GENERAL INFORMATION FOR FOREIGN INVESTORS

 

Foreign investors and capital market operators/securities dealers intending to invest or participate in the Nigerian capital market are advised to familiarize themselves with the provisions of the following laws, etc.

The Nigerian Financial System

The Nigerian financial system has undergone remarkable changes in terms of ownership structure, the depth and breadth of instrument employed, the number of institutions established, the economic and the regulatory framework within which the system operates.

The Structure:

The Nigerian financial system comprises the regulatory/supervisory authorities, banks and "other" financial institutions. The regulatory/supervisory authorities are the Central Bank of Nigeria, the Nigeria Deposit Insurance Corporation (NDIC) the Securities and Exchange Commission (SEC). The Federal Ministry of Finance (FMF). The Nigerian Insurance Supervisory Board (NISB) and the Federal Mortgage Bank of Nigeria (FMBN).

The Federal Ministry of Finance (FMF) which along with the Central Bank constitutes the monetary authorities shares control over the Bureaux de Change. Also the FMF shares control over the insurance companies with the NISB which is the apex regulatory authority in the insurance sector. The FMBN regulates mortgage finance business in Nigeria.

The Regulatory Authorities:

The regulatory/supervisory authorities are very crucial for the functioning and orderly development of the financial system.

The Federal Ministry of Finance.

The Federal Ministry of Finance advises the Federal Government on its fiscal operations and interacts with the CBN on the monetary matters. The Federal Ministry of Finance is responsible for licensing of Bureaux de Change.

The Central Bank of Nigeria.

The CBN is the apex regulatory authority of the financial system. It was established by the Central Bank Act of 1958 and commenced operations on 1st July, 1959. The CBN Act of 1958 has been repealed and replaced with the CBN Decree 24 of 1991 among its functions, the Bank promotes monetary stability and a sound financial system and acts as bankers of last resort to the banks. The promulgation of the CBN Decree 24 and Banks and other Financial Institutions (BOF) Decree 25, both of 1991, gave the Bank responsibility for licensing banks.

The Securities and Exchange Commission (SEC).

The SEC was established by the SEC Act of 27th September, 1979 and was reenacted by the SEC Decree of 1988. It is the apex regulatory organ of the capital market. Its major objective is the promotion of an orderly and active capital market. In doing this, the SEC has a major function of ensuring adequate protection of the investing public. SEC continues to maintain surveillance over the market to enhance efficiency. In 1993, the SEC issued guidelines on the establishment of Stock Exchange in furtherance of the deregulation of the capital market.

The Federal Mortgage Bank of Nigeria (FMBN).

The FMBN was established by Decree No. 7 of 1977. The main functions of the FMBN include the provision of the banking and advisory services and research activities pertaining to housing. Decree 3 of January 1991 empowered FMBN to license and regulate Mortgage Institutions in Nigeria.

The Money Market and its Institutions

This is a market for short-term debt instruments. The major function of the money market is to facilitate the raising of short-term funds to meet the needs of the deficit sectors of the economy from the surplus sectors. The deficit units obtain funds from the market to bridge budgetary gaps by trading in short-term securities such as Treasury Bills, Treasury Certificates. Call Money (CM), Certificates of Deposits (CD), Bankers Unit Fund (BUF), and the commercial papers. With the commencement of the Open Market Operations (OMO), the scope of the money market has been expanded.

Discount Houses.

Discount houses were established in Nigeria as part of the efforts to shift from direct to indirect monetary control. There are now three discount houses operating in the country. In the process of shifting from direct to indirect monetary control, which places emphasis on Open Market Operation (OMO), Discount Houses have been established to serve as financial intermediaries between the CBN, licensed banks and other financial institutions.

Commercial and Merchant Banks.

Commercial and Merchant banks perform the major role of financial intermediation in the economy and facilitates the payments system of the modern exchange economy. The banks operate under the legal framework of the Banks and other Financial Institutions Decree 25 of 1991. These include:

Commercial Banks.

Commercial banks started operations in Nigeria in 1892. They perform three major functions, namely, acceptance of deposits, giving out of loans and participation in the clearing system. Since government commenced active deregulation of the economy in September 1986, the commercial banking sector has continued to witness rapid growth, especially in terms of the number of institutions and products innovations in the market.

