International Lawyer

Volume 5 Number 4 Article 12

1971

Guarantees and Incentives to Foreign Investment in Nigeria

Samuel Oduh Ezediaro

Recommended Citation
Samuel Oduh Ezediaro, Guarantees and Incentives to Foreign Investment in Nigeria, 5 INT'L L. 770 (1971)
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 SAMUEL ODUH EZEDIARO*

Guarantees and Incentives to

Foreign Investment in Nigeriat

Introduction
The Government of the Republic of Nigeria recognizes the need to
increase foreign private investment in order to accelerate the development
of the economy. It therefore accords to the foreign investor all the in-
centives, policies and facilities available to the indigenous Nigerian in-
vestor.' The Government realizes that overseas investors will be reluctant
to commit their capital unless they can be assured that such investment will
be guaranteed against non-commercial risks, and that the skilled overseas
personnel who may be necessary to make it successful, will be welcome.
In their starkest forms, these non-commercial risks of concern to an
alien investor include nationalization, expropriation, sequestration, or con-
fiscation by the foreign government without adequate compensation, viola-
tion by the foreign government of a concession or other agreement, imposi-
tion of foreign exchange restrictions which prevent remittance of profits
abroad and import restrictions which prevent importation of necessary
equipment or raw materials.
Recognizing that non-commercial risks pose an important deterrent to
foreign investment, Nigeria has taken steps to grant special assurances to
foreign investors against many of the more serious of these risks in an
effort to encourage the desperately needed inflow of overseas private
capital. Such assurances, stressing the primary role of private capital and
entrepreneurship in the country's economic development, have emanated
from the very highest levels. 2 Consequently, the Government's policies,
*B.BA., Pace College, 1964; M.A., City College of New York, 1966; J.D., Rutgers Law
School, 1971.
tThe author is indebted to Professor Ruth B. Ginsburg of Rutgers Law School for her
review of the draft of this paper and her valuable comments, which contributed to the final
composition of the paper. Needless to say, if shortcomings are property, whatever might
appear in this paper vests exclusively in the author.
1
National Development Plan, 1962-68, § 29 (Federal Ministry of Economic Devel-
opment,
2
Lagos, 1962).
E.g., Abubakar Tafawa Balewa, Nigeria Looks Ahead, 41 FOREIGN AFFAIRS 131
(1962); Opportunities for Overseas Investment, a joint statement first issued by the federal

International Lawyer, Vol. 5, No. 4

 Foreign Investment in Nigeria

attitudes, laws and regulations are generally favorable to private overseas

investors.
In terms of content, the benefits granted under the Nigeria investment
encouragement program go well beyond assurances against non-
commercial risks. They include positive incentives such as tax holiday,
import duty relief, accelerated write-off of capital assets, tariff barriers to
protect the investment from foreign competition, industrial estates and
freedom of transfer of profits and capital.
This paper examines briefly the individual laws applicable to foreign
investment in Nigeria; taken together they indicate a legal climate highly
conducive to such investment.

Legal Protection of Property and

Business Interests under Nigerian Law
The legal and constitutional system of Nigeria affords protection against
impairment by the federal and state governments of property or contractual
rights enjoyed by the foreign firm. In particular, Section 313 of the Republi-
can Constitution of 1963 provides as follows:
31.-(1) No property, movable or immovable, shall be taken possession of
compulsorily and no right over or interest in any such property shall be
acquired compulsorily in any part of Nigeria except by or under the provi-
sions of a law that -
(a) requires the payment of adequate compensation therefore; and
(b) gives to any person claiming compensation a right of access, for the
determination of his interest in the property and the amount of compensation,
to the High Court having jurisdiction in that part of Nigeria.
(4) The provisions of this section shall apply in relation to the compulsory
taking of possession of property, movable or immovable, and the compulsory
acquisition
4
of rights over and interest in such property by or on behalf of the
state.

