BUILDING SUSTAINABLE BUSINESSES IN NIGERIA: A LOOK AT ESG POLICIES

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By Seun Timi-Koleolu and Olawale Atanda

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Introduction

Businesses continuously seek to balance profit-making with ethical standards. One effective approach to achieving this is by integrating sustainable and responsible practices into their operations. As a result, investors, particularly Venture Capital firms and institutional investors, are increasingly focused on responsible investing—choosing businesses that uphold ethical and sustainable practices. A key way for businesses to demonstrate this commitment to ethics and sustainability is by adopting sound environmental, social, and governance (ESG) practices, usually formalized in an ESG Policy.

More investors now require companies to have an ESG Policy either before or shortly after investment, a practice known as ESG investing. These policies help stakeholders understand how an organization manages the risks and opportunities associated with ESG factors. Consequently, companies seeking investments are increasingly ensuring they have these policies in place to guide their operations.

In this newsletter, we will explore the three pillars of ESG and how each can be practically applied by companies to guide their activities.

1. Environmental Practices

The first step for businesses is to audit their operations to understand their environmental impact and outline steps to mitigate harmful or undesirable practices. Below are some ways businesses can implement environmentally sustainable practices.

Sustainability in Office Administration – Simple changes, such as transitioning from paper to digital records, can significantly reduce waste and conserve resources. Companies could also consider eliminating paper usage altogether. Another effective practice is shifting from diesel generators to solar power for backup which reduces harmful emissions.

Supply Chain –  Improving sustainability throughout the value chain is another important area. Companies can require their service providers adhere to sustainable practices. For instance, a restaurant might pivot to using packaging companies that utilize biodegradable packaging and incorporate bicycles and electric scooters for deliveries to reduce emissions.

CSR Initiatives – As part of their Corporate Social Responsibility (CSR), businesses can support environmental causes, thereby demonstrating a commitment to environmental improvement by investing in initiatives that benefit the ecosystem.

2. Social Practices

Social practices are essential for businesses to enhance their social responsibility toward employees, customers, suppliers, and the communities they serve. Some of the initiatives include:

Diversity, Equity, and Inclusion (DEI) – Businesses should aim to build a workforce that reflects the diversity of their customers and the wider community. This means creating an inclusive environment where all employees are respected and given equal opportunities, regardless of race, gender, disability, or background. Practical steps could include implementing DEI policies that promote inclusive hiring, closing pay gaps, and providing comprehensive parental leave.

Employee Well-being – Companies should prioritize a supportive work environment that focuses on employee mental health, fair wages, and opportunities for career development.

Community Engagement – Businesses can also give back to the communities they operate in. For instance, a medical facility might show their commitment to the welfare of their local community by offering free health check-ups to residents.

3. Governance Practices

Sound corporate governance is the foundation of a sustainable business. Businesses should strive to uphold the highest standards of ethics, accountability, and transparency in their operations. Key areas of good corporate governance include:

Legal and Regulatory Compliance – Businesses must demonstrate a commitment to adhering to all applicable laws, including obtaining the necessary licenses for their operations. This also involves compliance with employment laws, such as the Labour Act, and international best-practice frameworks like the UN Guiding Principles on Business and Human Rights.

Governance Structure – Adopting governance practices suited to the company’s stage of growth is important. This may involve establishing a robust board structure, regularly reviewing governance practices, and ensuring transparent decision-making processes. Businesses can improve board diversity by maintaining balanced representation, particularly in terms of gender diversity. Also, it is advisable to adhere to governance regulations such as the Nigerian Code of Corporate Governance. For businesses in regulated sectors, compliance with sector-specific governance codes is mandatory. Such codes include the Central Bank of Nigeria’s Code of Corporate Governance for banks and other financial institutions and the National Insurance Commission’s Code of Corporate Governance for insurance companies.

Ethical Business Conduct – Businesses should have a code of conduct that outlines their commitment to high ethical standards, including zero tolerance for corruption, fraud, or unethical behavior. Implementing a whistleblower policy can further encourage employees to report concerns without fear of retaliation.

Data Privacy and Security – Businesses naturally deal with the personal data of their customers, employees, and other stakeholders in the course of their operations. Hence, protecting user data is a core responsibility of a business. Businesses should implement stringent data protection measures that comply with national and international regulations. Businesses should regularly audit their data systems to ensure that the highest levels of security is maintained. Nigerian businesses in particular must adhere to data protection laws and regulations such as the Nigeria Data Protection Act 2023 and the Nigeria Data Protection Regulations 2019.

4. Operationalizing and Measuring ESG

Once concerns are identified across the three pillars of ESG, businesses must clearly outline how their commitments to improvement will be implemented and measured. To operationalize ESG, businesses should:

-Encourage employees to integrate ESG considerations into their daily decision-making.

-Make ESG a regular agenda item in board and management meetings.

-Review ESG practices annually to ensure they remain aligned with the business’ core values.

Measuring progress involves publishing periodic ESG Reports to showcase the company’s advancements in environmental and social initiatives. These reports typically cover areas such as:

-Carbon footprint metrics and overall environmental performance.

-DEI statistics and results from employee engagement surveys.

-Governance practices, including updates on board composition.

-Contributions to the community.

Conclusion

Integrating ESG practices into business operations is no longer optional but a necessity for sustainable growth. By focusing on environmental, social, and governance pillars, businesses can not only meet regulatory requirements but also build trust with investors, employees, and the communities they serve.

Footnotes

  1. Please see our previous newsletters on ESG here – (i) https://pavestoneslegal.com/esg-investing-a-guide-to-attracting-investors/, (ii) https://pavestoneslegal.com/the-rising-importance-of-environmental-social-and-governance-esg-principles-to-the-business-environment/
  2. Please see our newsletter on the CBN Code of Corporate Governance here – https://pavestoneslegal.com/regulatory-update-cbns-new-corporate-governance-guidelines-for-banks-commercial-merchant-non-interest-and-payment-services-banks/

TAX REGULATIONS IN NIGERIA: UNDERSTANDING THE IMPACT OF RECENT REFORMS

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By Aderonke Alex-Adedipe and Ebikeniye Best

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Introduction

There is a current shift in the tax administration system in Nigeria which is observed in the promulgation and reform of existing regulations in recent months. Some of these reforms are aimed at enhancing revenue generation, improving compliance, and boosting economic growth, especially within pioneer sectors of the economy.

In this newsletter, we analysed some of these changes and their impact on Nigeria’s tax administration.

The Value Added Tax (VAT) (Modification) Order 2024 (the “Order”)

The Order was signed on September 1, 2024, and it modifies Parts I and II of the First Schedule to the VAT Act (“the Act”) and extends the list of exempted items under paragraph 2 of the Order. These modifications are set out below.

A. List of Exempted Goods

In addition to goods exempted under Part I of the First Schedule of the Act, items such as equipment and infrastructure related to the expansion of Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG), including conversion kits; Domestic Liquified Natural Gas (LNG) Processing Facilities and Equipment, Electric Vehicles, Parts, semi-knock-down units for the assembly of Electric Vehicles, Biogas and Biofuel equipment and accessories for clean cooking and transportation are now exempted from VAT. The Order also expands the list of related services exempted from VAT – CNG and LPG conversion and installation services and manufacturing, assemblage, and sale of electric vehicles.

