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Foreign Direct Investment (FDI) regulations are integral to understanding the mechanisms governing foreign direct investment in Nigeria. These regulations are important for potential foreign investors to study to understand how their investments may be managed and to ensure compliance with the local laws and regulations.
With Nigeria being Africa’s most populous nation, it continues to attract an increasing number of FDI. Foreign Direct investment (FDI) therefore plays a very important role in the economic development of Nigeria and it is important for potential investors to understand the regulatory framework and landscape that are applicable.
What is Foreign Direct Investment?
A foreign direct investment (FDI) occurs when a firm or individual in one nation invests in the commercial interests of another by either purchasing foreign businesses or establishing operations. Such an investment is designed to actively manage and control assets in a foreign market. Usually, FDI occurs when the investor purchases a majority stake in an existing foreign company or starts a new commercial operation abroad, giving the investor a degree of influence over the foreign corporation.
Foreign Direct Investment Laws and Regulations in Nigeria
The regulatory framework and laws regulating foreign direct investment (FDI) in Nigeria are designed to encourage foreign participation while preserving public order and national security. It consists of international bilateral agreements, legislations, and regulations. The principal statutes regulating foreign investments in Nigeria are the Nigerian Investment Promotion Commission Act of 1995, as modified (NIPC Act), and the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act of 1995, as amended (FEMMP Act).
In this article, we will discuss some of the major laws and regulations governing FDI in Nigeria:
1. Nigeria Investment Promotion Commission Act (NIPC)
The Nigerian Investment Promotion Commission (NIPC) is established by the NIPC Act, which also governs foreign participation in local businesses. NIPC is in charge of encouraging and supervising foreigners’ involvement in domestic businesses and acting as a “one-stop shop” to ease foreign investments. Subject to the particular requirements of the relevant sectors, the NIPC Act permits foreign investors to own up to 100% equity in Nigerian subsidiaries and conduct any kind of business in Nigeria (apart from the prohibited businesses listed in the negative list in Section 32 of the NIPC Act, which applies equally to Nigerians and foreigners). Every business with foreign participation is required to register with the Commission and obtain a certificate of registration.
2. Foreign Exchange (Monitoring and Miscellaneous Provisions) Act of 1995 as amended (FEMMP Act)
The FEMMP Act regulates the intake and outflow of foreign capital. A foreign investor may use foreign cash or capital imported into Nigeria through an Authorized Dealer (a licensed bank) to engage in any business or securities in accordance with the FEMMP Act.
3. Companies and Allied Matters Act 2020 (CAMA)
The Companies and Allied Matters Act, 2020 (CAMA) regulates businesses, companies, and other corporate entities in Nigeria. The Act established the Corporate Affairs Commission (CAC), which has the responsibility of overseeing the creation, registration, and operations of businesses in the country. The Act prohibits foreign companies and entities from establishing or operating in Nigeria without incorporation under the Act. The Act notably permits foreign entities to have 100% foreign ownership of any of their subsidiaries in Nigeria. Exemptions exist in some industries, such as oil and gas, aviation, and domestic coastal carriage, where local ownership and control are mandatory.
4. The National Office for Technology Acquisition and Promotion (NOTAP) Act
Pursuant to the National Office for Technology Acquisition and Promotion (NOTAP) Act, NOTAP was created to record agreements that pertain to the transfer and acquisition of foreign technology and technical knowledge/management services into Nigeria. Prior to the outflow of foreign currency royalties, the NOTAP Act requires all agreements relating to intellectual property licensing or services rendered by an entity that is not a resident of Nigeria to be registered with NOTAP.
5. Nigeria Immigration Act
The Nigeria Immigration Service manages all aspects of business permits, expatriate quotas, and employment recourse, in accordance with the provisions of the Immigration Act. The Act prohibits foreign investors from establishing a firm or business in Nigeria without first acquiring the necessary licenses or permits. The Act specifies the necessary steps for acquiring expatriate quotas and business licenses through the Nigerian Immigration Service. The Subject to Regularization Visa, Temporary Work Permit, Temporary Residence Visa, and Combined Expatriate Residence Permit and Alien’s Card are among the permits that are available.
