THE BUSINESS CLIMATE IN NIGERIA

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THE BUSINESS CLIMATE IN NIGERIA

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• (Legal Practitioners and Arbitrators)
• Abuja . Lagos . Port Harcourt . Accra

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Greatest needs/opportunities

• Infrastructure
• power
• transportation (roads, rail, sea, air)
• Education
• Health

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POWER
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Comparative Power Statistics

• UK
• Population 55 Million
• Installed generating capacity 72,000MW
• Peak demand 55,000MW
• South Africa
• Population 40 Million
• Installed generating capacity 42,000MW
• Peak demand 38,000MW
• Nigeria
• Population Over 130 million
• Installed Power Generation Capacity 6,330MW
• Peak Generation recently dropped to less than
  2,000MW

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Present Regulatory Framework

• Electricity Power Sector Reform Act (EPSRA) 2005
• National Electricity Regulatory Commission (NERC)
• Licensing Regime

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Licensing

• Generation Licence
• Grid connected
• Off-Grid
• Embedded Generation
• Transmission Licence
• Systems Operation Licence
• Distribution Licence
• Trading Licence

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Power Sector Reform Program

• Transition Stage
• Emergence of private power generation (IPPs,
  EPPs)
• Corporate restructuring, unbundling and
  privatisation of NEPA
• Sale / License of power plants
• Transfer of management of select DisCos
• Medium Term
• Competition amongst GenCos
• Energy trading between GenCos and DisCos
• Multi-Year Tariff Order

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Power Sector Reform Program

• Long-run Competition Structure
• Optimal performance of GenCos, Transco, Discos
• Full economic pricing
• Bulk trading
• Fully developed wholesale electricity market with
  rules e.g. Grid code, Metering code, Distribution
  code
• Full retail sales competition

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Nigerian Power Statistics

• 4 billion spent between 1999 2007
• Population Over 140 million
• Installed Power Generation Capacity 6,330MW
• Peak Generation less than 2,000MW
• Peak Demand (estimate) 7,000MW
• Transmission
• 330KV lines 5,000km
• 132KV lines 6,000km
• Distribution
• 33KV, 11KV 60,000KM

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Comparative Power Statistics

• UK
• Population 55 Million
• Installed generating capacity 72,000MW
• Peak demand 55,000MW
• South Africa
• Population 40 Million
• Installed generating capacity 42,000MW
• Peak demand 38,000MW

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• Questions
• ?

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RAILWAY
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Overview

• Development of the railway sector is one of
  governments top priorities
• Nigeria has a land area of 910,771km2 with a
  population of over 130 million people
• Current railway network consists of 4,332 track
  kilometres belonging to state owned Nigeria
  Railway Corporation
• Largely narrow gauge lines
• Current railway infrastructure is inadequate to
  meet passenger and freight demand
• Government is set to reform and restructure the
  sector through PPP under the umbrella of the
  National Transport Policy

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Comparison with other countries
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POLICY GOALS FOR TRANSPORT SECTOR

• To develop an affordable, safe, environmentally
  sound and efficient transport system through
  private sector participation
• To eliminate of all barriers to private
  participation in the transport sector
• To separate the roles of policy making,
  regulation and operations
• To establish an independent multi-sector
  regulator for the transport sector
• To separate non-core rail activity from the
  delivery of rail service
• To restructure and corporatise the NRC
• To divest NRCs non-core assets
• To introduce private sector participation
• To extend the existing railway by the
  construction of new lines

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In the Pipeline

• Proposed Railway Bill and National Transport
  Commission (NTC) Bill to be the legal basis for
  the implementation of government policies in the
  rail sector
• NTC Bill - to establish multi-sector transport
  regulator to be responsible for economic and
  safety regulation
• Railway Bill - sector specific legislation and
  legal basis for concessioning
• New routes and extensions to be added to existing
  network over the next 25 years
• Modernisation and upgrading of existing
  infrastructure and rolling stock
• Construction of mass transit systems in major
  states

