Doing Business Simplified: Regulatory Requirements For Operating A Restaurant in Nigeria.

/in /by

With a growing population of over 200 million, food production is one of the most lucrative businesses in Nigeria. In 2016, the Association of Fast Food and Confectioners of Nigeria (AFFCON) estimated the food industry to be worth over a trillion naira. In April 2020, Euromonitor International reported that demand for restaurants in Nigeria will continue to grow due to expansion of the mid-income group, growing urbanization and busy lifestyle of Nigerians. To operate a restaurant business in Nigeria, there are a number of regulatory requirements which Restaurant Operators (ROs) must comply with, some of which are discussed below.

Environmental Regulations

The Minister of Environment is empowered under the Environmental Health Officers (Registration, Etc) Act of 2002, to issue regulations and directions for Health Officers Registration Council of Nigeria (EHORECON). In several states, the state Ministry of Environment issues guidelines to relevant regulatory agencies to ensure compliance with environmental laws. Consequently, by law, all food outlets, including ROs, must apply and obtain a permit to ensure compliance with basic health and safety guidelines within their immediate environment. The premises of the restaurant will be inspected to ensure that the facilities are well ventilated, with regular disinfection, accessible water supply, disposable towels, rest room facilities, self-closing doors, medical certificate of fitness and training of the food handlers, amongst others.

Local Government licenses

In Lagos State for instance, ROs are required to apply for a food permit within the Local Government where the restaurant is located prior to commencement of operations. In addition, where the alcohol will be sold by an RO, a liquor permit is a requirement. Other relevant licenses issued by the local government are Television License (to use a television or radio), Private Entertainment and Merriment Permit (to run loud entertainment ventures) and Private Car Park Permit (to own a car park). The applicable fees for obtaining these licenses are subject to assessment of the local government officials.

National Agency for Food and Drug Administration and Control (NAFDAC)

NAFDAC, a federal government agency which regulates the production, manufacturing of food and drugs in Nigeria created under National Agency for Food and Drug Administration and Control Act of 1993. Generally, restaurants which process and sell food products in commercial quantity may be required to obtain a Good Hygiene Practice (GHP) license from NAFDAC prior to commencement of operations. A GHP license is usually issued upon satisfaction that the equipment of the food processor meets certain standards and that the food handlers possess the required certification.

Signage/Advertising

In operating a restaurant, it is typical to place a signage outside the premises for the purpose of advertising. To achieve this, Lagos State signage laws require all businesses, including ROs, with outdoor advertising to obtain a signage permit with the Lagos State Signage and Advertisement Agency.

Conclusion

There are other regulators such as the Federal Competition and Consumer Protection Commission, states’ ministry of health and the relevant federal and state tax regulatory bodies, who are in charge of ensuring compliance with applicable laws and regulation. Whilst there may be an overlap in their functions, the common goal of the regulators is to ensure the general welfare and safety of consumers.

Doing Business Simplified: Employment Issues Arising From COVID-19

/in /by

The COVID-19 pandemic has had a significant impact on employer-employee relations worldwide. Due to the slowdown of economies around the world, businesses have been impacted a great deal which has led to the review of business policies, operating procedures, employment contracts and inevitably, job cuts. For employers and employees in Nigeria looking for guidance on navigating the employment landscape, below are answers to pertinent questions.

 

  1. Can an employee’s contract be terminated due to business losses from COVID-19?

Under Nigerian law, employers may terminate the employment of an employee with reason or without reason. What is important is that the termination is carried out in accordance with the terms of the employment agreement. Where it provides for notice or salary in lieu of notice to be given, either of these options should be followed otherwise it would constitute a breach of the employment agreement.

 

  1. Can an employer decide to not pay employees due to unavailability of work?

Under the Labour Act, employers have a duty to provide work. Therefore, where employees are able and available to work, it is the responsibility of an employer to ensure work is provided. If work is not provided or unavailable, the employer is still required to pay wages to its employees. However, the Labour Act only applies to staff in lower cadre roles (drivers, clerks, etc). All other employees are governed according to the terms of their contracts which ordinarily provide for remuneration regardless of the availability of work. Employers unable to provide work and thereby unable to pay salaries due to the effect of COVID-19 are advised to discuss with their employees  and agree on an arrangement that is fair to both parties.

