FOREIGN EXCHANGE POLICY 1.1 DEREGULATION AND GUIDELINES The Exchange Control Act, which was the principal legislation regulating foreign currency related transactions was repealed in 1995. Exchange Control policies have become completely liberalized, except for a few controls that apply to banks, for the purpose of compiling statistics. At the moment, exchange control transactions are regulated principally by the Foreign Exchange(Monitoring & Miscellaneous Provisions)Decree No. 17,1995 and the guidelines of the Central Bank of Nigeria (CBN) Monetary Policy Circular, as may be stipulated, from time to time. 1.2 FOREIGN EXCHANGE (MONITORING AND MISCELLANEOUS PROVISIONS} DECREE, 1995 This decree established an Autonomous Foreign Exchange Market ("AFEM"). Under the decree, an individual or corporate body may invest in any Nigerian enterprises or security, with foreign currency or capital imported into Nigeria through an Authorized Dealer (a bank or non-banking corporate organisation so licensed by the Central bank of Nigeria),either by telegraphic transfer, cheques or other negotiable instruments. Also, a person, whether resident in or outside Nigeria, or a citizen of Nigeria or not, may deal in, invest in, acquire or dispose of, create or transfer any interest and other money market instruments whether denominated in foreign currencies in Nigeria or not. 1.3 CAPITAL IMPORTATION BY FOREIGN INVESTORS With the repeal of the Exchange Control Act, documentation formalities for capital importation by foreign investors has been simplified. Prior approvals of the Federal Ministry of Finance for conferment of "Approved Status" on such investments are no longer required, and capital importation is now remitted into the local currency account of the Nigerian subsidiary/ affiliate at the prevailing Autonomous Exchange rate. Equity investments in cash, by a foreign investor can be consummated by such investor transferring his equity allocation into Nigeria, through any of the duly licensed banks operating in the country. The remittance instructions should clearly stipulate the following: - Name of transferor [i.e. Foreign investor] - Amount Transferred - Purpose [i.e. Equity/Capital Investment] - Beneficiary [i.e. the appropriate Nigerian affiliated/ subsidiary enterprises]; - Board Resolution of the local beneficiary company authorizing the investment. The money is credited to the recipient Nigerian enterprise, at the local currency equivalent, in accordance with rates derived from the Autonomous Foreign Exchange Market ("AFEM"). Immediately, thereafter, the receiving Nigerian bank would issue the investor with a "Certificate of Capital Importation" for the amount received, and the money can immediately start to be utilised by the Nigerian affiliate/subsidiary for operational and capital requirements. The "Certificate of Capital Importation" confers a right to repatriate dividend yields and compliance with tax and other applicable regulations on the subject. 1.3.2 Equity Contribution Other Than Cash Where capital is imported in form of equipment/machinery or raw materials, the "Certificate of Capital Importation" shall be issued subject to the following documentation requirements: (a) Original Clean Report of Findings; (b) Original Bill of Lading; (c) Original Bill of Entry; (d) Original Import Duty Report (IDR); (e) Board resolution of the local beneficiary company authorizing the investment. 1.3.3 Equity investments Through The Debt Conversion Programme ("DPD) Foreign investors are also free to invest in Nigeria through the country's debt equity conversion scheme. This scheme involves the conversion of the whole or part of promissory notes issued in the international market for the country's foreign debt into domestic equity by the redemption of promissory notes and other debt instruments. The redemptor, if not the original creditor, uses foreign exchange to purchase, at a discount, promissory notes issued for part of the country's sovereign debt either from an original creditor or in the international financial market. He then nominates a local Agent Bank to negotiate with the Government Agency that is charged with the responsibility of managing the debt conversion programme, which in the case of Nigeria is the Central Bank of Nigeria (CBN)through is Debt Conversion Committee("DCC"). Once an investor purchases designated promissory note(s) at a discount and converts it into equity, he acquires an asset (i.e. an investment) that qualifies for "Certificate of Capital Importation". Thus, foreign investors may find the debt conversion mechanism as one of the options for financing their new investments in Nigeria or as a useful mechanism in expanding their existing ones. 1.4 MISCELLANEOUS EXCHANOE CONTROL MATTERS 1.4.1 Prohibition of Importation and Exportation of the Local Nigerian Currency The importation and exportation of the Naira is prohibited. However, Nigerian residents are allowed to hold on them maximum amount of N1,000 for settlement of local expenses immediately on their return to Nigeria from an overseas trip. 1.4.2 Declaration of Foreign Currency Import of US$5,000 and Above Foreign currency import of US$5,000 and above or its equivalent are required to be declared on Form TM for statistical purpose only. 1.4.3 Personal Travel Allowance All Nigerian citizens are entitled to purchase foreign currency for Personal Travel Allowance in the Autonomous Foreign Exchange Market. Nigerian children born abroad and holding foreign passports are entitled to the allowances, provided their status as Nigerians is verified. 1.4.4 Business Travel Allowance Registered companies are allowed to purchase foreign currency for Business Trip Allowance(BTA). 