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PPP Approach

• Vertical integrated concession model
• Existing infrastructure to be concessioned to
  private sector
• BOT concession in respect of new constructions
• In some cases, Government may fund infrastructure
  and thereafter concession to private sector
• e.g. Lagos Kano standard gauge line

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PPP Legislation

• Infrastructure Concession Regulatory Commission
  Act
• To provide legal/regulatory framework for private
  sector participation in financing, construction,
  operation, maintenance of infrastructure
• PPP office

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• Lagos State Roads, Bridges and Highway
  Infrastructure (Private Sector Participation)
  Development Board Law 2004
• establishes Lagos State Roads, Bridges and
  Highway Infrastructure (Private Sector
  Participation) Development Board
• provides a legal and regulatory framework for
  private sector participation in the development,
  rehabilitation, upgrading and construction of
  infrastructure within Lagos State
• One example Lekki toll road

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• Questions
• ?

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SOLID MINERALS
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Mining

• Power and transportation needs are critical
• Other obstacles exist

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Background

• Power and transportation needs are critical
• Other obstacles exist
• Very little development and investment in the
  last 30 years.
• New focus on solid minerals as an alternative
  foreign exchange earner.
• Current reforms to provide enabling environment
  for increased investment.

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Shortcomings of the Minerals and Mining Act 1999

• Did not address security of tenure
• Unduly wide discretionary powers for the Minister
  
• Pre-emptive right of government on all minerals
  extracted
• Did not recognise the use of a mineral title as a
  security interest
• Inadequate environmental provisions
• Result Inability to attract desired investment

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Highlights of Reforms

• New investor friendly legislation - Minerals and
  Mining Act 2007
• Role of federal government now restricted to
  regulation
• Establishment of independent Mining Cadastre
  Office (MCO) for the administration of mineral
  titles
• Capacity building within the Ministry of Mines
  and Steel Development
• Extensive geological data campaign indicating
  occurrence of at least 34 mineral types across
  the country

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The 34 Minerals

• Tantalite
• Kaolin
• Mica
• Baryte
• Coal
• Rutile
• Talc
• Bismuth
• Gypsum
• Feldspar
• Gold
• Clays
• Silver
• Ilmenite
• Limestone
• Columbite
• Cassiterite

• Diatomite
• Silica Sand
• Fluorite
• Bitumen
• Lead
• Zinc
• Bentonite
• Iron Ore
• Lithium
• Magnesite
• Kyanite
• Wolframite
• Phosphate
• Marble
• Molybdenite
• Manganese
• Gemstones

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The Minerals Mining Act 2007Highlights

• Security of tenure is enhanced
• Clear and transparent rules for the grant,
  renewal, suspension and revocation of titles
• Mineral titles granted on first come-first
  served basis
• Exploration licence holder has exclusive right in
  respect of any part of the exploration area
• Time lines introduced to curtail the exercise of
  administrative discretion
• Expedited process for obtaining approval for
  transfer of title
• Mineral titles now bankable

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The Minerals Mining Act 2007Highlights

• No pre-emptive rights for Government over
  minerals extracted
• More focus on environmental and sustainability
  issues
• Community Development Agreement
• Attractive fiscal regime

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Mineral Titles
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Mineral Titles (contd.)
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Indicators

• MCO has issued over 1000 exploration licences
  within the last few months
• Government currently divesting its interests in
  several titles held by state owned entities
• Increased exploration activities expected in
  coming years

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• Questions
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Doing Business in Nigeria
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Outline

• Business Registration options
• Company Registration
• Importing Capital
• Sovereign Risk
• Use of Foreign Technology and Expertise
• Tax
• Repatriating Profits
• Repatriating Capital

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Business Registration Options

• Company registered under Companies and Allied
  Matters Act
• Free zone entity registered under NEPZ Act

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Company Registration

• Only companies incorporated in Nigeria can do
  business
• Exceptions
• Foreign companies invited to Nigeria by or with
  approval of the Federal Government to execute a
  specific project
• foreign companies executing individual loan
  projects on behalf of donor countries or
  international organizations
• Foreign government-owned companies engaged solely
  in export promotion activities and
• Engineering consultants and technical experts
  engaged in government approved specialist
  projects.