 

  1. Can employees be asked to proceed on indefinite leave or have their employment agreements suspended?

Nigerian law does not provide for indefinite leave or the suspension of employment agreements. If an employer seeks to suspend the employment of its employees or ask that they proceed on indefinite leave pending when operations return to normal, it would have to be in line with the terms of the agreement. Where the contract is silent on this, the employer is advised to consult with employees and agree on the terms of the suspension or the indefinite leave as this cannot be done unilaterally. This also applies to situations where employers request that employees proceed on their annual leave without pay

 

  1. Are employers allowed to cut salaries due to the business impact of Covid-19?

Employment agreements typically include the remuneration of employees. If there is to be a variation of the remuneration, it must be agreed to by parties to the agreement. If a business is unable to pay salaries, this should be made known to the employees beforehand and a fair arrangement reached.

 

  1. Can an employer be exposed to a claim for wrongful termination?

If the manner of termination of employment is not in accordance with the Labour Act or the terms of the employment agreement, employers will be liable for wrongful termination. For example, where the employment contract provides for notice to be given before termination, an employer must ensure the applicable notice as stated in the agreement is given.

The Effect of the Nigerian Content Development and Enforcement Bill on Foreign Participation in the Nigerian Oil and Gas Industry

/in /by

According to a report issued by the Nigerian Stock Exchange in September 2019 , there was a 47.81 % increase in transactions by foreign investors in the Nigerian equity market and a total of $308.2 million, which was significantly higher than the transactions of local investors by 44.00%. Foreign participation has continuously brought about an increase in the investment portfolio of the Nigerian economy and cuts across several industries. The oil and gas industry in particular, continues to record a steady inflow of non-Nigerian entities, who significantly contribute to the development of the sector. In order to encourage more local participation however, several legislative measures have been put in place over the years. More recently, the Nigerian Content Development and Enforcement Bill (“the Bill”) was sponsored by 7 members of the House of Representatives for legislative consideration. Although the Bill is currently in the 2nd reading stage, it is crucial for stakeholders to follow its development given the recent downward spiralling of the petroleum industry and its effect on the economy.

Brief Overview

The Bill, which seeks to repeal the Nigerian Oil and Gas Industry Content Development Act 2010 (“the Act”), proposes additional requirements and guidelines to encourage indigenous participation in the petroleum sector. It also seeks to broaden the scope of its application to cover industries such as power, construction, mining, and ICT. Below, we have highlighted some salient provisions of the Bill in its current form and what they mean for future foreign participation in the oil and gas industry.

Labour Clause

This provision under the Act required any contract exceeding $100 million to include a labour clause which mandated the use of a minimum percentage of Nigerian Labour in specific cadres. The Bill however proposes to reduce the budget requirement to $1 million in order to encourage indigenous participation in sector activities.

Compulsory Dispute Resolution

Another proposition the Bill brings is the requirement of any dispute that arises from any contract regulated by the Bill to be compulsorily resolved by an Arbitral panel whose composition is determined by the Chief Judge of the Federal High Court and is made up of a minimum of three members who shall be Judges of the Federal High Court . Although this provision may seek to encourage arbitration as a faster means of dispute resolution, it may place some restriction on the freedom of parties to decide the method and jurisdiction of settling contractual dispute.

Increased Penalties

Under the Act, the penalty for carrying out a project not compliant with the provisions of the Act is a fine of 5% of the value of the project. The Bill introduces a higher penalty for non-compliance of its provisions by increasing the fine to 15% and including a 5-year imprisonment term.

Impact on Foreign Participation in the Nigerian Oil and Gas Industry

It is hoped that while the Bill is under consideration at the House of Representatives, legislators will consider including more incentives to encourage foreign participation in the oil and gas industry in Nigeria.

Data Protection by Public Institutions in Nigeria

/in /by

On May 18, 2020, the National Information Technology Development Agency of Nigeria (“NITDA”) issued ‘Guidelines for the Management of Personal Data by Public Institutions in Nigeria’ (the “Guidelines”). It is aimed at directing public institutions in securely managing personal data in accordance with the Nigeria Data Protection Regulation, 2019 (“NDPR”).

