2013 Investment Climate Statement - Nigeria
Openness to, and Restrictions upon, Foreign Investment
Nigeria, Africa's most populous nation, has an estimated population of over 170 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 Nigeria’s market potential remains unrealized, however, 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, an inefficient property registration system, restrictive trade policies, an inconsistent regulatory environment, a slow and ineffective judicial system, unreliable dispute resolution mechanisms, insecurity, and pervasive corruption.
The Nigerian economy, including its non-oil economy, continues to grow strongly, despite persistent structural weaknesses, and continues on track to become the largest in Sub-Saharan Africa. Over the past six years, Nigeria has experienced strong real Gross Domestic Product (GDP) growth averaging 6.6 percent and 2012 growth will remain in this range despite recent flood-related declines in oil and food production. Growth in poverty levels has been equally strong, however, with absolute poverty up from 55 percent of the population in 2004 to 62 percent in 2011, according to Nigerian government (GON) statistics.
Nigeria ranks as Africa’s largest oil producer and the twelfth largest in the world, producing high-value, low-sulfur content crude oil. A now five-year long effort to reform Nigeria’s oil and gas legal framework has created uncertainty that has delayed billions of dollars in potential investment in this sector. The National Assembly is reviewing the most recent version of a Petroleum Industry Bill (PIB), which seeks to incorporate and update 16 different laws that regulate the sector. However, international oil companies operating in Nigeria have expressed concern that this latest version of the PIB would boost GON royalty and tax revenues to a level that makes new investment unprofitable. In contrast, the GON has argued that the PIB reflects current internationally-accepted industry contract standards.
The Nigerian economy is heavily dependent on its oil sector, which accounts for over 95 percent of export earnings and about 40 percent of government revenues, according to the International Monetary Fund (IMF). A major GON “Transformation Agenda” development objective involves the diversification of the Nigerian economy away from an over-reliance on petroleum. The agriculture sector in Nigeria accounts for over 40 percent of GDP and sustains over 80 percent of rural households. The GON has focused on expanding private agro-businesses access to finance, increasing the use of irrigation and improved seed varieties, and relieving farm-to-market transport infrastructure constraints.
A significant bottleneck to broad-based economic development remains Nigeria’s underdeveloped power sector, which currently supplies less than 5,000 megawatts of power -- enough to power a mid-sized U.S. city -- compared with 48,000 megawatts generated by South Africa, a country with less than one-third of Nigeria’s population. A comprehensive reform of Nigeria’s power sector continues broadly on-track. In June 2012, Nigeria’s Electricity Regulatory Commission (NERC) began a phased increase of electricity tariffs towards cost-reflective levels, an important step towards improving the sustainability of investment in the sector. Available system-wide electricity has increased by roughly 1,000 megawatts over the past year; government-owned thermal and hydro power generation assets representing the majority of Nigeria’s current installed generation capacity and eleven regional electricity distribution companies are in the process of being privatized, bringing in new capital to upgrade their inadequate infrastructure. Significant challenges remain, however, including the need to deregulate natural gas pricing more fully to provide incentives to develop greater supply for domestic power generation. And, while power sector reform has progressed, Nigeria’s transportation infrastructure -- road, rail, and aviation -- remains broadly inadequate, and GON efforts to attract private capital to develop these sectors, including through public-private sector partnerships (PPP), have remained slow and only intermittently-successful.
Central Bank of Nigeria (CBN) monetary and exchange rate policies have come more closely into alignment in 2012. The IMF criticized the CBN in 2011 for maintaining artificially-low interest rates and intervening heavily in the foreign exchange market to prevent devaluation of the Naira. In early 2011, real interest rates remained negative, inflation hovered at 12 percent, and CBN reserves had fallen from $62 billion in 2008 to $33 billion. The CBN has since engaged in several rounds of policy tightening, maintaining core inflation levels in the 11-12 percent range, despite the impact of electricity price hikes, an almost 50 percent increase in gasoline prices, significantly higher global food prices, and flood-related domestic food price pressures. Foreign exchange reserves have risen to $44 billion in December 2012.
