2012 Investment Climate Statement - Nigeria

2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012

Nigeria, Africa's most populous nation, has an estimated population of over 168 million. The country offers investors abundant natural resources, a low-cost labor pool, and potentially the largest domestic market in sub-Saharan Africa. Much of that market potential remains unrealized because of a long list of impediments to investment. These include inadequate power supply, lack of infrastructure, delays in the passage of announced legislative reforms and the drafting of related implementing regulations, an inefficient property registration system, restrictive trade policies, arbitrary policy changes, an inconsistent regulatory environment, a slow and ineffective judicial system, unreliable dispute resolution mechanisms, growing insecurity, and pervasive corruption.

Potential investors should understand the corruption risk involved in the Nigerian business environment and develop anti-bribery compliance programs that involve local staff and Nigerian partners. For example, local companies or individuals manipulated the judicial system and law enforcement agencies to exert undue pressure on two prominent U.S. companies for commercial or personal advantage in 2008 and 2009. In both instances, Nigerian courts issued arrest warrants for senior U.S. company officials, and Nigerian law enforcement agencies detained or attempted to detain the same senior officials, with the understanding that the cases would be dropped if certain conditions were met. Authorities dropped one of these cases following the intervention of the Jonathan administration in early 2011. The United States and other parties to the OECD Anti-Bribery Convention have also more aggressively enforced anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act (FCPA). Two high-profile FCPA cases involving bribes paid years earlier to Nigerian officials led to the arrest of the senior official of these and other international companies in 2010. Addressing these due process concerns – and other concerns listed in the World Bank’s “Doing Business” report – would likely encourage greater U.S. investment in Nigeria.

Potential investors should also cope with absent or poorly-maintained power, telephone, water, road, railroad, river, and port infrastructure. Many investors must provide their own power, water, and access roads – which results in costs that undermine local and international competitiveness. The deterioration in the railroad system has forced companies to rely on more expensive road transport. The deterioration in the state-owned, fixed-line telephone system has become so severe that only an estimated 15,000 landline telephone numbers operate in the country, compared to an estimated 93.5 million cellular telephone numbers. Most entrepreneurs conduct business operations by cellular phone or wireless Internet connections, although high-speed, broad-band connections have begun to become more available in Lagos and Abuja.

Security remains a special concern due to high rates of violent crime, kidnappings for ransom, and terrorism. Four bombings of high-profile targets with multiple deaths occurred in Abuja during the 12 months following Nigeria’s Fiftieth Independence Anniversary on October 1, 2010. The bombings targeted the National Parade Ground at Eagle Square on October 1, 2010; a popular fish bar near the Mogadishu Army Barracks on December 31, 2010; the National Police Headquarters on June 16, 2011; and the United Nations Headquarters on August 26, 2011, killing 24 people and injured more than 120. Attackers carried out the last two bombings using vehicle-borne improvised explosive devices. Other bombings and assassinations have occurred in the cities of Maiduguri, Damaturu, Bauchi, Jos, and Suleja, the majority linked to the extremist Islamic sect, Boko Haram. An amnesty program for militants in the restive Niger Delta region and rehabilitation and re-integration training for ex-militants have led to a significant decline in militant violence and the increasing restoration of shut-in oil and gas production. The longer-term impact of the government’s Delta peace efforts, however, remains unclear, and criminal activity in the Delta remains a serious concern.

Military rule ended with the inauguration of a civilian administration in May 1999. Dr. Goodluck Ebele Jonathan took the oath of office as Nigeria’s fourteenth Head of State on May 6, 2010, following the death of President Umaru Musa Yar’Adua the previous day. Jonathan’s peaceful succession to the presidency ended several months of uncertainty during President Yar’Adua’s prolonged illness and absence from the country for medical treatment. The Nigerian military remained in the barracks, adhering to the principle of civilian rule. National elections occurred in April 2011 for President, national legislators, and governors, and state assemblies. Both international and domestic observers judged the elections to be the most free, fair, and credible in decades and arguably in Nigerian history. President Jonathan participated as a candidate of the ruling party and emerged as the winner. He was sworn in on May 29, 2011 for a four-year term ending in 2015.

The GON seeks to enact economic reforms to achieve the ambitious goal of allowing Nigeria to emerge as one of the top twenty economies in the world by the year 2020. Earlier, the GON had placed savings from crude oil sales above the budget benchmark price into a special reserve account, called the Excess Crude Account (ECA), starting in 2003, rather than using such funds to fuel fiscal expansion during periods of high oil prices. The ECA contained $20 billion in 2007 but dropped to less than one billion dollars in late 2010 before rising back to three billion dollars in December 2011. Authorities used ECA funds to maintain government spending in 2009 in the face of lower oil revenues and then boost government spending in 2010 in the run-up to the national elections in April 2011. Nigeria enacted Sovereign Investment Authority legislation in 2011 to establish a Sovereign Wealth Fund (SWF) to replace the ECA. Some state governors, however, have opposed the SWF, arguing that it is unconstitutional in the way that it treats funds allocated to the states. This dispute has delayed the placement of excess oil revenues into the SWF. The government has attempted to make better use of the budget process as an economic policy and management tool. Recurrent expenditure (salaries, wages, overhead, and debt service), however, accounted for 74.4 percent of the budget in 2011, leaving just 25.6 percent for the capital budget (infrastructure). Concerns also exist over the degree of execution of the capital budget (i.e., officials spent only 65 percent of the 2009 capital budget and likely even less of the much larger 2010 and 2011 capital budgets). The government’s failure to execute fully an already limited capital budget constitutes an additional drag on infrastructure investment.

The GON also plans to reform the oil and gas sector in Nigeria. The administration had proposed the Petroleum Industry Bill (PIB), omnibus legislation that would replace the existing 16 oil sector laws with one legal framework with clear rules, procedures, and institutions, to bring about transparency and good governance and reduce corruption. Overall, international oil companies supported this reform effort, but expressed major concerns over specific provisions of the bill that could undermine the sanctity of contracts, threaten profits, and discourage future investment. The previous National Assembly failed to pass the bill. According to some reports, the administration may withdraw the bill and replace it with three or more smaller bills dealing with regulation, revenues, benefits, and other issues. A delay in passage of the bill or its replacement with smaller bills would further delay badly-needed investment in the oil and gas sector, especially the deep offshore.

Freedom of expression and of the press remains broadly-observed, although most publications practice some self-censorship on sensitive issues. Moreover, the country's overall human rights record remains poor.

Nigeria’s Selected Indices and Rankings

The following table indicates Nigeria’s recent ranking according to various metrics of transparency and good governance:

Measure -- Index/Ranking

Transparency International Corruption Index – 143.

Heritage Economic Freedom Index – 111 (World); 18 (Region).

World Bank Doing Business Index – 133.