This development is in line with the Nigerian Government’s National Digital Economy Policy and Strategy launched in November, 2019, particularly the E-Governance Initiative aimed at digitizing the provision of public services. A key provision in the Guidelines is a requirement for all Public Institutions holding or processing personal data to securely digitize its database within 60 days from the issuance of the Guidelines. In addition to this, below are highlights from the Guidelines:

  1. Which institution does it apply to? It regulates all Public Institutions in Nigeria (“PI”), including ministries, agencies and incorporated entities with government shareholding.
  2. How does the NDPR fit in with the Guidelines? The NDPR is the primary data protection regulation and remains binding on PIs. The Guidelines clarify the intent of the NDPR and should be read together.
  3. What duty of protection is placed on PIs? PIs are obligated to protect all personal data they process. Processing means any operation which is performed on personal data by PIs, whether or not automated.
  4. Whose data is protected? Personal data of a Nigerian citizen (resident and non-resident) which PIs have access to, whether through direct interaction or in furtherance of its statutory or administrative purpose.
  5. How can PIs process personal data lawfully? In addition to the 5 lawful basis for processing Personal Data set out in the NDPR (consent, contractual obligation, vital interest, public interest and legal obligation), the Guidelines include legitimate interest as the 6th lawful ground for processing by PIs. Legitimate interest is, however, not defined.
  6. Are there additional conditions attached to lawful processing? Yes, all processing by PIs must fall within any of these 3 categories; public interest, legal obligation and vital interest.
  7. How is sensitive personal data to be handled by PIs? PIs are to apply a higher standard to Sensitive Personal Data. They are to directly and unambiguously request for consent from Data Subjects prior to processing it. Sensitive Data includes data on health, ethnicity, biometric and sexual orientation.
  8. Are there exceptions to the rule? Yes, it appears that consent would not be required for Health Emergency, National Security and Crime Prevention.
  9. What Information Security Standard should be adopted when processing personal data from another institution? PIs seeking to process personal data from another institution (private or public) are to show compliance with international information security standards such as ISO 27001:2013 or any similar standard, amongst other conditions.
  10. Does a PI require a Data Protection Compliance Organisation (“DPCO”)? Yes, a DPCO is to be appointed to train and audit PIs.
  11. Is there a consequence for non-compliance? Non-compliance by the PI would be an offence under the NITDA Act and NDPR; and the consequences for such offence would be applied.

The Guidelines are a welcome development which should better guide PIs in handling personal data. It would, however, be useful for NITDA to provide clarity on what instances PIs may rely on ‘Legitimate Interest’ as a ground for lawfully processing personal data.

 

Doing Business Simplified: Application of Withholding Tax on Non-Resident Companies Under the Finance Act

/in /by

Withholding Tax (WHT) is an advanced payment on income tax deducted directly from source by a service provider. The taxpayer could be a company or an individual and the rate of WHT ranges from 2.5% to 10%, depending on the nature of the transaction. WHT is not a separate tax but serves as a credit against the tax liability of the taxpayer. For example, companies are required to pay Companies Income Tax (CIT) at the end of their accounting year and after their audited accounts have been filed. At the point of the assessment of their CIT liabilities, the WHT deducted from their invoices to service providers during the year would be deducted from the CIT payable for that financial year.

WHT and Non-Resident Companies

Non-resident companies are companies not incorporated in Nigeria. Under the Companies Income Tax Act (CITA), non-resident companies which have a “fixed base” in Nigeria are liable to pay CIT on profit generated in Nigeria and therefore subject to WHT.

A fixed base implies some degree of permanence and will include facilities (such as a factory, office, branch, mine, oil or gas well); activities (such as building, construction, assembly or installation) and provision of services in connection with the activities stated above. Non-resident companies which operate in Nigeria through a dependent agent authorized to conclude contracts or deliver goods on its behalf, execute a turnkey project in Nigeria, or carry out business operation between itself and its Nigeria affiliate which does not appear to be at arms-length, would also be subject to WHT.