Since the near collapse in 2009 of Nigeria’s banking sector, the CBN has pursued broad financial sector reforms by strengthening regulation and narrowing the types of financial activities in which banks can engage. The global recession and subsequent collapse in oil prices exposed Nigerian banks’ over-leveraged loan portfolios, with non-performing loans exceeding 44 percent of total loans at the ten poorest performing banks. In addition to lowering interest rates and injecting liquidity into the system, the CBN took over the eight worst banks, found new partners to recapitalize five of them, and has sought to privatize the remaining three nationalized banks. The CBN has taken a highly expansive view of its role in Nigeria’s economic development, using its balance sheet to support investment in the power sector, small and medium enterprise (SME) loans, and commercial agriculture.
Management of GON fiscal policy has remained a persistent challenge due to Nigeria’s heavy reliance on oil revenue and its history of pro-cyclical spending and civil service hiring during periods of high global crude oil prices. The adoption in 2003 of a fiscal rule that forced savings of a portion of oil revenue in an Excess Crude Account (ECA), helped stabilize government expenditures over the business cycle. ECA balances reached $20 billion in 2008, but the combined impact of the 2009 banking crisis and a jump in government spending in the run-up to April 2011 national elections impacted fiscal discipline. After ECA balances hit a low of under $4 billion in 2010, they have recovered to a December 2012 balance of $9.7 billion. The GON established a Sovereign Wealth Fund (SWF) in 2011 as a better-structured alternative to the ECA, but state governors have instituted a Supreme Court case that challenges the constitutionality of the ECA and GON transfer of $1 billion from the ECA to the SWF as seed capital.
Nigeria’s trade regime remains highly-protectionist and distorting, with a national Agricultural Transformation Action Plan that relies on restrictive import tariffs and outright import prohibitions to spur domestic agricultural sector growth by actively promoting import substitution of staples, including rice, cassava, palm oil, cocoa, and cotton. Nigeria’s bilateral trade with the U.S. totaled $38.5 billion in 2011. U.S. exports to Nigeria, primarily wheat, vehicles, refined petroleum products, and drilling and oilfield equipment, rose 18.5 percent in 2011. Nigeria’s 2011 exports to the U.S. totaled $33.7 billion, with crude oil accounted for over 99 percent of this total. While Nigeria enjoys preferential access to the U.S market under the African Growth and Opportunity Act (AGOA), non-oil exports to the U.S., including cocoa and rubber, remain at low levels.
Nigeria’s merchandise trade with the world in the first quarter of 2012 totaled $42.5 billion, an increase of 4.7 percent year-on-year over the totals for the first quarter of 2011. The increased total trade resulted from growth in exports, which jumped 54.4 percent ($11.2 billion), driven by expanded crude oil and non-oil exports that more than compensated for a 47percent ($9.3 billion) decline in imports due to significant declines in gasoline imports following the January 2012 partial removal of Nigeria’s refined fuel subsidy. The drop in gasoline imports resulted from demand reductions following a 49-percent increase in fuel prices and cutbacks in gasoline imports by independent Nigerian fuel marketers in the wake of a slow-down in GON processing of fuel subsidy payments to them. China retained its position as the largest source of Nigeria’s imports. While crude oil continued to dominate Nigeria’s overall trade at 84 percent of total exports, crude oil trade patterns have shifted markedly over the past year: In the first quarter of 2012, for the first time, India overtook the United States as the largest importer of Nigerian crude oil. Year-on-year first quarter comparisons show a very significant 73 percent decline in U.S. crude oil imports from Nigeria due to expanded U.S. domestic production and maintenance-induced closings of east coast refineries optimized to process Nigerian crude oil. As its crude oil export trade patterns have shifted towards Asia, Nigeria has remained a reliable crude oil supplier to international markets.
Given the corruption risk associated with the Nigerian business environment, potential investors often develop anti-bribery compliance programs. The United States and other parties to the OECD Anti-Bribery Convention aggressively enforce anti-bribery laws, including the U.S. Foreign Corrupt Practices Act (FCPA). A high-profile FCPA case in Nigeria’s oil and gas sector resulted in 2010 U.S. Securities Exchange Commission and U.S. Department of Justice rulings that included record fines for a U.S. multinational and its subsidiaries that paid bribes to Nigerian officials.