MCC Govt. Effectiveness – 33%

MCC Rule of Law – 26%

MCC Control of Corruption – 37%

MCC Fiscal Policy – 38%

MCC Trade Policy – 39%

MCC Regulatory Quality – 48%

MCC Business Start-up – 44%

MCC Land Rights Access – 10%

MCC Natural Resources Management – 39%

Openness to Foreign Investment

The GON solicits foreign investment and has implemented various reforms to attract higher levels of investment. Authorities have loosened controls over foreign investment, and repealed or amended military government decrees inhibiting competition or conferring monopoly powers on public enterprises. The GON’s protectionist tradition remains strong despite these actions, resulting in inconsistent trade policy-- liberalizing trade one year and restricting trade the next. The GON also specifically prohibits the importation of some goods, such as cement, to foster domestic production. The GON enacted the Nigerian Content Act (NCA) in 2010 to support domestic production. The NCA requires oil and gas production and service companies to use local resources for the delivery of some goods and services currently sourced from outside the country. Concerns about the NCA include its restrictive trade practices in violation of WTO agreements as well as technology transfer requirements that violate a company’s intellectual property rights. Many local companies established to respond to the greater demand for local goods and services provided for by the NCA have suffered due to lack of new contracts caused by the delayed passage of the Petroleum Industry Bill (PIB). Laws against the re-export of equipment restrict the development of Nigeria as an oil and gas service center for the growing African oil and gas industry.

Legal Framework: The Nigerian Investment Promotion Commission (NIPC) Decree of 1995 allows 100-percent foreign ownership of firms outside the oil and gas sector, where investment stays limited to joint ventures or production-sharing agreements. Laws restrict industries to domestic investors if they are considered crucial to national security, such as firearms, ammunition, and military and paramilitary apparel. Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Decree of 1990. The decree prohibits the nationalization or expropriation of foreign enterprises except in cases of national interest.

Nigerian laws apply equally to domestic and foreign investors. These laws include, the Nigerian Content Act of 2010, Nigerian Minerals and Mining Act of 2007, Nigeria Extractive Industries Transparency Initiative (NEITI) Act of 2007, Central Bank of Nigeria Act of 2007, Electric Power Sector Reform Act of 2005, Money Laundering Act of 2003, Securities and Exchange Act of 1999, Foreign Exchange Act of 1995,Banking and Other Financial Institutions Act of 1991, and National Office of Technology Acquisition and Promotion Act of 1979.

Privatization: The Privatization and Commercialization Act of 1999 established the National Council on Privatization, the policy-making body overseeing the privatization of state-owned enterprises (SOEs), and the Bureau of Public Enterprises (BPE), the implementing agency for the designation privatizations. The BPE has focused on the privatization of key sectors, including telecommunications and power, and calls for core investors to acquire controlling shares in formerly state-owned enterprises. The BPE has raised over four billion dollars since 1999 by privatizing and concessioning more than 140 enterprises, including an aluminum complex, a steel complex, cement manufacturing firms, hotels, a petrochemical plant, aviation cargo handling companies, and vehicle assembly plants. The National Assembly has questioned the propriety of some of these privatizations, with one case related to an aluminum complex recently finding its way to the Supreme Court. The GON established the Infrastructure Concession Regulatory Commission (ICRC) in 2008 to identify greenfield projects for concessioning. Authorities granted the Lagos-Ibadan Expressway, a major highway in the southwestern part of the country, as a concession to Bi-Courtney Highway Services under a Design-Build-Operate-Transfer scheme for 25 years. The GON also plans to use a Public-Private-Partnership Framework for future infrastructure provision.

Passage of the Electric Power Sector Reform Act in 2005 created the Nigerian Electricity Regulatory Commission (NERC), a power regulator with responsibility for tariff regulation and economic and technical regulation of the electricity supply industry. The NERC has issued 34 licenses to Independent Power Producers and began implementing a Multi-Year Tariff Order (MYTO) for the determination of tariffs for electricity generation, transmission, and distribution on July 1, 2008. The Electric Power Sector Reform Act of 2005 provides for the deregulation of the power sector and removal of many major roadblocks to the development of the sector have been removed. The formal power sector reform “road map” establishes: market-based ratemaking; privatization of power plants and electricity distribution companies; the commercialization of the national transmission company; the establishment of a bulk electricity purchaser; a partial risk guarantee in the form of a $500 million sovereign fund; and the creation of the Nigerian Electricity Liability Management Company (NELCOM), which is already taking over the Power Holding Company of Nigeria's (PHCN) stranded assets and liabilities. The government has also released $380 million to cover PHCN liabilities. President Goodluck Jonathan approved establishment of the Nigeria Bulk Electricity Trading Company (NBETCO) on August 16, 2011. NEBTCO, as the prime purchaser of electricity produced by Nigerian power plants, will serve a critical intermediary role in the successful liberalization of the power sector. The country only produces 3,700 megawatts due to a lack of natural gas pipeline infrastructure, diversified power sources, and transmission capacity. The GON seeks to increase production to 14,000 megawatts by 2013 -- an ambitious goal that requires increased private sector participation.

The GON has substantially opened Nigeria's telecommunications sector. The Telecommunications Act of 2001 authorized the Nigerian Communications Commission (NCC) to issue licenses to existing and prospective service providers. Nigeria’s state-owned telecommunications operator, Nigerian Telecommunications Limited’s (NITEL) mobile subsidiary, MTEL, and four private companies, MTN, Airtel, Globacom, and Etisalat, have mobile licenses. Globacom won mobile, fixed, and international gateway licenses as Nigeria's second national telecommunications operator in mid-2002. According to the NCC, the total number of telephone numbers (both mobile and landline) in Nigeria increased from 81.9 million and a teledensity of 58.52 at the end of August 2010 to 93.5 million with a teledensity of 66.76 at the end of September 2011. . The government cancelled licenses for the 2.3 GHz spectrum, awarded through a competitive bidding process in May 2009, due to alleged administrative procedures not adhered to by the NCC. The NCC will initiate a fresh bidding round, with full details expected soon. The government awarded three carriers in the 800 MHz spectrum band to Visafone Communications in a competitive auction process in July 2007 that included Visafone Communications, GiCell Wireless Limited, Multilinks Telecommunication Limited, and TC Africa Telecoms Network Limited. Officials issued four licenses for a 10 MHz lot in the 2 GHz spectrum to Alheri Engineering Company Limited, Celtel Nigeria Limited, Globacom Limited, and MTN Nigeria Communications Limited in March 2007.

The GON made a third attempt at privatizing NITEL and MTEL in February 2010. Both the preferred bidder and the reserve bidder, however, failed to provide the necessary down payments and this privatization attempt failed. The GON has begun considering an alternative method for privatizing NITEL. Such efforts failed in 2001, and again in 2006, when the preferred bidders also failed to provide the necessary down payment or purchase price.