Merchant banks are wholesale bankers in that they cater for the needs of corporate and institutional customers. Merchant banking operations started in 1960. Their role in the economy is to provide medium to long-term finance by engaging in activities such as equipment leasing, loan syndication, debt factoring and project financing.

The decision to establish the People’s Bank of Nigeria was first announced by the Government in the 1988 budget, with an initial allocation of 30m. The bank attained legal status by Decree No. 22 of 1990. Specifically the bank is to provide the credit needs of small borrowers who cannot meet the stringent collateral requirements normally demanded by conventional banks. As from 1997, it is expected that the bank would be reorganized to provided for the needs of the rural dwellers.

Community Banks are unit banks that are limited geographically in their operations. Community banks have been set up to meet credit needs of millions of small-scale producers in the rural and urban areas.

The primary aim of the Nigerian capital market is to mobilize long-term funds. The Nigerian Stock Exchange (NSE) is the centre point of the capital market while the Securities and Exchange Commission (SEC) serves as the apex regulatory body. It provides a mechanism for mobilizing private and public savings and makes such funds available for productive purposes. The Exchange also provides a means for trading in existing securities. To enable small as well as large-scale enterprises gain access to public listing, the NSE operates the main Exchange for relatively large enterprises, and the Second-Tier Security Market (SSM) where listing requirements are less stringent for small and medium-scale enterprises. The exchange which started with only 19 securities traded on its floors in 1961, now has 279 securities made up of 34 Federal Government Stocks. 62 Corporate/Bonds and 183 equities all with a total market capitalization of N170 billion. The major instruments used to raise funds in the market include equities, debentures, bonds and stocks. Capital markets are classified into two segments, namely primary and secondary.

The primary market is a market for new issues of securities. The mode of offer for the securities traded in this market includes offer for subscriptions, rights issues, offer for sale, private placement etc. while the secondary market is a market for trading in existing securities. This consists of exchanges and over the counter deals where securities are bought and sold after their issuance in the primary market. Activities in the secondary market have increased substantially over the years. The number of stock brokers trading on the Exchange increased from 110 in 1991 to 140 in 1994.

The debt of the capital market has increased with the introduction of the Unit Trust Scheme for mobilizing the financial resources of small and big savers and managing such funds to achieve relatively high returns with minimum risks through efficient portfolio diversification. Efficiently managed unit fund schemes offer the advantages of low costs, liquidity and high returns. The promulgation of the Companies and Allied Matters Decree of 1990 provided the legal framework for the establishment of unit trusts.

With the introduction of the Electronic Contributor System, the NSE is able to beam stock market operations to the outside world via the Reuters International Information Network.

Specialized Banks.

Specialized Banks are otherwise known as the Development Finance Institutions (DFI). These are institutions established especially to contribute to the development of specific sectors of the economy.

    1. The Nigerian Industrial Development Bank (NIDB)
      2.

      The Nigerian Industrial Development Bank was established in 1964. Specifically, the NIDB was set up to provided credit and other facilities to industries, particularly medium and large-scale enterprises. Recently, some small-scale enterprises have also benefited from its financing.

    2. The Nigerian Bank for Commerce & Industries (NBCI)
      3.

      Following the promulgation of the Nigerian Enterprises Promotion Decree of 1972, there was the need to develop indigenous enterprises particularly small and medium-scale ones. The Federal Government through Decree 22 of 1973 ensured that apart from granting loans to small and medium small enterprises, the bank also engages in share underwriting, project identification and feasibility studies. Government has since repealed the Nigerian Enterprises Promotion Decree of 1992.

    3. The Nigerian Agricultural & Co-operative Bank (NACB)
      4.

      The NACB was established in 1973 mainly to finance agricultural development projects and allied industries. In its operations, the bank usually interacts with States’ Ministries of Agriculture.

    4. Urban Development Bank (UDB)
      5.

Several Nigerian cities experience problems of inadequate housing, transportation, electricity and water supply. In order to create a greater capacity for dealing with these problems the Federal Government established the UDB through Decree 51 of 1992.

 

Other Financial Institutions & Funds
    1. Insurance Companies
      2.

      Prior to the establishment of the Nigerian Insurance Supervisory Board (NISB) in 1992, the Federal Ministry of Finance approved and licensed insurance companies in Nigerian. They mobilize relatively long-term funds and act as financial inter-mediaries. Their investment activities are in government securities, public sector enterprises and the mortgage industry. The Nigeria Re-insurance Corporation was established in 1977 to provide insurance cover for insurance companies. In addition, the corporation is expected to assist in achieving its economic and social objectives in the field of insurance and re-insurance.