Security remains a concern to investors due to high rates of violent crime, kidnappings for ransom, and terrorism. Five bombings of high-profile targets with multiple deaths have occurred in the federal capital Abuja since October 2010. Other bombings and assassinations have occurred in the cities of Kaduna, Maiduguri, Damaturu, Bauchi, Jos, Kano, and Suleja, the majority linked to an extremist Islamic sect known as Boko Haram. Extremists also conducted an attack on the headquarters of the Special Anti-Robbery Squad in Abuja on November 26, 2012. 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.
President Goodluck Jonathan gained election to a full four-year term in April 2011 via a general election judged by most international and domestic observers to be free, fair, and credible. Since President Jonathan’s inauguration in May 2011, Nigeria has conducted several successful state-level gubernatorial and parliamentary elections, an indicator of the sustained strength of the Independent National Electoral Commission (INEC). Over the past two years, U.S.-Nigeria Bi-National Commission (BNC) Working Group meetings have addressed Regional Security; Governance, Transparency and Integrity; Energy and Investment; the Niger Delta; and Agricultural Development and Food Security. A BNC working group on the Niger Delta convened most recently in Port Harcourt, Rivers State, on October 16-17, 2012. Nigeria seeks to strengthen its leadership role internationally, including at the African Union (AU) and the Abuja-based Economic Community of West African States (ECOWAS).
Freedom of expression and of the press remains broadly-observed, with the media often engaging in open, lively discussions of challenges facing Nigeria. Some journalists, however, occasionally practice 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:
Transparency International Corruption Index
139 (out of 176 countries)
Heritage Economic Freedom Index
116 (out of 184 countries)
World Bank Doing Business Index
131 (out of 185 countries)
MCC Govt. Effectiveness
MCC Rule of Law
MCC Control of Corruption
MCC Fiscal Policy
MCC Trade Policy
MCC Regulatory Quality
MCC Business Start-up
MCC Land Rights Access
MCC Natural Resources Management
MCC Access to Credit
The GON actively seeks foreign investment and has 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, and, effective 2013, refined sugar 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 infringe upon 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, Investment and Securities Act of 2007, 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 designated 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 GON has embarked upon the process of privatizing generation and distribution assets in the electric power sector, while the GON signed an electricity transmission management contract with an international operations and management contractor. Since 1999, the BPE has privatized and concessioned more than 140 enterprises, including an aluminum complex, steel complex, cement manufacturing firms, hotels, 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 privatization recently the subject of a Supreme Court ruling on ownership.
The GON established the Infrastructure Concession Regulatory Commission (ICRC) in 2008 to identify Greenfield projects for concessioning. More recently, the GON has articulated its strong interest in developing public-private partnerships to attract foreign capital to support basic infrastructure development. The GON recently terminated a 25-year concession granted for the Design-Build-Operate-Transfer of the Lagos-Ibadan Expressway, a major highway in the southwestern part of the country. An ongoing dispute also exists between the GON and a private sector company over the concession granted for the Murtala Muhammed domestic airport in Lagos.
Passage of the Electric Power Sector Reform Act in 2005 created the NERC, a power regulator with responsibility for tariff regulation and economic and technical regulation of the electricity supply industry. The Electric Power Sector Reform Act of 2005 provides for the deregulation of the power sector. A power sector reform “road map” establishes: market-based rate-making; privatization of power plants and electricity distribution companies; the commercialization of the national transmission company; the establishment of a bulk electricity purchaser strengthened by a partial risk guarantee supported by the World Bank; and the creation of the Nigerian Electricity Liability Management Company (NELCOM). The GON formally established the Nigeria Bulk Electricity Trading Company (NBETCO) in August 2011.
