Trade in Services

Multinational Trade Agreements

Active

As a member of the ECOWAS, Nigeria is a signatory to the ECOWAS Trade Liberalisation Scheme (ETLS). Having evolved considerably over the years, this scheme ultimately aims to liberalise trade in the region by abolishing customs duties levied on imports and exports, removing non-tariff barriers between member states and strengthening trade competitiveness with key global partners. The 15-country regional grouping comprises Benin, Burkina Faso, Cape Verde, Côte d'Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Senegal, Sierra Leone and Togo.

Under Negotiation

EU-ECOWAS Economic Partnership Agreement (EPA): The EPA between the EU and ECOWAS will create free trade zones (FTZs) between member states of the two blocs, allowing the entry of some imports from Europe into West Africa and vice versa, free of tariffs. The signing of the interim EPA with the EU by Ghana and Côte d'Ivoire may have put a strain on the ETLS as Nigeria's President Muhammadu Buhari refused to sign the West Africa-EU free trade deal. Tariffs on non-oil exports from Nigeria to the EU are to remain in place until the country signs the EPA, which it has been reluctant to enter into due to fears that it will open up the market to EU imports, and thereby slow domestic manufacturing growth.

Sources: WTO – Trade Policy Review, ECOWAS

Foreign Direct Investment Policy

1. Nigeria has historically been a major destination for foreign direct investment (FDI) due to its oil and gas resources, and there are a number of incentives in place for foreign investors. However, Nigerian nationals are given preference in government procurement and there are tightening localisation requirements in certain investment areas, such as the agricultural sector and oil and gas businesses, which limit foreign ownership.
    
2. Foreign ownership is permitted, with the exception of some sectors designated as strategic, defence-related industries and some farmland. The Nigerian Oil & Gas Industry Content Development Act 2010 seeks to increase indigenous participation in the oil and gas industry by prescribing minimum thresholds for the use of local services and materials, and to promote the employment of Nigerian staff in the industry. The Act imposes a levy of 1% on every contract awarded in the upstream oil and gas sector of the economy. Any violation of the Act is liable to a fine of 5% of the contract value and may result in the outright cancellation of the contract.


3. The Local Content Act derives from the Nigerian Content Policy, which seeks to promote the active participation of Nigerians in the petroleum sector without compromising standards. Nigerian independent operators are given priority in the award of oil blocks, oil fields and oil lifting licences, as well as in all projects for which contracts are to be awarded in the Nigerian petroleum industry, subject to the fulfilment of conditions specified by the Minister of Petroleum Resources.


4. The Nigerian Investment Promotion Commission (NIPC) was created in 1995 to promote and assist FDI. Tapping into resources other than oil is part of the government's economic recovery and growth plan after the worst economic slump in 25 years as oil output and prices fell. Nigeria's potential advantages for future growth include a large consumer market, a strategic geographic location as a hub for Africa and a young and entrepreneurial population. The first step in harnessing this opportunity requires deliberate efforts to improve value-adding activity in the non-oil economy, particularly in the agricultural and services sectors.


5. To further encourage investors, incentives – including tax holidays of as much as five years for new companies entering the market, duty-free imports on mining equipment and mining licences for 25 years – have been put in place. According to the country's investment body, up to 120% of expenses on research and development (R&D) are tax deductible, provided that such R&D activities are carried out in Nigeria and are connected with the business from which income or profits are derived. For the purpose of R&D on local raw materials, 140% of expenses are allowed. For cases in which the research is long term, it will be regarded as a capital expenditure and will be written off against profit.


6. The NIPC Decree of 1995 permits 100% foreign ownership of companies outside the oil and gas industry. Within oil and gas, foreign firms were previously obliged to participate in joint ventures (JVs) or production sharing agreements. However, provisions made in the 2018 national budget set out proposals that allow for the sale of state equity in JV oil assets, a move that officials say will raise NGN710 billion. The reform is aimed at increasing private sector equity participation to improve efficiencies in the sector, and providing revenue to the government, which will be deployed solely and exclusively for creating new assets in Nigeria. The proposals signal a significant change in the way that the state participates in production and ownership structures in its upstream oil sector.


7. Foreign firms will benefits from the government's efforts to improve transparency and predictability for foreign investors. For example, in may 2014, Nigeria signed a Foreign Investment Promotion and Protection Agreement with Canada, which is expected to enhance protection for investors by creating a framework of legally binding rights and obligations. Moreover, Nigeria has signed bilateral investment agreements with more than a dozen countries, notably Mainland China, Italy, Algeria and Egypt, as well as bilateral investment treaties (BITs) with the United Kingdom, France, the Netherlands, Taiwan, South Korea, Serbia, Switzerland, Romania, South Africa, Italy, Spain, Sweden, Finland, Germany and mainland China. These BITs enable investors from the latter countries to enjoy similar benefits to those enjoyed by Nigerian investors. As a result, in theory, Nigerian investors are not provided preferential treatment in their investments over expatriates from BIT countries, and any infringement on the Nigerian side could then be referred to international arbitration.