The NCC commenced the unified licensing regime in May 2006, awarding the first batch of unified licenses to four telecommunications service providers. The unified license permits telecommunications companies to offer services across-the-board in telecommunications, including landline, wireless, data services, and so forth. This action marks the end of the five-year exclusivity incentive granted to mobile telephone licensees in 2001. Telecommunications deregulation has led to the issuance of licenses for fixed wireless networks, internet services, and VSAT (very small aperture terminal) satellite telecommunications equipment services. The GON's hefty fees and inadequate power supply, however, slow the impact and implementation of these technologies.

The ICT sector received a boost in 2010 and 2011 when three broad-band cables, from Glo-One, MainOne and the West African Cable System (WACS), landed in Lagos. WACS comprises a consortium of companies led by MTN. Nigeria’s previous broad-band capacity was limited to the SAT-3 cable with 350 gigabits. The Glo-One, MainOne, and WACS cables increased Nigeria’s broad-band capacity by 2.5 terabits, 1.92 terabits, and 5.12 terabits, respectively, bringing total capacity to 9.89 terabits. All three cables provide broad-band data and internet capacity, which will increase the country's Internet density and capacity. Such actions will likely reduce the cost of broad-band to a fraction of the current cost.

The GON has worked to modernize and open the civil aviation sector. The GON, for example, signed the U.S.-Nigeria Air Transport (Open Skies) Agreement in 2000 and a U.S.-Nigeria Air Marshals Memorandum of Understanding in April 2010, authorizing the introduction of U.S. Air Marshals on U.S. flights to and from Nigeria. Shortly thereafter, the Nigerian Civil Aviation Authority earned U.S. Federal Aviation Administration Category 1 flight safety status in August 2010. This designation allowed qualified domestic airlines (to date, only Arik) to operate their own flights between Nigeria and the United States. Finally, the Ministry of Aviation authorized additional U.S. airlines to operate new routes between the U.S. and Nigeria. As a result of these developments, direct flights now connect air travelers from New York, Houston and Atlanta to Lagos and from New York to Abuja via Accra. Such increased routes should facilitate increased trade, investment, and tourism in 2012 and beyond.

Conversion and Transfer Policies

The Foreign Exchange Monitoring Decree of 1995 opened Nigeria's foreign exchange market. Nigeria adopted a Wholesale Dutch Auction System (WDAS) in February 2006, in accordance with its plan to liberalize the foreign exchange market. The WDAS provides greater control of the foreign exchange market, although the Central Bank still retains its supervisory role over the market.

Foreign companies and individuals can hold non-naira-denominated accounts in domestic banks. Account holders have unlimited use of these funds, and foreign investors may repatriate capital without restrictions. Authorities have established a $4,000 quarterly Personal Travel Allowance for foreign exchange and a $5,000 quarterly Business Travel Allowance per individual for naira-denominated accounts. Commercial banks usually issue foreign exchange for travel in cash, while some authorized dealers also issue pre-paid credit cards for use at Automatic Teller Machine (ATM) terminals worldwide. Purchase of foreign exchange for business purposes, such as for importing equipment and raw materials, and for paying school fees abroad, must be routed through banks, Nigeria’s only licensed foreign exchange agents. Such transactions can only occur with proper documentation, such as filling out the "Form M" and presenting copies of the certificate of incorporation of the company.

The NIPC guarantees investors unrestricted transfer of dividends abroad (net a 10-percent withholding tax). Companies must provide evidence of income earned and taxes paid before receiving remittances from Nigeria. Money transfers usually take no more than 48 hours, if individuals provide the necessary documentation. All transfers must occur through banks.

Expropriation and Compensation

The GON has not expropriated or nationalized foreign assets since the late 1970s. A U.S.-owned waste management investment expropriated by Abia State involves the only known U.S. expropriation case in Nigeria.

Dispute Settlement

Investment Disputes: Nigeria's civil courts handle disputes between foreign investors and the GON as well as between foreign investors and Nigerian businesses. The courts occasionally rule against the GON. Plaintiffs in these cases, however, do not always pay settlements expeditiously. Nigerian law allows the enforcement of foreign judgments after proper hearings in Nigerian courts. Plaintiffs receive monetary judgments in the currency specified in their claims. A U.S. supplier of fuel for the Nigeria Airways state airline, which went into liquidation in 1997, received full payment for its share of the liquidated assets in August 2010. The Nigerian legal system took a long time to resolve this case, but the U.S. supplier came away satisfied with the outcome.

Legal System: Nigeria has a complex, three-tiered legal system composed of English common law, Islamic law, and Nigerian customary law. "Common law" governs most business transactions, as modified by statutes to meet local demands and conditions. The Supreme Court sits at the pinnacle of the judicial system and has original and appellate jurisdiction in specific constitutional, civil, and criminal matters as prescribed by Nigeria's constitution. The Federal High Court has jurisdiction over revenue matters, admiralty law, banking, foreign exchange, other currency and monetary or fiscal matters, and lawsuits to which the federal government or any of its agencies are party. The Nigerian court system does not have enough court facilities, lacks computerized document-processing systems, and poorly remunerates judges and other court officials, all of which encourages corruption and undermines enforcement. Debtors and creditors rarely have recourse to Nigeria's pre-independence bankruptcy law. Entrepreneurs generally do not seek bankruptcy protection in Nigeria’s business culture. Claims often go unpaid, even in cases where creditors obtain judgments against defendants.

The public increasingly resorts to the court system and has become more willing to litigate and seek redress. Use of the courts, however, does not automatically imply fair or impartial judgments. The World Bank's publication, Doing Business 2012, which surveyed 183 countries, ranked Nigeria 97 out of 183 countries on the enforcement of contracts, compared with its 2011 ranking of 98 out of 183 countries surveyed. In addition, the report revealed that contract enforcement required 40 procedures spanning an average of 457 days averaging 32 percent of the value of the contract. This situation compared with 31 procedures spanning an average of 518 days and averaging 19.7 percent of the cost of the contract in OECD countries and 39 procedures spanning an average of 655 days and averaging 50 percent of the contract in sub-Saharan countries.

Alternative Dispute Resolution: The Arbitration and Conciliation Act of 1988 provides for a unified and straightforward legal framework for the fair and efficient settlement of commercial disputes by arbitration and conciliation. The Act created internationally competitive arbitration mechanisms, established proceeding schedules, provided for the application of the UNCITRAL (United Nations Commission on International Trade Law) arbitration rules or any other international arbitration rule acceptable to the parties, and made the Convention on the Recognition and Enforcement of Arbitral Awards (New York Convention) applicable to contract enforcement, based on reciprocity. The Act allows parties to challenge arbitrators, provides that an arbitration tribunal shall ensure that the parties receive equal treatment, and ensures that each party has full opportunity to present its case.

Performance Requirements/Incentives

Nigeria regulates investment in line with the World Trade Organization's Trade-Related Investment Measures (TRIMS) Agreement. Foreign companies operate successfully in Nigeria's service sector, including telecommunications, accounting, insurance, banking, and advertising. The Securities and Exchange Act of 1988, amended and renamed the Investment and Securities Act in 1999, forbids monopolies, insider trading, and unfair practices in securities dealings.