The GON has substantially liberalized Nigeria's telecommunications sector since the early 2000s. The sector grew over 34 percent in 2011 and now contributes roughly 6 percent of GDP. According to the Nigerian Communications Commission (NCC), the total number of telephone lines (mobile and landline) in Nigeria increased from 93.5 million (66.7 percent teledensity) in September 2011 to 107.4 million (76.7 percent teledensity) in September 2012. 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. The NCC implemented a unified licensing regime in 2006 that permits telecommunications companies to offer landline, wireless, and data services. The GON through the National Council on Privatization (NCP) approved a “guided liquidation” strategy for the privatization of NITEL and MTEL in February 2012.
The Information and Communications Technology (ICT) sector received a boost in 2010 and 2011 with the installation in Lagos of three broad-band cables from Glo-One, MainOne, and the MTN-led West African Cable System (WACS). The Glo-One, MainOne, and WACS cables increased Nigeria’s broad-band capacity to 9.9 terabits and the availability of competitively priced broad-band is expected to increase significantly in the near term.
The GON has worked to modernize and open its civil aviation sector, signing 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. Also in 2010, the Nigerian Civil Aviation Authority regained U.S. Federal Aviation Administration Category 1 flight safety oversight status, allowing qualified domestic airlines 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. This expansion of routes should facilitate increased trade, investment, and tourism in 2013 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 and Bureaux De Change (BDCs) 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, while some invisible (retail) transactions, such as credit card payments, school fees, travel allowances etc, can also be done via BDCs. Such transactions can only occur with proper documentation, such as filling out the "Form M"/”Form A” and, in the case of corporate bodies, 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 externalizing dividends from Nigeria. Money transfers usually take no more than 48 hours, if individuals provide the necessary documentation. All such 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.
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 only in 2010.
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 encourage 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 185 countries, ranked Nigeria 98 out of 185 countries on the enforcement of contracts, compared with its 2012 ranking of 97 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 510 days and averaging 20.1 percent of the cost of the contract in OECD countries and 39 procedures spanning an average of 649 days and averaging 50.1 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 United Nations Commission on International Trade Law (UNCITRAL) 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. Some U.S. firms have written provisions mandating International Chamber of Commerce (ICC) arbitration into their contracts with Nigerian partners,
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 Investment and Securities Act of 2007, 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 deep-water oil-field divers. U.S. companies often report problems in obtaining quota permits. The Nigerian Content Act of 2010 (NCA) 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 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. The GON recently announced incentives in the agricultural sector to promote rice, sugar, and cassava production. Such incentives include a 12 percent corporate tax rebate for bakers that attain a 40 percent cassava blend with wheat flour; and zero duty on imported machinery used for domestic sugar manufacturing, rice production, and processing cassava flour for composite flour blending. 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 Nigerian Content Act of 2010 (NCA) 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. The GON recently approved an extension of the CET for all of 2013 as it awaits ongoing tariff reduction negotiations within ECOWAS. An import prohibition list includes frozen poultry; pork; beef; pasta; fruit juice in retail packs; soaps and detergents; refined vegetable oil; beer; non-alcoholic beverages; cassava flour; plastics, and effective January 2013, refined sugar. 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.
The GON has implemented various tariff measures to aid its backward integration program. 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. Tariff measures effective January 2013 include 10 percent import duty and 50 percent levy on raw sugar. Other notable tariff measures due to be implemented in 2013 include zero duty and zero VAT on the import of commercial aircraft and its spare parts, including machinery and equipment used in the solid minerals sector. In addition, the GON plans to implement “zero” percent import duty on Completely Knocked Down components for mass transit buses of minimum 40-seat capacity.
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 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. 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 GON extended this exclusive contract for six months, with expiration now set for June 30, 2013.
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 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, and the GON claims that the release times for containers has been significantly shortened due in part to the longer work hours. Importers, however, are unwilling to clear their goods at night at the ports due to security concerns.
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 manufacturers cannot compete with low cost imports coming from Asia, especially China.