However, the new Finance Act (2020) expands the scope of non-resident companies to include digital entities (i.e. e-commerce businesses, online payment platforms, cloud storage platforms, etc) and companies which provide technical, management, consultancy, or professional services to persons resident in Nigeria provided that such companies have “significant economic presence” in Nigeria.

What is Significant Economic Presence?

The Finance Act (2020) requires the Minister of Finance to issue an order to determine what will constitute “significant economic presence” of a non-resident company. The Minister is yet to issue that order and therefore, the application of this provision of the Finance Act (2020) is not yet in effect.

WHT and Fee Payments to Non-Resident Companies

In practice, before the Finance Act(2020), where a Nigerian entity intends to obtain foreign exchange from the official market for the purpose of fulfilling its financial obligations to a non-resident company, the Nigerian company is required by the Central Bank of Nigeria to show evidence of deduction of WHT for the service rendered, whether or not such foreign entity had a “fixed base” in Nigeria. This highlights the need for the Central Bank of Nigeria and Federal Inland Revenue Service to ensure that tax processes are streamlined for uniformity in tax administration.

 

Conclusion

The extent to which non-resident companies would be subject to WHT will be determined by the criteria described by the Minister of Finance on what constitutes a significant economic presence in Nigeria. When this occurs, non-resident companies not already subject to WHT may become so considering the government’s drive to expand the nation’s tax net and increase its tax income.

 

Doing Business Simplified: Incentives to Invest in Nigeria

/in /by

In our previous newsletter on managing the risks associated with foreign investments in Nigeria, we discussed practical steps that could be taken by foreign investors to mitigate risks associated with doing business in Nigeria.

Since then, the COVID-19 pandemic (which has affected several countries worldwide including Nigeria), has generally slowed down many sectors of the economy and negatively impacted investments. In spite of this, certain sectors including those which have been categorized as “essential” by the Nigerian government are likely to emerge unscathed and even more profitable after the pandemic. It is also expected that in order to improve the economy, the government is likely to promote investments in these sectors post COVID-19. These include the health sector, agriculture, food production and sales, finance sector, logistics, and start-ups using technology to provide essential services. A case in point are health-tech startups, Helium Health and 54-gene raising millions of dollars in funding despite the pandemic.

Foreign Direct Investment is considered by the Nigerian government as a key factor to the growth of the economy and investments in the sectors set out above are likely to be encouraged post Covid-19. Given the market size potential in Nigeria, it remains one of the most attractive countries in Africa for foreign investments. Investors wishing to invest in the African market may wish to consider investing in businesses in the sectors above.

Below are incentives and measures currently in place which should be taken account of in making a decision to invest in a post-COVID Nigerian economy.

 

  1. 100% foreign ownership in various sectors – The Nigerian government permits up to 100% foreign ownership in most sectors of the economy including the sectors we indicated above which are likely to benefit from the government’s agenda to diversify the economy.

 

  1. Free transferability of capital and returns– The investment regime in Nigeria guarantees investors the right to repatriate capital and profits to foreign jurisdictions, once capital is inflowed through an authorized dealer and a certificate of capital importation is obtained. This assures investors that assets would not be trapped in Nigeria. Expropriation of assets of investors by government is also prevented by the investment regime in place.

 

  1. Double Taxation Treaties – Nigeria has a Double Taxation Treaty with countries such as Belgium, Canada, China, France, the Netherlands, Pakistan, Philippines, Romania, South Africa, and the United Kingdom . Investors from countries with a Double Taxation Treaty with Nigeria pay a discounted percentage of 7.5% on dividends.

 

  1. Tax Incentives – Investors can take advantage of the various tax incentives available in several profitable sectors. For instance, companies carrying out agricultural production are exempt from income tax for a period of 5 years extendable for an additional 3 years. Investors in the health sector enjoy import duty waivers on medical equipment, pharmaceutical products, and investors in the mining sector enjoy waivers on mining equipment.

 

  1. Ease of Doing Business Initiatives – Several initiatives targeted at improving the state of the economy and encouraging foreign investments have been put in place recently. For example, the Presidential Enabling Business Environment Council has worked to remove obstacles to investing in Nigeria. One of such moves is the establishment of a dedicated website (www.pebec.report) where businesses and individuals can lay complaints against government institutions.