B. Definition of Petroleum Products

Also, the definition of “Petroleum products” has been expanded to mean “feed gas for all processed gas, aviation turbine kerosene, premium motor spirit, automotive gas oil (AGO), household kerosene, locally produced liquefied petroleum gas, compressed natural gas, imported liquefied petroleum gas, and crude petroleum oils”. Thus, it expands the previously exempted items to include AGO, CNG, LPG and feed gas for all processed gas. Particularly, the VAT exemption for AGO takes effect from October 1, 2023.

Proposed Nigeria Tax Administration Bill, 2024 (the “Proposed Bill”)

On October 4, 2024, the Federal Government of Nigeria, proposed a bill which seeks to mandate all individuals engaged in banking, insurance and stockbroking to present a tax identification number (TIN) before opening or operating any account. The Proposed Bill is aimed at ensuring tax compliance and optimizing revenue collection across Nigeria.

Furthermore, the Proposed Bill sets out to grant the relevant tax authorities the power to automatically register individuals who fail to apply for a TIN. The tax authorities are also required to notify these individuals of such registration.

The Proposed Bill however states that non-resident individuals who earn only passive income from investments in Nigeria will not be required to register, rather they will provide the necessary information as may be required by the tax authority.

Also, the Proposed Bill provides penalties for non-compliance. Where a taxable individual fails to register for taxes, such an individual would be liable to a penalty of N50,000 for the first month and N25,000 for each subsequent month of failure to register.

Deduction of Tax at Source (Withholding Tax) Regulations 2024 (the “Regulation”)

The Federal Ministry of Finance in July 2024 issued the Regulation to streamline the withholding tax process in Nigeria. The Regulation, therefore, amongst other things provides for transactions which are exempted from withholding tax, such as distributions or dividend payments to a real estate investment trust or real estate investment company; across-the-counter transactions, technological or scientific innovation, etc.

[1] For more information, please see our previous newsletter.

The Impacts of the Reforms

Some noticeable impacts of these reforms include:

A. Enhanced Revenue Generation: As noted above, the recent shift in the tax administration in Nigeria, aims to enhance revenue generation. Thus, if the Proposed Bill is passed into law, there will be an increase in the number of taxpayers, and this will create an avenue for the government to generate funds.

B. Economic Growth: Ultimately, effective tax reforms can contribute to broader economic growth by providing the government with the resources needed for infrastructure, education and health services.

C. Energy Transition: The expansion of the list of VAT exempt goods and services under the Order shows the adoption of natural gas as an alternative source of fuel for Nigerians. This will help in making the environment more sustainable for Nigerians to live in. This can also increase foreign investments.

Conclusion

These reforms present opportunities for economic growth and development across emerging sectors such as clean energy. It is also expected that tax efficiency will improve the state of the economy, create jobs and an improved business environment where increased taxes are collected from individuals who ordinarily refrain from paying taxes.

 

REGULATORY UPDATE: THE NIGERIA FOREIGN EXCHANGE (FX) CODE

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By Seun Timi-Koleolu and Qasim Ogunjimi

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Introduction

In light of ongoing challenges in the Nigerian foreign exchange market, including recent distortions driven by speculators and illicit traders, the need for a robust regulatory framework has become increasingly urgent. In view of this, the Central Bank of Nigeria (CBN) has introduced the Nigeria Foreign Exchange Code (the “FX Code”), effective October 14, 2024, to enhance the integrity and operational efficiency of the Nigerian Foreign Exchange Market (NFEM). This comprehensive framework establishes robust guidelines for licensed banks and financial institutions, including Bureau de Change (BDC) operators, International Money Transfer Operators (IMTOs), FinTechs and others organisations engaged in wholesale foreign exchange transactions (“Market Participants”).

The FX Code aligns with the principles set forth in the FX Global Code maintained by the Global Foreign Exchange Committee (GFXC) and aims to promote ethical conduct and best practices within Nigeria’s foreign exchange landscape.

At the core of the FX Code are six key principles: Ethics; Governance; Execution; Information Sharing; Risk Management and Compliance; and Confirmation and Settlement Processes. These principles not only ensure high standards of ethical conduct and operational excellence but also allow for a transparent, competitive, and fair market environment. The focus of this newsletter is to examine the compliance requirements outlined in the FX Code, emphasizing its six key principles.

COMPLIANCE REQUIREMENTS UNDER THE FX CODE

To ensure that Market Participants align with the FX Code, several compliance requirements have been established. These requirements are designed to promote accountability, transparency, and adherence to high ethical standards in the foreign exchange market. The key compliance obligations include:

  1. Self-Assessment and Reporting: Market Participants are required to conduct a thorough self-assessment of their adherence to the FX Code and submit a detailed compliance report to CBN by December 31, 2024. This assessment must evaluate their current practices against the standards set forth in the FX Code. This report should highlight their level of compliance, strengths and identify any areas requiring improvement.
  2. Implementation Plan: Alongside the self-assessment, each Market Participant is required to submit to CBN by December 31, 2024, a compliance implementation plan that has been approved by its Board of Directors. This plan should detail the strategies and steps the institution will take to achieve full compliance with the FX Code.
  3. Quarterly Reporting Mechanisms: Following the initial compliance assessments and plans, Market Participants must also provide ongoing updates to the CBN. They are obligated to submit quarterly reports on their level of compliance to the Financial Markets Department of CBN within 14 days after the end of each calendar quarter. This process ensures continuous monitoring and reinforces the commitment to uphold the principles of the FX Code.
  4. Other Compliance Requirements: In addition to the primary obligations outlined above, Market Participants are expected to adhere to several other compliance requirements, including but not limited to:
  • Training and Awareness: Conduct regular training sessions for employees to ensure their understanding of the FX Code and its principles.
  • Internal Controls: Establish robust internal control mechanisms to continuously monitor adherence to the FX Code and detect potential violations.
  • Record Keeping: Maintain accurate and comprehensive records of all transactions, communications, and compliance activities to demonstrate adherence during audits.
  • Risk Management Framework: Implement a framework to identify, assess, and mitigate risks associated with FX activities, including monitoring market conditions and counterparty exposure.
  • Governance Structures: Establish clear governance structures outlining roles and responsibilities related to compliance, including appointing compliance officers and ensuring Board oversight.
  1. Enforcement of the FX Code: Please note that the FX Code provides that CBN may take appropriate enforcement and other administrative action including monetary penalties as provided for under the CBN Act 2007 and Banks and Other Financial Institution Act 2020 against any Market Participant for failure to comply with the FX Code.

CONCLUSION

The introduction of the Nigeria Foreign Exchange Code marks a significant milestone in the ongoing effort to stabilize and enhance the Nigerian Foreign Exchange Market. It is important for all Market Participants to familiarize themselves with the provisions of the FX Code and actively work towards meeting its compliance requirements.