1.4.5 Expatriate Home Remittance Foreign nationals are allowed to remit 100 of their salaries net of tax as Personal Home Remittance (PHR). However, evidence of income earned and taxes paid have to be provided to the banks before remittances are made. 1.4.6 Royalties, Technical Services, Management fees The remittable limit of fees for licence or technical service agreements ranges between 1 and maximum of 5 of net sales value. Similarly, permissible management service fee shall range between 2 to 5 of the company's net profit before tax: Management service fees in respect of projects where no profit is anticipated during the early years shall range from 1 to 2 of net sales during the first 3-5 years only. Remittable consultancy fees shall be up to a maximum of 20 of project cost and limited to projects of very high technology content for which indigenous expertise is not available. Service agreements for such high technology joint-ventures shall include a schedule for the training of Nigerian personnel for an eventual takeover. In addition, Nigerian professionals shall be involved in the project implementation from inception. 1.4.7 Payment of Fees, Tariffs and Other Charges In Respect of Service Rendered in Nigeria With effect from 1st January, 1997, payment of fees, tariffs and other charges in foreign currency in respect of services rendered in Nigeria is now optional at the discretion of the party making the payment. 1.4.8 Abolition of Foreign Guarantees/Currency Deposit As Collateral for Naira Loans The prohibition of foreign guarantees for Naira denominated loans as contained in the Central Bank of Nigeria Monetary Policy Circular No.23, Amendment No.3 of April, 1989 remains in force. 1.4.9 Payment of Hotel Bill by Foreign Visitor to Nigeria Only hotels registered as Authorised Buyers are entitled to receive from foreign visitors payment of hotel bills in foreign currency. However payment of bills in foreign currency shall be optional and at the discretion of the foreign visitors making their payment. 1.4.10 Anti-Money Laundering Rules for Currency Transaction (i) In accordance with the provisions of Section 21 of the Foreign Exchange (Monitoring Miscellaneous Provisions) Decree No. 17 of 1995, a person who imports foreign currency in excess of US$10,000 by cash and deposits such money into the domicilliary account with an authorised dealer (viz. bank), shall only be entitled to make cash withdrawals from that account. (ii) By virtue of Section 22 of the decree, no person in Nigeria shall make or accept cash payment whether denominated in foreign currency or not for the purchase and acquisition of landed properties, stocks, shares, debentures, all forms of negotiable instruments and motor vehicles. Payments for those items must be made by means of bank transfers or cheques drawn on banks in Nigeria. In order to ensure full compliance with the law, all banks have been directed to appoint Compliance Officers whose final reports are made to the Central Bank (CBN). 1 .5 GUIDELINES ON EXTERNAL LOANS TO NIGERIAN ENTERPRISES 1.5.1 General Guidelines The general guidelines and conditions for foreign loans to Nigerian enterprises are governed by: (a) Federal Ministry of Finance Monetary and Fiscal Policy Guidelines; (b) The provisions of the Nigerian Investment Promotion Commission ("NIPC Decree"); (c) The Central Bank Monetary and Fiscal Policy Guidelines; (d) The Foreign Exchange (Monitoring and Miscellaneous Provisions) Decree ("FEMMP Decree"). 1.5.2 Definition The definition of "Foreign Loan" to Nigerian enterprises is specified under the NIPC Decree as: "a loan obtained from outside Nigeria and denominated in any convertible currency." Foreign Currency sourced locally in Nigerian domestic market do not qualify for remittance as foreign loan. 1.5.3 Guarantee of Transferability The deregulated Foreign Exchange Laws as founded in the FEMMP Decree guarantees that: "Foreign currency imported into Nigeria through an Authorized Dealer (a licensed bank and invested in any enterprise or security by telegraphic transfer, cheques or other negotiable instruments) shall be guaranteed unconditional transferability of fund through an Authorized Dealer in free convertible currency", as relate to: "payments in respect of loan servicing where a foreign loan has been obtained." Federal Ministry of Finance and Fiscal Policy Guidelines Loan Importation In due cognisance of the various laws and regulations currently applicable; a foreign loan transaction could be consummated with the following steps: (a) Offer letter of Loan from the Borrower (denominated in foreign currency); (b) Board resolution(s) authorising the foreign-currency denominated loan. i.e. in the customary corporate manner of local borrowings; (c) Execution of a formal Loan Agreement setting out the terms of borrowings (viz. Principal amount, tenure, applicable interest rate, etc.). However, it is pertinent that the Debt Instrument and obligations be denominated in convertible foreign currency; (d) Remittance instructions accompanying the funds inflow, through an Authorised Dealer (i.e. a duly licensed local bank) should clearly reflect the purpose of transfer as LOAN, and also indicate the following: Name of transferor (i.e. the lender) Amount Transferred: (US$ or other freely convertible foreign currency) Name and Address of Beneficiary: (Local borrower) Purpose: (LOAN importation); (e) These information would enable the receiving bank to issue the ensuing "Certificate of Loan Importation" and thereafter, notify the following: "Foreign Exchange and Trade Relations Department" of the Federal Ministry of Finance, the Nigerian Investment Promotion Commission (NIPC) as well as the Central Bank of Nigeria (CBN) for record and monitoring purposes. Loan Repayment Documentation requirements for External Loan Repayment: (a) Evidence of loan importation into Nigeria; vide "Certificate of Loan Importation". The Certificate should be duly authenticated by the bank that issued it, if not issued by the remitting bank; (b) Certified True Copy of Loan Agreement showing schedule of repayment; (c) Schedule of drawdown of the loan; (d) Demand Note (Invoice) for repayment; (e) Completed and approved Form "A", viz. an official form designed for banking transactions; (f) Evidence of tax payment on interest income. 1.5.5 Central Bank of Nigeria Guideline These Guidelines oblige foreign loan seekers to submit: a copy of duly executed loan agreement, stating the terms and conditions of the loan including moratorium, date of maturity, interest rate and schedule of payment of principal and interest.