Thus sub-division (4) of Section 31 makes it clear that the state is

subject to the requirements of adequate compensation and judicial scru-
tiny: it makes no exception for nationalization or other forms of con-
fiscation. The final clause of the provision, covering comprehensively
"rights" and "interest" in property, is plainly sufficient to encompass the
and regional governments in 1956, reissued in 1959, and republished by the Federal Ministry
of Commerce and Industry in HANDBOOK OF COMMERCE AND INDUSTRY IN NIGERIA (4th
ed., 1960), p. 230, and (5th ed., 1962), p. 316: "Our Governments have no plans for
nationalizing industry beyond the extent to which public utilities are already nationalized, nor
do they foresee any such proposals arising." Quoted from PAUL 0. PROEHL, FOREIGN
ENTERPRISE IN NIGERIA, p. 230, note 14; The University of North Carolina Press, Chapel
Hill, 1965.
3
See also § 30 of the Independence Constitution (1960).
4
The word "state" as used here refers both to federal and state governments.

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772 INTERNATIONAL LA WYER

nationalization of stock of a company in lieu of its assets. This statutory

language should also cover the compulsory sale of stock to the State. 5
Significantly, Section 3 l(l)(a) provides for "adequate compensation" in
cases of compulsory acquisition; "adequate," while capable of wide in-
terpretation, is a stronger word than "appropriate." 6 The determination of
what constitutes "adequate" compensation is not subject to unreviewable
executive discretion for, if the parties cannot agree, the party claiming
compensation may invoke the right accorded by Section 311()(b) to resolu-
tion by the High Court in the area in which the property is situated. An
anterior safeguard is the Section 31(1) requirement that before property
can be compulsorily acquired, there first must be a law authorizing the
acquisition.

Expropriation Compensation
The Public Lands Acquisition Act 7 is the only existing law of signifi-
cance that permits the compulsory taking of private property. The Act
requires that the taking must be for a "public purpose" and that the
measure of compensation, in all cases, must be the fair market value on the
open market assuming a willing buyer and seller. 9 By reason of the con-
stitutional provision just discussed, when the parties do not agree on the
amount, court resolution may be obtained upon petition of the private
party.
The provision for the exercise of eminent domain is couched in terms
identical or similar to the formula used in many other nations. 10 Further-
more, the Act deals only with the taking of land and not [with] the taking of
a plant, business or any other kind of property or interest in property. As
stated in the Section 3 1(1) of the Constitution, such other takings would
require passage of additional legislation.

Compensation for Damage Caused by Riots

A unique type of law authorizes compensation for damage caused by
riots. While the provision for the payment of compensation in cases of
compulsory taking of land is a constitutional requirement, there is no
5
See DR. SAMUEL SUCKOW, NIGERIAN LAW AND FOREIGN INVESTMENT, p. 17; Mouton
Institut
6
Africain de Geneve, Paris (1966).
See p. 6, infra.
7
Public Lands Acquisition Act, Laws of the Federation of Nigeria and Lagos, 1958, Ch.
167.
8
1d., § 3.
9
1d., § 15(6).
10
See, for example, Berman v. Parker, 348 U.S. 26 (1954).

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 Foreign Investment in Nigeria

constitutional obligation to provide compensation for damage caused by

riots. Yet, by 1963, the federal territory of Lagos and all the Regions had
adopted laws" providing for compensation for damage caused by riots.
The method provided in each of these laws for obtaining the funds to
provide compensation is basically the same. In case of an unlawful assem-
bly or a riot which causes damage to property, if it is ascertained that the
rioters are persons living in a certain neighborhood, all persons in that
neighborhood can be held collectively responsible, and can be required to
pay a special tax to be used to compensate the property owner(s).
This method of special tax assessment is questionable. While the pay-
ment of compensation to innocent people whose property is damaged in a
riot is commendable, the idea of assessing persons collectively, the in-
nocent along with the guilty, is repugnant to basic concepts of individual
liberty and individual responsibility. The government should either deter-
mine the wrongdoers and place the compensation burden on them or pay
the bill itself, for it has a moral obligation to protect the persons and the
property of persons under its jurisdiction.