 

For further readings on the Nigerian foreign exchange market, you can refer to our previous articles

  1. KEEPING UP WITH FOREIGN EXCHANGE REGULATIONS: NEW CBN MEASURES FOR INTERNATIONAL MONEY TRANSFER OPERATORS (IMTOs)
  2. RECENT CBN REFORMS IN THE NIGERIA FOREIGN EXCHANGE MARKET

FINTECH REGULATION IN NIGERIA: CBN DIRECTIVES ON PAYMENT TERMINAL SERVICES

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By Aderonke Alex-Adedipe and Hillary Okorotie 

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Introduction

As part of the Central Bank of Nigeria’s (the “CBN”) efforts to maintain a transparent transactions settlement system, the CBN issued a Payment Terminal Service Aggregator (PTSA) license to the Nigeria Interbank Settlement System (NIBBS) in 2011. In April 2024, the CBN also issued a PTSA license to Unified Payment Services Limited, therefore becoming the second PTSA license holder in Nigeria. This second license was issued to provide an efficient and transparent settlement system of all Point of Sale (PoS) transactions in the Country and to decentralize the sector.

Subsequently, via a circular released by the CBN on September 11, 2024, the CBN issued new guidelines requiring all Payment Service Providers (PSPs) to commence regularization and channel their operations through either of the two PTSA licensed operators.

In this newsletter, we highlight some of the functions of PTSA licensed operators and some of the important directives set down by the CBN to PSPs in Nigeria.

What are the Functions of a PTSA Licensed Operator?

Under the approved CBN Guidelines on the Operation of Electronic Transaction Channels, a PTSA has the following functions:

  1. Ensure all deployed PoS devices meet technical and operational standards through terminal certification processes.
  2. Establish a communication network that guarantees reliable PoS data traffic and ensures the service and availability expectations of the industry are met cost-effectively.
  3. Route all transactions from PoS terminals to the relevant acquirer or their designated third-party processor.
  4. Certify PoS terminals that meet the industry standards as approved by the CBN.
  5. Continuously monitor the availability and transaction traffic of all PoS terminals, providing detailed analysis and performance reports to the CBN and industry stakeholders.
  6. Ensure timely settlement for merchants and other relevant parties upon receiving settlement reports from card schemes or their appointed switches.

What are the New CBN Directives to all Relevant Stakeholders?

a.Transaction Routing:  All Acquirers1 must process transactions from PoS terminals at merchant and agent locations (whether on physical or electronic terminals) through one of the two Payment Terminal Service Aggregator (PTSA) licensed by the CBN.

b.Transaction Processing and Integration: PTSAs must ensure that all PoS transactions are sent to only those Processors2  that; (i) have been certified by the relevant payment scheme3;  (ii) are nominated by the Acquirer; and (iii) are licensed by the CBN. In addition, all licensed Processors must integrate with both PTSAs, giving acquirers the flexibility to choose which processor(s) and PTSA processes its transaction.

c.PoS Device Configuration: All Payment Terminal Service Providers (PTSPs) providing PoS devices must ensure that their PoS devices and software are configured  to route transactions through either of the PTSAs only, as directed by the Acquirer.

d.Monthly Reporting: In order to ensure compliance with the guidelines, all PTSPs are required to issue a monthly report to the CBN containing (i) details of the number of merchants and agents they manage and (ii) details of  the PTSA used to route the transactions. Each PTSA is also required to submit a monthly report outlining all transactions processed through its platform.

Conclusion

The decision of the CBN to decentralize the PTSA sector is commendable, creating opportunities for competition and providing participants with the ability to make a choice without over-burdening a single PTSA with excessive transactions.  It is also important that all relevant stakeholders align and adopt the new directives of the CBN to facilitate seamless electronic transactions in Nigeria.

 

 

Footnotes

1.Acquirers mean banks that enter into agreements with Merchants to accept payment using electronic payment methods.

2.Processors mean switching companies processing card transactions.

3.Payment schemes are systems or infrastructures used in processing electronic transactions.

CENTRAL BANK OF NIGERIA: MONETARY, CREDIT, FOREIGN TRADE AND EXCHANGE POLICY GUIDELINES (2024/2025)

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By Aderonke Alex-Adedipe and Olawale Atanda 

 

Introduction

The Central Bank of Nigeria (the “CBN”) recently issued its Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines for the fiscal years 2024 and 2025 (the “Policy Guidelines”) which outline the CBN’s objectives for the financial system and the regulations applicable to Banks and other Financial Institutions during this period. The Guidelines contain provisions on policy measures; foreign trade and exchange policy measures; consumer protection, among others.

In  this newsletter, we discuss the provisions relating to the payments system within the monetary and credit policy measures, as well as policy developments under foreign trade and exchange measures.

1. The Payments System
In line with its vision of creating a widely used and internationally recognized payments system, the CBN aims to enhance the credibility and security of the Payments System. To achieve this, the CBN will continue implementing the Payments System Vision (PSV) 2025 throughout the 2024/2025 fiscal years. The PSV focuses on promoting the safety and efficiency of the payments system, deepening financial inclusion, and increasing  competition among service providers. To achieve this, the following key areas will be addressed:

i. Security of the Payments System

The CBN will continue to ensure that all regulated entities conduct their operations in line with global payment industry standards. These include: Payment Application Data Security Standard (PA DSS); Payment Card Industry PIN Entry Device (PCI PED); Payment Card Industry Data Security Standard (PCI DSS); Triple Data Encryption Standard (Triple DES); Europay, MasterCard and Visa (EMV) Standards; and others as may be stipulated from time to time. Card schemes and financial institutions are to ensure that all cards produced and issued in Nigeria are chip-based to enhance safety. To this end, the CBN will continue to enforce its payment system guidelines.1

ii. Payment System Initiatives

The CBN will promote the regulatory sandbox program where Fintechs can test and innovate with new financial products and services. The CBN will also advance contactless payments that allow customers to make payments by tapping their card or mobile device on a contactless terminal. This includes the implementation of the Quick Response (QR) code system, which facilitates payments through the scanning of a barcode (QR Code) with a mobile device.

iii. eNaira

According to the CBN, the eNaira, which is the digital version of Nigeria’s fiat currency, offers several benefits, including faster and cheaper payments, increased financial inclusion, and reduced fraud.2

Key initiatives  to drive its adoption include the rollout of eNaira version 2.0, focusing on wholesale Central Bank Digital Currency (CBDC) to encourage the participation of deposit money banks and empower them to champion its adoption. Additional efforts involve implementing offline functionality and fostering greater collaboration with Federal and State Governments to expand its usage.

iv. Operation of the Bank Verification Number

The CBN will continue to ensure compliance with the requirements for customers to obtain Bank Verification Number (BVN) and National Identification Number (NIN) which provide unique identifiers to customers and improve Know-Your-Customer (KYC) documentation. All Tier 1 bank accounts and wallets for individuals are mandated to have BVN or NIN while Tier 2 and 3 accounts must be linked to the BVN and NIN of their users. 3

 

2. Policy Developments in Foreign Exchange Market

The following developments will apply in the foreign exchange market during the 2024-2025 fiscal period.

i. Pan-African Payments and Settlement System

The Pan-African Payments and Settlement System (PAPSS) facilitates payments within Africa by enabling settlement of cross-border payments in local currency at lower costs, thereby boosting intra-African trade. 4

In a July 2023 circular, the CBN provided further clarifications regarding PAPSS transactions settled using CBN foreign exchange. The key points are as follows:

a.PAPSS transactions must be trade-backed.

b.Payments will be made using the “Bills for Collection” method. 5

c.The transaction limit per customer is set at USD 20,000 per quarter.

d.Authorized Dealer Banks (ADB) have a limit of USD 200,000 per quarter.

e.Multiple applications by customers through different ADBs are not permitted.

