NAME: TALABI KEHINDE OLUWADAMILARE

MATRIC NO: LAW/2014/331

COURSE CODE: INL 501

COURSE TITLE: TRADE AND INVESTMENT LAW

ASSIGNMENT:
Critically Examine the legal measures for the promotion
and protection of foreign investments under
international law and Nigerian law. How effective are
these measures taken in promoting foreign investment?
What are the constraints and the way forward?
OUTLINE
1.1 Introduction
1.2 What is Foreign Investment
1.3 Types of Foreign Investment
1.4 Foreign investment in Nigeria
1.5 Protection of Foreign investment in Nigeria
1.5.1 Internal legal frame work
1.5.2 Rights of foreign investors in nigeria
1.5.3 International legal framework
1.6 Constraints to Foreign Investment
1.7 Nigeria optimizing the benefit of foreign policy
1.8 Improving Nigeria as an investment destination
1.9 Conclusion
INTRODUCTION
The fact with modern economic systems is that no country can be an island economically;
Foreign Direct Investment (FDI) protection is very essential to the successful attainment of
foreign investors' business objective(s) and economic development of any economy. There are
steps that host countries can lawfully take in the exercise of their sovereignty and power can
lead to depriving foreign investors of reaping the fruits of their investments. For healthy and
continuous in flow of Foreign Direct Investments (FDIs) to Nigeria, the country has over the
years put in place friendly legal framework for Foreign Direct Investments (FDIs) protection.

Nigeria is one of the economies with great demand for goods and services and has attracted
some FDI over the years. The amount of capital inflow into Nigeria has reached US$2.23
billion in 2003 and it rose to US$5.31 billion in 2004 (a 138 % increase) this figure rose again
to US$9.92 billion in 2005. The figure however declined slightly to US$9.44 billion in 20061.
The question that comes to mind is, do these foreign investments actually contribute to
economic growth in Nigeria. If Foreign investment actually contributes to growth, then the
sustainability of the investment is a worthwhile activity and a way of achieving its
sustainability is by ensuring the protection of such investments in order to encourage other
investors to invest in the country and also to prevent those currently within the country from
pulling out.

WHAT IS FOREIGN INVESTMENT?

Foreign investment involves capital flows from one country to another, granting extensive
ownership stakes in domestic companies and assets. Foreign investment denotes that foreigners
have an active role in management as a part of their investment. A modern trend leans
toward globalization, where multinational firms have investments in a variety of countries.
Foreign investment is largely seen as a catalyst for economic growth in the future. Foreign
investments can be made by individuals, but are most often endeavors pursued by companies
and corporations with substantial assets looking to expand their reach. As globalization

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increases, more and more companies have branches in countries around the world. For some
companies, opening new manufacturing and production plants in a different country is
attractive because of the opportunities for cheaper production, labor and lower or fewer taxes.

Foreign investments can be classified in diverse ways: direct, indirect(portfolio), commercial

loans and official flows. Commercial loans are typically in the form of bank loans that are
issued by a domestic bank to businesses in foreign countries or the governments of those
countries. An official flow is a general term that refers to different forms of developmental
assistance that developed or developing nations are given by a domestic country. Commercial
loans, up until the 1980s, were the largest source of foreign investment throughout developing
countries and emerging markets. Following this period, commercial loan investments
plateaued, and direct investments and portfolio investments increased significantly around the
globe.

The major types of foreign investment shall be discussed in the proceeding paragraphs:

TYPES OF FOREIGN INVESTMENT

Foreign investments can be classified in one of two ways: direct and indirect.

FOREIGN DIRECT INVESTMENT

Foreign direct investment (FDI) is an investment made by a firm or individual in one country
into business interests located in another country. Generally, FDI takes place when an investor
establishes foreign business operations or acquires foreign business assets, including
establishing ownership or controlling interest in a foreign company. Foreign
direct investments are distinguished from portfolio investments in which an investor merely
purchases equities of foreign-based companies. Foreign direct investments are commonly
made in open economies that offer a skilled workforce and above-average growth prospects
for the investor, as opposed to tightly regulated economies. Foreign direct investment
frequently involves more than just a capital investment. It may include provisions of
management or technology as well. The key feature of foreign direct investment is that it
establishes either effective control of, or at least substantial influence over, the decision-making
of a foreign business.
FOREIGN PORTFOLIO INVESTMENT

Foreign portfolio investment (FPI) consists of securities and other financial assets passively
held by foreign investors. It does not provide the investor with direct ownership of financial
assets and is relatively liquid depending on the volatility of the market. Foreign portfolio
investment differs from foreign direct investment (FDI), in which a domestic company runs a
foreign firm, because although FDI allows a company to maintain better control over the firm
held abroad, it may face more difficulty selling the firm at a premium price in the future.

FPI lets an investor purchase stocks, bonds or other financial assets in a foreign country.
Because the investor does not actively manage the investments or the companies that issue the
investments, he does not have control over the securities or the business. However, since the
investor’s goal is to create a quick return on his money, FPI is more liquid and less risky than
FDI.

FOREIGN INVESTMENT IN NIGERIA

Foreign Direct Investment is considered as an invaluable tool for achieving economic growth
in developing countries. In order to achieve the objective of a higher rate of economic growth
and the efficiency in the utilization of resources, developing countries the world over have
embarked upon various policy measures at attracting Foreign Investment.