International Treaties
Although ample protection is given to a foreign investor under Nigerian
law against various types of interference with his rights, he may still have
serious doubts about the effective enforcement of these rights before ap-
propriate local tribunals or agencies. For this reason, the Nigerian Govern-
ment has participated in multilateral and bilateral accords with a view
toward maximizing the legal protection available to the foreign investor
under international law.
Nigeria was one of eighty-eight nations that approved the United Na-
tions General Assembly resolution in 1962 on "Permanent Sovereignty
Over Natural Resources.' 1 2 The main clause of the resolution is as fol-
lows:
Nationalization, expropriation or requisitioning shall be based on grounds or
reasons of public utility, security or national interest which are recognized as
overriding purely individual or private interests; both domestic and foreign.
In such cases the owner shall be paid appropriate compensation, in accor-
dance with the rules in force in the state taking such measures
3
in the exercise
of its sovereignty and in accordance with international law.'
"The Riot (Damages) Act, 1963, No. IV of 1963. The Riot Damage Law, 1958, N.N.
No. 25 of 1958 as amended by: The Riot Damage (Amendment) Law, 1961, N.N. No. 14 of
1961. The Riot Damages Law, Laws of the Western Region of Nigeria, 1959, Ch. 112, as
amended by Riot Damages (Amendment) Law, 1959, W.N. No. 37 of 1959. The Riot
Damages Law, 1958, E.N. No. 9 of 1958.
12
13
.N.G.A. Res. No. 1803 (XVII) (1962).
1d., art. 1(4).

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774 INTERNA TIONAL LA WYER

Notwithstanding that the resolution is not legally binding on U.N. mem-

ber states, including those which voted for it, it may, in fact, be creative of
a new rule of international law. 1 4 Certainly the resolution is an important
step forward, when such a large number of nations, resolve as they did on
"appropriate compensation" for property taken, to respect govern-
ment-to-government investment agreement,' 5 to comply to agreements to
17
arbitrate, 16 and to stick to the principles of international law.
A most recent indication of official Nigerian Government policy towards
foreign investment was the decision of the Nigerian Government to sign
and ratify the "Convention on the Settlement of Investment Disputes
between States and Nationals of Other States,"' 8 sponsored by the In-
ternational Bank for Reconstruction and Development - the World Bank.
The Convention came into force on 14 October 1966, the thirtieth day
following the date of deposit of the twentieth instrument of ratification.' 9
The Convention provides procedures on the international level for adjudi-
cating disputes between States and private parties to which the latter may
20
have recourse without the intervention of their governments.
Although the mere signing and ratification of this convention will not
obligate any state to submit any particular dispute to arbitration, yet, it is
an indication of official sympathy for such solutions. The obligations of
such an international convention would apply where Nigeria and a foreign
investor had voluntarily agreed to use the facilities established by the
convention for conciliation or arbitration, as the case may be. Such an
agreement might be made at the threshold, before the investor commits his
capital, as well as at a later time.
14
See Oscar Schachter, The Quasi-Judicial Role of the Security Council and the General
Assembly, 58 AM. J. INT'L L. 960 (1964). France and South Africa voted against Res. No.
1803. The twelve abstainers were the Soviet Bloc (including Cuba) and, of the less-developed
countries, only Ghana and Burma. Quoting from PROEHL. op. cit., supra note 2, at 229, note
4. 15
Res. No. 1803 (see note 10) Art. 1(8) PROEHL oP. cit., supra note 2, at 161.
16
1d., art. 1(4).
17Id.
' 8 he text of the Convention and of the accompanying Report of the Executive Direc-
tors has been published in 60 AM. J. INT'L L. 892 (1966), 4 INT'L L. MAT. 524, 532 (1965).
For a description of the Convention and its history, see A. Broches, The Convention of the
Settlement of Investment Disputes: Some Observations on Jurisdiction, COLUM. J. TRANS-
NATIONAL L. (Vol. 5, 1966); Boskey and Sella, Settling Investment Disputes (2 Finance and
Development), THE FUND AND BANK REVIEW 129 (1965); Sassoon, Convention on the
Settlement of Investment Disputes, 1965 J. Bus. L. 334, and The Convention on the Set-
tlement of Investment Disputes Between States and Nationals of Other States, I ISRAEL L.
REV. 27 (1966); Hynning, The World Bank's Plan for the Settlement of International In-
vestment Disputes, 51 A.B.A.J. 558 (1965).
19575
20
U.N.T.S. 159 at p. 160 (1966).
See Broches, note 16 supra, at p. 265. Capacity of individuals to appear with States on
a footing of equality before international conciliation commissions and arbitral tribunals is a
significant indicia of recognition of the status of the individual as a subject of international law.

