Doing Business with Nigeria

DOING BUSINESS WITH NIGERIA

 

Nigeria has the largest GDP and population in Sub-Saharan Africa. Like many developing and emerging economies, the country has a growing and well educated middle class, hungry for consumer products, whether Western style food and drink, technology or household goods. The market is huge. However, there is a well-publicised down side. Inflation is steep and foreign exchange shortages are significant. Combine this with endemic corruption and burdensome and expensive import processes and the landscape appears to be challenging, if not overtly daunting.

Certainly, trading with Nigeria is not easy and many pitfalls have to be assessed and avoided but the fact remains that the market potential is huge. From an exporter’s perspective, secure payment is paramount. The country and banking risks are high and the commercial, or customer, risk can also be significant. Robust export credit control is required and the only payment option which should be considered is Confirmed Letter of Credit. In certain cases, documentary collections could be considered but only if supported by credit risk insurance. The latter may be difficult to access for Nigeria and will not cover 100% of the risk. Importers in Nigeria have to apply for foreign exchange before they can open a Letter of Credit through the long-established Form M system. The application system is now electronic but, even so, can sometimes cause a delay in opening a Letter of Credit, due to the scarcity of foreign exchange, so exporters should recognise that this is quite a common situation and does not necessarily indicate that the buyer is not credit worthy.

Notwithstanding the many challenges there is a sincere and practical move towards trade facilitation in Nigeria. For most imports the pre-shipment and destination inspection requirements have been removed although most containerised cargoes are scanned, or intrusively examined, on arrival as an element of the Customs risk management process. There is also a drive to simplify documentation and the requirement for exporters to provide a ‘Combined Certificate of Value and Origin’ document is being discontinued, a standard commercial invoice will be sufficient although this would sometimes need to be supported by a Certificate of Origin.  

Nigeria has established a National Trade Facilitation Committee to oversee the implementation of the WTO Trade Facilitation Agreement, which is welcome, and this articulates a strong desire to modernise cross border trade operations and attract inward investment to the country.  Free zones have been established and a number of Inland Clearance Depots are being operationalised. 

Unusually, Federal law in Nigeria stipulates that imports must be contracted on a CPT or CFR basis whilst exports from Nigeria must be FCA or FOB. The rationale for this is historical and there is a hope that contracting mechanisms will be liberalised.  All imports must be insured locally and importers must present an insurance certificate as a clearance requirement. The seafreight clearance process has improved with the introduction of a Pre-arrival Processing system known as PAAR and a Nigeria Customs Service, community, Single Window. However, the process can still be lengthy and, un-specified clearance charges are usually around US$500. Cargoes are regularly delayed in the ports whilst release is negotiated and such delays are often exacerbated by malfunctioning scanners and original documents delayed in the banking system. Most shipping lines serving Nigerian ports extend the free time allowance before detention and container rental charges start to accrue. The clearance process for airfreight, entering Nigeria at Lagos and Abuja airports, is fairly efficient as long as all documents are available and, where payment is by Letter of Credit, the opening bank, to whom the cargo / airwaybill will be consigned, have authorised release of the consignment.  

Infrastructure deficiencies are a major constraint to trade in Nigeria. Port terminal operations are concessioned but the over-riding infrastructure, managed by Nigerian Ports Authority, requires considerable investment. The principal ports complex in Lagos has significant access issues and poor intermodal, maritime to rail and road, connectivity. It is hard to see how this situation will improve until a planned new port is built at Lekki on the outskirts of Lagos. In August it was reported in the Nigerian press that some 2 million import containers are currently ‘stuck’ in the Lagos Ports Complex due to emergency repairs on the access roads network.  It is hoped that block train services will soon be scheduled between Lagos Port and Kano in the North, a key trade corridor. Abuja Airport was recently closed for six weeks for runway repairs, it is now operational again.  Indeed, a programme of modernisation of the major Nigerian airports is well underway together with streamlining of passenger handling and security / screening operations.  This will make business visits less problematic than previously although the visa application process, with the Nigeria High Commission in London, can be lengthy. Visitors need to ensure that appropriate invitation letters are made available in good time prior to confirming flights.

Nigeria is very much open for business!

Article written by John Walden - Associate of Strong & Herd LLP

 

 

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