    2. Finance Companies
      3.

      Finance companies are institutions that specialize in short-term non-bank financial intermediation. They mobilize funds from the investing public in form of borrowing and provide, among other, facilities for LPO and project financing, equipment leasing, and debt factoring.

    3. Bureaux de Change
      4.

      In order to broaden the Foreign Exchange Market and improve accessibility to foreign exchange, especially for small users, Bureaus de Change have been authorized since 1989 to act as dealers on the spot-market for foreign exchange. The Federal Ministry of Finance is charged with the responsibility of licensing them.

    4. Primary Mortgage Institutions
      5.

      The establishment of primary mortgage institutions was preceded by the promulgation of Decree No. 53 of 1989. Essentially, PMIs mobilize savings for the development of the housing sector.

    5. The National Economic Reconstruction Fund (NERFUND)
      6.

      NERFUND was set up by Decree No. 25 of 1988 as a funding mechanism aimed at bridging the gap in the provision of local or foreign funds to small and medium-scale enterprises.

    6. Nigerian Social Insurance Trust Fund
      7.

      The Nigerian Social Insurance Trust Fund (NSITF) was established by Decree No. 73 of 1993. The main objective of the Fund is to adopt a more comprehensive social security scheme for Nigerian private sector employees.

       

    7. Recent Developments in the Nigerian Financial System
      8.

The Nigerian financial system has undergone some remarkable changes in recent times. Specifically, the Structural Adjustment Program (SAP) has brought about some dynamic reforms. The system has become more market-oriented.

The CBN adopted the auction-based system of trading in government securities during the last quarter of 1989. The auction system allowed dealers to indicate the volume and the rate at which they were ready to buy securities, instead of the previous practice of fixing the rates administratively. This was aimed at making the money market instruments more attractive and to enhance public participation in the market. The key elements of the deregulation were the pricing and allotment of securities by issuing houses, arrangement to establish Over the Counter (OTC) market for trading in non-quoted companies’ securities, shortening the delivery/settlement period and efforts towards internationalization of the market.

Other developments in the financial system included the promulgation of Failed Banks (Recovery of Debt) and Financial Malpractices in Banks Decree No. 18 of 1994. This is to facilitate the prosecution of those who contributed to the failure of banks and to recover the debt owed to the failed banks. Another major development was the inauguration of a Financial Services Regulation Co-ordinating Committee (FSRCC) by the CBN. The aim is to co-ordinate and standardize the regulatory policies of all financial institutions in the system with the view of evolving co-operation among regulatory agencies. The CBN also granted forbearance to finance companies operating in Nigeria by being given a maximum of four years to amortize their classified assets portfolio against their current profits.

 

MONTHLY POLICES AND OTHER MATTERS

Monetary and Credit Policies

There are various instruments employed by the Central Bank of Nigeria for promoting macro-economic stability and a sound financial system. The techniques by means of which this is achieved can be classified broadly into two categories – the direct and indirect market approach.

The direct control instruments place restrictions on a particular group of institutions especially (deposit banks) by limiting their freedom to acquire assets and liabilities, these instruments are: quantitative ceiling on bank credit, selective credit controls and administered interest and exchange rates.

The indirect approach used mainly in the financial system relies on the monetary authorities as dealer in the financial markets to influence the availability and the rate of return on financial assets. In this way, it affects both the desire of the public to hold money balances and the willingness of financial agents to accept deposit and lend them to end users. Amongst the instruments used are reserve requirements discount rate and open market operation, liquidity ratio, cash reserve requirements, etc. It is pertinent to note that the Cap on interest rate has been removed while sectoral credit allocation has been abolished. These efforts will allow for market determined rates.

Interest Rate Management

Interest rates are the rental payments for the use of credit by borrowers and returns for parting with liquidity by lenders. Interest rates perform a rationing function by allocating limited supply of credit among the many competing demands on it.

The primary role of interest rate is to help in the mobilization of financial resources and to ensure the efficient utilization of such resources in the promotion of economic growth and development. Interest rates affect the level of consumption on the one hand and the level and pattern of investment on the other hand.

Following the disorderly behavior of the money market in 1993, particularly the wide upward fluctuation of short-term interest rates which was adjudged to be growth-constraining, a ceiling of 21% on lending rates was placed from January 1994 through September, 1996.