f.ADBs must obtain CBN approval for USD cover before initiating payments on PAPSS.

g.ADBs may maintain a USD settlement account with the PAPSS settlement bank for transactions where CBN cannot provide foreign exchange. 6

ii. Mechanisms for Bureau De Change Operations in Nigeria

To improve efficiency in the operations of the Bureau De Change (BDC) segment of the Foreign Exchange Market, the CBN recently introduced, the following:

a. Maintenance of a permissible limit of -2.5 per cent to +2.5 per cent of the Nigerian Foreign Exchange Market window weighted average rate of the previous day, being the spread on buying and selling by BDC operators; and

b. Mandatory rendition of daily and monthly returns by BDC operators on the Financial Institution Forex (FIFX) rendition system. 7

iii. Electronic Certificate of Capital Importation

To enhance transparency and efficient processing of investment flows into Nigeria, the CBN integrated the electronic Certificate of Capital Importation (eCCI) application with the Society for Worldwide Interbank Financial Telecommunication (SWIFT) database. The aim  is to verify all inflows before an eCCI is issued. 8

iv. Payout option in Naira for Receipt of Proceeds of Diaspora Remittances

In a move to further liberalize the payouts of diaspora remittances, the CBN introduced Naira payments in July 2023, in addition to USD and eNaira. This allows recipients of diaspora remittances to choose between receiving their funds in USD, Naira, or eNaira from licensed International Money Transfer Operators. Naira payments will be based on the Investors and Exporters (I&E) Window exchange rate applicable on the day of the transaction.

 

Conclusion

The Policy Guidelines reflect a commitment to enhancing the payments system, fostering financial inclusion, and improving the efficiency of foreign trade transactions. The outlined initiatives, from advancing the eNaira to streamlining cross-border payments through PAPSS, demonstrate the CBN’s intention to promote a more secure, inclusive, and globally competitive financial landscape.

For more on the Policy Guidelines, please visit https://pavestoneslegal.com/newsletters/ to read our analysis of CBN circulars and regulations issued over the past several years.

 

 

Footnotes

  1. Some of the many guidelines the CBN will continue to enforce include the New License Categorization for the Nigerian Payments System; Framework for Regulatory Sandbox Operations; Framework for Quick Response (QR) Payments in Nigeria; Circular on Issuance of Regulatory Framework for Open Banking; Regulatory Framework for Mobile Money Services in Nigeria, amongst others.
  2. Please see our article on eNaira here – https://pavestoneslegal.com/enaira-the-future-of-digital-currency-in-nigeria/
  3. Please see our article on the BVN Framework here – https://pavestoneslegal.com/regulatory-update-the-revised-regulatory-framework-for-bank-verification-number-bvn-operations-in-nigeria/
  4. Please see our article on the PAPSS here – https://pavestoneslegal.com/5815-2/
  5. This means that the payment is processed through banks, where the seller’s bank sends the shipping documents to the buyer’s bank, and the buyer pays when the goods are delivered.
  6. If the CBN cannot provide foreign currency for a particular transaction, banks (ADBs) can use their own USD accounts with PAPSS to settle these transactions directly, instead of waiting for the CBN to provide the funds.
  7. Please see our article on this here – https://pavestoneslegal.com/regulatory-update-central-bank-of-nigerias-operational-mechanism-for-bureau-de-change-operations-in-nigeria-a-note-to-bdcs/
  8. Please see our article on eCCI here – https://pavestoneslegal.com/doing-business-in-nigeria-the-relevance-of-the-certificate-of-capital-importation-to-foreign-investors-in-nigeria/

 

 

Licensing Requirements for Banks and Other Financial Institutions in Nigeria

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By Seun Timi-Koleolu and Ebikeniye Best

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Introduction

The financial sector in Nigeria is comprised of banks and other financial institutions. These entities are primarily regulated by the Central Bank of Nigeria (CBN) to ensure the security, stability and transparency of the financial system.

To guide companies wishing to operate in the financial services sector in Nigeria, we have set out in this newsletter, a table summarizing the licenses issued by the CBN and the requirements for obtaining them.

A. BANKS

Three major banking licenses are granted to banks upon meeting the specified requirements. These are:

S/N NAME OF LICENSE ACTIVITIES THE LICENSE PERMIT LICENSING REQUIREMENTS FEE AND CAPITAL REQUIREMENTS
1. Commercial Banking License Taking deposits and maintaining accounts; retail banking services; foreign exchange and related services; providing treasury management and custodial services; acting as a settlement bank, etc.

 

 ·         A formal application to the Director of Banking Supervision at the CBN.

 

·         A feasibility report/business plan providing information on ownership, management, operations, and finances.

 

·         A list of the shareholders, directors, and principal officers of the banks and their particulars.

 

·         Details of the bank’s corporate structure, branch expansion plans, IT systems, and employee training.

 

·         The bank’s Memorandum and Articles of Association.

 

·         Evidence of location of head office/branch building.

 

·         Copies of letters of offer and acceptance of employment in respect of the management team.

 

·         Such other information, documents and reports as the CBN may, from time to time specify.

 ·         Non-refundable application fee of ₦500,000.

 

·         Licensing fee of N5 million

 

·         Minimum share capital: International Operators – ₦500 Billion; National Operators – ₦200 Billion; Regional Operators – ₦50 Billion.

 

The minimum share capital is to be placed in an escrow account at the CBN during the registration process.

 

 

 

 
2. Merchant Banking License Taking deposits from corporate clients above ₦100 million; providing finance and credit facilities to non-retail customers; dealing in foreign exchange and providing related services; acting as an issuing house and underwriting securities; debt factoring, treasury management, and custodial services; fixed income trading and proprietary investments services

 

 ·         A formal application to the Governor of the CBN.

 

·         Feasibility report/business plan addressing the bank’s projected activities, management, and projected revenues.

 

·         Details of the bank’s organizational structure, branch network, IT systems, and staff training.

 

·         Memorandum and Articles of Association.

 

·         Evidence of location of head office/branch building.

 

·         Copies of letters of offer and acceptance of employment in respect of the management team.

 

·         Such other information, documents and reports as the CBN may, from time to time specify.

 ·         Non-refundable application fee of ₦500,000.

 

·         Licensing fee of ₦5 million.

 

·         Minimum share capital of ₦50 billion to be placed in escrow at the CBN.

 

 

 

 
3. Specialised Banking License Providing financial services for certain sectors or segments of the population. ·         A formal application to the Director of Banking Supervision at the CBN.

 

·         Feasibility report/business plan that discusses ownership, management, operations, finances, etc.

 

·         Details of the bank’s corporate structure, branch expansion plans, IT systems, and staff training.

 

·         Memorandum and Articles of Association.

 

·         Evidence of location of head office/branch building.

 

·         Copies of letters of offer and acceptance of employment in respect of the management team.

 

·         Such other information, documents and reports as the CBN may, from time to time specify.

 ·         Non-refundable ₦500,000 application fee.

 

·         Licensing fee of ₦5 million

Minimum share capital:

 

·         Non-Interest Bank (Regional) – ₦10 Billion

·         Non-Interest Bank (National) – ₦20 Billion

·         Primary Mortgage Institution – ₦ 5Billion

 

This is to be placed in escrow at the CBN.