International Lawyer, Vol. 5, No. 4

 Foreign Investment in Nigeria

The adoption of this convention constituted a significant step forward

toward the establishment of the Rule of Law in international investment.
The contribution of Nigeria in bringing this about should be hailed for in
this field, Nigeria is a pioneer, since she was the first nation to deposit her
21
instrument of ratification.
Furthermore, it should be noted that Nigeria is a party to two multilater-
al conventions pertaining to the protection of intangible property: the
International Convention for the Protection of Industrial Property2 2 and
23
the Universal Copyright Convention.
Apart from the multilateral treaties to which Nigeria is a party, she has
also entered into a number of bilateral agreements with other countries.
One such accord is the investment guarantee agreement between Nigeria
and the United States of America, under which Nigeria recognizes the
subrogation of United States to claims of its nationals, if payment is made
by the United States for "assets expropriated or assets made useless by
24
reason of expropriation."

Commercial Arbitration in Nigeria

The growing interest in arbitration as a necessary element in private
business operations and investment projects requires a resume of Nigeria's
law on the subject.
Arbitration as a method of settling disputes is a tradition of long standing
in Nigeria. Referral of a dispute to one or more laymen for decision has
deep roots in the customary law of many Nigerian communities. Indeed, in
many of the isolated village communities, such a method of dispute resolu-
tion was the only reasonable one, for the wise men or chiefs were the only
accessible judicial authorities. This tradition still persists in certain village
communities, despite the centralized legal system and the attendant efforts
at modernization and reform of the legal system.
The modern Nigerian leaders did not seek to do away with this tradition.
Moreover, for more general use, they adopted an Arbitration Act. 25 This
Act provides that an agreement to arbitrate can apply either to existing
21575 U.N.T.S. 159 at p. 160 (1966).
22
Convention of Union of Paris of March 20, 1883, as revised, for the Protection of
Industrial Property, done at Lisbon, Oct. 31, 1958. 1 U.S.T. I; T.I.A.S. No. 4931. The 1925
revision was previously applicable to Nigeria. See U.S. Department of State, Treaties in
Force (1964), pp. 250-5 1.
23Done at Geneva, Sept. 6, 1952. 6 U.S.T. 2731. Effective with respect to Nigeria, Feb.
14, 1962.
2
U.S. Department of State, Treaties in Force (1964), p. 304.
41nvestment Guarantees Agreement between the United States of America and Nigeria,
Dec. 24, 1962, T.I.A.S. 5237.
25Arbitration Act, Laws of the Federation of Nigeria and Lagos, 1958, Ch. 13. This was
a re-enactment of an earlier ordinance. SucKow, op. cit., supra note 5, at 193.

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776 INTERNATIONAL LAWYER

disputes or to contemplated future disputes, as stipulated explicitly by the

parties. 26 An agreement to arbitrate, unless the opposite is stated, is
27
deemed to be irrevocable.
If there is an agreement to arbitrate which requires a party to appoint an
arbitrator, and he either fails or refuses to comply, that duty can be
assumed by the High Court. 28 The High Court, either of Lagos or the
Region, deals with judicial enforcement of arbitration agreements and
awards. An arbitral award can be enforced in the same way as a court
29
judgment, by leave of the High Court or of a Judge of that Court.
Enforcement of Foreign Arbitration Awards
and Judicial Judgments
The provisions for the enforcement of arbitration agreements and
awards thus far described relate to arbitration proceedings held in Nigeria.
The Arbitration Act does not apply to enforcement of agreements or
awards where the private agreement calls for arbitration abroad. Recently,
Nigeria ratified and acceded to the 1958 United Nations Convention on
the Recognition and Enforcement of Foreign Arbitral Awards. 3 0 The con-
vention, which has been in force since June 1959, was prepared and
opened for signature in June 1958 by the United Nations Conference on
International Commercial Arbitration.
By the end of December 1969 forty-four countries, including major
trading nations, had become parties to the convention.3 ' The convention
has many advantages. Its provisions permit wide latitude for party auton-
omy in choosing the governing law, and in determining the composition and
procedures of the arbitration tribunal. In addition, the convention offers
greater flexibility in selecting the place of arbitration. Since many nations
have become parties to the convention, the forum decision could be made
to depend less upon the presence of assets subject to execution, and more
upon convenience for arbitration; the parties' choice of law would be
32
effective whether or not it corresponded to their choice of forum.
Each contracting state is required to recognize and enforce arbitral
awards rendered in other contracting states. In carrying out this obligation,
the recognition forum applies its own rules of procedure.3 3 The mandatory
26
1d., § 2.
27
1d., § 3.
28
1d., § 6.
29
1d., § 13.
3 .J.N. MONTHLY CHRONICLE, Vol. VII, No. 4, p. 77, April 1970.
31
32
ST/LEG/SER. D/3, pp. 365-6, December 1969.
See Ginsburg, Recognition and Enforcement of Foreign Civil Judgments:A Summary
View of the Situation in the United States, INT'L LAWYER, Vol. 4, No. 4, p. 738, July 1970.
33
Art. Ill.

