Legal Protection for Foreign Direct Investments (FDIs) in Nigeria

For the healthy and continuous flow of Foreign Direct Investments (FDIs) to Nigeria, the country has, over the years, put in place a friendly legal framework for Foreign Direct Investments (FDIs) protection.

In this Foreign Investors’ Guidelines for Doing Business in Nigeria Series, we shall examine the legal mechanisms put in place to encourage an increasing FDIs inflow and ensure foreign investors’ confidence in the country.

We shall be discussing foreign investors’ protections ranging from the certainty of arbitral proceedings and other dispute resolution mechanisms in the country.

The fact with modern economic systems is that no country can be an island economically; Foreign Direct Investment (FDI) protection is 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 to deprive foreign investors of reaping the fruits of their investments.

Host government actions that can affect foreign investment adverselyincludes nationalizatio,f a government taking control of a private enterprise and converting it to state or public ownership.

Expropriation; the act of a government taking possession of or otherwise meddling with privately held assets or property for the use and benefit of the public or in the public interest.

The government’s legislative and administrative acts as government action can also have adverse effects on foreign investors’ businesses in Nigeria.

This is the indirect or creeping form of expropriation. The only difference is that its mode of operation shifted attention from the physical and actual taking-over of an investor’s assets to the government’s legislative and administrative acts.

While not depriving a foreign investor of the ownership of an asset in this type of government control, it can significantly reduce the value of properties and investments of the foreign owner.

Foreign investors don’t like investing in countries with risks such as arbitrary revocation of a license, permit, or a concession after the investor has made the requisite investments.

The advancement and expansion of international business relationships and the importance of foreign direct investment to Nigeria’s economic development have made the country put in place some foreign business protection laws to encourage foreign investors.

Nigeria has performed greatly in providing protections to potential foreign investors.

Investment Treaties

Despite 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.

Bilateral Investment Treaties (BITs): Nigeria entered into its first Bilateral Investment Treaty (BIT) with Germany in 1979, which came into force in 1986.

According to my investigation, Nigeria has entered into 28 Bilateral Investment Treaties (BITs) between 1986 and November 2015.

Of the total number, 13 are currently in force, 14 are signed, and 1 repealed. The Bilateral Investment Treaties (BITs) currently in force are entered into with Finland, France, Germany, Italy, Netherlands, Romania, Serbia, Spain, South Korea, Sweden, Switzerland, Taiwan, and United Kingdom.

The 14 BITs signed by Nigeria but are yet to enter into operation were signed as far 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 requirements for the standard investment protection. These include fair and equitable treatment, umbrella clauses, most favored nation status, national treatment, obligations against arbitrary and discriminatory measures, and security.

Multilateral Investment Treaties (MITs): Economic Community of West African States (ECOWAS) treaty is one of the famous MITs Nigeria has entered. The ECOWAS treaty was signed on 28th May 1975; it came 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 favorable treatment withregardingentives and advantages. It shall not be nationalized or expropriated by the government of any member state except for valid reasons of public interest and subject to prompt and adequate compensation.

Organization of Islamic Conference (OIC) investment treaty is another MIT Nigeria has entered into to provide favorable conditions for foreign investments.

OIC is a treaty with an Agreement on Promotion, Protection, and Guarantee of Investments among the 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 expropriate any investment except it is in the public interest prompt payment of adequate compensation.