INTRODUCTION
Foreign participation in the Nigerian business sector has significantly shaped the nation's economic landscape. As one of Africa's largest economies and one of its most vibrant markets, Nigeria attracts foreign investors from various regions and industries, including oil and gas, agriculture, telecommunications, and manufacturing. The influx of foreign capital, expertise, and technology has contributed to the growth of key sectors and has facilitated economic diversification. While challenges such as political instability, regulatory uncertainties, and infrastructure deficits remain, the Nigerian market offers substantial opportunities for foreign businesses seeking to expand in one of the world’s most populous and resource-rich nations. This participation has also fostered strategic partnerships, enhanced local entrepreneurship, and supported employment creation, making foreign investment an essential driver of Nigeria's development.
FOREIGN PARTICIPATION
Foreign participation, also called alien participation, is defined under the Companies and Allied Matters Act (CAMA), 2020. Section 868 of CAMA defines an alien as any person or entity, whether incorporated or unincorporated, that is not a Nigerian citizen, company, or business entity registered in Nigeria.
Section 20 of CAMA outlines the provisions for individuals to establish a company in Nigeria, with Section 20(4) specifying that, subject to relevant laws governing the rights of foreigners to engage in business, a foreigner or foreign company can participate in forming a Nigerian company. This means that foreign individuals or companies can form and operate businesses in Nigeria.
A Nigerian company is considered to have foreign participation if it is wholly or partially owned by a foreign entity or individual, meaning that one or more of its shareholders are not Nigerian citizens or companies. Foreign participation is commonly seen in industries such as oil and gas, technology (including fintech), and the gaming sector.
CLASSIFICATION OF FOREIGN PARTICIPATION
Foreign participation in the business sector can be classified into two main types: Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). These classifications are based on the level of involvement and control the foreign entity has in the local business operations.
l Foreign Portfolio Investment
Foreign Portfolio Investment (FPI) refers to the indirect participation of foreign investors in a country's business sector. It involves purchasing financial assets such as stocks, bonds, or other securities of companies listed on a country's stock exchange, without seeking to control or actively manage the companies. FPI does not involve direct control or influence over the operations of the business, and investors are more focused on the financial returns from their investments rather than management participation. FPI is considered a more passive form of investment, as investors are not typically involved in the daily management or strategic direction of the businesses they invest in. Investment is not limited to securities listed on the Nigerian Stock Exchange (NSE), but also includes private placements, which are not publicly traded but still available for investment.
Foreign Portfolio Investors (FPIs) are required to register with the Securities and Exchange Commission (SEC) as per Section 13(1) of the Investment and Securities Act (ISA). Investments can be made using foreign currency imported through an authorised dealer and converted to Naira at the official exchange rate. Once capital is imported, the authorised dealer must issue a Certificate of Capital Importation (CCI) within 24 hours and provide necessary reports to the Central Bank of Nigeria (CBN) within 48 hours of the importation. The CBN can appoint any bank or non-banking institution capable of acting as an authorised dealer.
Procedure for Foreign Portfolio Investment (FPI)
· Apply for the allotment of shares by the foreign investor to the Nigerian company.
· Alternatively, the application for share allotment can be done through a capital market operator.
· Obtain approval from the issuing company's Board of Directors (BOD) for the allotment of shares to the foreign investor.
· Import capital through an authorised dealer.
· Obtain a Certificate of Capital Importation (CCI).
· Receive share certificates.
· Apply to the SEC for registration of the securities.
l Foreign Direct Investment (FDI)
FDI occurs when a foreign entity or individual invests directly in a company within Nigeria. This typically involves acquiring a significant ownership stake or even complete ownership of a local company. In FDI, the foreign investor controls the business's operations, management, and decision-making processes. This kind of investment is often used to expand operations into a new market or gain access to local resources. Examples of FDI include opening subsidiaries, establishing joint ventures with local companies, or acquiring a controlling stake in a local business. A foreigner can incorporate a company in Nigeria independently or in collaboration with Nigerian partners. The company that is established must be officially registered unless it qualifies for an exemption.
Procedure for Foreign Direct Investment (FDI)
· Apply for and obtain a "Subject to Regularisation" (S.T.R.) business visa from the appropriate Nigerian Diplomatic Mission.
· Secure a local address in Nigeria for service of documents and other matters related to the company's incorporation.
· Prepare a joint venture agreement (JVA) and any necessary pre-incorporation agreements if partnering with a Nigerian entity.
· Register the company with the Corporate Affairs Commission (CAC).
· Apply to register the enterprise with the Nigerian Investment Promotion Commission (NIPC).
· Register the investment with the Securities and Exchange Commission (SEC).
· Import capital through an authorised dealer.
· Obtain a certificate of capital importation.
· Apply for the necessary permits.
· Apply for any applicable reliefs and incentives.
REGISTRATION OF FOREIGN COMPANIES
Under Section 78 of the Companies and Allied Matters Act (CAMA) 2020, any foreign company intending to conduct business in Nigeria must register with the Corporate Affairs Commission (CAC) before starting operations. However, Section 80 of CAMA outlines specific exemptions where a foreign company may not need separate registration in Nigeria. These include:
· Foreign companies invited by the Federal Government to execute a specific project;
· Foreign companies in Nigeria to execute specific loan projects on behalf of a donor country or international organisation;
· Government-owned foreign companies engaged in export promotion activities;
· Engineering consultants and technical experts working on individual projects approved by the federal government.
Every foreign company intending to do business in Nigeria must be incorporated as a separate entity before engaging in any business activities. Until incorporated, the foreign company cannot operate in Nigeria or exercise any powers of a registered company, nor can it have a business address or receive service of legal documents except for those related to the incorporation process.
Consequences of Failing to Register with the CAC
Where a foreign company fails to register with the Corporate Affairs Commission (CAC), the following consequences apply:
· It cannot conduct business in Nigeria.
· Any transactions carried out by the company would be considered void and illegal.
· The court will not enforce contracts related to such transactions.
· The company cannot establish a place of business in Nigeria or serve legal documents, except for the purpose of receiving notices related to incorporation.
· Both the company and its officers may face criminal liability if they operate without registering.
· Despite the inability to operate without registration, a foreign company retains the right to sue or be sued in Nigeria.
CONCLUSION
Foreign participation in the Nigerian business sector has undeniably contributed to the growth and diversification of the nation's economy. Through Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI), foreign entities have played a pivotal role in key sectors such as oil and gas, telecommunications, manufacturing, and technology. These investments have not only injected much-needed capital but have also brought in expertise and advanced technology, spurring innovation and enhancing local entrepreneurship.
However, foreign businesses must navigate the regulatory framework provided by the Companies and Allied Matters Act (CAMA), which stipulates registration requirements and provisions for exemptions. Failure to comply with these regulations can result in severe legal consequences, including the inability to conduct business in Nigeria and the potential voiding of transactions.
In conclusion, while foreign participation in Nigeria's business sector faces certain hurdles, its economic growth, job creation, and technological advancement benefits are invaluable. As Nigeria's economy continues to evolve, foreign investors will undoubtedly remain a crucial driver of its development, playing a key role in shaping the future of the nation's business landscape.
Ikeola Atilola
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