT YOUR TOPIC AND VALID EMAIL ADDRESS TO 07064961036 OR 08068355992 Click Here|
|Bank: HERITAGE BANK Account Name: OMOOGUN TAIYE Account Number: 1909068248 Account Type: SAVINGS Amount: ₦3,000 AFTER PAYMENT, TEXT YOUR TOPIC AND VALID EMAIL ADDRESS TO 07064961036 OR 08068355992 Click Here|