Nigeria had pursued different public policies which have had implications for foreign
Investment. Right from the colonial period, Nigeria had in place, “open door policy’’ which
facilitated free flow of foreign investment into the country. The policies of nationalization and
indigenization which succeeded economic liberalism however posed some threats to FDI
before the country reversed again to embrace economic liberalism through aggressive policies
of privatization, commercialization and public-private partnership. Acts such as the
Investment Promotion Decree and the Foreign Exchange (Monitoring and Miscellaneous
Provision) Decree of January 16, 1995 were also promulgated.

Pursuant to the foregoing it’s clear that Nigeria has oscillated between the eras of economic
liberalism and economic nationalism, however presently Nigeria runs economic liberalism for
obvious reasons.
1) Foreign investment will afford Nigeria the opportunity to inject additional resources which
are in short supply to the country. These include capital, technology and management
resources.

2) it will also facilitate job opportunities. This becomes important for a country still labouring
under gargantuan unemployment rate. For instance, in the second quarter of 2016,
unemployment stood at 13.3 per cent up from 12.1 per cent in the three months to March,
attaining the highest since 2009. Third is the desire to achieve the goal of surplus in the
country’s balance of payments.

3) Through Foreign Investment, government can earn more revenues; and in the context of
globalization, FDI is also capable of increasing capital efficiency. Indeed, Nigeria is naturally
endowed as an investment haven.

PROTECTION OF FOREIGN INVESTMENT IN NIGERIA

The fact with modern economic systems is that no country can be an island economically;
Foreign Direct Investment protection is very essential to the successful attainment of foreign
investors’ business objective(s) and economic development of any economy. There are steps
that host countries can lawfully take in the exercise of their sovereignty and power can lead to
depriving foreign investors of reaping the fruits of their investments. The advancement and
expansion of international business relationships and the importance of foreign direct
investment to the economic development of Nigeria has made the country to put in place some
foreign business protection laws for the purpose of encouraging foreign investors.

Nigeria has performed greatly in providing protections to potential foreign investors, the
domestic and international framework for this shall be discussed in the proceeding paragraphs.
THE INTERNAL LEGAL FRAMEWORK
As part of the efforts to provide an enabling environment that is conducive to the growth and
development of industries, inflow of foreign direct investment, shield existing investments
from unfair competition, and stimulate the expansion of domestic production capacity; the
federal government of Nigeria has developed a package of incentives for various sectors of the
economy. These incentives, it is hoped, will help revive the economy, accelerate growth and
development and reduce poverty.

In protecting private foreign investment, the usual practice is for the capital exporting and
capital importing countries to adopt certain unilateral, bilateral or multi-lateral legal measures
all of which, though diverse in form, essentially come under the category of Government
Guarantees. Such guarantee is intended to protect investors against unpredictable changes in
the legal conditions of overseas investment and the impact resulting therefrom. It promises or
undertakes to adopt certain favorable measures concerning foreign investors or compensate for
certain kinds of losses.

Guarantees are available to foreign direct investment only and apply to certain kinds of risks
excluding normal business risks. Government guarantees may be divided into four categories;

1) Guarantees granted by capital importing countries under municipal law, which accord
the investor minimum protection and specific encouragement through special
legislation.
2) Guarantees granted by capital importing countries under municipal law, which grant
their nationals or enterprises guarantees or insurances for the investment they have
made abroad against possible political risks

Some of such municipal legislation includes;

Nigerian Investment Promotion Commission Act

The notable investment legislation in Nigeria is the Nigerian Investment Promotion

Commission Act2. The NIPC Act provides the fundamental and suitable legal framework for
the protection of foreign investors in the country. NIPC Act provides that foreigners may invest

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CAP N117 Laws of the federation of Nigeria
and participate in any enterprise in Nigeria.3 They are assured unrestricted transfer of funds
attributable to the investment such as profits, dividends, payments in respect of loan servicing,
and the remittance of proceeds obtained from the sale or liquidation of assets or any interest in
the venture through an approved dealer in freely convertible currency.

Section 24 of NIPC Act provides that a foreign investor in an enterprise shall be guaranteed
unconditional transferability of funds through an authorised dealer in freely convertible
currency of:

 Dividends or profit (net of taxes) attributable to the investment;

 Payments in respect of loan servicing where a foreign loan has been obtained;
 Remittance of proceeds (net of all taxes)and other obligations in the event of a sale or
liquidation of the enterprise or
 Any interest attributable to the investment.

The NIPC Act4 clearly provides that no enterprise shall be expropriated or nationalised without
prompt payment of compensation; the same section also provides a protection clause to an
investor to claim “creeping” expropriation by establishing that the acts complained of indirectly
results to expropriation.

Lastly, the NIPC Act provides that disputes between a foreign investor and any government in
Nigeria arising from an investment shall be submitted to arbitration within the framework of
any investment treaty entered into between the government of Nigeria and any state of which
the foreign investor is a national.

It further provides that where there is a disagreement between the Nigerian government and
the foreign investor on the mode of dispute settlement, the dispute shall be submitted to ICSID
for arbitration. Foreign investor is thus at liberty in Nigeria to institute arbitration proceedings
against a government even after bringing a claim or counterclaim against the government in a
court or domestic arbitration.