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 Foreign Investment in Nigeria

provision for confirmation of awards is subject to certain conditions speci-

fied in the convention.
Among the conditions for refusal of recognition and enforcement of the
award are: (1)the party against whom it is invoked was not given notice or
was otherwise unable to present his case; 34 and (2) recognition or enforce-
ment would be contrary to the public policy of that country. 35 The provi-
sion containing the due process guarantees of notice and opportunity to be
heard are entirely appropriate, indeed essential, since these are basic pre-
requisites to recognition of any juridical process.
But the provision relating to public policy as a ground for
non-recognition is troublesome since public policy may be an "unruly
horse" which may carry its rider he knows not where. However, another
provision of the convention indirectly discourages abuse of the public-
policy ground for non-recognition, by stating that a contracting state
shall. not be entitled to avail itself of the convention against other con-
tracting parties except to the extent that it is itself bound by the con-
36
vention.
In view of the high incidence of arbitration in commercial matters, and
because arbitration is frequently the most fair, speedy and economical
method of settling international commercial disputes, it is likely that mem-
bers of business community engaged in foreign trade will consider the
convention as significant. Therefore, Nigeria stands to gain by its accession
to the convention.
Nigeria's Foreign Judgments Act became effective in 196 1. 7 Before a
foreign judgment can be enforced in Nigeria, the President must by order
announce that this Act should be applicable to that foreign country. To do
so, he must be satisfied that if he extends the benefits to that foreign
country, that country will assure reciprocity insofar as Nigerian High
Courts judgments are concerned. 3 8 Reciprocity of treatment thus remains
the cornerstone of the system of the enforcement of foreign judgments in
Nigeria.
The method of enforcement specified in the Act involves the registration
of the judgment in a superior court in Nigeria within six years of its issue.
34
Art. V(1)(b) (mandatory ground).
35
Art. V(2)(b) (discretionary ground).
36
Art. XIV.
37
Foreign Judgments (Reciprocal Enforcement) Act, 1960, Appointed Day Notice, L.N.
56 of381961.
Foreign Judgments (Reciprocal Enforcement) Act, § 3, No. 31 of 1960. So far, no
country has been designated under the present Foreign Judgments Act. However, a special
statute, the Reciprocal Enforcement Act, renders enforceable in Nigeria judgments obtained
in a superior court in Great Britain. See Laws of the Federation of Nigeria and Lagos, 1958,
Ch. 175.

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778 INTERNATIONAL LAWYER

Once registered, the foreign judgment becomes enforceable in the same

way as a judgment of that Nigerian court. 39

Investment Incentives
High taxes on foreign investment constitute a tempting source of rev-
enue. Yet Nigeria does not wish to kill the goose that is laying golden eggs.
Moreover, it has to keep the goose happy. Therefore, tax exemptions and
relaxations for foreign investments, particularly in the earlier stages of an
enterprise, are very frequent. As a general rule in Nigeria, enterprises
contributing to the industrialization of the country are most apt to be
encouraged with tax incentives. Extractive enterprises are less likely to be
favored, and, understandably, importing operations are not likely to qualify
for tax incentives.
The Nigerian Federal Government, which has exclusive powers in the
fields of company taxation 40 and tariff policy, 41 offers special incentives to
industrial enterprises where it finds such assistance to be in the overall
economic interest of Nigeria. Under the Industrial Development (Income
Tax Relief) Act, 1958,42 complete income tax relief for varying periods is
available to qualifying companies in industries that have been determined
by the Government to be of special benefit to Nigeria.
More specifically, the Act provides a method for designating an industry
as a "pioneer industry" and its products as "pioneer products." Sub-
sequently, those companies within that industry that have been accepted
for the designation of "pioneer company" are given tax relief for varying
periods. Thus, there are technically two distinct steps: the designation of
an industry as a "pioneer industry," and the certification of a company
within that industry as a "pioneer company."
For an industry to be designated as a "pioneer industry," a representa-
tion must be made to the Federal Minister of Commerce and Industry on
Form API/ 1. The Minister transmits this form to the President for consid-
eration. If the representation is successful, it is open to any public limited
liability company registered in Nigeria, which desires to engage in the