Current Developments
– Initiatives for Ease of Doing Business
The Nigerian government has taken a number of measures to make business operations easier, according to the World Bank’s Doing Business Rankings. Examples of these measures include easier access to finance, increased protection for minority investors, and automation of business registration procedures.
– The Investment and Securities Act, 2025
The Investment and Securities Act of 2025 (ISA 2025) aims to protect investors, ensure efficient and transparent capital market transactions, and build trust in the financial system. The new Act repeals and replaces the Investment Securities Act of 2007.
The ISA sets the regulatory framework for the regulation of capital market operators, public offerings and sale of securities, mergers, take-overs and acquisitions of companies, and other aspects of the capital market.
– AfCFTA, or the African Continental Free Trade Area
By giving access to a wider market and lowering trade barriers throughout Africa, Nigeria’s membership in the AfCFTA creates substantial prospects for foreign direct investments and increases the country’s appeal as a regional investment hub.
What are the Problems/Challenges of FDI in Nigeria?
Foreign investors looking to participate in the Nigerian financial markets often face several structural and regulatory challenges impacting their ability to operate efficiently and profitably. Some of the key issues include:
1. High operating costs: The lack of key infrastructure, particularly in electricity and transportation, results in high expenses for enterprises. Unreliable power supply leads businesses to rely on costly alternative energy sources, while weak road networks and insufficient rail facilities raise logistical costs.
2. Exchange Rate Volatility and Instability: The Naira’s frequent value changes cause uncertainty for investors, making long-term planning and financial forecasting difficult. Policy changes, liquidity restrictions, and inflationary pressures all have a significant impact on the foreign exchange market.
3. Tax Regime: The tax system in Nigeria, with its complex structure that features taxes at the federal, state, and municipal levels, presents a serious challenge to businesses in the country, making it difficult to comply with the many requirements of the tax laws. These complexities can also be discouraging for international investors.
4. Overdependence on Oil and Gas: The Nigerian economy is currently overly reliant on the oil and gas sector, which generates more than 90% of its export revenue. Due to its heavy reliance on the sector, the Nigerian economy is vulnerable to global energy cost fluctuations, creating volatility that can impact investor confidence across industries.
5. Policy Uncertainty and Regulatory Inconsistencies: Sudden regulatory changes or frequent introduction of new policies without adequate stakeholder engagement increase costs for compliance and make it hard for businesses to plan long-term investments.
6. Bureaucratic Bottlenecks: Ease of doing business is further complicated by the presence of bureaucratic bottlenecks, which manifest as lengthy administrative processes, inefficiencies in regulatory approvals, or corruption-related challenges. Foreign investors frequently encounter delays in obtaining permits, licenses, and other clearances while attempting to conduct business in developing countries like Nigeria, which can impede the efficiency of business setup and expansion.
CONCLUSION
A thorough understanding of Nigeria’s legal, economic, and sociopolitical landscape is essential for navigating the regulatory framework for foreign direct investments (FDI). While Nigeria presents many enticing investment opportunities, foreign investors must also consider the complex regulations, inconsistent policies, and challenging infrastructure.
The government of Nigeria continues to take measures to boost investor confidence, ease commercial transactions, and increase foreign direct investments. As a part of this push, Nigeria continues to promote economic diversification, looking beyond the country’s primary oil and gas industry. The goal of such an initiative is to boost the economy as a whole and hopefully create new opportunities for economic growth.
In order to guarantee that both local and foreign investors adhere to Nigerian law and policy, regulatory bodies such as the Central Bank of Nigeria (CBN) and the Nigerian Investment Promotion Commission (NIPC) are essential. These regulators also function to ensure the smooth facilitation of the investment processes for foreign companies.
Due diligence is of utmost importance for any foreign individual or company that wants to invest in Nigeria. In addition to careful planning and proper market research, foreigners looking to invest must work to minimize risks, hire knowledgeable legal counsel, and remain in compliance with constantly changing regulations. Despite these challenges, Nigeria still offers significant opportunities for foreign investments, making it an attractive investment destination.
Written by Olawunmi Ojo for The Trusted Advisors
Email us: info@cms.trustedadvisorslaw.com