 

 

 

 

 

B. OTHER FINANCIAL INSTITUTIONS

The table below contains the requirements for licenses issued to Microfinance Banks, Finance Houses, and Payment Service Providers. These licences are commonly used by FinTechs to provide services.

S/N NAME OF LICENSE ACTIVITIES THE LICENSE PERMIT LICENSING REQUIREMENTS FEE AND CAPITAL REQUIREMENTS
1. MFB License Acceptance of deposit, provision of microloans, provision of credit to customers, issuance of debentures, provision of banking activities to customers (limited to domestic remittance of funds), etc.

 

 ·          A feasibility report/business plan.

 

·         Details of the bank’s corporate structure, branch expansion plans, IT systems, and staff training.

 

·         Memorandum and Articles of Association.

 

·         Evidence of payment of non-refundable licensing fee to the Central Bank of Nigeria.

 

·         Corporate documents.

 

·         Evidence of the location of the Head Office (rented or owned).

 

·         Schedule of changes, if any, in the Board, Management and Shareholding after the grant of AIP.

 

·         Evidence of ability to meet technical requirements and modern infrastructural facilities such as office equipment, computers, and telecommunications, to perform the bank’s operations and meet CBN and other regulatory requirements, etc.

 Non-refundable application fee of:

 

·         Unit MFBs: ₦50,000

·         State MFBs: ₦100,000

·         National MFBs: ₦250,000

 

 

Minimum share capital:

 

·         Tier 1 Unit – ₦200 million

·         Tier 2 Unit – ₦50 million

·         State MFB – ₦1 billion

·         National MFB – ₦5 billion

This is to be placed in escrow at the CBN.

 

Licensing fee of:

·         Unit MFB -₦250,000

·         State MFB – ₦500,000

·         National MFB – ₦1 million

 
2. Finance House License Providing consumer loans, funds management, asset finance, project finance, local and international trade finance, debt factoring, debt securitization, debt administration, financial consultancy, loan syndication, warehouse receipt finance, covered bonds and issuing vouchers, coupons, cards and token stamps. ·         A formal application to the Governor of the CBN.

 

·         A feasibility report/business plan.

 

·         A copy of the draft memorandum and articles of association of the finance company.

 

·         A copy of the letter of intent to subscribe to the company signed by each subscriber.

 

·         A copy of the list of proposed shareholders in tabular form showing their business addresses and the names and addresses of their bankers.

 

·         A signed and dated curriculum vitae of the proposed shareholders of the finance company.

 

·         A copy of the draft manual of operations such as the enterprise management framework.

 

·         Corporate documents.

 

·         Shareholders’ register and a copy of share certificate issued to the shareholders.

·         A copy of the audited statement of affairs.

 

·         Copies of letters of offer and acceptance of employment in respect of the management team.

 

·         A letter of undertaking to comply with all the rules and regulations guiding the operations of companies.

 

·         Evidence of registration with the Finance Company’s association umbrella body.

 ·         Non-refundable application fee of ₦100,000.

 

·         Deposit of a minimum share capital of ₦100 million to the CBN.

 

·         Licensing fee of ₦250,000
3. Switching and Processing License

 

 Switching; card processing; transaction clearing; settlement agents; and all activities permitted for Payment Solution Services (in 5 below). ·         Corporate documents.

 

·         Tax Clearance Certificate (TCC) for 3 years (if applicable) and Taxpayers’ Identification Number (TIN) of the company.

 

·         Details of ownership and holding company structure (if applicable).

 

·         Company details and profile.

 

·         Bank Verification Number (BVN), Curriculum Vitae (CV) and means of identification (ID) for the directors and top management (including one independent non-executive director, chairman and managing director).

 

·         Business plan and product deployment methodology.

 

·         Requisite policies and framework.

 

·         Signed agreements with sub-agents, financial institutions and business parties.

 

·         Evidence of payment card security certification and other relevant payment terminal certification.

 

 ·         Non-refundable application fee of ₦100,000

 

·         Payment of the refundable sum of ₦2 billion in escrow to CBN

 

·         Licensing fee of ₦1million to be paid before the issuance of the final license.

 
4. Mobile Money Operator License

 

 E-money issuing; mobile wallet creation and management; pool account management; and all activities permitted for Super-Agent (in 8 below). ·         Corporate documents.

 

·         TCC for three years (if applicable) and TIN of the company.

 

·         Details of ownership and holding company structure (if applicable).

 

·         Company details and profile.

 

·         BVN, CV and means of ID of the directors and top management (including one independent non-executive director, chairman and managing director).

 

·         Business plan.

 

·         Requisite policies and framework.

 

·         Project deployment time.

 

·         Signed agreements with its partners.

 

 ·         Non-refundable application fee of N100,000.

 

·         Payment of the refundable sum of N2 billion in escrow to CBN

 

·         Licensing fee of ₦1,000,000 to be paid before the issuance of the final license.

 
5. Payment Solution Services (PSS) License

 

 It includes all the activities permitted for Payment Solution Service Providers (PSSP) (in 7 below); Payment Terminal Service Providers (PTSP) (in 4 below); and Super Agents (in 6 below).

Companies seeking to obtain the PSS license will have to select any one or combination of the following licenses: PSSP; PTSP; and Super-Agent.

 ·         Corporate documents.

 

·         TCC for three years (if applicable) and TIN of the company.

 

·         Details of ownership and holding company structure (if applicable).

 

·         Company details and profile.

 

·         BVN, CV and means of ID of the directors and top management (including one independent non-executive director, chairman and managing director).

 

·         Requisite policies and framework.

 

·         Signed agreements with its sub-agents, financial institutions, and partners.

 

·         Minimum of 50 agents.

 

·         Evidence of payment card security certification and other relevant payment terminal certification.

 

·         Project deployment methodology.

 

 ·         Non-refundable application fee of ₦100,000.

 

·         Payment of the refundable sum of up to ₦250 million (depending on which of the licenses the company wishes to obtain) in escrow to the CBN.

 

·         Licensing fee of ₦1,000,000 to be paid before the issuance of the final license.

 
6. Payment Terminal Service Provider (PTSP) License

 

 POS Terminal deployment and services and POS terminal ownership. ·         Corporate documents.

 

·         Tax Clearance Certificate (TCC) of three years (if applicable) and TIN of the company.

 

·         Details of ownership and holding company structure (if applicable).

 

·         Company details, profile and business plan.

 

·         BVN, CV and means of ID of the directors and top management (including one independent non-executive director, chairman and managing director).

 

·         Requisite policies and framework.

 

·         Project deployment methodology.

 

 ·         Non-refundable application fee of ₦100,000.

 

·         Payment of the refundable sum of ₦100 million in escrow to the CBN.

 

·         Licensing fee of ₦1,000,000 to be paid before the issuance of the final license.

 
7. Payment Solution Service Provider (PSSP) License

 

 Payment processing gateway; payment solution development; and merchant service aggregation and collection. ·         Corporate documents.

 

·         Tax Clearance Certificate (TCC) of three years (if applicable) and TIN of the company.

 

·         Details of ownership and holding company structure (if applicable).

 

·         Company details, profile and business plan.

 

·         BVN, CV and means of ID of directors and top management (including one non-executive director, chairman, managing director).

 

·         Signed agreements with its partners.

 

·         Requisite policies and framework.

 

·         Evidence of payment card security certification and other relevant payment terminal certification.