Foreign Exchange (Monitoring and miscellaneous Provisions) Act

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Part 5 of the NIPC Act
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Section 25 of the NIPC Act
Another domestic legislation that provides protection to foreign investors is the Foreign
Exchange (Monitoring and Miscellaneous Provisions Act) 5Section 15 of this Act provides
that any person may invest in any business venture with foreign currency or capital imported
into Nigeria through an authorized dealer who will issue a Certificate of Capital Importation to
the foreign investor.

Sub-section (4) of the same section in addition guarantees unconditional transferability of funds
in freely convertible currency of any such monies arising from an investment made in Nigeria
with foreign currency, including dividends and profits, payments in respect of loan servicing,
and remittances of the proceeds of sale or liquidation of assets.

Nigeria Export Processing Zones Act: A similar provision on repatriation is also found in
Section 18 of the Nigeria Export Processing Zones Act,6 Section 18 of the NEPZA Act provides
that foreign investors who invest in outlined businesses within an export zone shall be eligible
to remit profits and dividends earned in the zone and repatriate foreign capital investment at
any time with capital appreciation of the investments.

Arbitration and Conciliation Act; Other foreign investors’ protection laws are the Arbitration
and Conciliation Act. The act gives foreign investors the opportunity to determine the mode of
settling disputes that may arise out of their investments without resort to litigation in domestic
(Nigeria) courts.

Section 4 and 5 of the Arbitration and Conciliation Act empowers the court to stay court
proceedings subject to both local and foreign arbitration. It does not matter whether the seat of
arbitration is Nigeria or the arbitrators would be Nigerians or the Nigerian Arbitration and
Conciliation Rules apply to the arbitration.7

With the anticipation that such settlement will unfailingly and efficiently protect and enforce
the rights of foreign investors and their investments provides a framework for domestic
arbitration it also makes provisions for international commercial arbitration which is more
preferable by foreign investors.

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CAP F34 Laws of the Federation of Nigeria
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CAP N107 Laws of the Federation of Nigeria
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Section 4 and 5 of the Arbitration and Conciliation Act
Section 56(2) (d) defines ‘international arbitration’ to include any arbitration that the parties
have expressly agreed in the arbitration agreement to treat as international arbitration. The Act
provides that every arbitration award is capable of enforcement under the New York
Convention.

Nigeria’s entries into these investment treaties and its enactment of the Conventions into
domestic legislation have made the protection mechanism part of Nigeria’s legal framework
for protection of Foreign Direct Investments (FDIs) friendly and convenient to actual and
potential foreign investors.

RIGHTS OF FOREIGN INVESTORS IN NIGERIA

Under Section 6 (6) of the 1999 Nigerian Constitution, Nigerian legislations and powers of
the courts extend to all matters between persons or between government and any person in
Nigeria, and to all actions and proceedings for the determination of any question as to the civil
rights and obligations of that person. This means a foreigner or foreign business may invoke
the provisions of Nigerian legislations and the judicial powers of the court to protect its civil
rights and investments whether against Nigerians, a Nigerian company or even the Nigerian
government.

1. Stay of court proceedings subject to arbitration

Section 4 and 5 of the Arbitration and Conciliation Act empowers the court to stay court
proceedings subject to both local and foreign arbitration. It does not matter whether the seat of
arbitration is Nigeria or the arbitrators would be Nigerians or the Nigerian Arbitration and
Conciliation Rules apply to the arbitration.

2. Application of foreign law

If the parties to a contract agree that foreign law will apply in resolving their disputes, Section
69 of the Evidence Act, 2011 provides that the Nigerian court shall apply the foreign law once
it has jurisdiction to hear the case. In such instance, the court shall admit the opinion of an
expert who in in his profession is acquainted with the foreign law. The expert may produce to
the court books which they declare to be works of authority upon the foreign law in question.
Upon receipt of the book and necessary explanation from the expert, the court shall construe
the information contained therein for itself in making its decision.
3. Discretion to stay proceedings on foreign jurisdiction clause

Where parties to a contract entered in Nigeria agree that where dispute arise between them, a
foreign court will have jurisdiction to hear the case, by the ratio in the case of Sonnar Ltd v
Nordwind, the Nigerian court is not bound to stay proceedings and decline jurisdiction in face
of the foreign jurisdiction clause. The court will exercise its discretion in line with the justice
of the case.

4. Waiver of in personam jurisdiction

A Nigerian party to an international contract who later becomes a debtor may move from its
place of business to another jurisdiction in a bid to frustrate its creditors from commencing an
action or executing a judgment against it. The creditors can sustain an action against the debtor
in any jurisdiction in Nigeria if the debtor had waived his right to personal jurisdiction in the
contract. This is because it is settled Nigerian law that though a person cannot waive subject
matter jurisdiction, he can waive his personal jurisdiction.

5. Enforcement of arbitral awards and foreign judgments in Nigeria

Under Section 57 of the Arbitration and Conciliation Act, Nigerian courts would uphold a
foreigner or foreign business' right to enforce a local or foreign arbitral awards as well as
enforce foreign judgments in Nigeria whether or not he is resident in Nigeria or carrying on
business in Nigeria.