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Can I invest in Nigeria without registration?

• Equity Investment
• Money Market Instruments
• Minimum tenor of 1 (one) year in case of
  investment by foreigner in treasury bills
• Commercial Papers, Bankers Acceptances,
  Negotiable Certificates of Deposits, etc may have
  tenor of less than 1 (one) year

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Company Registration (contd.)

• Limited by Shares
• Limited by Guarantee
• Unlimited Company
• Private or Public

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Company Registration (contd.)

• Other Requirements
• A minimum of
• 2 (two) shareholders
• 2 (two) directors
• Nominal Share Capital (Foreign Investment)
  N10,000,000 (approx. US80,000)
• Issued share capital 25
• Sector-specific registration
• Municipal permits and approvals

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Importing Capital

• Procedure for Importation of Capital
• Capital in convertible foreign currency imported
  through Authorised Dealer by telegraphic
  transfer, cheque or other negotiable instrument
• Foreign currency converted to Naira in the
  Autonomous Foreign Exchange Market
• Authorised Dealer issues Certificate of Capital
  Importation (CCI) to investor within 48 hours of
  importation

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Importing Capital (contd.)

• CCI guarantees unconditional transferability of -
• Dividends/profits (net of taxes) attributable to
  investment
• Remittance of proceeds (net of all taxes) and
  other obligations on sale or liquidation of
  enterprise attributable to investment

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Sovereign Risk

• Non-Expropriation Policy
• Nigerian Investment Promotion Commission Act
  provides that -
• No enterprise shall be nationalised or
  expropriated by government
• No person shall be compelled by law to surrender
  his interest in the capital of any enterprise to
  any other person
• Notwithstanding, Federal Government
• May acquire enterprises in the national interest
• Pay fair and adequate compensation for
  enterprises so acquired
• Investor has right of access to Nigerian courts
  for purposes of determination of compensation

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Use of Foreign Technology and Expertise

• Registration with NOTAP required for contracts
  entered in connection with -
• Use of foreign trademarks and patented inventions
• Supply of technical expertise
• Supply of basic or detailed engineering
• Supply of plant and machinery
• Provision of operations staff or managerial
  assistance and training of personnel
• Fees under Technical/Management Service
  Agreements to be expressed as percentage of net
  sales of local subsidiary
• NOTAP typically approves fees
• Not exceeding 5 of net sales for Technical
  Services
• Fees of 2-5 of profit before tax for Management
  Services

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Tax

• Applicable Taxes
• Company Income Tax
• Personal Income Tax
• Petroleum Profits Tax
• Education Tax
• Withholding Tax
• Capital Gains Tax
• Value Added Tax (VAT)
• Sales Tax
• Stamp Duty
• Property Taxes
• Real Property Tax (Tenement Rates)
• Real Estate Conveyance Tax
• Real Estate Registration Tax

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Tax (contd.)

• Tax Incentives -
• Pioneer Status
• Grants tax relief for 3 years, renewable for
  further period of 2 years
• President designates Pioneer Industries and
  Pioneer Products- lists published in National
  gazette
• Dividends exempt from income tax
• Status restricted to permitted activities
• Other Industry specific incentives are granted on
  the basis of strategic importance to national
  economy

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Repatriating Profits

• Dividends payable out of local subsidiarys
  distributable profits
• Tax deducted at source from dividend payments at
  rate of 10
• Dividends (net of tax withheld at source)
  regarded as franked investment income
• Tax withheld final Nigerian tax due from
  non-resident recipient

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Repatriating Capital

• Investments liquidated by -
• Sale of Assets
• Gains on disposal chargeable to Capital Gains Tax
  (CGT) at rate of 10
• Proceeds (net of all taxes) of disposal of assets
  may be remitted using CCI
• Sale of Shares
• No CGT chargeable on proceeds of sale of shares
• Transaction fees of less than 3 in the case of
  public companies
• CCI allows for repatriation of proceeds

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• Questions
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• Thank you
• for listening

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