 ·         Non-refundable application fee of N100,000.

 

·         Payment of the refundable sum of ₦100 million in escrow to the CBN.

 

·         Licensing fee of ₦1 million to be paid before the issuance of the final license.

 
8. Super-Agent License Conducting certain banking activities such as cash deposit and withdrawal; bill payments; local fund transfer; balance enquiry etc. ·         Corporate documents.

 

·         TCC for three years (if applicable) and TIN of the company.

 

·         Details of ownership and holding company structure (if applicable).

 

·         Company details, profile and business plan.

 

·         BVN, CV and means of ID of the directors and top management (including one independent non-executive director, chairman and managing director).

 

·         Minimum of 50 agents.

 

·         Reference letter from a financial institution and signed agreement with the sub-agents, financial institution, and business partners.

 

·         Must have existed for over 12 months.

 

·         Requisite policies and framework.

 

·         Payment Terminal Service Aggregator of Payment Terminal Application Certification.

 ·         Non-refundable application fee of N100,000.

 

·         Payment of the refundable sum of ₦50 million in escrow to the CBN.

 

·         Licensing fee of ₦1 million to be paid before the issuance of the final license

 

 

Conclusion

Please note that the information above is not exhaustive and is focused on the primary regulator of the financial services sector, CBN.  Also, note that there are other regulators empowered to monitor the activities of companies in this sector to a certain extent.

For a more comprehensive understanding of the regulatory requirements for this sector, interested companies should liaise with legal advisers. Please see our previous newsletters for more information on the financial services sector.

 

https://pavestoneslegal.com/regulatory-requirement-for-fintech-in-nigeria-cbn-licenses/

https://pavestoneslegal.com/establishing-a-finance-company-in-nigeria/

https://pavestoneslegal.com/regulatory-update-review-of-the-minimum-capital-requirement-for-banks-by-the-central-bank-of-nigeria/

https://pavestoneslegal.com/key-regulatory-considerations-for-operating-a-money-lending-business-in-nigeria/

 

HARNESSING DIGITISATION TO ENHANCE TRADE IN AFRICA- A REVIEW OF THE AFRICAN CONTINENTAL FREE TRADE AREA PROTOCOL ON DIGITAL TRADE

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By Aderonke Alex-Adedipe and  Sharon Okpo

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INTRODUCTION

The effect of digitization over the last decade has been widespread, and cuts across various aspects of daily life and by implication, the global economy. This has resulted in digital trade and e-commerce, which has greatly influenced and changed the concept of trade in many ways, both on a local/small scale and at an international/large scale. Digital trade has facilitated multinational value chains; blurred the pre-existing boundaries between the sale and delivery of goods and services and forced a realignment of legal and regulatory structures to capture the benefits of this digital economy.

It is in light of this prevailing reality that the African Continental Free Trade Area (AfCFTA) developed the AfCFTA Protocol on Digital Trade (the “Protocol”/ “AfCFTA Protocol”) to support and enable the acceleration of technology-driven innovation and commerce in Africa. This is particularly of importance to multinational companies in the technology space, whose operations cut across several jurisdictions in Africa.

In this newsletter, we highlight some salient provisions of the Protocol and the opportunities which the Protocol presents to businesses.

WHAT IS DIGITAL TRADE?

Digital Trade has been defined by the Organization for Economic Cooperation and Development (OECD) as encompassing “digitally enabled transactions of trade in goods and services that can either be digitally or physically delivered, and that, involve consumers, firms, and governments”. It is essentially commerce enabled by electronic means and covers both trade in goods and services.

The AfCFTA Protocol defines digital trade as “digitally enabled transactions of trade in goods and services that can either be digitally or physically delivered and that involves natural and juristic persons”.

THE AFCFTA PROTOCOL

Some of the objectives of AfCFTA as enshrined in the Agreement for the Establishment of the African Continental Free Trade Area include (i) the creation of a “single market for goods, services, facilitated by the movement of persons to deepen the economic integration of the African continent and in accordance with the Pan African Vision of “An integrated, prosperous and peaceful Africa” enshrined in Agenda 2063” and (ii) the creation of “a liberalized market for goods and services through successive rounds of negotiations.

The Agreement establishing the AfCFTA provides for a Protocol on Trade in Goods, with the main objective of creating a liberalized market for trade in goods through the progressive elimination of tariff and non-tariff barriers. It also provides for a Protocol on Trade in Services, which seeks to create a single liberalized market for trade in services by establishing measures to enhance the competitiveness of services.

In February 2024, the AfCFTA Protocol on Digital Trade was adopted. The Protocol seeks to support the actualization of the above-mentioned objectives of the AfCFTA by creating harmonized rules that will facilitate digital trade for sustainable and inclusive socio-economic development and digital transformation in Africa.

Provisions of the AfCFTA Protocol

The provisions of the Protocol which seek to facilitate digital trade among member states, and create a trustworthy digital ecosystem for business and consumers, are summarized as follows:

  1. E-Commerce Market Access: The protocol makes provisions that ensure that digital products and services are accessible to member states without unnecessary restrictions. It mandates that there shall be no discriminatory treatment of digital products and services to prevent unfair trade/competition practices against foreign digital providers. It also prohibits the imposition of customs duties on electronic transactions, including digital content, software and other online products.
  2. Limitation of Data Localization and Cross-Border Data Flow: The protocol limits the imposition of data localization measures, which require data to be stored within the country of origin. The aim is to prevent barriers that could hinder the digital trade flow. Data localization may however be permitted when there are strong justifications related to national security and public policy. Flowing from this, the Protocol encourages the free movement of data across borders through electronic means, provided that the purpose for such transfer is to conduct digital trade.
  3. Data Governance: the Protocol encourages member states to adopt and enforce privacy protection measures in line with international standards, to ensure the protection of personal data during digital transactions. This will help build trust among consumers and businesses alike. The Protocol also urges member states to adopt data innovation, and measures to ensure cybersecurity and combat cybercrimes within their jurisdictions.
  4. Regulatory Cooperation: The Protocol encourages regulatory cooperation and harmonization among member states to reduce regulatory barriers and ensure consistency in digital trade regulations.
  5. Development of Digital Infrastructure: the Protocol requires member states to facilitate digital trade through measures such as allowing electronic trust services (such as e-signatures, e-seals, and e-time stamps), adopting and maintaining digital identity regimes for both natural and juristic persons, promoting digital payments and settlement systems, etc. It also provides for the continuous development of this digital infrastructure to enhance universal access to support participation in digital trade, such as providing consumers with access to the internet.
  6. Digital Inclusion: the Protocol also seeks to facilitate digital trade inclusion and urges member states to facilitate the inclusion of women, youth, indigenous persons, rural and local communities, persons with disabilities, and other underrepresented groups in digital trade. Member states are required to ensure that MSMEs participate in digital trade by adopting measures such as rendering technical assistance, capacity building, and collaboration in every area relating to digital trade.