39
Foreign Judgments (Reciprocal Enforcement) Act,§ 4, No. 31 of 1960.
40
Constitution of the Federation of Nigeria Act, No. 20 of 1963. § 76(1).
41
1d., Schedule, Part I, Item 10.
42
Industrial Development (Income Tax Relief) Act, 3 Laws of the Federation of Nigeria
and Lagos c. 87 (1958), which was derived from its predecessor, the Aid to Pioneer Industries
Ordinance of 1952, and was continued in effect by the Companies Income Tax Act, Laws of
the Federation of Nigeria and Lagos Act, 157 (1961). Taxes on oil companies are regulated
by the Petroleum Profits Tax Act, 1959, which established the 50-50 sharing of profits with
the Federal Government on oil production.

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 Foreign Investment in Nigeria

pioneer industry to apply to the Minister on Form API/2 for the issue of a
43
pioneer certificate.
The certification of a company as a "pioneer company" entitles the
company to certain income tax reliefs, if the company observes certain
stipulated conditions contained in the certificate. Of these conditions, the
most important are that:
(a) the company shall not engage, during the tax relief period, in any enter-
prise except the pioneer industry in respect of which the pioneer certificate is
granted; and
(b) the company shall start to operate the factory - or, where a mining
company is concerned, begin mining operations a
- within one year of the date
estimated by the company in its application."
The essential conditions for an industry to be eligible for designation as a
pioneer industry are either that the industry is not being carried on in
Nigeria, or not on a scale adequate to the country's economic needs, or
that the prognosis for further growth of the industry is favorable. 45 A list of
industries and products declared 'pioneer' is reproduced in the "Handbook
of Commerce and Industry in Nigeria." 46 Examples include manufacture of
footwear, textiles, canned foodstuffs, plastics, tires and tubes, glassware,
ceramics, pharmaceuticals, agricultural fertilizers, bone crushing, dairying
and hotel-keeping. By 1966, about one hundred and fifteen companies had
47
benefited from tax exemptions for varying periods.

Tax Holiday
It is possible for a pioneer company to enjoy complete income tax relief
for a period of five years. An initial two-year period of relief is granted, if
the company has incurred on fixed assets a minimum investment of
$14,000 before production day. The failure to have at least $14,000 of
expenditure qualified will result in the cancellation of the pioneer certifi-
cate. 48 The Government will grant a third year of income tax relief if after
two years the company has an investment of at least $42,000, 49 a fourth
'i3HANDBOOK OF COMMERCE AND INDUSTRY IN NIGERIA; compiled and published for the
Federal Ministry of Commerce and Industry by the Federal Ministry of Information Lagos,
Nigeria. 5th ed., p. 53, (September 1962).
4id.
"Industrial Development (Income Tax Relief) Act, Id., § 3(1)(a).
46HANDBOOK OF COMMERCE AND INDUSTRY IN NIGERIA (5th ed., 1962), pp. 320-24,
compiled and published for the Federal Ministry of Commerce and Industry by the Federal
Ministry of Information, Lagos. This list contained only industries and products that were
declared
47
pioneer up to June 30, 1962.
SucKow, note 5, at pp. 214-219.
a8Industrial Development (Income Tax Relief), op. cit., § 8(1). The conversion rate is
$2.80 to Z I (sterling).
"Id., § I l(2)(a).

