Nigeria operates a federal system of government, distinct from a unitary system where power is concentrated centrally. The Nigerian federal system distributes power among three tiers of government: Federal, State, and Local. This division of authority creates a multifaceted regulatory environment that companies, both domestic and foreign, must navigate effectively. Understanding the interaction between these three levels of government is crucial for companies looking to operate successfully in Nigeria.
The Constitution of the Federal Republic of Nigeria 1999 (as amended) establishes the framework for this distribution of powers. It defines the powers and responsibilities of the Federal, State, and Local Governments through three key legislative lists: the Exclusive Legislative List, the Concurrent Legislative List, and the Residual Legislative List. For businesses, while an intimate understanding of these legislative lists may not be required, a general awareness of the tiers of government and their respective powers is essential when navigating Nigeria’s regulatory landscape and engaging with relevant authorities.
Federal Government
The Federal Government holds the highest authority in Nigeria, overseeing the broadest scope of business regulation. It formulates legislation, policies, and regulations that businesses, citizens, and even state and local governments must follow. For companies, understanding the federal legislative framework is critical, as federal laws apply uniformly across all states and local governments.
Through the National Assembly, the Federal Government enacts laws that create regulatory bodies tasked with overseeing different aspects of corporate governance and business operations at the federal level. Below are some key federal laws and institutions that significantly impact businesses operating in Nigeria:
The Companies and Allied Matters Act (CAMA)
The Companies and Allied Matters Act (CAMA) established the Corporate Affairs Commission (CAC), which is responsible for registering, incorporating, and regulating companies, business names, limited partnerships, and incorporated trustees. Under CAMA, all businesses operating in Nigeria must be registered with the CAC and comply with its provisions. These provisions cover key aspects of corporate governance, including company shareholding structures, procedural requirements for board meetings, the appointment of directors, and the dissolution of companies.
Non-compliance with CAMA can lead to penalties and legal risks. For example, businesses are required to submit mandatory filings to the CAC, and failure to do so will result in penalties. It is, therefore, advisable for companies to engage legal counsel to advise them on how to ensure full compliance with CAMA and navigate the procedural complexities of the CAC. Legal experts can also assist in drafting corporate governance frameworks that align with a company’s strategic goals and ensure that relations between the board of directors, management, and shareholders are properly regulated.
The Investment and Securities Act
The Investment and Securities Act established the Securities and Exchange Commission (SEC), which oversees the regulation of Nigeria’s capital market. The SEC is responsible for registering and regulating capital market operators, as well as securities within the country. Additionally, it governs mergers, acquisitions, and takeovers. However, not all business operations fall under the scope of the Act or the SEC’s regulatory authority. It is the responsibility of a company’s management to determine whether the Act applies to their operations and, if so, to identify which aspects of the business are subject to SEC regulation.
The Federal Inland Revenue Service (Establishment) Act
The Act establishes the Federal Inland Revenue Service (FIRS), which is responsible for overseeing and administering taxes within its jurisdiction. These taxes include companies income tax, petroleum profits tax, and value added tax, among other taxes and levies imposed on companies operating in Nigeria. The FIRS is authorised to conduct tax audits to verify the accuracy and completeness of a company’s financial information. It can request the examination of financial records and documents, and require company representatives to appear before it. Companies operating in Nigeria must fully understand their tax obligations under relevant legislation and the FIRS’ compliance requirements, as non-compliance can result in significant penalties. There has been growing scrutiny on companies meeting their tax obligations, with non-compliance leading to both reputational and legal risks.
The laws mentioned above represent only a fraction of the regulatory framework that applies to companies at the federal level. Nigeria’s federal regulatory landscape is expansive, with multiple authorities empowered to enforce laws and oversee business operations. Federal laws and regulations are binding across all states and local governments within the Federation. Consequently, even if a company complies with all state laws, failure to adhere to federal regulations will hinder its ability to operate effectively in Nigeria.
It is crucial for businesses to have a clear understanding of the specific federal laws that apply to them. For instance, public and private companies may be subject to different legal requirements, just as businesses in certain sectors may be governed by industry-specific regulations.
State and Local Government
Nigeria consists of 36 states, each with the power to create laws in line with the Concurrent Legislative List[1] outlined in the Constitution. Any company operating within a state must comply with its laws and regulatory requirements. For example, land ownership in each state is vested in the Governor, meaning that any company, including foreign entities, seeking to acquire real property must obtain the Governor’s consent for the transaction to be valid.
Local governments, the lowest tier of governance in Nigeria, also play a crucial role in regulating business activities at the community level. They oversee matters like the condition of the physical environment where a company operates and administer certain taxes and levies, as stipulated by the Residual Legislative List.
Each state in Nigeria has unique characteristics, including distinct regulatory requirements and economic landscapes. Companies planning to establish a physical presence in Nigeria should conduct thorough research into the socio-economic and regulatory dynamics of each state, supported by legal counsel. This will help them select the most suitable environment for their business operations.
Navigating the Regulatory Landscape
Given the complexities of Nigeria’s regulatory framework, navigating federal, state, and local requirements can be a daunting task. Companies looking to establish or expand their operations in Nigeria should conduct thorough due diligence to understand the regulatory environment at all levels of government. Below are some guiding questions to help companies navigate the regulatory landscape:
Federal Government Level
Which federal laws apply to the company?
What aspects of these laws are relevant to the company’s operations?
Which federal regulatory authorities oversee these laws?
What are the company’s compliance obligations, and how often must they be met?
What are the risks of non-compliance at the federal level?
State and Local Government Levels
Which state and local government will the company operate in?
What are the applicable state laws?
Which regulatory authorities at the state level govern the company’s operations?
What compliance obligations exist under state laws?
Is the chosen state and local government the most favourable environment for the company’s operations?
General Considerations
What industry-specific regulations apply?
What is the enforcement history of the relevant federal and state regulatory authorities?
How have other companies managed relationships with these authorities?
These questions serve as a preliminary framework for companies seeking to navigate Nigeria’s regulatory environment. As companies explore the questions and answers, they may identify additional areas requiring further investigation or specialised legal advice.
Conclusion
The Nigerian regulatory landscape is multi-layered and dynamic. Companies must not only grasp the laws governing general business operations and their specific industry but also the intricate interplay between federal, state, and local governments. Engaging expert legal counsel to deliver advice is essential, as it will help businesses remain compliant with evolving legal requirements and can anticipate potential regulatory challenges. Additionally, as new laws are enacted or existing laws are amended, companies must seek updated advice to stay informed about the implications for their operations. Understanding and complying with Nigeria’s complex regulatory framework is not just about avoiding penalties, it is key to sustaining long-term business success in the country.
To formulate a business strategy for navigating Nigeria’s complex regulatory framework, email insights@xentialp.com.
[1] The powers and functions under the Concurrent Legislative List can also be exercised by the Federal Government.