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 deepwater oilfield divers. U.S. companies often report problems obtaining quota permits. The Domestic Content Act of 2009 (DCA) restricts the number of expatriate managers to five percent of the total number of personnel for companies in the oil and gas sector.

The GON maintains many 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. 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 incentives exist for the natural gas sector, including allowances for capital investments and tax-deductible interest on loans. The GON encourages foreign investment in agriculture, mining and mineral extraction (non-oil), oil and gas, and the export sector. In practice, these incentive programs meet with varying degrees of success.

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. As mentioned earlier, the recently-passed Domestic Content Act of 2010 (DCA) has technology-transfer requirements that appear to violate a company’s intellectual property rights.

NOTAP has shifted its focus from regulatory control and technology transfer to technological promotion and development. With the assistance of the World Intellectual Property Organization (WIPO), NOTAP has established a patent information and documentation center for the dissemination of technological information to end-users. The center has a mandate to commercialize institutional research and development with industry.

Import Policies: Import tariffs provide the GON its second largest, although much less significant, source of revenue after oil and gas exports. The GON issued the 2008-2012 Common External Tariff (CET) Book in September 2008. The CET harmonizes Nigeria’s tariffs with its West African neighbors under the Economic Community of West African States (ECOWAS) CET. The 2008 – 2012 CET established five tariff bands that include: 1) zero duty on capital goods, machinery, and essential drugs not produced locally; 2) 5 percent on imported raw materials; 3) 10 percent on intermediate goods; 4) 20 percent on finished goods; and 5) 35 percent on goods in certain sectors. Authorities reduced import duties on various items, including rice, cigars, and manufactured tobacco. A November 2010 review of the import prohibition list resulted in the removal of textiles, toothpicks, and cassava from the import prohibition list. The age limit on imported used vehicles also increased from 10 years to 15 years. Items that remain banned include: frozen poultry; pork; beef; pasta; fruit juice in retail packs; soaps and detergents; refined vegetable oil; beer; non-alcoholic beverages; and plastics. Nigeria uses non-tariff measures to achieve self-sufficiency in certain commodities under its "backward integration" program. The government used this strategy in cement production and plans to use it in other identified commodities, such as rice and sugar. President Jonathan mentioned at a September 5, 2011, event that “policies being prepared by the Economic Management Team will have tenure of five years so that investors can plan for the long-term. For instance, only those who are in large-scale rice or sugar production will be allowed to import rice or sugar on a quota to be determined by appropriate authorities similar to the current policy in the cement sector.” President Jonathan announced several new tariff measures during the December 13, 2011 presentation of the proposed 2012 Budget to the National Assembly. These include: a ban on imported cassava flour as of March 31, 2012; the imposition of a 65 percent levy on imported wheat flour and an increase to a 15 percent levy on imported wheat grain as of July 1, 2012; a rise to a 30 percent levy on imported brown rice as of July 1, 2012; and an increase to a 50 percent levy on imported polished (milled) rice as of 1 July 2012, with a final escalation to 100 percent on December 31, 2012.

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. Many importers under-invoice shipments to minimize tariffs and lower their landed costs. Others ship their goods to ports in neighboring countries, such as Benin and Togo, after which they are transported overland and smuggled 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. Authorities announced guidelines for the scheme in 2006, and three companies each received seven-year contracts to act as inspection agents at Nigeria's seaports, border posts, and airports. The companies include Cotecna, SGS, and Global Scan. The exclusive contract will expire at the end of 2012, when NCS officials would have completed training on the new scheme and handling of the necessary scanning machines, to be handed over to the NCS at the expiration of the contract.

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 the stated goal of 48-hour cargo clearance, particularly at Lagos' Apapa Port, which handles over 40 percent of Nigeria's legal trade. Nevertheless, bribery of customs and port officials remains common, and smuggled goods routinely enter Nigeria's seaports and cross its land borders. Efficient functioning of concessioned container terminals has significantly reduced container ship wait times, but the final release of containers still can take four weeks or longer due to delays in NCS container-processing and clearing. Dr. Ngozi Okonjo-Iweala, the newly-appointed Minister of Finance, ordered in October 2011 that eight agencies, including the National Agency for Food and Drug Administration and Control (NAFDAC) and the Standards Organization of Nigeria (SON), should vacate the ports within two months to facilitate easier and faster goods clearance. Dr. Okonjo-Iweala described her aim as reducing the cost of doing business in the Nigerian ports by reducing the current number of agencies in the ports from fourteen to six. Some of the banned agencies continued to resist their expulsion from the ports, as of the end of 2011.

Export Incentives: The GON has abolished most export incentives. The Nigerian Export Promotion Council, however, continues to implement the Export Expansion Grant (EEG) scheme to improve non-oil export performance. The Nigerian Export-Import (NEXIM) Bank provides commercial bank guarantees and direct lending to facilitate export sector growth, although these practices 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. The vast majority of Nigeria’s manufacturers remain unable to compete in the international market. Many of these are also unable to compete with low cost imports coming from Asia, especially China. The Dangote Cement Company will likely become a major recipient of the EEG as soon as it completes its domestic capital-expansion projects and implements its plan to export large volumes of domestically-manufactured cement to ECOWAS countries.

Government Procurement: The GON awards contracts under an open-tender system, advertising tenders in Nigerian newspapers and a “tenders” journal, and opening the tenders to domestic and foreign companies. Procurement has become slightly more transparent, but corruption persists in the awarding of government contracts. Procurement for capital projects often suffers from over-invoicing, which permits improper payments or "kick-backs" to private and public sector officials. Many U.S. companies claim they remain disadvantaged in obtaining GON contracts, even when they appear to have submitted the best bids in technical and financial terms. Unsuccessful U.S. bidders sometimes allege collusion between foreign competitors and key GON officials.

The Public Procurement Law of 2007 established the Bureau of Public Procurement (BPP) as the successor agency to the Budget Monitoring and Price Intelligence Unit (BMPIU). The BPP acts as a clearinghouse for government contracts and procurement and monitors the implementation of projects to ensure compliance with contract terms and budgetary restrictions. Procurements above 50 million naira (about $322,580) undergo full "due process," as the process is called. Some of the 36 states of the federation have also passed public procurement legislation.

Visa Requirements: 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 $1,000 to $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 the point of entry into Nigeria.

Right to Private Ownership and Establishment

The GON supports competitive business practices and protects private property in accordance with the NIPC Decree of 1995.

Protection of Property Rights

The GON recognizes secured interests in property, such as mortgages. The recording of security instruments and their enforcement remain subject to the same inefficiencies as those in the judicial system. In the World Bank publication, Doing Business 2012, Nigeria ranked 180 out of the 183 countries surveyed for registering property, requiring averages of 13 procedures over 82 days at a cost of 20.8 percent of the property value. According to the report, property registration in OECD countries required averages of five procedures over 31 days at a cost of 4.4 percent of property values, while in sub-Saharan African countries this process required averages of 6 procedures over 65 days at a cost of 9.4 percent of property value.