8. The federal government of Nigeria has lifted the suspension of the pioneer status incentive after embarking on a review of the incentive to address identified lapses, abuses and loopholes. On August 2, 2017, the Federal Executive Council approved a new Pioneer Status Incentive Policy based on the comprehensive review of the scheme. Pioneer Status Incentive is a tax holiday that grants qualifying industries and products relief from the payment of CIT for an initial period of three years, extendable for one or two additional years. As part of the new regime, 27 new industries have been added to the list of eligible industries, while new application guidelines have been issued.


9. Other similar government initiatives include the establishment of raw materials-based small- and medium-scale industry clusters to promote sustainable development and the growth of local companies. Nine sites across the country have been selected as pilot clusters for deploying fish, plantain, palm oil, okra, cassava and grain processing technologies. This process could lessen the country's dependence on oil exports and could stimulate the growth of new industries offering diverse investment opportunities. Nigeria has seen some success in facilitating cluster development, and there are 15 operational (34 planned) FTZs in Nigeria with different areas of specialisation, including manufacturing, logistics services, warehousing, steel fabrication, food processing and manufacturing, oil and gas services, and trade, tourism and resort services.


10. 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 quotas, requiring them to obtain residence permits that allow salary remittances abroad.


11. Investments in industries related to national security are restricted to domestic investors, including ammunition, firearms and military and paramilitary apparel.
     
12. The Guidelines for Nigerian Content Development in the information and communication technology (ICT) sector issued by the National Information Technology Development Agency on December 3, 2013, require ICT companies to host all consumer and subscriber data locally and for government ministries, departments and agencies to source and procure software from only local software development companies. Enforcement of the guidelines is variable as the state lacks capacity and resources to monitor digital data flows. Federal government data is hosted locally in data centres. The main objective of the National Office of Technology Acquisition and Promotion (NOTAP) is to regulate the international acquisition of technology while creating an environment conducive to local technology. To this end, NOTAP recommends local technical partners to Nigerian users in a bid to reduce the level of imported technology, which currently accounts for more than 90% of technology in use in Nigeria. One of NOTAP's major activities is the review of Technology Transfer Agreements (TTAs), a requirement for importing technology into Nigeria and for companies operating in Nigeria to access foreign currency. NOTAP reviews the legal, economic and technical aspects prior to the approval of TTAs and the subsequent issuance of a certificate. One of the main risks concerning the TTA is the length of the approval process, which can take up to three months. NOTAP states that it plans to have an automated system in place to streamline the TTA process, thereby reducing the approval process to one month or less.
     
13. Though foreign companies may bid on government projects and generally receive national treatment in government procurement, they may also be subject to a local content vehicle (such as requiring to partner with a local firm, or the inclusion of one in a consortium) or other prerequisites, which are likely to vary from tender to tender. Procurements worth more than NGN100 million reportedly undergo full 'due process'. Nigerian companies receive a preferential margin in the bidding process. Nigeria is not a signatory to the World Trade Organization Agreement on Government Procurement. Corruption and lack of transparency in tender processes are key concerns for investors.


14. Nigeria retains its multiple FX rate regime, despite calls by investors to adopt a single exchange rate, driven by market forces, such as the Nigerian Autonomous Foreign Exchange Rate Fixing mechanism. The web of different rates for different purposes continues to distort the market, keeping the naira artificially strong for groups such as: pilgrims seeking hard currency to travel to Mecca, small- and medium-sized enterprises, fuel importers, or Nigerians who need to pay overseas school fees. The central bank's limited ability to provide foreign exchange and the imposition of blanket import and FX restrictions prevent many companies from repatriating naira-denominated earnings in a timely manner. Foreign exchange demand remains high because of the dependence on foreign inputs for manufacturing and refined petroleum products. Companies are advised to acquire foreign currency denominated bank accounts.
     
15. Companies engaged in the marketing and distribution of gas for domestic and industrial use (downstream operations) are subject to the Companies Income Tax Act. Beginning on the date in which they begin production, companies engaged in downstream operations and companies using gas in industrial projects benefit from an initial three-year tax holiday. This tax holiday is renewable for an additional two years after the tax holiday expires if the company is performing satisfactorily. The companies also benefit from accelerated capital allowances after the tax-holiday period.


16. A gas-flaring penalty is imposed on oil companies for wasteful disposals of gases through burning in oil fields and refineries. Companies engaged in petroleum operations are deemed to be in the upstream sector of the oil and gas sector and are subject to tax under the Petroleum Profit Tax Act.