OPPORTUNITIES PRESENTED BY THE AfCFTA PROTOCOL

Some of the opportunities presented by the Protocol include:

    1. Widened Market Access: With the introduction of the Protocol, businesses can access a larger market across Africa, without the regular barriers associated with cross-border transactions, especially with the elimination of custom duties on electronic transactions and other regulatory obstacles.
    2. Improved Data Flow and Connectivity: the introduction of unrestricted cross-border data flows, which are essential for cloud computing, data analytics and digital communication is of advantage to businesses. This allows businesses to operate more efficiently by using centralized data storage and processing. For one, following the implementation of the Protocol, this may address some issues businesses face with respect to transfer of data to third parties as provided under the Nigerian Data Protection Act.
    3. Enhanced Innovation and Technology Integration: with lesser restrictions on data and digital products, businesses have more opportunities to innovate and integrate technologies across borders.
    4. Regulatory Consistency: as the Protocol encourages regulatory alignment among member states, businesses may no longer have to deal with complex regulations as they apply to different trade jurisdictions. There is more consistency, and a more predictable business environment, making it easier for businesses to plan and invest.
    5. Increased Collaboration: businesses can now explore new partnerships and collaborations across the continent and leverage on shared digital resources and infrastructure.

CONCLUSION

The Protocol presents great opportunities for African countries to establish an inclusive, sustainable and beneficial trade ecosystem. It will help in harnessing the transformative power of technology for economic development. Nigeria is also realigning its regulatory structures to provide for a more sustainable digital trade ecosystem The promulgation of the Digital Economy Bill is one of Nigeria’s strategies at adopting the Protocol, promising for a better digital trade ecosystem for businesses in Nigeria.

OPERATING A CRYPTO TRADING COMPANY IN NIGERIA: REGULATORY REQUIREMENTS

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By Seun Timi-Koleolu and Hillary Okorotie

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Introduction

The Nigeria Securities and Exchange Commission (“SEC”) by a press release issued on August 29, 2024, announced that it has granted two Digital Asset Exchanges an “Approval in Principle” under the Accelerated Regulatory Incubation Program (“ARIP”). The framework for ARIP was introduced by SEC in June 2024 (see our previous newsletter for details) for the purpose of onboarding virtual asset exchange companies.

With this new update there is more clarity on the regulatory requirements for companies wishing to provide crypto trading services in Nigeria.  In view of the forgoing we have set out guidelines for companies wishing to provide crypto trading services in Nigeria.

  1. Are all Crypto Trading Companies Required to Register with SEC?

Yes, all digital exchanges and platforms wishing to provide crypto trading services in Nigeria are required to register under ARIP and obtain the approval of SEC in order to provide such services in Nigeria.

  1. What Approval will be Issued by SEC to Qualified Companies.

Upon undergoing registration under ARIP, an Approval in Principle will be granted to eligible companies. Once the condition for the Approval in Principle given by SEC has been satisfied by the company, the company will then be given full registration by SEC.

  1. Is the Company required to be Incorporated in Nigeria?

Yes, all companies wishing to provide crypto trading services must be registered with the Corporate Affairs Commission (CAC). The Certificate of Incorporation is one of the documents that is required to be shown for registration under the ARIP.

  1. Registration Requirements

According to the rules set by SEC, digital asset exchanges specifically are required to have a minimum paid-up capital of 500 million naira and must maintain a fidelity bond covering 25% of the paid-up capital of the company. Additionally, the Chief Executive officer and other principal officers of the company must possess relevant university degrees and at least five years of cognate experience. Furthermore, digital asset exchanges must obtain a “No Objection” letter from SEC before commencing its operations and trading any virtual or digital assets.

  1. Do these rules apply to Foreign Business wishing to operate Crypto Trading Companies in Nigeria?

Yes, these rules apply to foreign companies wishing to provide crypto trading services in Nigeria including incorporating a company with the CAC for the purpose of providing the services.

 

Conclusion

As the market for digital assets continues to grow, businesses interested in entering this space must ensure full compliance with the regulatory requirements set out by SEC and other relevant authorities.

We advise that companies wishing to provide crypto trading  services work closely with their legal advisors to ensure that they successfully operate within the confines of the relevant regulations.

 

The National Minimum Wage (Amendment) Act 2024: Key Updates and Practical Tips for Employers in Nigeria

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By Aderonke Alex-Adedipe and  Kofoworola Ayoola

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Introduction

The National Minimum Wage (Amendment) Act 2024 (the “Amendment Act”) represents a significant step in ensuring fair labor practices in Nigeria amidst the country’s soaring inflation and economic downturn. The Act, which came into effect on the 29th of July 2024, introduces an increase in the minimum wage rate for all workers in Nigeria and also shortens the review period for the minimum wage rate from five years to three years.

In this newsletter, we highlight key provisions of the Amendment Act and provide practical tips to employers to guide them in complying with these provisions.

Key Updates under The National Minimum Wage (Amendment) Act

1.What is the Minimum Wage?

The National Minimum Wage is the minimum total amount of money which the Act stipulates and requires an employer of labour to pay to the lowest paid worker or employee monthly in his establishment. Employers are bound to pay, subject to statutory deductions, an amount no less than is stipulated.

2.What is the New Minimum Wage Rate?

The National Minimum Wage Act 2019, which was the previous law governing remuneration of workers in Nigeria, had set the national minimum wage at #30,000 (Thirty Thousand Naira). The Amendment Act has now increased the minimum wage rate to #70,000 (Seventy Thousand Naira). This represents a 12.9% increase from the previous minimum wage rate.

3.What is the Effective Date of the New Minimum Wage Rate?

The new Minimum Wage rate was stated to take effect on the 1st of May 2024, with the previous rate having expired in April 2024. However, the legislation introducing the new rate was passed into law on the 29th of July 2024. The implication of this therefore, is that employers who previously paid less than the Minimum Wage would be required to pay their employees the difference in salaries between May and July, 2024.

4.Who is a Worker under the Act?

A Worker under the Act is defined as a person who has entered into or works under a contract of employment whether oral or written, or express or implied, with an employer. This definition aligns with the scope of employees covered by the Nigerian Labour Act, encompassing both clerical workers and manual labourers such as maids, drivers, cleaners, who work in both private and public sectors.

5.What is the New Wage Rate Review Period?

The Amendment Act has shortened the wage rate review period from 5 years to 3 years, meaning that the current wage rate is expected to expire in 2027.

6.Who is Exempted from complying with the new Minimum Wage?

All Employers are required to pay the new Minimum Wage to all workers as described above. The following employers are, however, exempted from complying with the Amendment Act:

  1. establishments where workers are employed on a part time basis and paid on commission or piece-rate (paid according to the quantity produced regardless of time);
  2. establishments with less than 25 employees;
  3. workers in seasonal employment such as agriculture, construction, tourism, etc;
  4. workers employed in vessels or aircrafts to which merchant shipping or civil aviation laws apply.

7.What are the Implications for Employers who fail to comply?

Failure to comply constitutes an offense and is punishable by both conviction and payment of a fine not exceeding 5% of the employer’s monthly wages and of all outstanding arrears of the workers’ wage. Additionally, the Employer will be liable to pay a penalty, which is not less than the prevailing Central Bank of Nigeria lending rate on the wages owed for each month of continuing violation.

Practical Tips for Employers

To ensure compliance, Employers are encouraged to:

  1. Review their existing wage structures for all employees/workers.
  2. Identify which employees within the organization are earning below the new minimum wage rate.
  3. Implement the wage increase on their payroll systems to bring the employees up to the new minimum wage.
  4. Record deductions, taxes or contributions made from its employees’ salaries/wages
  5. Document and keep records of all wage increases and adjustments, and also conditions of employment for the purpose of compliance audits. All such records are required under the Act to be kept for a period of 3 years after the period to which they refer. Non-compliance with this requirement constitutes an offence under the Act and attracts both conviction and payment of a fine not exceeding #75,000 (Seventy-Five Thousand Naira) and an additional penalty not exceeding #10,000 (Ten Thousand Naira) for each day the offense continues.