6. Recognition and Enforcement of International Centre for Settlement of

Investment Disputes ("ICSID") Awards

ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the ICSID Convention). It has a limited scope
and jurisdiction. The subject matter of the proceedings must be an 'investment matter" and one
of the parties must be a contracting State or any constituent sub-division or agency thereof
designated to the Centre by the State and the other party must be a national of another
contracting party. The parties must agree to be bound by the ICSID Convention for it to apply
to the exclusion of all other laws. The implication of this is that the national Courts of
contracting States are restrained from interfering with the proceedings of the ICSID.
An award by ICSID is enforceable in Nigeria by virtue of Section 1 of the International Centre
for Settlement of Investment Disputes Act which provides that;

"Where for any reason it is necessary or expedient to enforce in Nigeria an award made by the
International Centre for Settlement of Investment Disputes, a copy of the award duly certified
by the Secretary-General of the Centre aforesaid, if filed in the Supreme Court by the party
seeking its recognition for enforcement in Nigeria, shall for all purposes have effect as if it
were an award contained in a final judgment of the Supreme Court, and the award shall be
enforceable accordingly"

Once the ICSID award is registered at the Supreme Court, it ranks on the same level as a final
judgment of Supreme Court of Nigeria.

7. Right of action

Under Section 60 (b) of the Companies and Allied Matters Act, a foreign company has a right
of action against a Nigerian or a Nigerian company whether or not it is registered in Nigeria.

8. Right of foreign creditors in insolvency proceedings in Nigeria

A foreign creditor can institute an action in court in its name or in the name of its attorney
against a debtor for debt recovery in the same manner as a local creditor, as long as the debtor
or its assets, or the underlying contract which gave rise to the debt was performed, within the
jurisdiction of the court. The processes and remedies available to a local creditor also apply to
a foreign creditor.

Under Section 238 of the Bankruptcy and Insolvency Act, where there is a bankruptcy,
insolvency or reorganization order made against a debtor in a foreign proceeding, a certified
copy of the order is, in the absence of contrary evidence, proof that the debtor is insolvent and
a foreign representative has been appointed. In this instance, following an application of the
foreign representative, the court can limit the property that the Nigerian trustee has power over.

In respect of a foreign proceeding commenced for the purposes of effecting a composition,

extension of time or scheme of arrangement, on application by a foreign representative in a
Nigerian court, the court may grant a stay of the proceeding against the debtor.
9. Right against expropriation

Under Section 25 of the Nigerian Investment Promotion Commission Act, no person who
owns, whether wholly or in part, the capital of any business shall be compelled by law to
surrender his interest in the capital to any other person. There shall be no acquisition of an
enterprise to which this Act applies by the Federal Government, unless the acquisition is in the
national interest or for a public purpose and a fair and adequate compensation paid. The
business has a right to go to court for the determination of its interest or the amount of
compensation to which he is entitled. Any compensation payable under this section shall be
paid without undue delay, and authorization for its repatriation in convertible currency shall
where applicable, be issued.

10. Right to own land

Under Section 38 of the Companies and Allied Matters Act, a foreign company duly registered
in Nigeria is a corporate person with a legal right to own land in Nigeria and other rights of a
natural person.

11. Tax exemptions and holidays

In order to encourage foreign investments, under Section 22 of the Nigerian Investment

Promotion Commission Act, a foreign company is entitled to tax holidays for some startup
businesses and investment in disadvantage areas.

12. Right to invest and repatriate dividends

Under Section 17, 21 and 24 of the Nigerian Investment and Promotion Act, foreigners have a
right to invest or acquire shares in any Nigerian company and are guaranteed unconditional
transferability of funds through an authorized dealer, in freely convertible currency, of—

dividends or profits (net of taxes) attributable to the investment; payments in respect of loan
servicing where a foreign loan has been obtained; and the remittance of proceeds (net of all
taxes), and other obligations in the event of a sale or liquidation of the enterprise or any interest
attributable to the investment.
THE INTERNATIONAL LEGAL FRAMEWORK
Three basic standards of treatment of foreign investment which is viewed as an aspect of
international customary law, are found in Investment protection treaties. These standards are
National Treatment and Most-favoured-Nation treatment

National Treatment: National treatment refers to the nondiscriminatory treatment of identical

or highly substitutable domestically produced goods with foreign goods once the foreign
products have cleared customs. Thus it is allowable to discriminate by applying a tariff on
imported goods that would not be applied to domestic goods, but once the product has passed
through customs it must be treated identically. This norm applies then to both state and local
taxes, as well as regulations such as those involving health and safety standards.

For example, if a state or provincial government applies a tax on cigarettes, then national
treatment requires that the same tax rate be applied equally on domestic and foreign cigarettes.
Similarly, national treatment would prevent a government from regulating lead-painted
imported toys to be sold but not lead-painted domestic toys; if lead is to be regulated, then all
toys must be treated the same. In relation to protection of investment, the implication of this
rule is that whatever means are taken on a foreign company or investment, the same must also
be exacted on their domestic counter parts.

Most favoured Nation: Most-favored nation (MFN) refers to the nondiscriminatory treatment
toward identical or highly substitutable goods coming from two different countries. For
example, if the United States applies a tariff of 2.6 percent on printing press imports from the
European Union (EU, one World Trade Organization [WTO] country), then it must apply a 2.6
percent tariff on printing press imports from every other WTO member country. Since all the
countries must be treated identically, MFN is a bit of a misnomer since it seems to suggest that
one country is most favored, whereas in actuality, it means that countries are equally favored.

