Guide to Investing in Nigeria_Secretly Co-written
A QUICK GUIDE TO INVESTING IN
NIGERIA
FOREIGN PORTFOLIO INVESTMENT VS FOREIGN DIRECT
INVESTMENT
Nigeria views private investments flowing, from outside, into its economy MAINLY from two perspectives
(Foreign Direct Investment [FDI] and Foreign Portfolio Investment [FPI]). Foreign investors’ appetite for FPI has
been higher than that of FDI (since 2013) due to both favorable interest rates on financial instruments available
in the (domestic) capital market and the economy’s volatility. Particularly in 2017, in addition to being one of
Africa’s largest economies, Nigeria’s capital market was the best performing globally as investors’ confidence
in the local economy rose.
Based on the Central Bank of Nigeria (CBN) having more of a core focus on shoring up the nation’s foreign
reserves and protecting the foreign exchange value of the local currency, it would SEEM that FPI is the favoured
form of investments to support Nigeria’s monetary and foreign exchange policies. Meanwhile, FDI has seen a
steady decline since 2014 as a result of unfavourable public policies, bureaucratic bottlenecks, corruption and
poor infrastructure; which led to the market’s poor performance in the World Bank Group’s Ease of Doing
Business rankings (Nigeria was 146th out of 190 countries, in 2018).
Source: National Bureau of Statistics (NBS) Capital Importation Reports (2013 -2017)
HOW TO SAFELY NAVIGATE THE NIGERIAN STOCK MARKET
Just like in every other stock market, it is necessary for investors’ eyes to remain on the ball in order to know
when to “buy or sell”. However, political risk remains a unique factor present in the Nigerian economy, as
investors tend to pull out their funds at the end of each 4-year electoral cycle when elections begin across the
three tiers of government. Also, during global oil-gluts (when Nigeria’s public revenues are threatened) foreign
investors may be skeptical to continue investing in the market. In order to remain abreast of these key factors,
investors require the services of local stock broking firms, investment banks and asset management firms.1
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NOTE: The hyperlinks are for online lists of the highlighted categories of companies
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KEEN ON MAKING FOREIGN DIRECT INVESTMENT?
Although Nigeria has performed poorly, in terms of the ease of doing business, the Federal Government has
been working towards turning the situation around. To this end, the Presidential Enabling Business
Environment Council (PEBEC) was set up in July 2016 to remove bureaucratic constraints to doing business in
Nigeria. Consequently, Nigeria made some brief progress in the World Bank’s 2017 rankings when it went from
169th (2016) to 145th out of 190 countries.
The aforementioned inhibiting factors to FDI have repeatedly led to large companies (across various sectors)
pulling out of the economy, as they barely breakeven (not to talk more of being profitable). Several brands
such as Virgin Airlines and Intercontinental Hotel exited Nigeria due to some (or all) of such factors, and this
was primarily because of the investors’ lack of knowledge concerning the political / socio-economic landscape
before market entry. Thus, it is advisable to work with reputable support service providers such as consultants,
law firms, accounting firms, HR firms and real estate agencies when entering the Nigerian market.
KEY AREAS WHERE FIRST TIMERS REQUIRE ADVISE (FOR FDI)
Political and Economic Insights
As a rule of thumb, investors hire risk advisory consultants before entering new markets in order to understand
the political / socio-economic peculiarities of such economies. All markets have their own unique features,
which shape how business is conducted within their respective territories. For instance, incoming investors to
Nigeria should be aware of the economy’s political volatility and the over-regulatory nature of its public sector,
which can then determine their level of commitment to the market. In this regard, there is a wide array of
international and local risk advisory consultancies that can be of service.
Due Diligence
Businesspersons, with foresight, typically want to know details about potential partners or vendors that they
will deal with while doing business in a new market. This helps prevent such investors from being entangled
with fraud and other scandalous issues in new markets. With the advent of online search engines and social
media, it is easy for investors to do preliminary background checks on their key stakeholders. However, the
help of skilled professionals (lawyers or risk advisory consultants) should not be overlooked, as only they know
where to source for local information not available on the internet.