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 100 million naira (about $641,000) reportedly undergo full "due process." 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 points 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 2013,” Nigeria ranked 182 out of the 185 countries surveyed for registering property, requiring averages of 13 procedures over 86 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 26 days at a cost of 4.5 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. This legislation has undergone consideration by the National Assembly since 2006. Concomitantly, the National Assembly has under consideration a bill that would establish an Industrial Property Commission, 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 GON has signed the WIPO Internet treaties but has yet to ratify them. The NCC has suggested that it is working to implement many of 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 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. Recent cooperation between the NCC, the NCS, the National Drug Law Enforcement Agency, the Nigerian Police, and the Nigerian Publishers Association resulted in the seizure of 11 containers with pirated books worth over $20 million and one container with pirated music compact discs worth over $3 million). The Nigerian Police and the NCC raided the notorious Alaba International Market in Lagos in early 2010 and arrested a suspected high-profile music and video pirate. 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.
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. As of December 31, 2012, the NSE had about 198 listed companies with a market capitalization of 8.9 trillion naira (about $56.7 billion).
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. The GON has started considering proposals that would require oil and gas, telecommunications, and newly privatized power sector 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. Some state governments have issued bonds to finance development projects; while some domestic banks have used the bond market to raise additional capital. The Nigerian Securities and Exchange Commission (NSEC) 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 rating agencies recognized by the NSEC include: Agusto and Company, Brickfield Road Associates Limited, Datapro Limited, Pharez Limited, and Global Credit Rating of South Africa. The GON successfully issued its maiden $500 million, 10-Year Eurobond on January 21, 2010.
Banking System: The Central Bank of Nigeria (CBN) currently licenses 21 deposit –taking commercial banks in Nigeria. Following a 2009 banking crisis, CBN officials intervened in eight of 24 commercial banks (roughly one third of the system by assets) due to insolvency or serious undercapitalization. The GON established the government-owned Asset Management Company of Nigeria (AMCON) to address bank balance sheet disequilibria. CBN provided guarantees on all interbank liabilities, and AMCON purchased non-performing loans in exchange for tradable three-year zero coupon bonds to bring five of the eight insolvent banks to zero equity. Merger/acquisition agreements were reached for private investors to inject capital sufficient for these banks to meet prudential requirements. AMCON temporarily nationalized and recapitalized the other three banks. The CBN completed recapitalization of the intervened banks in late 2011 and removed all CBN guarantees on interbank liabilities at the end of 2011.
The CBN supports non-interest banking. Both Jaiz Bank International Plc and Stanbic IBTC Plc have established Islamic banking operations in Nigeria. Jaiz Bank International commenced operations in 2012. Two financial institutions, First Securities Discount House Limited and Rand Merchant Bank, a subsidiary of FirstRand of South Africa, were each granted merchant bank licenses in November 2012, and are expected to commence operation in 2013.
Competition from State-Owned Enterprises (SOEs)
The Government has privatized most State-Owned Enterprises (SOEs) to encourage more efficient operations. 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 continues efforts 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. 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).
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.
President Jonathan’s term tenure since his April 2011 election has largely been defined by political, religious, and ethnic violence that affect Northern Nigeria and Abuja. Boko Haram (formally known as “Jama’tu Ahlis Sunna Lidda’awati Wal-Jihad”) has waged a terrorist campaign across a growing number of northern states, calling for the institution of Shari’a law across Northern Nigeria. Such attacks have resulted in nearly three thousand deaths since 2009. Attacks on churches continued to catalyze religious and ethnic-based reprisals, resulting in death tolls often under-reported in the media. President Jonathan’s January 2012 appointment of Mohammed Abubakar, a northerner from Zamfara state, as the new Inspector General of Police and his June 2012 appointment of Colonel (retired) Sambo Dasuki, a former military officer from Sokoto state, as his new National Security Advisor brought fresh perspective to GON efforts to contain Boko Haram.