Relative calm has since the beginning of 1996 been restored to the market and, in fact, in recent months there has been a sustained downward movement in short-term rates, including interest rates in the inter-bank market in some cases, well below the maximum lending rate of 21%. Given this positive development and the need to realign interest rate determination with the policy of financial deregulation, the cap on interest rate which had been imposed since 1994, was removed, effective October 1, 1996.

A dynamic market-based interest rate policy is now pursued, with effective rates reflecting the forces of supply and demand for funds.

Foreign Exchange Procedures and Guidelines

In order to ensure free flow of investments and investible funds into Nigeria, and improve the investment climate in the country, Government has repealed the Exchange control Act of 1962 and replaced it with the Foreign Exchange (Monitoring and Miscellaneous Provisions) Decree of 1995.

The Decree establishes an Autonomous Foreign Exchange Market (AFEM) in order to achieve exchange rate stability. The establishment of the autonomous foreign exchange market has resulted in a better managed foreign exchange regime. This has positively influenced business planning.

Autonomous Foreign Exchange Market (AFEM)

The following are the main highlights of the Decree as it affects the operations of the AFEM.

  1. The Central Bank has been vested with the power to appoint Authorized Dealers and Buyers of Foreign Currency.
  2. The importation and exportation of foreign currency in excess of US $5,000.00 or its equivalent shall be declared on the prescribed form for reasons of statistics only. For the avoidance of doubt, shall be done through the CBN.
  3. The issuance of Capital Importation Certificate is to be done by the banks without prior approval.
  4. Banks are allowed to treat applications on the remittance of proceeds (net of withholding taxes) and other obligations in event of sale without prior approval.

Foreign Currency Domiciliary Account

In order to allow investors unhindered access to their funds (in foreign currency), the law provides for the operation of Foreign Currency Domiciliary Account in line with the following:

  1. Domiciliary Account must be with an Authorized Dealer (Banks) and in any internationally convertible currency.
  2. A prospective applicant shall not be obliged to disclose the source of the foreign currency sought to be deposited in the account.
  3. A person may open more that one domiciliary account under the same or different foreign currencies and at the same or different banks.
  4. No money imported for the purpose of investments shall be liable to seizure of forfeiture or suffer any form of expropriation by the Federal or State Government.

Other Related Matters.
  1. Non-disclosure of Source of Imported Foreign Currency
    2.

The Foreign Exchange Monitoring and Miscellaneous Provisions

Decree of 1995 allows:

(b) Securities

The law allows:

* A person whether -
- resident in or outside Nigeria, or
- a citizen of Nigeria or not: to deal in, invest in, acquire or dispose off, create or transfer any interest in securities and any other money market instruments whether denominated in foreign currencies in Nigeria or not;

* A person may invest in securities traded on the Nigeria capital market or by private placements in Nigeria.

 

(c) Export of Goods and Services

* A person may export goods or services from Nigeria if:
- goods and services are not prohibited by law in Nigeria;
- the payment for the goods or services is made by means
of;
- letter of credit or any other internationally acceptable mode of payments;
- the amount of the payment made or to be made is such 
to represent a fair return for the goods or services; and
- exporters are required to open and maintain a foreign
currency domiciliary account.

(d) Transfer of Proceeds on Investment

Foreign currency imported into Nigeria and invested in any enterprise
Shall be guaranteed unconditional transferability of funds through
Authorized dealers (Banks) in freely convertible currency, relating to:

Exchange Rate Policy

Exchange rate is the price of the domestic currency in terms of other currencies. The worth of a nation’s currency depends on a number of factors including the state of the economy, the competitiveness of her exports, the level of domestic production and the quantum of her foreign reserves. In a free market economy, the exchange rate of a currency is determined by the interplay of supply and demand for that currency. The major objectives of exchange rate policy in Nigeria are to preserve the value of the domestic currency, maintain a favorable external reserve position and ensure price stability. Exchange rate policies applied in Nigeria have traversed two main mechanisms the fixed and flexible regimes. The 1995 policy of guided deregulation shall continue in 1996. Consistent with that policy, some new initiatives have been introduced, while most of the existing policy measures are retained.