Fee simple property rights remain rare. Owners transfer most property through long-term leases, with certificates of occupancy acting as title deeds. Property transfers are complex and must usually go through state governors' offices. In Abuja, the Federal Capital Territory government cancelled and began a process of reregistering all property allotments, refusing to renew those it deemed not to comply with the city's master plan. Authorities have often compelled owners to demolish buildings on such property allotments, including government buildings, commercial buildings, residences, and churches,, even in the face of court injunctions. Therefore, acquiring and maintaining rights to real property have become major challenges.

Nigeria is a member of WIPO and a signatory to the Universal Copyright Convention, the Berne Convention, and the Paris Convention (Lisbon text). The Patents and Design Decree of 1970 governs the registration of patents, and the Registry of Trademarks, Patents, and Designs in the Ministry of Commerce and Industry registers patents, trademarks, and designs. Once conferred, a patent conveys exclusive rights to make, import, sell, or use a product or apply a process. The Trademarks Act of 1965 gives trademark holders exclusive rights to use registered trademarks for a specific product or class of products. The Copyright Act of 2004 is based on WIPO standards and U.S. copyright law, and makes it a crime to export, import, reproduce, exhibit, perform, or sell any work without the permission of the copyright owner. However, copyright owners do not register their works under the Copyright Act. Rather, they notify the Nigerian Copyright Commission (NCC). Nigeria's copyright statutes also include the National Film and Video Censors Board Act and the Nigerian Film Policy Law of 1993.

The Copyright Act incorporates trade-related aspects of intellectual property rights (TRIPS) protection for copyrights, except provisions to protect geographical indications and undisclosed business information. Confusion exists among the various GON agencies regarding proposed legislation expected to put all intellectual property agencies under a single and uniform authority. Concomitantly, the National Assembly has under consideration a private bill that would establish an Industrial Property Commission. This private bill would amend the Patents and Design Decree of 1970 to make comprehensive provisions for the registration and proprietorship of patents and designs, amend the Trademarks Act of 1965 to improve existing legislation relating to the recording, publishing, and enforcement of trademarks, and provide protection for plant varieties (including biotechnology) and animal breeds. The Ministry of Commerce and Industry and the Ministry of Justice, however, plan to send similar, competing bills to the National Assembly for consideration. This competition has lasted since at least 2006. The GON has signed the WIPO Internet treaties but has yet to ratify them. The Nigerian Copyright Commission (NCC), however, claims to have already implemented the terms of the treaties.

Patent and trademark enforcement remains weak, and judicial procedures as well as application of enforcement measures suffer from delays and corruption. Relevant Nigerian institutions lack training and resources. A key deficiency involves inadequate appreciation of the benefits of IPR protection among regulatory officials, distributor networks, and consumers. Over-stretched and under-trained Nigerian police possess little understanding of intellectual property rights. The tariff policy released in September 2008 empowers the Nigerian Customs Service (NCS) to seize pirated works and prosecute offenders. The NCS has received some WIPO-sponsored and USG-sponsored training, but admits that the technical capacity of its officers needs further enhancement to combat piracy effectively.

Companies do not often seek trademark or patent protection, because they consider the enforcement mechanisms as ineffective. Nonetheless, recent efforts to curtail abuse have yielded some results. The Nigerian Police and the NCC raided the notorious Alaba International Market in Lagos in early 2010 and arrested suspected high-profile music and video pirate Tony Onwujekwe, who currently remains under trial on a three-count charge bordering on large-scale piracy of several musical and audio-visual works belonging to different local and international right owners. Various businesses have also filed high-profile charges against other IPR violators. Most raids involving copyright, patent, or trademark infringement appear to target small, rather than large and well-connected, pirates. Authorities have successfully prosecuted few cases, with most cases settled out of court, if at all. The Federal High Court, whose judges have become generally familiar with intellectual property rights law, primarily handles those cases adjudicated in court. A U.S. hotel management company filed a suit against a local company using its trademark in January 1999. After many adjournments, the court granted judgment in the U.S. company’s favor in August 2001. Since then, the infringing hotel has filed several rounds of appeal, all of which the courts have dismissed, including the most recent appeal of March 2008. The courts, however, have not set a deadline for the defendants to file a proper motion. So, the appeal remains alive with no end in sight. After over a decade of litigation, the U.S. company does not believe it has an effective remedy for its case. A U.S. company worked with Nigerian authorities to conduct several raids and seize counterfeit products in 2009. Police arrested and interrogated the counterfeiters but eventually released both the counterfeiters and the seized products. The police also tried to arrest the U.S. company’s investigator for wrongfully raiding the counterfeiters and seizing the counterfeit products. The U.S. company has identified two additional counterfeiters and would like to take enforcement actions but cannot do so, due to the danger posed to its investigators and legal representatives. This company has requested U.S. assistance in preventing the illegal action against its representatives and regaining the ability to enforce its trademark in Nigeria.

Transparency of the Regulatory System

Nigeria's legal, accounting, and regulatory systems comply with international norms, but enforcement remains uneven. Opportunities for public comment and input into proposed regulations sometimes occur. Professional organizations set standards for the provision of professional services, e.g., accounting, law, medicine, engineering, and advertising. These standards usually comply with international norms. No legal barriers prevent entry into this sector.

Taxation: Nigeria’s tax laws generally do not impede investment, but the imposition and administration of taxes remains uneven and lacks transparency. Tax evasion commonly occurs, with individuals and businesses often colluding with relevant officials to avoid paying taxes. Nigeria has signed double taxation agreements with several countries, including the United Kingdom, France, the Philippines and Japan. The GON imposes a 7.5-percent tax rate on dividends, interest, rent, and royalties when such benefits are paid to a bona-fide beneficiary under a tax treaty. Multiple taxes remain a problem for businesses at state and local levels, with companies within concurrent state and local jurisdictions expected to pay several taxes and levies.

Efficient Capital Markets and Portfolio Investment

The NIPC Decree of 1995 liberalized Nigeria's foreign investment regime, which has facilitated access to credit from domestic financial institutions. Foreign investors who have incorporated their companies in Nigeria have equal access to all financial instruments. Some investors consider the capital market, specifically the Nigerian Stock Exchange (NSE), a financing option, given commercial banks’ high interest rates and the short maturities of local debt instruments.

