Opeyemi Atawo and Bukunola Alakija of Kayode Sofola & Associates assess the growth outlook of Nigeria

Estimated as contributing 20% of the African continent's GDP, Nigeria is a dynamic, high-octane growth market with an unpredictable but exciting terrain. The declining market value of the Naira (N), Nigeria's currency, coupled with exchange control restrictions imposed by the Central Bank of Nigeria to defend the Naira, resulted in a decline in foreign direct investment (FDI) over 2014 and 2015. Nevertheless, Nigeria's strong demographics underpin its investment appeal. With a population of 177 million and a rising middle class (estimated to be 23% of the population), Nigeria remains a prime investment destination.

With English as its official language and a legal system based on common law, Nigeria's investment framework promotes ease of entry for FDI. There are no restrictions on foreign ownership of shares in Nigeria. Moreover, except in oil and gas, power, aviation, broadcasting, advertising, engineering, and private security companies, foreign investors are free to establish businesses without the need for a local partner or Nigerian directors. All investment capital brought into Nigeria can be repatriated provided that it was brought into the country under a certificate of capital importation obtained from an authorised dealer (usually a Nigerian commercial bank).

Foreign investors do not need foreigner-specific prior approval to own, buy, and sell shares in Nigerian private and listed companies. However, foreign shareholders of listed companies must be registered with the Nigerian Securities and Exchange Commission (SEC). The merger, acquisition, and/or takeover of private or listed companies must be approved by the SEC, the cross-sector competition regulator.

Investment vehicles

The limited liability company (LLC) is the main vehicle used for business in Nigeria. However, alternative business vehicles and structures also exist and are used for business in Nigeria.

These include: representative offices; joint ventures; public companies; unlimited liability companies; collective investment schemes; partnerships (general and limited); and, limited liability partnerships (only recognised in Lagos).

The basic requirements for registering a LLC with a foreign shareholder are two shareholders, two directors (who do not have to be Nigerian), and a minimum share capital of N10,000,000 (approximately $50, 000). The incorporation process usually takes two to three weeks to complete, with an approximate statutory cost of N150,000. This includes N75,000 ad valorem stamp duty payable on the N10,000,000 registered share capital. The required minimum share capital for a wholly Nigerian private company is N10,000. For a public company it is N50,000. The required minimum share capital for a real estate investment company is N20,000,000 irrespective of ownership. There are certain other registrations and permits that a company must obtain after incorporation and before commencing full operations. Some registrations are industry specific, while other registrations apply broadly to all companies.

The key broadly-applicable registrations and permits are:

  • Registration at the Federal Inland Revenue Service (FIRS). The applicable tax rate for a company resident in Nigeria is 30%. A company whose business or product is listed on the government's so-called Pioneer List is eligible to apply for pioneer status tax relief within its first year of commercial operations. Pioneer status exempts companies from paying companies income tax for up to a maximum of five years. The Pioneer List is a list of 71 industries that includes tourism and real estate (ie the development of holiday resorts, hotels, sporting and recreational facilities, and commercial and residential properties).
  • Registration at the Nigerian Investment Promotion Commission (NIPC) and application to the Federal Ministry of Interior for a business permit and expatriate quota. In practice, this application is submitted via the NIPC and not directly to the Federal Ministry of Interior. An expatriate quota is a fixed term renewable permit that states the maximum number of foreign employees that a Nigerian company can legally employ. Foreign employees are subject to entry visa and work permit requirements and will not be allowed entry into Nigeria without a valid entry visa.
  • Registration of certain operational contracts with a foreign counterparty at the National Office for Technology Acquisition and Promotion (NOTAP). NOTAP registration is a practical necessity because the company must provide its bankers with a NOTAP certificate in respect of the relevant agreement before that company can remit payments to its counterparty abroad through the official Nigerian foreign exchange market. The requirement for NOTAP registration applies to contracts involving the transfer of technology which include management services agreements, software licence agreements, trademark licence agreements and consultancy service agreements. NOTAP registration should be carried out within 60 days of the effective date of the relevant contract otherwise a penalty fee of N100,000 will be payable to NOTAP in addition to the registration fees.

The real estate sector

The global fall in oil prices has led to an increased focus on non-oil sectors in Nigeria such as construction and real estate. Nigeria's National Bureau of Statistics records that the real estate sector accounted for 8.26% of Nigeria's real GDP in the fourth quarter of 2015. The Nigerian real estate sector is driven by strong long-term fundamentals. Factors such as sustained urban migration, an estimated housing shortfall of 17 million units, plus the success of retail centres like the Ikeja City Mall and the recently-opened Jabi Lake Mall, are indicative of the potential in real estate for Nigeria. The Ikeja City Mall was bought in November 2015 by a South African real estate investment trust (REIT), while the Jabi Lake Mall was sponsored and financed in part with foreign direct investment.