New Policy Measures for 1996
    1. Over the years, foreign exchange inflow in the non-oil export sector had continued to remain unimpressive. Therefore, in response to all the private sector to eliminate undue bureaucracy in the administration of export incentives by multi-agency involvement in the implementation process and to spur more participation in the schemes thereby generating more foreign exchange earnings, Government has decided with effect from 1996 fiscal year, to entrust the administration and disbursement of export incentives to the Nigerian Export Promotion Council (NEPC).
    1. With the deregulation of the exchange rate the consequent removal of subsidy in its determination since 1995, it is desirable that government agencies and parastatals cease impose fees and tariff in foreign exchange for services rendered locally. Consequently, payments in foreign exchange of hotel bills by foreign visitors, airport tax, fees for the renewal of resident permits and allied services rendered by the Immigration Service, port and allied charges, international ticket fares etc. shall be optional and not mandatory. Such payments can be made in the local currency.
    2. With effect from April 1996, importers are responsible for the payment of the administrative charge of 1% FOB value of all imports for the Comprehensive Import Supervision Scheme (CISS).
    3. All exports, oil and non-oil, from Nigeria shall be subject to pre-shipment inspection by Government appointed Inspection Agents.

Existing Policy Measures Retained in 1996

    1. The use of Bills for collection and open accounts for executing import transaction remain suspended except with the specific approval of the Head of State.
    1. The Autonomous Foreign Exchange Market (AFEM) shall continue to operate freely. However, for the avoidance of doubt, no individual or organization shall deal in foreign exchange, except as provided in the relevant laws and regulations. Thus, the parallel foreign exchange market remains illegal.
    2. All companies, individuals or organizations except as in (iv) below, shall source their foreign exchange requirements in the autonomous market.
    3. All Government parastatals, government companies, agencies, and companies in which government has majority share holding shall continue to maintain their foreign currency Domiciliary Accounts with the CBN. The Bank shall purchase such funds at the prevailing autonomous rates and shall use these funds and other government foreign exchange receipts to intervene in and influence the autonomous market.
    4. Repatriated non-oil export proceeds and other inflows are to be held in Domiciliary Accounts maintained with authorized dealers in Nigeria. The banks are to continue to maintain two types of Domiciliary Accounts, namely Exports Domiciliary Accounts and Ordinary Domiciliary Accounts. The holders of Domiciliary Accounts are given easy access to funds maintained therein subject to the existing guidelines.
    5. All imports including unaccompanied personal effects irrespective of value and source of funding are subjected to the pre-shipment inspection requirement. For the avoidance of doubt, all goods imported into the country are to be accompanied with IDR.
    6. Exporters are permitted to sell their export proceeds to authorized dealers at autonomous rates. Moreover, exporters are allowed to sell their export proceeds to banks other than those where they maintain Export Domiciliary Accounts.
    7. The importation and exportation of the Naira remain prohibited. However, the amount which residents of Nigeria are allowed to hold on them for settlement of local expenses immediately on their return to Nigeria remains 1,000.00.
    8. All applications in respect of transactions not valid for foreign exchange do not need any bank approval. Similarly, applications relating to the following transactions are to be processed and approved by authorized dealers subject to the prescribed documentation requirements: remittance of profit and dividend, external borrowing and repayment of external loans by the private sector contract services as well as leasing, charter and/or outright purchase of aircraft and marine vessels.
    9. Import duty payable on all registered Form ‘M’ transactions whether or not they are valid for foreign exchange shall be calculated on the basis of the prevailing average exchange rate in the AFEM as at the end of the week preceding the registration or revalidation of Form ‘M’ which are to be advised weekly by the CBN.
    10. Shipping companies must ensure that IDR numbers are always stated on the shipping manifests for all import shipments into the country, before such manifests are submitted to the Nigeria Customs Service.
    11. The seven designated banks shall continue to be used for the purpose of receiving import duty payments. The banks are First Bank of Nigeria Plc, Union Bank of Nigeria Plc, United Bank for Africa Plc, Afribank Nigeria Plc, Universal Trust Bank Limited, FSB International Limited and Societe Generale Bank Limited.
    12. Payment of import duty is on the basis of bank cheque/draft duly issued by the importer’s bank and made payable to Federal Government of Nigeria –"Import Duty A/C". All such cheques/drafts are in the first instance paid to any of the designated banks before IDR and shipping documents are released to the importers.
    13. The designated banks are required to transfer all customs revenue collected by them to the nearest Central Bank Branch or Currency Centre on a weekly basis using Central Bank cheques.
    14. Declaration on Form TM of foreign currency imports of US$5,000 (five thousand dollars) or its equivalent and above is required for statistical purposes only.
    15. Permissible limits for License or Technical Services Agreements range from 1.0 per cent to a maximum of 5.0 per cent of net sales value and a fee ranging from 1.0% to 5.0% of the company’s net profit before tax is allowable for Management Agreements. The presentation of certificate of registration issued by the National Office for Technology Acquisition and Promotion (NOTAP) is one off the documentation requirements for the purpose of procuring foreign exchange to cover relevant transactions. The initial duration of such agreements is be 3 years except for hotel industries and agro-allied enterprises where duration of 10 years and 5 years, is allowed respectively.
    16. Maximum of 20.0 per cent is allowed for consultancy fees and is limited to projects of very high technology content for which indigenous expertise is not available. Service agreements for such high technology joint ventures should include a schedule for the training of Nigeria personnel for take-over.
    17. Charge for services rendered by non-resident experts in respect of the design, installation and commissioning of projects is treated as an integral part of the total cost of such projects. They are to be subject of verification by the NOTAP and the prescribed procedures for Form ‘M’ and the CISS apply. No direct or separate remittance on Form ‘A’ is allowed in respect of such service charges.
    18. The validity of modified Form ‘M’ and related letters of credit may be extended more than once by the Authorized Dealers, provided the period of extension is within the validity period of 360 days. The initial life of modified Form ‘M’ is being 180 days. However, in the case of machinery, plant and equipment made to specification, the initial validity period is one year subject to extension for maximum period of six months on application to, and approval by the Central Bank. Consequently, modified Form ‘M’ has a maximum life span of one and half years (540 days) in the case of machinery, plant and equipment and one year (360 days) in the case of other imports.
    19. All applications for remittance in respect of educational expenses both for undergraduate and postgraduate studies in overseas institutions of higher learning are eligible transactions in the AFEM.
    20. The opening of letters of credit or other approved international mode of payment is now mandatory for all exports from Nigeria. However, whether the mode of payment adopted, the relevant proceeds must be repatriated within 90 days from the date of shipment of the consignment.
    21. Modified Form ‘M’ must be submitted to the Pre-shipment inspection Agents’ Liaison Offices within 30 days of their registration. Registered/modified Form ‘M’ not so submitted is neither acceptable for execution in the AFEM nor be eligible for revalidation.