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780 INTERNATIONAL LA WYER

year if after three years an investment of at least $140,000,50 and a fifth

and final year if after four years an investment of at least $280,000.51
Apparently, this schedule is designed to encourage reinvestment of profits.
Apart from extensions of time based on the sum of recognized capital
expenditures, if the company incurs losses during one or more accounting
periods of the tax holiday, the time of exemption is extended by an equal
number of periods. 52 The tax holiday benefits extend not only to the
pioneer company but also to the shareholders of the company for the
shareholders are exempt from tax on dividends up to the amount of the
53
profits.

Accelerated Depreciation
After the expiration of the tax holiday period, the pioneer company may
still keep its tax low by utilizing the accelerated depreciation provisions
contained in the Income Tax (Amendment) Act of 1958,5 4 which were held
in abeyance during the tax exemption period. All companies that operate in
Nigeria are eligible to write-down capital assets against profits at an accel-
erated rate. The accelerated depreciation provisons enable companies to
amortize capital assets in the formative years and rapidly build up liquid
reserves.
The special initial deduction of 40 percent for machinery and 20 percent
for industrial buildings is allowed, on top of a normal permissible annual
depreciation of 5 percent to 15 percent for machinery (based on expected
life) and 10 percent for industrial buildings. Consequently, a company can
write off against profits as much as 50 percent of the cost of machinery
during its first taxable year.55 If taxable income fails to absorb an annual
write-off, the balance may be carried forward to be written off against
future profits for as long as ten years. 56

Relief from Import Duties

Under the Industrial Development (Import Duties Relief) Act, 1957,5 7
50
1d., § 1 l(2)(b).
51
1d., § 11(2)(c).
52
1d., § 11(7).
53
1d.,§ 18(3).
54
Official Gazette, Supplement (1958), p. A42.
55
The declining balance method (original expenditure less previous allowances) is the
official system for calculating annual deductions.
56
Companies Income Tax Act, § 27(g)(ii); Laws of the Federation of Nigeria and Lagos.
A 15757 (1961).
Industrial Development (Import Duties Relief) Act, Laws of the Federation of Nigeria
and Lagos, 1958, Ch. 86.

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 Foreign Investment in Nigeria

Nigeria offers protection to local industries by erecting tariff walls and by

granting relief from import duties to companies where it is economically
necessary.
In order to obtain an import duty rebate, the applicant must satisfy the
federal Minister of Commerce and Industry: (1) that, without the rebate,
the finished goods could not be produced at prices competitive with com-
parable imported equivalent, or at prices leading to the establishment of an
adequate Nigerian market; or (2), that the imported finished products bear
a lower proportion of import duty than the materials imported to manufac-
ture the same products in Nigeria; or (3), that the imports consist of fixed
plant or materials needed for production in Nigeria. Additional criteria are
based upon the general cost of the requested relief to Nigeria, the impor-
tance of the industry to the country, and the need for relief to prevent
58
adverse financial results.
Nigeria's tariff schedule provides protection for local manufacturing of
many products. Normally, finished imported products attract a duty of 20
percent but many items are taxed at substantially higher rates, reaching 75
percent to 100 percent in some instances where protection has been grant-
ed to infant industries. 59 The duty on raw materials and semi-finished
products is generally below the normal rate, encouraging the local process-
ing of imports. Any firm may make representations to the Government for
changes in the tariff that are believed to be helpful in promoting the growth
of efficient domestic industry. Moreover, the Government offers all in-
dustry in Nigeria protection from material injury by dumped goods in the
country or goods sold locally that have been the object of government
60
subsidies.
Other incentives include the establishment of industrial estates 6 1 in vari-