Sources: WTO – Trade Policy Review, government sources, Fitch Solutions

Work Permits

Existing labour regulations continue to restrict the employment of foreign nationals, particularly in low-skilled positions. Work permits are required for all foreign nationals intending to work in Nigeria. The Executive Order signed in February 2018 prohibits the Ministry of Interior from providing foreign workers with work visas if their skills and expertise are already available locally in Nigeria. Furthermore, the Executive Order elaborates that foreign professionals will be considered for contracting purposes only in cases when it is certified by relevant Nigerian authorities that their expertise is not available in Nigeria. Finally, the Executive Order explicitly directs national ministries, departments and agencies to engage local professionals in the planning, design and execution of national security projects. Employers hiring foreign workers must obtain an expatriate quota and a business permit from the Ministry of Internal Affairs. Only workers coming from other Economic Community of West African States member countries do not need a work permit.

Other Procedures

The costs of employing foreign workers are generally high in Nigeria, owing to high relocation expenses and processing fees for work and residence permits. There are other fees relating to the renewal of quota positions, restoration of lapsed quotas and other services relating to the employment of foreign workers. The main way to legally work in Nigeria is by acquiring a Combined Expatriate Residence Permit and Aliens Card (CERPAC). This document is a combined residency and work permit, but involves a lot of paperwork. An employment contract is a prerequisite for obtaining a CERPAC. In addition, there is limited flexibility for workers to change jobs on the same permit and this would require a re-application process.

Visa/Travel Restrictions

There are four different types of entry permits for Nigeria: tourist visa, business visa, temporary work permit (TWP) visa and subject to regularisation (STR) visa. The STR is required for taking up paid employment as an expatriate in Nigeria.

The business visa is for business-related purposes only, except employment. The TWP allows holders to perform specific short-term work only – for example, equipment repairs, research, auditing and installation work. The TWP is a short-term work and residence permit granted to foreign nationals invited by corporate bodies to provide specialised, skilled services. It is valid for three months and can be renewed at the discretion of the Nigerian authorities.

The CERPAC enables a foreign employee to work and live in Nigeria. To obtain a CERPAC, the Nigerian company must have obtained an expatriate quota approval and the foreigner must have obtained an STR visa. The official cost of a CERPAC is more than USD1,400 and the process usually takes three to six days. The CERPAC is valid for one year and may be renewed on expiry.

Sources: government sources, Fitch Solutions

Fitch Solutions Risk Summary

ECONOMIC RISK
Oil is a major pillar of the Nigerian economy, and when prices were high and production robust, it helped the country garner large foreign reserves, a relatively healthy current account position and low foreign debt (the country had paid off much of its debt in 2006). However, since the price slump in 2014, the structural weakness of an overreliance on oil exports has been highlighted. After only gradually recovering from the 2016 recession, the economy faces a contraction again in 2020. The collapse in crude prices may hinder domestic production, battering FX and fiscal revenues and adding pressure to the country's international reserves and the currency in turn. The Covid-19-induced disruption to activity further dampens the outlook. That said, its power sector's reforms and transport infrastructure capacity building are crucial for long-term productivity gains and industrial diversification. Overall, the long-term outlook remains challenging, weighed by elevated unemployment, insecurity challenges, power shortages, still-low crude prices and a more subdued global economic backdrop.

OPERATIONAL RISK
Nigeria's vast natural resources, as well as strong economic and population growth over the past decade, have given rise to a growing consumer class and expanding labour pool, and attracted considerable investor interest. However, the country remains a difficult operating environment. Businesses operating in Nigeria face heightened security costs, an uncertain regulatory environment, limited labour and capital mobility and uncompetitive import conditions. Nigeria's economy remains strongly tied to the performance of the oil sector, and overall economic activity is unlikely to reach levels seen over the past decade, on the back of weak oil-driven growth, limited reform momentum and sluggish non-oil sector activity. Nigeria's non-oil sector growth potential remains constrained by the acute shortcomings in the country's utilities and transport sectors, high levels of social instability in the restive regions of the country and high structural reliance on sustained oil output for government revenues and economy-wide foreign currency liquidity. Criminal activity and recurrent militant attacks on critical infrastructure threaten the safety of foreign workers and business operations. This also disrupts the country's predominantly gas-reliant power supply and limits freight transit routes. 

Source: Fitch Solutions
Date last reviewed: May 12, 2020

Fitch Solutions Political and Economic Risk Indices 

Exchange Rate HK$/US$, average
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
7.77 (2019)

Treaties and Agreements between Hong Kong and Nigeria

Tax treaty negotiations are in progress between Nigeria and Hong Kong. The first round of talks was carried out in February 2017.

Sources: Hong Kong Inland Revenue Department, Fitch Solutions

Chamber of Commerce (or Related Organisations) in Hong Kong

Nigerian Consulate General in Hong Kong
Address: Suite 502, 5/F, Fortis Tower, 77-79 Gloucester Road, Wan Chai, Hong Kong
Email: nigeriaconhk@yahoo.com
Tel: (852) 2827 8813 / 2827 8824 / 2827 8834
Fax: (852) 2827 8892 / 2802 9915

Source: Nigerian Consulate General in Hong Kong

Visa Requirements for Hong Kong Residents

HKSAR passport holders need a visa to visit Nigeria.

Sources: Nigerian Consulate General in Hong Kong
Date last reviewed: May 15, 2020