Conclusion

The increase in the minimum wage rate provides some relief to millions of workers in Nigeria amidst the country’s economic challenges. Both State and Federal Governments have initiated the implementation of the new wage rate across Nigeria. Private establishments are encouraged to follow suit by adhering to the updated wage requirements and ensuring compliance to avoid penalties.

ANALYSIS OF NIGERIA’s NATIONAL ARTIFICIAL INTELLIGENCE STRATEGY

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By Seun Timi-Koleolu and Olawale Atanda

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Introduction

In August 2024, the Federal Ministry of Communications, Innovation and Digital Economy released the draft of Nigeria’s first National Artificial Intelligence Strategy (NAIS). The NAIS was co-created by the National Centre for Artificial Intelligence and Robotics (NCAIR) and the National Information Technology Development Agency (NITDA) with support from private bodies.

The unveiling of the NAIS is to position the country to harness AI’s potential responsibly and inclusively. The NAIS vision is clear: to establish Nigeria as a global leader in AI and to foster sustainable development through ethical innovation and collaborative efforts.

In a previous article, we explored the foundational aspects of AI and its legal and regulatory implications in Nigeria. The NAIS takes this a step further by outlining strategic pillars that will drive Nigeria’s AI development and ensure that these technologies are leveraged responsibly and effectively.

In this newsletter, we analyze the main aspects of the NAIS and its importance to the growth of the Nigerian technology ecosystem.

 

  1. Guiding Principles of the NAIS

The NAIS is guided by principles that emphasize responsible and ethical AI development to ensure that AI technologies are designed with societal impact in mind. These principles include, amongst others, a commitment to transparency, accountability, human-centric approaches, inclusivity and shared prosperity.

Another key principle is data ethics and agency. This involves strict adherence to principles of privacy, consent, fairness, and transparency in the collection, use, and sharing of data for AI applications. From a regulatory standpoint, this means enforcing robust privacy* protections and ensuring that individuals have the knowledge and tools to make informed decisions about their data. For businesses, it will mean integrating these ethical standards into their operations to build trust and compliance.

 

  1. Key Strategic Pillars of the NAIS

There are 5 key strategic pillars of the NAIS. These are addressed below.

i. Building Foundational AI Infrastructure

Nigeria’s ambition to lead in AI hinges on developing a solid infrastructure foundation and enhanced computing capacity. This pillar emphasizes investing in AI-specific hardware and software, particularly through domestic solutions to reduce reliance on foreign technology.

Additionally, the NAIS highlights the establishment of clean energy-powered AI clusters and offers tax breaks and incentives to encourage private sector investment in critical AI infrastructure, such as high-performance computing centers. These efforts aim to accelerate innovation, create jobs, and position Nigeria as a competitive player in the global AI arena.

ii. Building and Sustaining a World-Class AI Ecosystem

To achieve global leadership in AI, Nigeria aims to develop a robust and dynamic ecosystem of partners, academia, and a highly skilled workforce. This pillar focuses on fostering sustainable AI partnerships, championing international collaborations, and nurturing a culture of innovation.

Initiatives include the creation of platforms such as the Sustainable Applied AI Partnership Platform (SAAPP) to bring together diverse stakeholders for AI development, and the AI Synergy Alliance to facilitate global partnerships. Similarly, the NAIS aims to establish Deep Tech AI Accelerators and AI Centers of Excellence to drive innovation and commercialize AI solutions.

 iii. Accelerating AI Adoption and Sector Transformation

This pillar seeks to harness AI for real-world impact by driving widespread adoption across various sectors, transforming industries, and promoting economic growth in Nigeria. This pillar emphasizes locally-led AI innovation, data-driven decision-making, and the development of an AI-ready workforce. Key strategies here include launching sector-specific AI adoption roadmaps, implementing global data quality standards, and creating a National AI Research and Development Fund to support cutting-edge research. The pillar also focuses on ensuring AI contributes to environmental well-being through green and sustainable AI initiatives, such as establishing a Green AI Challenge and Grant Programme to foster AI solutions for climate change, resource management, and smart city development.

The 3 Million Technical Talent (3MTT) Programme by the Federal Ministry of Communications, Innovation & Digital Economy aligns with these efforts by focusing on building Nigeria’s future digital workforce. This program, which aims to train millions of Nigerians in tech and AI skills, complements the NAIS goal of building a skilled AI workforce and accelerating AI adoption across sectors.

iv. Ensuring Responsible and Ethical AI Development

Pillar 4 focuses on the need for Nigeria to develop and adopt AI within a responsible and ethical framework while recognizing the transformative power of AI and the inherent risks it poses. A key objective under this pillar is the establishment of a robust AI ethics framework. This involves creating a diverse AI Ethics Expert Group (AIEEG) to guide the development and implementation of ethical AI principles that align with Nigerian values. The framework will focus on fairness, transparency, accountability, privacy, and human well-being, supported by a comprehensive AI ethics assessment tool that evaluates the ethical implications of AI projects throughout their lifecycle.

Another critical objective is shaping a human-centered AI transition, which aims to anticipate and mitigate the societal disruptions AI might cause, such as job displacement and increased inequality. This will involve conducting foresight studies to map out potential challenges and opportunities, as well as implementing legislative reforms to adapt legal frameworks to the evolving nature of AI. These reforms will focus on protecting human rights, privacy, and ensuring equitable access to technology through initiatives like digital literacy programs and community technology hubs.

v. Developing a Robust AI Governance Framework

Pillar 5 emphasizes the need for clear and consistent governance principles to ensure the responsible and successful development of AI in Nigeria. A primary objective is to create well-defined National AI Principles that will guide aspects of AI development, deployment, and usage. Also, it will state Nigeria’s core values and for AI development, including the achievement of the Sustainable Development Goals (SDGs) through AI.

The pillar aims to establish an independent AI Governance Regulatory Body responsible for enforcing ethical standards, providing clear guidance, and mediating disputes related to AI. The pillar also includes the development of a National AI Policy Framework to outline governance guidelines and a National AI Risk Management Framework to identify, assess, and mitigate potential safety and security risks associated with AI systems.

 

Conclusion

This ambitious roadmap outlines a comprehensive vision for AI development across five key pillars –  each addressing critical areas essential for building a robust AI ecosystem. However, while the NAIS is thorough in its scope, it currently lacks an implementation framework detailing key timelines, milestones, and monitoring mechanisms. Also, the NAIS does not yet clarify the funding sources for the various projects it proposes. As this is still a draft, it is anticipated that these gaps will be addressed in the final version of the NAIS to ensure a more complete and actionable plan for Nigeria’s AI future.

 

Download the NAIS document here – https://ncair.nitda.gov.ng/wp-content/uploads/2024/08/National-AI-Strategy_01082024-copy.pdf

 

*For more on privacy and data protection, please see our articles on these here:

1.https://pavestoneslegal.com/tag/data-protection/

2.https://pavestoneslegal.com/tag/data-privacy/