 

  1. Incentive for FINTECH Companies – The Central Bank of Nigeria (CBN) recently extended the Microfinance Bank recapitalization deadline. This is especially important since many companies in the fintech space in Nigeria operate with a Microfinance Bank (MFB) license. Prior to the pandemic, the CBN had required MFBs to significantly increase their capital base by April of 2020. Now, a new deadline of April 2021 has been set, thereby giving Fintech companies more time to consolidate and source for investments.

 

 

Conclusion

Although, it is not certain when the pandemic will end and with it the economic slowdown, what is certain is that investment opportunities still abound – even though on a lower scale. What is also certain is that it is those investors who identify potential investments and take the risk to invest in this climate that will emerge the post-coronavirus winners.

 

 

EXAMINING THE PROVISIONS OF THE BEIJING TREATY AND ITS IMPACT ON THE DRAFT COPYRIGHT BILL

/in /by

The coming into force of the Beijing Treaty on Audiovisual Performances 2012 (“the Treaty”) on the 28th of April 2020 will undoubtedly propel the Nigerian creative industry, which is currently valued at N156.5 billion, to a new regime as it will introduce several crucial requirements which will inevitably restructure the current copyright administration and ensure for better protection and provision for the beneficiaries. The Treaty creates a regulatory framework for the protection of audio-visual performances (music, television, dance, expressions of folklore) while also safeguarding rights across digital platforms globally.

Background

The Treaty was first adopted in June 2012 by the Diplomatic Conference on the Protection of Audiovisual Performances of the World Intellectual Property Organisation (WIPO) in which Nigeria participated and ratified five years later, alongside three other similar treaties called the “Internet Treaties”. As with all International treaties, it will only become applicable in Nigeria once it has been domesticated. The applicable law in this instance would be the Copyright Act of Nigeria which is currently being amended (“Amendment Bill”). The Amendment Bill includes some provisions of the Treaty such as the right of performers to reproduce, broadcast, live recordings etc. Some salient provisions of the Treaty which are not included in the Amendment Bill and the impact these may have on the Nigerian copyright administration are highlighted below:

Moral rights

This right can be divided into two categories namely: i) Right of Integrity and ii) Right of Paternity. The first gives the performer the  right to object to any distortion of his performance that could be prejudicial to his reputation while the second accords him the right to be identified as the author of the performance.

Economic rights

Transfer of rights: unarguably the most controversial provision of the Treaty, provides for the transfer of  the exclusive economic right from the performer to the producer of the performance once it is in fixed form, i.e, recorded, unless the two parties have a written contract that states otherwise. This brings to light the glaring need for such understanding to be documented.

Broadcast right or Equitable Remuneration: under the Treaty, performers also enjoy the exclusive right to authorize the broadcast of their recorded performances to the public. While this provision is already available under the Amendment Bill, parties to the Treaty may choose to replace this provision with a right for performers to be equitably remunerated for the use of their performances in form of royalties.

Distribution and Rental rights: These provisions give the performers the exclusive right to authorise the distribution and rental of their fixed work to the public.

Impact on the Amendment Bill

The inclusion of the above highlighted rights into the Amendment Bill will ensure that performers are adequately protected, especially on digital platforms and that structures are put in place to remedy infringement on these rights. In addition, the Treaty places emphasis on the protection of producer’s rights and the need for formal contractual agreements.

Conclusion

Despite the obvious benefits of the Treaty, some concerns have been raised by industry stakeholders as to whether the domestication of the Treaty will take into cognisance the current realities and challenges of the creative industry in Nigeria some of which include digital piracy and the difficulty involved in enforcing their rights. Despite these challenges, this development will bring about economic growth and improve cultural exportation for Nigeria.

DIVERSIFICATION OF THE ECONOMY – 5 LEGAL STEPS TO SCALE YOUR BUSINESS

/in /by

The over reliance of the Nigerian economy on the oil sector for sustenance has proven to be a flawed model for economic development. With a population of over 200 million people and the recent decline in oil prices due to global price wars as well as the pandemic, it has become more urgent for the government to promote investment in other sectors of the economy, including the agriculture, manufacturing, solid minerals and technology sectors.