General Policy Guidelines
    1. The prescribed documentation requirements for all visible and invisible trade transactions as provided in the Foreign Exchange (Monitoring and Miscellaneous Provisions) Decree 1995 is still in force.
    1. All authorized dealers are to continue to render promptly, accurate and coordinated returns on foreign exchange transactions on the prescribed schedules as indicated for the different schedules. Sanctions are imposed on defaulting banks and/or banks that render inaccurate returns.
    2. Bureaux de Charge and hotels licensed as authorized buyers are also required to submit monthly returns in respect of their operations on the prescribed schedules not later than 15days after the month to which the returns relate to: The Manager, Data Control Office, Trade and Exchange Department, Central Bank of Nigeria.
    3. Appropriate sanctions are imposed on all authorized dealers which release funds on the basis of forged documents, engage in fraudulent transactions, fail to furnish accurate returns on due dates or fail to report defaulting customers, etc.
    4. Sanctions are continued to be imposed on Bank customers who breach the foreign exchange regulations.

Policy on Transparency in Financial Transactions

In keeping with the statement of the Basle Committee on Banking Supervision, all financial institutions in Nigeria are required to continue to observe the following standards in the interest of transparency in financial transactions.

Customer Identification

Financial institutions are to make their best endeavors to determine the true identity of all customers requesting their services. In particular financial institutions should not as a matter of policy, conduct business transactions with customers who fail to provide evidence of their identity.

Compliance with the Law

Licensed banks and other financial institutions in Nigeria observe high ethical standards as well as the laws and regulations governing their operations. In particular, banks are enjoined to ensure compliance with the Guidance Notes on Money Laundering Surveillance recently issued by the Central Bank, in order to facilitate the effectiveness of the provisions of the Money Laundering Decree.

Co-operation with Law Enforcement Authorities

Banks and other financial institutions in Nigeria are required to give full co-operation to law enforcement authorities within the limits of the rules governing confidentially. In particular, where financial institutions are aware of facts which lead to the reasonable presumption that the funds lodged in an account or transactions being entered into derive from criminal activity or intention, they should observe the stipulated procedure for disclosure of suspicious transactions in reporting to the law enforcement authorities. Any contravention of the above guidelines by any financial institution attract penalties as stipulated in the Banks and other Financial Institutions Decree (BOFID), 1991 or the Money Laundering Decree, 1995 as appropriate.