Bilateral Investment Treaties

The treaties generally provide for the nationals' right of establishment and afford a measure of
protection against the contracting states taking unreasonable or discriminatory action that
would impair the foreign nationals' legally acquired property rights and interests. The treaties
protect against expropriation of property except for a public purpose, and in the event of such
taking, compensation8 is required and sometimes the rights of control and management are
preserved. Additional provisions contain assurances on remission of earnings and repatriation
of capital, which, however, are related to the states' needs for foreign exchange. They also
contain provisions for submission of disputes to the International Court of Justice.

Nigerian Investment Treaties

In spite of the provisions of Section 12 of the Nigerian Constitution, investment treaties
entered by the country are binding on, and enforceable against Nigeria upon ratification under
the principle of ‘pacta sunt servanda’.Also, by a literal application of Article 31 of the Vienna
Convention on the Law of Treaties which provides that a treaty shall be interpreted in good
faith in agreement with the ordinary meaning to be given to the terms of the treaty.

Nigeria entered into its first Bilateral Investment Treaty with Germany in 1979 which came
into force in 1986. According to findings Nigeria has entered into 28 Bilateral Investment
Treaties between 1986 and November, 2015.Of the total number, 13 are currently in force, 14
are signed and 1 repealed. The Bilateral Investment Treaties currently in force are the ones
entered into with Finland, France, Germany, Italy, Netherlands, Romania, Serbia, Spain, South
Korea, Sweden, Switzerland, Taiwan, and United Kingdom.The 14 BITs which have been
signed by Nigeria but are yet to enter into operation were signed as far as back as 1996.

In addition to the usual investment protection standards, these BITs provide that a contracting
state shall not damage by irrational or unfair means the maintenance, management, disposal of
investment in its territory of nationals or companies of the other Contracting Party. And the
same recompense for losses suffered due to a safety event made to a domestic investor shall be
allowed to the investor from the other contracting state.

These BITs also provide for the right of subrogation allowing foreign investors to obtain
suitable investment insurance and for these investment insurance providers to seek remedy on
their behalf from Nigeria. The BITs that are presently in force have also made satisfactory

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China and Ethiopia-prompt payment of just and effective compensation; Iran, in addition to the foregoing, "in
effective realizable form which will represent the full equivalent value of the property taken"; Korea,
Nicaragua and Pakistan, with the further addition, "and adequate provision shall have been made at or prior to
the time of taking for the determination and payment thereof"; Vietnam same as Korea, Pakistan and
Nicaragua except that "without unnecessary delay" is used in lieu of "prompt."
requirements for the standard investment protection. These include fair and equitable treatment,
umbrella clauses, most favoured nation status, national treatment, obligations against arbitrary
and discriminatory measures and security.

Multi-lateral Investment Treaties

Multi-lateral Investment Treaties: Economic Community of West African States
(ECOWAS) treaty is one of the famous treaties Nigeria have entered. The ECOWAS treaty
was signed on 28th May 1975; it came in into force on the 20th June, 1975. The treaty currently
has 15 signatories who are member states of ECOWAS.

Article 2 of the Treaty gives ‘Community Enterprise’ status to businesses whose equity capital
is owned by two or more member states, and citizens or institutions of the Community. Article
16 of the Treaty provides that Community Enterprise shall be accorded favourable treatment
with regards to incentives and advantages, and shall not be nationalised or expropriated by the
government of any member state except for valid reasons of public interest, and subject to the
payment of prompt and adequate compensation.

Organization of Islamic Conference (OIC) investment treaty is another MIT Nigeria has
entered into in relation with providing favourable conditions for foreign investments in the
country. OIC is a treaty with an Agreement on Promotion, Protection and Guarantee of
Investments among Member States of the Organization of the Islamic Conference, which came
into force in September, 1986.

Chapter 2 of the Treaty mandates all member states of the Organization of Islamic Countries
to provide adequate security and protection to the invested capital of an investor who is a
national of another contracting member state. The terms of protection specifically include the
enjoyment of equal treatment, undertaking not to adopt measures that may directly or indirectly
affect the ownership of the investor’s capital or investment and not to expropriate0020any
investment except it is in the public interest and on prompt payment of adequate compensation.
Host states are further obligated to guarantee free repatriation of any capital and returns due to
an investor.
Conventions to which Nigeria is a Signatory:

The country is signatory to a number of Conventions which have been entered into for the
purposes of protecting foreign direct investment. The most significant convention in this regard
is the Convention for the Settlement of Investment Disputes between States and Nationals of
Other States (ICSID Convention).

International Centre for the Settlement of Investment Disputes (ICSID) as an arbitral institution
under the World Bank Group is a fully integrated, self-contained arbitration institution that
provides standard arbitration clauses, arbitration proceedings rules, arrangements for venues,
financial arrangements and administrative supporting including the appointment of arbitrators
to parties.Convention for the Settlement of Investment Disputes between States and Nationals
of Other States (ICSID) primarily provides for the settlement of investment disputes between
investors and sovereign host states. It has also taken the necessary legislative measures to make
the Convention’s resolution effective in Nigeria by enacting it as a domestic legislature in the
International Centre for Settlement of Investment Disputes (Enforcement of Awards) Decree
No. 49 of 1967.

An award by ICSID is enforceable in Nigeria it provides that;

"Where for any reason it is necessary or expedient to enforce in Nigeria an award made by
the International Centre for Settlement of Investment Disputes, a copy of the award duly
certified by the Secretary-General of the Centre aforesaid, if filed in the Supreme Court by
the party seeking its recognition for enforcement in Nigeria, shall for all purposes have effect
as if it were an award contained in a final judgment of the Supreme Court, and the award
shall be enforceable accordingly"9

Once the ICSID award is registered at the Supreme Court, it ranks on the same level as a final
judgment of Supreme Court of Nigeria.