Trading on the NSE has witnessed significant declines in value since March 2008 due to many factors, including the freeze on margin loans by local banks, sale of large quantities of shares by bank debtors to pay back margin loans, and exit of foreign portfolio investors and hedge funds due to the global economic crisis and, more recently, and the ongoing EU crisis. Market capitalization opened at about eight trillion naira (about $52.6 billion) at the beginning of 2011, but closed at about seven trillion naira (about $46.05 billion) on December 31, 2011. The NSE All Shares Index opened 2011 at about 24,770 points but fell to 20,730 points on December 31, 2011. The NSE operates nine branches nationwide, and the volume of shares listed continues to rise due to new companies listing their shares on the NSE. The listing of Dangote Cement Company in 2010, introduction of the contributory pension system in late 2005, GON divestment of equity in parastatal companies, and initial public offerings (IPOs) and issuances of additional shares by listed companies have contributed to the NSE's overall growth during the last several years. The NSE continues to expand its membership and investor pool. Currently, the exchange lists 262 securities, comprising 11 government stocks; 49 industrial loan stocks (debenture/preference); and 194 equity/ordinary shares of companies. The GON and the National Assembly have under consideration a proposal that would require oil and gas and telecommunications companies to list their shares on the NSE as a way to encourage greater corporate participation and sectoral balance in the NSE.

The Government employs debt instruments, with the GON issuing bonds of various maturities ranging from two to 20 years since the return to civilian rule in 1999. The GON has issued bonds to restructure the GON domestic debt portfolio from short-term to medium- and long-term instruments. Investors have shown renewed interest in bonds since the decline in the equities market in March 2008. Some state governments have issued bonds to finance development projects; while some domestic banks have used the bond market to raise additional capital. Some companies have begun considering the issuance of bonds. The Nigerian Securities and Exchange Commission (SEC) has issued stringent guidelines for states wishing to raise funds on capital markets, such as requiring credit assessments conducted by recognized credit rating agencies. The SEC recognizes two credit rating agencies: Agusto and Company, and Global Credit Rating (GCR) of South Africa. The GON successfully issued its maiden $500-million, 10-Year Eurobond on January 21, 2010. The bond became 250-percent subscribed, with investors staking over $1.25 billion. Investors from 18 countries spanning Europe, the United States, Asia, and Africa took up the offer.

Banking System: Twenty-four commercial banks operated in Nigeria, as of December 31, 2011. The recapitalization exercise arising from the special audit of the banking system in 2009 by the Central Bank of Nigeria (CBN) ended on September 30, 2011. Authorities nationalized and renamed three banks at the end of the recapitalization deadline, including Enterprise Bank Limited (formerly Spring Bank Plc); Keystone Bank Limited (formerly Bank PHB Plc); and MainStreet Bank Limited (formerly Afribank Plc). Healthier banks also acquired four other weak banks including Oceanic Bank Plc (acquired by Ecobank Nigeria Plc); Intercontinental Bank Plc (acquired by Access Bank Plc); and FinBank Plc (acquired by First City Monument Bank Plc); and Equitorial Trust Bank Limited (acquired by Sterling Bank Plc). Completion of these mergers would likely lead to a reduced number of commercial banks. Authorities also planned to allow non-interest banking, with the CBN issuing two Approvals-In-Principle to Jaiz Bank International Plc and Stanbic IBTC Plc to establish Islamic banking operations in Nigeria. As a result of the CBN’s 2009 special audit, eight banks had to replace their executive managers, while two additional banks had to raise additional capital. The CBN also provided 620 billion naira (about $4.1 billion) in long-term loans to the eight banks to boost their liquidity. The CBN audit gave the remaining 14 banks a "clean bill of health," though they had to make further provisions for non-performing loans granted to refined petroleum product importers and capital market operators. Some banks published their 2009 financial results in line with the CBN’s new directive to make full provision for bad loans, showing a loss position. Most of the same banks returned to profitability in 2010. The positive results of some banks in 2010 may be the result of loan loss recoveries.

Competition from State-Owned Enterprises (SOEs)

The Government has privatized most State-Owned Enterprises (SOEs) to make them more efficient. The remaining SOEs produce major drains on government finances. The state-owned telecommunications company, NITEL, and its mobile subsidiary, MTEL, have lost considerable market share due to lack of investment and the market entry of privately owned competitors. The GON has sought to privatize both NITEL and MTEL. The four state-owned oil refineries in Port-Harcourt, Warri, and Kaduna operate far below their original installed capacity. The GON sold the Port-Harcourt and Kaduna refineries to a private consortium during the Obasanjo administration, but then President Umaru Musa Yar'Adua later reversed the transaction. The GON’s subsequent management of the refineries has been poor. There is an ongoing drive to encourage private investment in refineries and, in a bid to attract such investment, the GON says it plans to deregulate the downstream sector fully and allow market forces to determine prices of refined petroleum products. Deregulation of gasoline prices, which would be politically sensitive, could occur in 2012. In another effort to attract investment, the GON abolished the one- million-dollar non-refundable deposit requirement for investors applying to build refineries. The GON also seeks to attract private investment in the railway sector through establishment of public-private partnerships (PPPs).

Sovereign Wealth Fund: The National Assembly approved the Sovereign Investment Authority legislation in 2011 to establish a Sovereign Wealth Fund (SWF) to replace the ECA. Some state governors, however, have opposed the SWF, arguing that the fund violated the Constitution in the way that it handles funds previously allocated to the states. This dispute has delayed the formal placement of excess oil revenues into the SWF.

Corporate Social Responsibility

Both local and foreign enterprises generally follow Corporate Social Responsibility (CSR) principles as a way to identify with the communities in which they operate and display support for GON initiatives. Generally, communities favorably view firms that pursue CSR.

Political Violence

Social unrest, ethnic and religious strife, violent crime, kidnapping, and terrorism affect many parts of Nigeria. Decades of neglect, persistent poverty, and environmental damage caused by the oil and gas industry have aggravated unrest in the oil-rich Niger Delta. Sabotage and vandalism of pipelines and other installations and kidnapping of Nigerian and expatriate oil workers have become regular occurrences. Unidentified assailants kidnapped two U.S. nationals and one other expatriate from an offshore supply vessel the Gulf of Guinea 70 nautical miles south of Bonny Island on November 17, 2011. All the hostages gained release, following negotiations between representatives of the companies involved and the kidnappers. Authorities had yet to make any arrests. Unidentified assailants raided an off-shore oil platform in November, 2010, abducting two U.S. nationals and five other expatriates, along with seven Nigerians. Attackers shot a third U.S. citizen in the leg and left him on the oil platform. All the hostages gained release following negotiations between the GON and the kidnappers. In this case, authorities arrested the kidnappers. President Yar'Adua’s unconditional amnesty for Niger Delta militants in 2009 induced all major militant leaders to put down their arms and join a political reconciliation process. The subsequent rehabilitation and reintegration process for former militants has begun, but the promised massive investment in infrastructure and development in the region has only slowly materialized.

The Niger Delta Development Commission (NDDC) has a mandate to implement social and economic development projects in the Delta region, but the NDDC has proven largely ineffective. State and local governments offer few social services and Niger Delta residents continue to seek direct payments and other assistance from oil companies, who cannot meet demand. Some oil companies have implemented their own socio-economic development programs to assist local communities, but many communities consider the company programs inadequate. In 2009, the GON established the Ministry for the Niger Delta to oversee development projects in the region. The proposed PIB also would provide for 10 percent of the annual revenues from the new Incorporated Joint Ventures (IJVs) to be allocated to local communities where oil and gas fields and installations exist. Such a development could help provide the resources needed for local social and economic development.