 

Insurance

Introduction.

The insurance business is well developed in Nigeria. The formation of insurance companies follow the general pattern of companies establishment with additional safeguards as prescribed by the Insurance Act. The formation of an Insurance Company has to be with the approval of the Corporate Affairs Commission under conditions stipulated in Companies and Allied Matters Decree No. 1 of 1990.

Generally there are two broad categories of insurance business in Nigeria:

    1. Life insurance business; and
    2. Non-Life insurance

It is permitted under the Nigerian laws for an insurance company to engage in both, Life and Non-Life activities. Non-Life Insurance activities include those in respect of Fire, Accident, Motor Vehicles, Burglary, Marine, G-In-Transit, Personal Accident, Loss of Profit, Public liability, Workmen compensation, all Risks, Engineering policies, etc.

There is also the Nigerian Re-Insurance Corporation which acts insurer to the insurance companies. In Nigeria there are many international as well as indigenous insurance companies.

The Nigeria Deposit Insurance Corporation (NDIC)

The NDIC complements the regulatory and supervisory role of the CBN. The promulgation of Decree No. 22 of 15th June, 1988 led to the establishment of NDIC. It was set up to provide deposit insurance and related services for banks. This is aimed at promoting confidence in the banking industry.

The Nigerian Insurance Supervisory Board (NISB)

The NISB was established by the Insurance Special Supervision Fund (Amendment) Decree No. 6 of 1992. The NISB was charged with the effective administration, supervision, regulation and control of the business of insurance in Nigeria. The NISB’s functions include the establishment of standards for the conduct of insurance business protection of insurance policy holders and establishment of a bureau to which complaints may be submitted against insurance companies and their intermediaries by members of the public.

Taxation and Insurance

Like every other legal persons, the insurance companies in Nigeria are taxable individuals. Under the Nigerian laws, non-life insurance companies are taxed on the bases of their gross premiums and interest as well as other receivables less the following:

    1. returned premiums
    1. premiums paid on re-insurance
    2. reserve for unexpired risks

In the case of Life Insurance, tax is payable on the investment income less management expenses and commission. Under the Nigeria tax laws, premiums both for life and non-life policies are exempted from VAT. In respect of life policies all premium paid in a year are tax deducted as insurance relief to the individual tax payers.

Labour Laws

The administration of labour is regulated by Labour Decree No. 21 of 1974 and its subsequent amendments.

General Requirements

Not later than three months after the beginning of a worker’s period of employment, the employer shall give to the worker a written statement/contract specifying:

    1. The name of the employer or group of employer or group of employers and, where appropriate, of the undertaking by which the worker is employed.
    2. The name and address of the worker and the place and date of his engagement.
    3. The nature of the employment.
    4. If the contract is for a fixed term, the date when the contract expires.
    5. The appropriate period of notice to be given by the party wishing to terminate the contract.
    6. The rates of wages and method of calculation thereof and the manner and periodicity of payment of wages.
    7. Any terms and conditions relating to:

      8. (i) hours of work, or
      (ii) holidays and holiday pay, or
      (iii) incapacity for work due to sickness or injury, including any provisions for sick pay.

    8. Any special conditions of the contract, if, after the date to which the statement relates, there is a change in the terms to be included or referred to in the statement, the employer:
    9. Shall, not more than one month after the change, inform the worker of the nature of the change by a written statement;
    10. If it does not leave a copy of the statement with the worker, shall preserve the statement and ensure that the worker has reasonable opportunities of reading it in the course of his employment, or that it is made reasonably accessible to the worker in some other way.

Termination of Employment

A contract of employment may be terminated by either the employer or employee on the expiration of notice given by one party to the other party of his intention to do so.

A one day notice may be given where the contract has been in existence for a period of three months or less. For a contract that has continued for between three months and five years or more, the notice which shall be in writing shall be for a period ranging from one week to one month depending on the duration of the contract.

Employee Remuneration

Wages and salaries are normally paid weekly, bi-monthly or monthly. Fringe benefits usually paid to workers include housing allowance, travelling allowance annual holidays with pay, leave bonus, pension and gratuity contributions, meal subsidies, provision of housing, medical and transportation.