Another significant investment protection convention Nigeria has entered into is the New York
Convention on the Recognition and Enforcement of Foreign Arbitral Awards. New York
Convention was adopted by the United Nations in June, 1958 and it mandates domestic courts
in signatory countries to give effect to arbitration agreements, and to also recognise and enforce

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Section 1 of the International Centre for Settlement of Investment Disputes Act
valid arbitral awards given in other signatory states. The New York Convention in other words
is particularly significant for the enforcement of arbitral awards resulting from non-ICSID
investment arbitration proceedings.

CONSTRAINTS TO FOREIGN INVESMENT IN NIGERIA

Nigeria is often regarded as one of the world’s last untapped investment frontiers. As a
continent, she is blessed with abundant natural resources ranging from industrial and precious
metals to vast reserves of crude oil and natural gas. The country is also rife with corruption,
geopolitical tensions and violence. For better or worse, all of those traits apply to Nigeria, so
investors need to be careful with this African nation.

ECONOMIC WEAKNESSES
Nigeria is a member of the Organization of Petroleum Exporting Countries, or OPEC, and has,
over the course of its oil-producing history, vied with fellow OPEC member Angola for the
title of top African oil producer. The cautionary tale for foreign investors is that oil production
has accounted for a disproportionate share of Nigeria’s gross domestic product over the years,
implying the country is not economically diverse. Government spending in Nigeria is
intimately correlated to oil production and prices. That is good when oil prices are soaring, but
Nigeria faces economic challenges when crude tumbles. Nearly all of Nigeria’s trade partners
only want oil and gas from the country and the energy industry is the primary destination of
foreign direct investment in the country.
The country’s reliance on hydrocarbons for government revenue and foreign-exchange remains
a fundamental weakness of the economy, which subjects it to boom and bust cycles. This lack
of economic diversification is a major deterrent for investors and partly plays a role in the FDI
inflow fluctuations tracked by the National Bureau of Statistics. When the price of oil is high,
money inflows increase and vice-versa. For instance, the price of oil peaked in 2014, the same
year Nigeria recorded its highest FDI inflow this decade, at roughly $2.7bn. As the price of oil
fell, FDI ebbed, as the 2017 figure of $981mn reflects.
POOR INFRASTRUCTURE
Although Nigeria has an abundance of oil wealth, that wealth is concentrated in the hands of a
few government power brokers and wealthy businessmen. As a result, the government has not
invested appropriately in infrastructure. Nigeria has inadequate roads, highways and railroads
for basic functions of commerce. Additionally, the country’s power grid is viewed as decrepit,
making factory operations there difficult.
According to a KPMG report, the parlous state of road infrastructure in the country, especially
those connected to the ports, has become a major concern to foreign investors, as the
inadequacies pose a significant challenge for businesses, by adding substantial amount to time
and ultimately increasing overall cost. With only 20 per cent of roads being paved despite road
transportation being the means of movement for 80 per cent of goods in the country leaves
much to be desired. Much of Nigeria ‘s potential for economic growth remains untapped due
to the chronic lack of electricity, which increases cost of domestic production.

SECURITY

Potential investors in Nigeria cannot overlook the country’s inconsistent government policies,
which have contributed to the nation’s reputation as a violent place. Rebel militias have
kidnapped innocent civilians and attacked oil assets, such as rigs and pipelines. Western
companies that do business in Nigeria know that spending on security to protect staff and assets
is necessary, but it's also a drain on profits. Political instability in Nigeria is heightened by other
factors beyond violence in the oil-rich Niger Delta. Accusations of voter fraud were rampant
after the 2007 Nigerian elections, and the religious divide between Christians and Muslims also
contributes to the country's political instability. The country has been bedevilled by a lot of
security challenges which include militancy in the Niger-Delta, the Boko Haram insurgency in
the Northeast, inter-ethnic clashes and religious conflicts. In all these, terrorist tactics such as
kidnapping and assassination, have been employed. A situation like this is of course very
scaring to foreign investors as very few foreign companies are willing to jeopardize the
lives of their employees and assets in such a volatile and sometimes violent
environment.
EASE OF DOING BUSINESS
Unlike Nigeria, some other African countries including Rwanda, Botswana, Kenya and
Namibia have climbed up the Doing Business ranking by significant notches over the past years.
Also revealing, Nigeria did not sign a single International Investment Treaty (IIT) in the six
months of May to October 2016, according to UNCTAD. IITs and Bilateral Investment Treaties
(BITs) are key instruments in spurring inward investments. Such treaties offer tax incentives,
faster approval processes, clear dispute resolution mechanism, assurance on capital repatriation
and more, to lure foreign investors. Only after the UNCTAD report came out did news break
on the investment treaty Nigeria signed with Singapore last month.

By contrast, the latest investment treaties UNCTAD documented include Kenya's adoption of
a new Finance Act that repealed a 30 percent domestic-ownership requirement for foreign
investors. Mauritius introduced various tax incentives, including an eight-year tax holiday, to
businesses that purchase a “global headquarters administration license.” Niger ended its
national oil company's monopoly over the sales of petroleum products by approving a joint-
venture oil refinery with a foreign corporation. In spite of Nigeria's position for decades as
Africa's top oil producer, the country has for more than a decade been saddled with decrepit
state-owned refineries.