8
Between 1960 and 1963, twenty-seven companies were granted import-duties relief,
costing the government an estimated $1,405,600 in revenue. For a list of the companies, see
WEST AFRICA, May 21, 1963, Quoted from PROEHL, op. cit., supra note 2, at 223, note 38.
59
1n 1963, for example, import duties on tinned meats and poultry were increased from
25 percent to 50 perecent ad valorem, on biscuits from 331/3 percent to 50 percent, on shoes
from 2/6 to 4 shillings per pair, and on suitcases a new duty of 4 shillings each,
"all ... intended solely to provide increased needed protection to Nigerian industry." MOD-
ERNIZATION BUDGET (1963), p. 29, Ministry of Information.
6
CCustoms Duties (Dumped and Subsidized Goods) Ordinance, 1958, 2 Laws of the
Federation of Nigeria and Lagos c. 47 (1958), gives the president in council power "to impose
and vary duties of customs in such manner as he thinks necessary to meet the dumping or
giving of the subsidy." The legislation is based on United Kingdom Act, Customs Duties
(Dumping and Subsidies) Act, 1957, 5 & 6 Eliz. 2, c. 18 (1957).
61
"About 930 acres of industrial estates have been developed at Apapa, Ijora and
Iganmu in Capital Territory. Over 2,100 acres have been developed in the North at Kaduna,
Kano, Zaria, Jos, Ilorin, Gusau and Maiduguri. In Eastern Nigeria, the Government has
under development over 4,100 acres of land for industrial purposes and about 1,970 acres are

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782 INTERNA TIONAL LA WYER

ous parts of the country with necessary services and facilities. Land is
easily leased to industrialists, at reasonable terms.6 2 Unskilled labor is
plentiful and there is an increasing supply of graduates of technical in-
stitutes, colleges and universities who are easily trained to acquire the
necessary skill for a variety of modern industries. Furthermore, institutions
like the Nigerian Industrial Development Bank, the Federal Institute of
Industrial Research and the Investment Information Centre, give in-
formation and assistance to the investor in various ways.

Repatriation of Profits and Capital

Repatriating capital and profits must be authorized specifically by the
Federal Ministry of Finance. In practice, profits and dividends arising from
approved investments may be freely transferred abroad without difficulty
after payment of income tax. The terms for repatriation of capital are
normally agreed upon between the government and the alien investor at the
time of investment, when the latter should seek "approved status." 63 The
Government generally grants "approved status" on the basis of the desir-
ability of foreign investment in the field involved and the reasonableness of
the foreign exchange costs that will probably arise.

Financial Participation
Nigerian Companies may be wholly owned by foreigners, although com-
64
panies motivated by a spirit of partnership are preferred.
The Government is often itself an investor. Besides investing in such
things as ports, railways, roads, power supply and transmission, tele-
communications - things in which the returns on investment are very low
and unattractive to private business - the Government often invests in
agriculture and industry either alone or together with private entrepreneurs
in joint ventures. The Government, therefore, has a deep interest in- creat-
ing and maintaining the best conditions for rapid development, which
insures good opportunities for profitable investment.

being developed in Western Nigeria at Ikeja, Mushin, Ilupeju - all outside Lagos - for the
same purpose. A similar development of 700 acres is being undertaken in Mid-Western
Nigeria to open up the area for new industries. The Government has indisputable title to the
lands comprising these estates." The above information is contained in a booklet INVESTMENT
OPPORTUNITIES IN NIGERIA, pp. 14- 15; published by the Ministry of Information, Lagos, in
September
62
1956, and reissued in August 1959.
See Public Lands Acquisition Act, op. cit., supra note 7, at § 2(i).
6
3See INVESTMENT OPPORTUNITIES IN NIGERIA, note 61, at 15.
64
INVESTMENT OPPORTUNITIES IN NIGERIA, note 61, at p. 14.

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 Foreign Investment in Nigeria

Conclusion
Nigeria has the largest population of any country in Africa. With its
population of over 55 million people, Nigeria is one of the fastest growing
markets in the world.
Furthermore, the country is richly blessed with natural resources such
as coal, tin, columbite, gold, natural gas, petroleum, limestone, lignite, lead
and zinc. Agricultural products include a wide variety of crops such as
cocoa, palm produce, groundnuts, cotton, soy beans, benniseed, rubber,
yams, maize, cassava and various spices notably ginger, chillies and
pepper. Growth in industrial production has been impressive. Compared
with other developing countries, Nigeria has a well diversified economy.
Moreover, because of the central geographical position of Nigeria in
West Africa, the small populations and limited economies of bordering
nations, and the growing desire among West African countries for the
establishment of free trade among them, Nigeria should be considered as a
manufacturing or distributing center.
Apart from these natural endowments, Nigeria has assured foreign in-
vestors against non-commercial risks to a much higher degree than in most
of the developing countries. For these reasons, Nigeria merits serious
consideration from investors contemplating participation in a developing
economy.

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