The framework for real estate investment schemes (REIS) was introduced in Nigeria in 2007 with the aim of boosting investment in real estate. Since then, three REITs have listed on the Nigerian Stock Exchange. The framework distinguishes REITs (a unit trust) from real estate investments companies (REICs) (LLCs), although both are treated as collective investment schemes for the sole purpose of acquiring intermediate or long-term interests in real estate or property development.

A REIS will be subject to approval, registration, and regulation by the SEC. In applying for approval, a REIS must identify the persons (Nigerian and foreign) that hold at least five percent of its value or equity. In January 2016, the SEC published proposed updates to the rules applicable to REIS', including that:

  • at least 90% of a REIS' revenue (excluding capital gains) must be derived from rental income or dividends from rental income;
  • they should distribute at least 75% of rental income or dividends from rental income annually and must make at least one distribution bi-annually;
  • they can invest up to 25% of total assets abroad but only in investment grade-rated African countries (they are currently prohibited from making investments outside Nigeria); and,
  • a REIC cannot leverage more than 40% of its gross asset value (an increase from 25% currently).

There is no absolute right of ownership over land in Nigeria: all legal persons hold land under a right of occupancy granted by the state in which the land is located. This right of occupancy operates as a 99-year lease from the state and is evidenced by a certificate of occupancy, which is a registered document. A certificate of occupancy is not conclusive proof of ownership. For this reason it is important to establish the authenticity of all title documents in relation to a particular piece of land and get a thorough search report from a lawyer.

The legal documents usually used for transactions over land are a contract for sale of land coupled a deed of assignment, a deed of sub-lease, and a deed of mortgage or charge. It is also possible to have equitable transfers of, or equitable charges over, land in Nigeria.

Except in the case of land owned by the federal government, the effectiveness of an assignment, mortgage, transfer of possession, sub-lease or otherwise of any land in a state is subject to the state governor's prior consent. In practice, leases of less than three years are not subject to the governor's consent and are not registered.

Perfecting title in land can be a costly exercise fraught with bureaucracy that typically takes at least two months to complete. Perfection means first obtaining the state governor's consent and thereafter paying ad valorem stamp duty on the document of conveyance within 30 days of the date of the conveyance. The next step after stamping is to register at the Land Registry of the relevant state. This must be done within 60 days of the date of the conveyance. An unstamped document will not be registered and is inadmissible as evidence of title in court. Finally, in the case of a mortgage, registration at the Corporate Affairs Commission must be made within 90 days of the date of the mortgage. In practice, the document of conveyance is signed but left undated until after receipt of governor's consent so that the subsequent deadlines do not start counting until after governor's consent has been given. Planning and building approvals must also be obtained from the state or federal government (whichever is applicable) before developing the land.

  First published by our sister publication IFLR magazine. Take your free trial today.

Opeyemi Atawo
Kayode Sofola & Associates

About the author
Opeyemi Atawo joined Kayode Sofola & Associates as a partner in 2015. Prior to joining the firm, she worked with two leading international law firms in London: in the insolvency and restructuring team at Clifford Chance and the project finance team at Latham & Watkins. Her key areas of expertise are project development and finance. She represents both sponsors and lenders in the financing of infrastructure, mining and metals, and oil and gas projects and assets. She also has experience of advising creditors and debtors on cross-border restructurings, insurance reconstruction and insolvencies, contentious and non-contentious insolvencies. She is called to the Nigerian bar and qualified as a solicitor in the UK. She is an alumni of the London School of Economics, where she completed her law degree.

Bukunola Alakija
Kayode Sofola & Associates

About the author
Buky Alakija joined Kayode Sofola & Associates in 2014 and is the head of the firm's London branch. Prior to joining the firm she qualified as a UK solicitor in the corporate department of Freshfields, London. She has advised a broad range of clients on corporate and commercial transactions, with a particular emphasis on M&A and joint ventures in the oil and gas sector. She has previously worked as a capital markets legal analyst at Goldman Sachs, London and served as a legal adviser to the Nigerian Minister of Finance, overseeing the establishment of Nigeria's sovereign wealth fund. She is an alumni of St. Catherine's College, Oxford University.