CORRUPTION
Political corruption is a persistent phenomenon in Nigeria. The rise of public administration
and the discovery of oil and natural gas are two major events believed to have led to the
sustained increase in the incidence of corrupt practices in the country.
Efforts have been made by government to minimize corruption through the enactment of laws
and the enforcement of integrity systems but with little success. In 2012, Nigeria was estimated
to have lost over $400 billion to corruption since independence.
Greed, ostentatious lifestyle, customs, and people's attitudes are believed to have led to
corruption. Another root cause is tribalism. Friends and kinsmen seeking favor from officials
can impose strains on the ethical disposition of the official as these kinsmen see government
officials as holding avenues for their personal survival and gain.

Corruption is now a plague affecting Nigeria; it increases in accordance to the growth of the
nation. There have been so many fight and demonstration to eradicate corruption in Nigeria but
it looks as if the more protest Nigerian makes the more the level of corruption continue to
increase in Nigeria; the major causes of corruption in Nigeria could be as a result of low
standard of living in Nigeria; the level of greed among the people of Nigeria also have
significant effect on the level of corruption in Nigeria. Up till date; Nigeria is still recovering
the money looted by the former president of Nigeria; General Sani Abacha. The former
governor of Benue state was caught by the EFCC of Nigeria with huge amount of money which
he claimed to be the money set aside for the purchase of foreign pigs for the agricultural
development of Benue state.

RULE OF LAW
The Rule of Law enables economic development, through a range of factors such as the
protection of individual proprietary rights; guaranteeing fair and credible contract enforcement;
setting and enforcing labour laws; facilitating market creation and access, inclusion for the poor
and marginalized amongst other benefits.The Rule of law has recently emerged as a possible
solution for the promotion of functioning market economies and economic growth in
developing countries. The government’s penchant for disobeying court orders is scaring off
many prospective investors.

Talking about The Federal Government’s disrespect for the rule of law, Wale Babalakin SAN
cited his personal experience on the concession of the Murtala Muhammed Airport 2, which
was built and is managed by one of his companies, Bi-Courtney Aviation Services Limited. He
said 11 years after the concession agreement was signed, a government agency continued to
violate the terms of the agreement by running a parallel domestic aviation terminal in
competition with MMA2.Babalakin said it was sad that the government failed to adhere to the
rule of law despite various court judgments and the award of N132bn as damages against it in
2009.

This is a very sorry state and must improve in order to highlight Nigeria as a veritable
investment destination.

CREDIT RATING
Foreign investors looking for exposure to Nigerian bonds need to consider the country’s credit
rating. Credit ratings are fluid and can change from year to year. That rating is a non-investment
grade or "junk" rating, and Nigeria’s sovereign debt has carried a junk rating for decades. That
means the country has higher borrowing costs than a nation with an investment-grade rating.
The upside for foreign investors is that junk bonds carry higher yields to compensate investors
for the perceived increase in risk.

INFLATION
High inflationary pressure within the economy has significantly affected the level of foreign
capital inflows and consequently discouraged prospective investors from entering into the
market.

NIGERIA OPTIMIZING THE BENEFIT OF FOREIGN

POLICY
Foreign direct investment no doubt has many beneficial effects for the growth and development
of the national economy. However, for the country to optimize its potential benefits, it is
important that the government exercise fiscal discipline and control measures in its pattern of
borrowing and spending. Borrowed funds should be invested in productive economic activities
that will further enhance investment opportunities that could guarantee the attraction of more
foreign investors. Most importantly the monetary authorities should devise more effective
strategies in the control and management of the exchange and inflation rates by developing
effective monetary policies that will encourage price stability, full employment, income
equality and trade liberalization. The Government should also create privatization policies as
their direct involvement in the provision of goods and services by establishing and controlling
corporations has also contributed little to economic growth in Nigeria. This will culminate to
the provision of a suitable and sustainable macroeconomic environment that will enhance the
attraction and retention of foreign investors and also encourage local investors in the economy.
IMPROVING NIGERIA’S IMAGE AS AN
INNVESTMENT DESTINATION

Investing in Physical and human capital

Nigeria cannot depend on private investment to provide sufficient funds to secure the required
levels of improvement in infrastructure, particularly within the power sector. In this regard
public sector investment should benefit from private sector discipline. Thus, in promoting
public-private partnerships the government should: Lead initial construction with public
expenditures and seek private investment in management and operations to impart commercial
discipline.

Firms operating in Nigeria face a human capital deficit; to address this shortfall, The
government should prioritize investment in education and also additional measures should be
envisaged such as; Establishing joint ventures with renowned international business schools
and supporting measures to attract skills from the Diaspora.

Strengthening institutions dealing with investment and related issues

A solid institutional framework is a necessary condition for achieving the ambitious

development objectives set by government. There are problems associated with the
institutional framework in charge of issues related to investment, including promotion. Among
those are problems of funding, weak managerial capacity, lack of coordination mechanisms as
well as unclear division of labour between institutions dealing with investment, in particular
FDI. The report recommends changes to existing institutions and the creation of new ones.
Furthermore, these institutions, to be fully effective, will need to rely on adequately trained
staff members who have the capacity to deal with the broad issues related to investment,
including FDI. Ways to strengthen institutions includes:

Further strengthen NIPC. The primary role of NIPC would be to attract and support
investment. In this sense, the promotion function should be more active at targeting investors
in niche areas with higher developmental impact and at raising awareness about the potential
benefits of FDI. Furthermore, its investor support function should administer the supplier
development and the aftercare programmes.
Create an independent international trade commission. Its role would be to advise the
Government on (a) the pace and strategy for liberalization of the import protection regime;
(b) extraordinary requests for protection from selected industries; and (c) the application of
safeguards, anti-dumping and countervailing measures.