Employers are not permitted to make deductions from employees’ remuneration other than those prescribed by law and collective bargaining agreements such as taxes under the Pay As You Earn (PAYE) system, contributions to trade union and contributions to provident and pension funds. Other deductions that could be made include overpayment of wages and advances given. The total amount of deductions that may be made in any month shall not be greater than one third of the employee’s wages for the month. Overtime is payable at rates stipulated by the employer.

Restrictions on Employment of Foreigners

Visa and Work Permits – A non-Nigerian requires the consent of the Ministry of Internal Affairs to do business in Nigeria. The approval is conveyed in a letter styled business permit.

Expatriate Quota

On application to the Federal Ministry of Internal Affairs, approval can be given to a company proposing to employ expatriates for senior management, technical or specialist posts. Approval will not normally be given to employ expatriates to do jobs for which there are suitably qualified Nigerians, it is therefore the responsibility of an applicant to prove that the employment of an expatriate is unavoidable.

The expatriate quota approval for a new company with non-Nigerian participation is usually stated in the business permit. An increase in expatriate quota and the number of expatriates approved for a wholly indigenous company is usually conveyed in a letter from the Federal Ministry of Internal Affairs.

An expatriate quota is granted for specific jobs and, generally, is for a specific number of years except for one or two key personnel the quota for whom may be permanent until reviewed. Capitalization of 5 million attracts an automatic quota of two while a capitalization of 10 million or more attracts four.

Residence Permits

When an expatriate quota is granted, application is made through the appropriate Nigerian Embassy or High Commission abroad for resident permits (entry permits). This is in addition to visa requirements where applicable. Generally, evidence of academic, professional or technical qualification and/or experience is required to be produced. A person (usually the prospective employer) resident in Nigeria must give a written undertaking to bear all immigration responsibilities in respect of person(s) covered by the application.

Families

Wives and children of expatriates with entry permits are also granted entry permits freely on application, but they require specific permission to work in Nigeria except on a voluntary non-remuneration basis for charity.

Visas

Generally, a foreigner requires a visa to enter Nigeria. The only exception relates to citizens of member states of the Economic Community of West African States ((ECOWAS) who require only entry permits. The former exemption granted to Commonwealth citizens from the requirement to obtain information from the nearest Nigerian Embassy of High Commission seeking clarification concerning their status.

Leave

An expatriate on leave is counted as part of the quota.

Returns

Periodic returns in respect of expatriate quota in a specified form have to be submitted to the Federal Ministry of Internal Affairs. Failure to do so may create embarrassment.

Final Departure

When an expatriate employee leaves Nigeria finally, the Department of Immigration must be informed.

Visitors’ Permits

It is possible to obtain visitors’ permits on application to the Nigerian High Commission or Embassy abroad. Permits are usually granted for 28 days but the visitor must have a return ticket on arrival in Nigeria. Persons with visitors’ permits must not take up employment in Nigeria.

 

 

Temporary Quota

The Immigration Department may, on application, grant a temporary expatriate quota for a short period. A temporary quota is usually for specialists required for, say, three months to install or service a special type of machine or equipment. Non residents negotiating one-time contract work in Nigeria should discuss the immigration implications with the prospective employer, particularly where the non-resident intends to apply for exemption from incorporating a local company under Sections 56-60 of the Companies and Allied Matters Decree, 1990. In such a situation, the Nigerian employer may have to apply directly to the Federal Ministry of Internal Affairs for a special quota for the purpose of the job.

Employees’ Associations and Labour Unions

Provision is made in the labour laws for the formation of employers’ associations and trade/labour unions on the basis of similarity of business interest or occupations. At present, there are 42 Trade Labour unions memberships and 19 Senior Staff Associations’ in the country.

Social Security

Both employer and employees contribute to approved provident funds. In some cases, employees do not make any contribution to pension funds. The eligibility of a worker to benefit from pensions, retirement or gratuity schemes varies from one employment to another. Invariably, the terms are contained in contracts of employment or collective bargaining agreements with registered trade unions. Social security schemes are approved by the Joint Tax Board and subject to renewal annually.

Other Benefits

Other benefits include maternity leave and pay, medical and year-end bonuses.

Workmen’s Compensation

Employers are obliged to provide accident insurance for their employees

Reference

KPMG Investment in Nigeria.

Page Transmitted 14 January 2003

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