To improve the economy, it is now more likely that government would promote opportunities for businesses in these sectors to grow, either through more accessible loans and incentives or foreign/local investments.

It is therefore wise that businesses in these sectors are properly positioned for growth opportunities. if this applies to you, here are 5 legal steps to consider to be positioned to scale your business.

  1. Suitable Company Structure –If you currently operate with a business name, we advise that you convert to a limited liability company structure. This would position you for equity investments and loans, as investor prefer to work with structured companies.

 

  1. Suitable Contracts in Place– Ensure you have entered into contracts that govern your relationship with your stakeholders including Shareholder Agreements, Founders’ Agreement, Employee Contracts and Supply Contracts. Also, document the terms of all investments in your business including your own investment. Your investment could be structured as a convertible loan or an outright loan to your business which you can claim back once the business is profitable; or use to purchase equity in your business. It is important to have these terms agreed upon before third party investors or shareholders join as at such a stage it would be difficult to justify.

 

  1. Protect your Intellectual Property Rights (IPR)–There is value in your intellectual property (including your brand name, inventive steps and designs). Prior to growing your business ensure you protect your IPR as this is an asset which can improve your valuation. It also enables you protect your intellectual investment in your business and prevent imitators from using it. Note that if you intend to go global, you should register your IPR in other countries you wish to operate in.

 

  1. Be Due Diligence Ready – An investor interested in your business would carry out due diligence on your business to ascertain the risk in investing and determine the value of your business. Matters such as your compliance with State and Federal tax laws, Regulatory requirements, updating your records at the Corporate Affairs Commission would be checked. Ensure your business is compliant or take steps now to put your books in order to avoid issues at the Due Diligence stage.

 

  1. Have a Good Corporate Governance Culture –It is advisable that you adopt good corporate governance practices in your operations. This is because it gives a level of comfort to investors that the business is operated with integrity. You can adopt the principles in the Nigerian Code of Corporate Governance 2019. The Code sets out rules for good governance practices in your business including ensuring your board of directors is properly structured for accountability and transparency.

 

 

Regardless of whether the Nigerian government effectively takes the necessary steps to diversify the economy, the world is now a global village and investors are seeking good investment opportunities. By adopting the steps above, your business is better positioned for such opportunities.

 

 

Foreign Exchange Volatility in Nigeria; Effect on Contractual Obligations and Possible Solutions for Businesses

/in /by

Foreign Exchange and the Nigerian Economy

The endless requirement for international trade and investment across the world has continued to foster the exchange of foreign currency between trading partners. For import-dependent economies like Nigeria, there are continuous obligations to pay foreign counter-parties for imported goods using a globally acceptable foreign currency like the US Dollar. Thus, constant demand for foreign exchange by Nigerian importers.

Given the occurrence of other factors, such as the unprecedented effect of  COVID-19 on global economies, which has caused a decrease in demand for oil by major importers like China and  India; the price war initiated by Saudi Arabia against Russia which crashed oil prices by 64%, all occurring within a few weeks apart, the combined effect of these has been dwindling foreign exchange reserves and consequently, scarcity of foreign currency in the Nigerian market and a forced devaluation of the Naira, despite all attempts by the Central Bank to prevent devaluation. Thus, by the end of March, 2020, a currency which traded at N306 to 1 US Dollar at the official market, unexpectedly devalued to N360 to 1 US Dollar at the official market and N400-410 at the parallel market.

For many Nigerians, this situation is a vivid reminder of how the Naira lost over 70% of its value in 2015, thereby causing prices to generally skyrocket due to increased cost of purchasing foreign exchange and continuous international trade. Apart from its overall impact which gives rise to inflation, this unpredictable situation also impacts contractual obligations as discussed below.

