DETAIL: Nigeria’s oil and gas sector attracts FDI

Over the last few years, Nigeria has become the preferred destination for foreign direct investment in Africa, affecting the oil and gas sector outside of the FDI beneficiaries

 
A worker inspecting facilities on an oil drilling platform in Nigeria. The oil and gas sector there has been the largest beneficiary of FDI
A worker inspecting facilities on an oil drilling platform in Nigeria. The oil and gas sector there has been the largest beneficiary of FDI 

Nigeria received the largest amount of Foreign Direct Investment (FDI) of any African country over the period 2010-13. These inflows have grown in the last few years (see Fig. 1) – Nigeria’s National Bureau of Statistics recorded a total of $21.3bn of FDI in 2013, a 28.3 percent growth from the total FDI of 2012, which was calculated at $16.6bn.

On the equity side, FDI from January to May 2012 was at $648m, while in the same time frame for 2013 it was calculated at $811m. A major statistical difference however, can be seen in the Portfolio Investment (PI) for Nigeria, which indicates that investors have a preference for PI due to predictability in returns. From January to May 2012, PI in the form of equity, bonds and money market instruments was $4.42bn, $206m and $423m respectively. Similarly, in the same time frame for 2013, PI in the form of equity, bonds and money market instruments were calculated at $7.09bn, $749m and $565m respectively.

The power sector has been identified as a major growth area of the Nigerian economy

Distributing investment
The principal legislations regulating FDI in Nigeria are the Nigerian Investment Promotion Commission Act and the Foreign Exchange Monitoring & Miscellaneous Provisions Act. These laws guarantee the unrestricted transfer of dividends or profits derived from FDI and unhindered remittance of proceeds (net of taxes) in the event of sale or liquidation.

Historically, the largest beneficiary of FDI has been the oil and gas sector. Over the past year, this industry in Nigeria has witnessed divestments by International Oil Companies (IOCs). This has created opportunities for indigenous oil companies to participate in the upstream sector of the industry. However, due to the high costs involved, a number of indigenous companies have relied on FDI to fund their acquisitions of these upstream assets, mostly through international equity inflows.

The power sector has been identified as a major growth area of the Nigerian economy, with a need to boost electrical power capacity from the current 3,500-4,000MW to 40,000MW by 2020. The recent privatisation of the power sector through the sale of the successor companies set up to take over the assets of the Power Holding Company of Nigeria resulted in the inflow of FDI through direct acquisition of relevant interests by some foreign investors. Similarly, the on going sale of power plants developed under the Nigerian National Integrated Power Project has also created an influx of FDI in the Nigerian power sector.

Nigeria's foreign capital inflows

External factors
DETAIL Commercial Solicitors has been involved in these divestments and acquisitions. We apply our in-depth knowledge of the Nigerian oil, gas and power sectors, and our expertise in mergers, acquisitions, corporate and commercial issues, to provide top-notch legal services.

DETAIL advised Aiteo Eastern E&P Company in its successful bid for the acquisition of one of the assets divested by IOCs. It advised on the acquisition of the Abuja Electricity Distribution Company by Kann Utility Company (a Nigerian company partly owned by Mauritian CEC Africa Investments). DETAIL also advised Mauritian CEC Africa Investments regarding its investment in a concession of Shiroro Hydroelectric Power, one of the hydro plants that was made a concession as part of the recently concluded PHCN privatisation.

Factors that may impact FDI in the short- and medium-term include political stability concerns as investors may seek to step down funding ahead of the elections in Nigeria due in February 2015. Also to be considered is the impact of falling oil prices, and the proposed changes in the regulatory framework in the oil and gas sector. However, considering the huge potential of the Nigerian economy – as emphasised by the recent rebasing of Nigerian GDP – as the largest economy in Africa and the current dearth of infrastructure that requires substantial investment, the long-term outlook remains positive for FDI.

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