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The Effect of Nigeria’s Recent Recession on Corporate Practice
1. What impact has the 2016-2017 recession in Nigeria had on the corporate sector?
During the period, the high cost of foreign exchange, high cost of energy led to high cost of production and reduced competiveness. Consequently, the operations of some companies were shut down. In order to survive, many companies reduced production by close to 50 percent, declared some employees redundant and slashed the remuneration of the remaining employees. Banks struggled with declining operating profitability and poor liquidity. Luckily, the Federal Government’s concerted efforts to navigate the rough tide which include support of small and medium scale industries jolted the economy back to life. The Central Bank of Nigeria introduced policies to stabilize the naira and reduce the backlog of trade obligations to foreign banks.
2. What is the level of incorporation of companies since then?
Fewer business entities were incorporated during the period. But upon the injection of some funds into the economy by the Federal Government, business gradually picked up. The last quarter of 2017 witnessed an increase in registration of business entities. Interestingly, the large consumer base presents a huge opportunity for increased Mergers and Acquisitions in the nearest future.
3. What factors must new companies consider that are specific to the current environment in Nigeria?
Except, firearms, narcotic and military uniforms, a foreign company may engage in any legal business endeavor in Nigeria. But it must be registered in Nigeria to carry on business in Nigeria. A foreign company acquires the same status as Nigerian companies once it is registered. Nonetheless, Nigerian company law does not prevent an unregistered foreign company from suing or being sued in Nigeria.
The minimum share capital of a private company is 10, 000 (ten thousand) shares while that of a public company is 500, 000 (five hundred thousand) shares. However, there is a stipulated share capital for companies with certain objects. A company with foreigners as its first subscribers must have at least 10,000,000 (ten million) shares. Proficiency certificate is required for specialized businesses.
The technologies, technical expertise and intellectual property of foreign companies are protected under Nigerian law. Also, Nigerian law prevents foreign companies from being expropriated by the Government and guarantees them a right to repatriate their profits abroad. However, in order to make indigenous companies to be competitive, there are legislations on local content participation in some sectors.
4. What issues influence the type of legal structure that a company should choose?
As a result of continuous existence of the business entity, limited liability of shareholders, separate personality of the company from its shareholders and restriction on transfer of shares, private company limited by shares is the popular and preferred legal structure to choose to carry on business in Nigeria.
5. Have there been new pieces of legislation that are significant for the corporate sector recently?
The Cybercrime (Prohibition, Prevention etc.) Act 2015 provide an effective and unified legal, regulatory and institutional framework for the protection of data, electronic communication and privacy rights and prohibition, prevention, detection, prosecution and punishment of cybercrimes in Nigeria.
The Bankruptcy and Insolvency (Repeal and Reenactment) Act 2016 is a welcome development to bankruptcy proceedings. This is because it acknowledges the right of a foreign creditor to initiate bankruptcy proceedings and recognizes bankruptcy and insolvency order from a foreign jurisdiction.
The Electronic Commerce (Provision of Legal Recognition) Bill of 2008 which is awaiting Presidential assent provides for the recognition of electronic commercial transactions.
The 2017 amendment to the Companies Regulation, 2012 has positioned the Companies’ registry to be more effective. This is already achieving results as incorporation of business entities is made online and can be concluded within few hours.
6. What issues are anticipated in relation relating to corporate law in the foreseeable future?
The increased foreign interest in the healthcare, real estate and construction, telecommunications and financial sectors will lead to improved corporate governance in these sectors.
The privatization of the power sector will draw the attention of reputable international power firms to Nigeria. This will make the sector competitive and improve the power situation in country.
In face of falling crude oil prices, the Federal Government has shifted its attention to non-oil sectors. This will create more opportunities for investors especially in the agriculture and solid minerals sectors.