Impact of Foreign Exchange Volatility on Contractual Obligations

For the most part, purchasers of imported commodities are obviously in a weaker position when they have made prior commitments at a fixed price. Take for instance, the real estate industry and the current era of turnkey construction projects. In transactions of such nature, the buyer and seller have agreed a fixed price, with the  seller calculating value of construction materials that may need to be imported on previous foreign exchange rate. 3 weeks after closing a deal and the developer is ready to start importing, the value of the Naira has suddenly dropped and purchasing power becomes lower. Therefore, the developer suddenly has a higher financial obligation which was unprecedented at the time of selling the undeveloped property. Unfortunately, this same scenario occurs across many industries, including the oil and gas sector. The question of whether these unforeseen events can be mitigated becomes relevant.

Some contractual strategies are discussed below:

 

Fixed Price Hedging is particularly common in the oil and gas industry, due to the volatile nature of oil prices. Here, parties agree to fix the buying and selling price of oil over a specified period of time, notwithstanding the increase or decrease in market value of the commodities being sold. It is also commonly used in the agricultural sector to fix prices of commodities which are subject to fluctuation.

Foreign currency swap contracts are also often executed by parties who have foreign exchange obligations to third parties. From a vanilla transaction standpoint, currency swaps can be used by parties in foreign countries who exchange their financial obligations at a contractually agreed rate, without having to obtain foreign exchange from an expensive market. For example, Mr A, a Nigerian national, owes the Bank of England $100,000 while Mr B, an English National, owes a Nigerian trader, N20Million. Mr A and Mr B can agree to swap each other’s obligation at an exchange rate which is favourable to both parties and which is less expensive than purchasing from the local foreign exchange market.

In conclusion, whilst foreign exchange volatility can be unpredictable and uncontrollable, businesses may also deploy contractual methods of hedging against future economic risks.

 

 

 

REVIEW OF THE CROWDFUNDING RULES PROPOSED BY SEC, NIGERIA

/in /by

The Fintech industry in Nigeria has witnessed considerable growth over the last couple of years as Start-ups continue to discover innovative ways of raising funds as conventional methods like venture capital and loans from commercial banks are perceived as unattractive due to prohibitive conditions like loss of control and high interest rates.

One of such innovations is seeking investment through crowdfunding where investors fund a venture through an online platform and enjoy a certain percentage of interest over a specified period. The Crowdfunding sector in Nigeria which has been unregulated since its commencement, has witnessed exponential growth. According to a report, in 2015 alone, the sum of $7-8 million dollars was raised through crowdfunding in Nigeria.

Uncertainty about whether the rules of the Securities and Exchange Commission (“SEC”), which apply to companies seeking investment from the general public has however deterred many from participating in this venture.

Potentially putting an end to this conundrum, the SEC has released the proposed Crowdfunding Rules (the “Rules”) to regulate crowdfunding activities in Nigeria.

While the Rules are currently in draft form, below is a summary of what the Rules are about.

Who can raise funds?

To raise funds, issuers must register and operate in Nigeria for a period of two years.

What is the fundraising Limit?

The aggregate amount of securities or investment instruments that can be offered within a period of 12 months are:

  • N 100 million for medium enterprises
  • N 70 million for small enterprises
  • N 50 million for micro enterprises

These limits do not apply to Digital Commodities Investment Platforms (“DCIPs”) like Farmcrowdy or Thrive Agric which the Rules describe as platforms that connect investors to specific agricultural or commodities project in exchange for returns.

What is maximum investment limit?

Retail investors who are neither High Net worth nor Sophisticated Investors shall not invest more than 10% of their annual income.

How can funds be raised?

Funds may only be raised through Crowdfunding Portals, which can only be operated by platforms registered by the SEC and having a minimum paid-up share capital of N100 Million.

CONCLUSION

The draft in its current form raises a number of concerns which include:

  1. the minimum share capital of N100million which is considered too high for start-ups,
  2. the limitation of sums which  can be raised  over a period of 12 months may not be realistic and finally,
  3. the unclear distinction between Crowdfunding Platforms and DCIPs who may be allowed to obtain a No-Objection from SEC to continue to operate their existing Crowdfunding Platforms,  provided they do not have any interest in projects listed on their own platforms.

Whilst the Rules will protect investors’ interests, the Rules must not be seen as unsupportive of MSMEs who may either be forced to invent ways of circumventing the Rules  or  be dissuaded from investing in the market altogether.