Violent clashes between police and militant members of an Islamic sect, Boko Haram (Hausa for “Western Education Is Anathema”), resulted in over 700 reported deaths and 4,000 people displaced in four northern states between July 26 and 29, 2009. The formal name of Boko Haram is Jama'atu Ahlis Sunna Lidda'awati wal-Jihad (Arabic for "People Committed to the Propagation of the Prophet's Teachings and Jihad.” The violence began when Boko Haram followers attacked a police station in retaliation for the arrest of several of the group’s leaders. Violence quickly spread, and the police and military allegedly used excessive force, including the alleged extrajudicial execution by police of the Boko Haram leader. Boko Haram members raided a prison in Bauchi in September 2010, killing five members of the security forces and freeing over 750 inmates, including many of their imprisoned comrades. Boko Haram members have engaged in a campaign of targeted violence in Northern and Middle-belt states since mid-2010, with the assassinations of political leaders, their family members, and members of the police, as well as suspected informants. Sect members also robbed banks and burned churches throughout the same region.

Political violence often erupts during Nigerian elections. Some candidates hire young people to engage in violent acts, including intimidation of their opponents’ supporters or of voters believed to support opponents. Violence can also occur during the polling process, with stolen ballot boxes and clashes at or near polling stations. The murder of political opponents and the kidnapping of family members of political opponents have also taken place.


Domestic and foreign observers recognize corruption as a serious obstacle to economic growth and poverty reduction. Nigeria scored 2.4 out of 10 for the last two years, in Transparency International’s 2011 Corruption Perception Index (CPI), placing it in the lowest third of the 183 countries ranked. The Economic and Financial Crimes Commission (EFCC) Establishment Act of 2004 established the EFCC to prosecute individuals involved in financial crimes and other acts of economic “sabotage.” The EFCC has encountered the most success in prosecuting low-level Internet scam operators. Some high-profile convictions have taken place, such as a former governor of Bayelsa State, a former Inspector General of Police, and a former Chair of the Board of the Nigerian Port Authority. However, many other cases languish in the courts without resolution. Concerns about the EFCC’s commitment grew after Farida Waziri became EFCC Chair in December 2007 and the GON redeployed some experienced personnel in July 2008. In November 2011, President Goodluck Jonathan sacked Farida Waziri, replacing her on with EFCC Director of Operations Ibrahim Lamorde. Lamorde, who had worked for the EFCC under previous Chair Nuhu Ribadu, has a reputation for diligence and a no-nonsense attitude.

The Corrupt Practices and Other Related Offences Act of 2001 established an Independent Corrupt Practices and Other Related Offences Commission (ICPC) to prosecute individuals, government officials, and businesses for corruption. The Act punishes over 19 offenses, including accepting or giving bribes, fraudulent acquisition of property, and concealment of fraud. Nigerian law stipulates that giving and receiving bribes constitute criminal offences and, as such, are not tax deductible. ICPC investigations have resulted in less than 14 convictions since 2001. At the end of 2011, President Jonathan continued his search for a new Chair of the ICPC. Many insiders have pressed for a more aggressive approach by the agency.

Nigeria gained admittance into the Egmont Group of Financial Intelligence Units (FIUs) in May 2007. The Paris-based Financial Action Task Force removed Nigeria from its list of Non-Cooperative Countries and Territories in June 2006. The Nigeria Extractive Industries Transparency Initiative (NEITI) Act of 2007 provided for the establishment of the NEITI organization, charged with responsibility to develop a framework for transparency and accountability in the reporting and disclosure by all extractive industry companies of revenue due to or paid to the GON. NEITI is a member of the international Extractive Industries Transparency Initiative (EITI), which provides a global standard for revenue transparency for extractive industries like oil and gas and mining.

Bilateral Investment Agreements

Investment Agreements: The GON signed a Trade and Investment Framework Agreement (TIFA) with the United States in 2000. A bilateral investment treaty (BIT) with the U.S. is not yet in place, but the GON has expressed interest in negotiating one. Nigeria has bilateral investment agreements with Algeria, Bulgaria, China, Egypt, France, Finland, Germany, Italy, Jamaica, Montenegro, The Netherlands, North Korea, Romania, Serbia, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Turkey, Uganda, and The United Kingdom. Only four of these treaties (those with France, The Netherlands, South Korea, and The United Kingdom) have been ratified by both parties. GON officials blame treaty partners for the lack of ratification, but the ratification process within the GON has not proven proactive or well-organized.

OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation offers all its products to U.S. investors in Nigeria.


Nigeria's skilled labor pool has declined over the past decade as vocational and university educational standards have fallen, mainly because of poor funding and repeated and prolonged university strikes, as employment opportunities in the formal sector have stagnated, and as educated Nigerians have left for employment in other countries, such as the United Kingdom, the United States, and South Africa. The low employment capacity of Nigeria's formal sector means that almost three-quarters of all Nigerians work in the informal and agricultural sectors or are unemployed. Companies involved in formal sector businesses such as banking and insurance possess an adequately skilled workforce (often trained abroad in private institutions or at the better-funded universities). Manufacturing sector workers often require additional training and supervision, but too few supervisory personnel exist to ensure that this is done well. The result is that while individual wages are low, individual productivity is low and overall labor costs are high. Labor-management relations have encountered strains in some sectors, especially in the profitable oil and gas and public education sectors.

The Right of Association: Nigeria's constitution guarantees the rights of free assembly and association and protects workers' rights to form or belong to trade unions. Several statutory laws, nonetheless, restrict the rights of workers to associate or disassociate with labor organizations. The Trade Union Amendment Act of 2005 allowed non-management senior staff to join unions. The Act also gave the Trade Union Congress of Nigeria (TUC) and the Nigeria Labor Congress (NLC), Nigeria’s most influential organized labor federations, representation on Nigeria’s National Labor Advisory Council (NLAC), which advises the Minister of Labor and Productivity on labor matters.

Nigeria's largest labor federation, the NLC, contains 37 industrial unions, while the second largest, the TUC, includes 18. According to figures provided by the Ministry of Labor and Productivity, total union membership at the end of 2010 was approximately 7 million. About 30 percent of the total work force remains unionized in both the private and public formal sectors. Workers in the agricultural sector, which employs over half the work force, are not organized.

Collective Bargaining: Collective bargaining occurred throughout the public sector and the organized private sector in 2011. However, public sector employees have become increasingly concerned about the GON and state governments’ failure to honor previous agreements from the collective bargaining process. According to the NLC and TUC, the GON's failure to honor agreements threatens to "devalue the enviable record of dialogue, consultation, and mutual trust that has characterized the relationship between the GON and labor unions since 1999." In May 2011, President Jonathan signed legislation amending the Minimum Wage Act to raise the minimum wage to 18,000 naira (about $120) per month. The Act only covers employers with more than fifty workers. Some state governors have delayed implementation of the Act citing its budget implications, and unions have threatened strikes.