Attacks in Northern states and Abuja have become increasingly lethal and sophisticated during the past year. Boko Haram has targeted churches, mosques, government installations, educational institutions, and leisure sites with Improvised Explosive Devices (IEDs) and Suicide Vehicle-borne IEDS across nine Northern states and in Abuja. In 2011, Boko Haram claimed responsibility for a bombing at the National Police Force headquarters and a suicide car bombing of the United Nations headquarters in Abuja. Due to challenging security dynamics in the North, the Mission has significantly limited official travel north of Abuja. Such trips occur only with security measures designed to mitigate the threats of car-bomb attacks and abductions. Since 2010, Nigeria has deployed a Joint Task Force (JTF), comprised of military and police personnel, as part of Operation “Restore Order” to combat Boko Haram. Security force efforts to counter Boko Haram in Borno and Yobe States have elicited public allegations of the use of excessive force and human rights abuses against both innocent civilians and suspected Boko Haram members. In 2012, Amnesty International and Human Rights Watch published reports noting the alleged commission of crimes against humanity by Boko Haram members and detailing credible instances of systematic human rights abuses committed by JTF forces. The GON has publicly denounced the reports as biased and based on unreliable witness accounts, while noting frequent, deadly attacks perpetrated by Boko Haram elements against innocent civilians.
Decades of neglect, persistent poverty, and environmental damage caused by the oil and gas industry has left Nigeria’s oil rich Niger Delta region vulnerable to renewed violence. The 2009 amnesty of Delta militants significantly reduced attacks on pipelines and other petroleum facilities, increasing oil production from 700,000 barrels per day (bpd) at the peak of militancy to 2.4 million bpd today. However, egregious onshore and maritime oil theft, substandard infrastructure, and the lack of an economic growth engine outside the petroleum sector remain persistent challenges. Though the region provides nearly 80 percent of the government’s oil revenues, the Niger Delta suffers from endemic poverty and dismal federal government services. Corruption siphons off oil revenues, while the environmental devastation caused by decades of oil spills remains largely unaddressed. The limited scope and timeframe of the amnesty program (set to expire in 2015), a shortage of sufficient employment opportunities for thousands of amnesty beneficiaries and other underserved youth, and the federal government’s failure to address the region’s underlying grievances could result in a resumption of broader and more violent criminal activity without concerted government action.
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 the virtual absence of concerted government attention to the needs of these communities means many of them remain angry and resentful of oil production activities in their region. In 2009, the GON established the Ministry for the Niger Delta to oversee development projects in the region, but most observers assert that this entity has done little to improve the lives of Delta residents.
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 the theft of 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 identify corruption as a serious obstacle to economic growth and poverty reduction. Nigeria scored 27 out of 100 in Transparency International’s 2012 Corruption Perception Index (CPI), placing it in the 139th position out of the 176 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. In November 2011, President Jonathan replaced EFCC Chair Farida Waziri with the former EFCC Director of Operations Ibrahim Lamorde, who had worked under previous Chair Nuhu Ribadu
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. In October 2012, President Jonathan permanently appointed ICPC Acting Chairman Ekpo Nta after he had served in that position for 11 months. Many insiders continue to press 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 serves as 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. Nigeria has bilateral investment agreements with Algeria, Bulgaria, China, Egypt, Ethiopia, 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. Twelve of these treaties (those with France, Finland, Germany, Italy, The Netherlands, Romania, Serbia, South Korea, Spain, Switzerland, Taiwan 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. U.S. and Nigerian officials held their latest round of TIFA talks in December 2012.
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, including 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 Nigeria Labor Congress (NLC) and the Trade Union Congress of Nigeria (TUC), 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 42 industrial unions, while the second largest, the TUC, includes 18. According to figures provided by the Ministry of Labor and Productivity, total union membership stands at about 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 $115) 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 in response unions staged strikes in some states.
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. The unions organized a seven-day long general strike in January 2012 in response to a GON effort to remove a subsidy on gasoline. Localized strikes occurred in the education, government, energy, power, and transportation sectors in 2012.
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 and the Federal Capital Territory 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. From January to November 2012, the Ministry of Labor and Productivity reported 12,040 labor inspections by 441 officers. Although the inspectorate employed nearly 500 inspectors for all business sectors, there were fewer than 50 factory inspectors 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. 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 2012 estimates that the stock of foreign direct investment (FDI) in Nigeria in 2011 reached $69.2 billion. Total FDI inflow amounted to $8.915 billion in 2011, mostly in the oil and gas industry, and representing about 55 percent of total FDI in West Africa and 21 percent of total FDI in Africa (including North Africa). This figure places Nigeria as the largest recipient of FDI in Africa. Some FDI reaches telecommunications, real estate (including commercial and residential), 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.