Business Registration and Incorporation
The Corporate Affairs Commission (CAC) is the government agency in charge of incorporating new businesses
in Nigeria. Fortunately, the agency has (in recent times) digitized the manner in which businesspersons can
register their companies. Notwithstanding, investors can still engage trusted legal advisers to vet such
registration documents and processes. Online information hubs where some local law firms and legal advisers
can be identified include Chambers & Partners and QuickLaw.
Tax Registration and Bank Account Setup
With the Nigerian government increasingly looking to widen the national tax net, it is imperative that foreign
investors coming into the economy address all corporate tax issues (right from when their businesses are being
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registered). The Federal Inland Revenue Service (FIRS) is responsible for tax collection, at the federal level,
while each of the 36 states also have their individual tax collection agencies. The act of setting up a bank
account can be done with any of the market’s 21 commercial banks; but if one is concerned with the strength
of these banks then it is advisable to deal with the TIER-1 CATEGORY.
Locating Commercial Property
Online real estate companies are reducing the difficulty associated with locating prime commercial property
across Nigeria’s commercially vibrant settlements. The rise of local incubation hubs is also relatively disrupting
the real estate industry, especially as start-ups can pay less amounts of rent (on a monthly or quarterly basis)
for accommodation services. However, for investors interested in highbrow commercial property it is advisable
to contact the market’s prominent real estate agencies (most of whom have foreign origins).
Staff Recruitment
Based on the huge skills gap present in the Nigerian economy, foreign investors are advised to work with key
HR consultancies to find the best labor locally available. With a labor force of over 80 million people (NBS,
Unemployment and Under Employment Report, Q1-Q3 2017) Nigeria has a significant deposit of human
resources providing cheap labor, as the national minimum wage (per month) is N18,000 (US$50). However,
note that the government is in the process of reviewing the minimum wage to N30,000 (US$83.3).2
Stakeholder Engagement and Advocacy
In times of regulatory crisis, foreign investors surely will require advocates and intermediaries that can stand
between them and relevant government agencies. This is an area where Business Membership Organizations
(BMOs) and trade / industry associations play a key role, while risk advisory consultancies complement their
efforts. Upon entry into the market, foreigners should register with chambers of commerce (linked to their
home countries) in order to address such issues when they arise.
Media Engagement
When launching products and services in new markets, media services are required in order to galvanize the
sort of publicity required to achieve maximum sales. The market possesses both local and foreign media
operatives that broadcast on either terrestrial or digital networks. In addition, with about half of Nigeria’s
population having internet connectivity,3 it has become easy to advertise products and services to local
consumers via social media platforms.
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The Nation Newspaper, Article, February 2019
Internet World Stats
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EMERGING INDUSTRIES TO WATCH OUT FOR IN NIGERIA
FinTech
The local Digital Financial Services (DFS) space will continue to evolve as the Nigerian government increasingly
relaxes its regulatory grip on the sector; as proven by the CBN’s recent decision to allow non-banks also play a
leading role in the provision of mobile money and agent banking services (on certain conditions). Expansion of
the Nigerian FinTech industry can be attributed to several factors that include high mobile-phone penetration;
a significant youth demography; growing e-commerce activities; and the existence of financial inclusion
policies.
EduTech
With a rapidly rising youth population, Nigeria will soon require skills that can align with the productivity needs
of the future; and this is where the nation’s rising level of internet penetration can play an important role.
There are opportunities for foreign investors to support the growth of EduTech in Nigeria, especially as the
national budget’s allocations to the education sector remains relatively low. Investing in EduTech will have a
far-reaching positive impact on all sectors of the economy as Nigerian labourers can become globally
competitive.
NOTE: For more info, contact ROTIMI OLAITAN on-or -
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