Collective bargaining in the oil and gas industry is relatively efficient compared to other sectors. Issues pertaining to salaries, benefits, health and safety, and working conditions tend to be resolved quickly through negotiations. One exception is a long-standing, unresolved dispute over the industry's use of contract labor. The Ministry of Labor and Productivity in May of 2011 issued its “Guidelines on Labor Administration Issues in Contract Staffing/Outsourcing in the Oil and Gas Sector.” The guidelines resulted from tripartite negotiations and affirmed the rights of contract laborers to belong to unions. Organized labor's efforts in the oil and gas, construction, telecommunications, and banking sectors to address broad political issues have resulted in industrial actions, such as brief general strikes over the minimum wage. These strikes continue to affect industry productivity. The National Industrial Court (NIC) estimated that 564,000 person-days were lost to strikes in 2009.

Workers under collective bargaining agreements cannot participate in strikes unless their unions comply with the requirements of the law, which includes provisions for mandatory mediation and referral of disputes to the GON. The law provides the GON the option of referring matters to a labor conciliator, an arbitration panel, a board of inquiry, or the NIC. The law forbids employers from granting general wage increases to workers without prior government approval, but the law is not often enforced. Strikes occur frequently in both the private and public sectors. More than a dozen threatened or actual strikes occurred among unions in the education, health, government, entertainment, and transportation sectors in 2010. University professors have been on strike for months in some states and doctors in Lagos state successfully struck for higher wages in late 2010.

The Nigerian Minister of Labor and Productivity may refer unresolved disputes to the Industrial Arbitration Panel (IAP) and the NIC. Union officials question the effectiveness and independence of the NIC in view of its refusal to resolve disputes stemming from GON failure to fulfill contract provisions for public sector employees. Union leaders criticize the arbitration system's dependence on the Minister of Labor and Productivity’s referrals to the IAP.

Child Labor: Nigeria has ratified the International Labor Organization (ILO) Convention on the Elimination of the Worst Forms of Child Labor. The Labor Act of 1974 and the 1999 Constitution prohibit forced or compulsory labor of children and restrict the employment of children under the age of 15 to home-based agricultural or domestic work for no more than eight hours per day. The Labor Act of 1974 allows the apprenticeship of youths above the age of 12 under specific conditions. However, Nigeria's poor distribution of income has forced many children into commercial activities to enhance family income. The Labor Act of 1974 sets a general minimum age of above 12 years of age for employment, but does not protect children from exploitation in the workplace and is not effectively enforced by the government. The Labor Act of 1974 mandates that children under the age of fifteen who work shall reside with their parents or guardians. The Act also restricts children under the age of fifteen from employment in industrial work. Child labor remained widespread in practice, however. The Ministry of Labor and Productivity and the National Agency for the Prohibition of Traffic in Persons (NAPTIP) recently estimated that almost 16 million children have become involved in child labor. The Ministry of Education estimated in 2010 that 9.5 million "almajiri" children (itinerant children under Koranic instruction, with many involved in street begging) in the northern part of the country. The federal government passed the Child Rights Act of 2003, with ratification left up to each state government. Only 24 of the 36 states passed a version of the Child Rights Act of 2003 establishing laws providing the protection of children's rights as of the end of 2011. The 2005 UNICEF State of the World’s Children report estimated that 39 percent of children aged five to 14 in Nigeria had become involved in child labor (not necessarily exploitative). Similarly, a 2003 study conducted by the Nigerian National Bureau of Statistics in conjunction with the ILO estimated that as many as 15 million children worked in Nigeria, with as many as 40 percent of them at risk of being trafficked for forced labor. The situation does not appear to have improved since the bureau produced those estimates.

The Ministry of Labor and Productivity deals specifically with child labor problems and operates an inspections department to enforce legal provisions on conditions of work and protection of workers. The Ministry of Labor and Productivity Inspections Department conducted over 150 child labor inspections and 50 full investigations with 408 officers in 2009. The Inspections Department employed nearly 150 inspectors for all business sectors for the entire country. Labor inspections mostly occurred randomly, but occasionally took place when there was suspicion of, rather than actual complaints of, illegal activity. Prosecutions for labor law violations, including use of child labor, remained rare. Monetary penalties under the Labor Act of 1974 have become out of date, with fines for some violations limited to less than one U.S. dollar.

Acceptable Conditions of Work: Nigeria's Labor Act of 1974 provides for a 40-hour work week, two to four weeks of annual leave, and overtime and holiday pay for all workers except agricultural and domestic workers. No law prohibits compulsory overtime. The Act establishes general health and safety provisions, some of which specifically apply to young or female workers, and requires the Ministry of Labor and Productivity’s Factory Division to inspect factories for compliance with health and safety standards. Under-funding and limited resources undermine the Factory Division’s oversight capacity, and construction sites and other non-factory work sites are often ignored. Nigeria's labor law requires employers to compensate injured workers and dependent survivors of workers killed in industrial accidents. The National Assembly enacted in 2010 a new national Workers Compensation Law, which awaits implementation.

Foreign Trade Zones/Free Trade Zones

The GON established the Nigerian Export Processing Zone Authority (NEPZA) in 1992 to attract export-oriented investment. NEPZA allows duty-free import of all equipment and raw materials into its export processing zones. Up to 25 percent of production in an export processing zone may be sold domestically upon payment of applicable duties. Investors in the zones are exempt from foreign exchange regulations and taxes and may freely repatriate capital. Only two export processing zones established under NEPZA, those in Calabar and Onne, function properly. In 2001, authorities converted both into free trade zones (FTZ). The Tinapa Free Trade Zone, owned by the Cross River state government, was commissioned during the first quarter of 2007, and several shops and bank branches are operating there. Oil and gas companies use the Onne FTZ as a bonded warehouse for supplies and equipment and for the export of liquefied natural gas. The GON also encourages private sector participation and partnership with state and local governments under the FTZ program, resulting in the establishment of the Lekki FTZ (owned by Lagos state), and the Olokola FTZ (owned by the federal government, Ogun state, Ondo state, and private oil companies and straddling Ogun and Ondo states). These zones remain under construction. Workers in FTZs may unionize, but may not strike for an initial ten-year period.

Foreign Direct Investment

The United Nations World Investment Report of 2011 estimates that the stock of foreign direct investment (FDI) in Nigeria in 2010 reached $60.327 billion. Total FDI inflow amounted to $6.099 billion in 2010, mostly in the oil and gas industry, and representing about 54 percent of total FDI in West Africa and 11 percent of total FDI in Africa (including North Africa). This figure places Nigeria as the third largest recipient of FDI in Africa after Angola and Egypt. Some FDI reaches telecommunications and manufacturing, but total investment in the non-oil and gas sector remains small relative to investment in the oil and gas sector. Only two U.S. companies operate in the manufacturing sector, both in the southwest region of Nigeria, where they enjoy better access to electric power and the ports.