Enhancing foreign investor legal protection: Nigeria has negotiated many bilateral
investment treaties, however only a few have been ratified so far. A more comprehensive
network of these treaties should be negotiated and ratified. Double tax treaties should be pursed
to support inward and outward investments in ECOWAS.

Streamlining procedures for business visa and entry of foreign workers: Procedures and
requirements for obtaining business visas are onerous and difficult to fulfil. Working permit
regulations are discriminatory especially to small sized investors and start-ups. The procedures
to make them more flexible and hospitable should be adopted to support FDI attraction.

Speeding up and deepening tax reforms: the tax system requires attention as it is
characterized by high corporate tax rates together with a lack of incentives to critical sectors of
the economy. More fundamental reform should be considered for instance the introduction of
lower corporate taxes alongside introduction of incentives to critical sectors of investment.

Enhancing financial intermediation

The banking and non-banking financial systems should be shaped to play their role in
promoting productive investments and providing efficient services to investors and corporate
activities. The speculative bias of current credit and monetary policies should be looked into
and remedied. Banks should be urged to consider funding productive investments. Investment
banks should also be encouraged. The development of a capital market is another important
avenue for enhanced financial intermediation. African Governments should promote the
establishment of such instruments and envisage their regionalization in the medium and long
term.

INVESMENT INCENTIVES
Investment incentive systems are the main policy instruments that can directly influence the
volume and allocation of investment. In view of the competitive global investment
environment, African Governments should undertake a complete overhaul of their investment
incentive packages, taking into account the experiences of other developing regions. Some of
the issues that need to be addressed are the impact of tax concessions, minimum wage and
employment legislation, interest rate policies, training allowances, depreciation allowances,
policies on the repatriation of profits and foreign exchange transactions.

Tax concessions, interest rate policies and accelerated depreciation allowances should be
formulated in a manner to lower the cost of capital. The tax incentives should be assessed
both in absolute terms and in relation to tax rates and concessions that potential investors are
likely to obtain elsewhere. Some empirical studies have shown that minimum wage levels in
Africa are higher than in other developing regions. It is imperative for wage rates to be
established within the overall context of an investment incentive system, taking into account
the prevailing conditions in other developing regions10.

Incentive packages should include a training component for nationals through investment
allowances. This will affect the transfer of skills and adaptability of technologies. Appropriate
measures should be devised to increase the access of investors to foreign exchange for the
importation of essential inputs and, for the repatriation of profits. Time is essential in
investment decision making and the operation of business. Bureaucratic time-consuming
procedures should be avoided in the consideration of investment applications and the
administration of investment concessions. "One-stop" investment centers could help to do this.
An important factor in improving the investment climate in Africa is to develop legislation that
is credible, permanent and consistent with the national investment code. Laws should be
transparent, non-discretionary and applied fairly to all investors. Investors should feel a sense
of legal security at all times.

10
. F. L. Osunsade, "Impacts of adjustment programs: Concern for the human condition" in V. Nanda et al.,
World Debt and the Human Condition: Structural Adjustment and the Right to Development (Westport, CT.:
Greenwood, 1993).
CONCLUSION

It is obvious that a more conducive business environment would attract Foreign Investment,
thus efforts to expand the tax base, reduce red tape, and strengthen the regulatory framework
to investment are being pursued, albeit with varying degrees of success. This should help
enhance the lure of Nigeria’s business environment, which in turn would attract FDI. The wider
business operating environment has improved, and indeed Nigeria jumped 24 places to 145 out
of 190 countries surveyed in the 2017 World Bank Doing Business index. Considerable
progress has also been made on the drive to reduce Nigeria’s dependency on oil. A more
diversified economy would make FDI more attractive, and result in a more stratified economy.
Nonetheless, slow progress on reforming the business environment and political uncertainty
surrounding the 2019 general election should keep FDI well below its peak in the next few
years.

A country of Nigeria's economic and social potential ought to attract more long-term foreign
investment. To do so, the government needs to address the underlying structural bottlenecks
that make Nigeria such a difficult country for business investment.

REFERENCES

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to Foreign Direct Investment in Nigeria (2016)
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Investment and Growth in EP and IS Countries,” Economic Journal, pp
106, 92 – 105, 1996.
 Journal of Applied Econometrics and Quantitative Studies Vol 2. 2009.
 Okorie Uchechukwu Emena, Foreign Direct Investment: The Nigerian
Experience (1980 - 2015), 3rd International Conference on African
Development Issues (CU-ICADI 2016)
 Osinubi Tokunbo S and Amaghionyeodiwe Lolyd “Foreign Direct
Investment and Exchange rate Volatility in Nigeria”: International
 World Economic Global Competitive Index:
https://www.weforum.org/reports/globalcompetitveness.report.2014
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 Proshareng.com
 The punch Newspapers
 Wikipedia
 Export.gov