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Legal Protection for Foreign Direct Investments

Legal Protection for Foreign Direct Investments

For the healthy and continuous flow of Foreign Direct Investments (FDI) into Nigeria, the country has established the friendly legal framework for the protection of Foreign Direct Investments (FDI) over the years.

Legal Protection for Foreign Direct Investments
Legal Protection for Foreign Direct Investments

In this Series of Foreign Investor’s Guides to Doing Business in Nigeria, we will examine the legal mechanisms put in place to encourage increased FDI inflows and build confidence by foreign investors in the country.

We will discuss the protection of foreign investors from the finality of arbitration proceedings and other dispute resolution mechanisms in the country.

The reality in modern economic systems is that no country can economically be an island; Foreign Direct Investment (FDI) protection is crucial to the successful achievement of foreign investors’ business goals/objectives and to the economic development of any economy.

There are steps that host countries can take legally in exercising their sovereignty and authority and may deprive foreign investors of reaping the fruits of their investments.

Legal Protection for Foreign Direct Investments

Host government actions that may adversely affect foreign investment include nationalization; The act of a government taking control of a private enterprise and transforming it into government or public ownership.

Expropriation; The act of a government to seize or otherwise interfere with privately owned assets or property for or for the public use and benefit.

Legal and administrative actions of the government as government action can also have adverse effects on foreign investors’ businesses in Nigeria.

The only difference is that the way it works shifts attention from the physical and actual takeover of an investor’s assets to the legal and administrative actions of the government.

Legal Protection for Foreign Direct Investments

While such government control does not deprive the foreign investor of ownership of an asset, it can significantly reduce the value of the foreign investor’s properties and investments.

Foreign investors do not like to invest in countries with risks such as the arbitrary cancellation of a license; permit or concession after the investor has made the necessary investments.

The advancement and expansion of international business relations and the importance of foreign direct investment in Nigeria’s economic development have prompted the country to enact some foreign business protection laws in order to encourage foreign investors.

Nigeria has done well in providing protection to potential foreign investors.

Investment Agreements

Despite the provisions of Article 12 of the Nigerian Constitution, investment agreements signed by the country are binding and can be enforced against Nigeria after ratification under the principle of ‘pacta sunt servanda’.

Further, by the literal application of Article 31 of the Vienna Convention on the Law of Treaties, which stipulates that a treaty shall be interpreted in good faith in accordance.

Legal Protection for Foreign Direct Investments
Legal Protection for Foreign Direct Investments

Bilateral Investment Agreements (BITs): Nigeria signed the first Bilateral Investment Agreement (BIT) with Germany in 1979, which came into effect in 1986.

According to the findings of my research, Nigeria signed 28 Bilateral Investment Agreements (BITs) between 1986 and November 2015.

Of the total number, 13 are currently in effect, 14 signed and 1 repealed. Bilateral Investment Agreements (BITs) currently in force are those signed with Finland, France, Germany, Italy, Netherlands, Romania, Serbia, Spain, South Korea, Sweden, Switzerland, Taiwan and the United Kingdom.

The 14 BITs signed by Nigeria but not yet operational were signed by 1996.

Legal Protection for Foreign Direct Investments

In addition to the usual investment protection standards, these BITs ensure that a Contracting State does not cause unreasonable or unjustified harm to the citizens or companies of the other Contracting Party to the maintenance, management, disposal of investment in its territory.

The same compensation for losses incurred as a result of a safety incident to a domestic investor shall also be awarded to the investor from the other Contracting State.

These BITs also provide the right of subrogation, which allows foreign investors to obtain appropriate investment insurance and these investment insurance providers to seek remedies from Nigeria on their behalf.

Legal Protection for Foreign Direct Investments

BITs already in place have also set satisfactory requirements for standard investment protection. These include fair and equitable treatment, umbrella provisions, most favored nation status, national treatment, obligations against arbitrary and discriminatory measures, and security.

Multilateral Investment Agreements (MITs): The Economic Community of West African States (ECOWAS) agreement is one of the famous MITs that Nigeria has entered. The ECOWAS agreement was signed on 28 May 1975; entered into force on.

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