Adedunmade Onibokun: Expropriation of Foreign Assets under Nigerian Law
One major concern every foreign investor coming to invest in most African countries is burdened with is the (in)stability of government in the investment destination and the security of investments. Many times, investors have been short changed due to national policies that take away their wealth by the governments of the investment state. An example is what happened in Zimbabwe where every white-owned farm was expropriated by the government.
However, in Nigeria the case is very different. In order to provide an enabling environment that is conducive to the growth and development of industries, inflow of foreign direct investment (fdi), shield existing investments from unfair competition, and stimulate the expansion of domestic production capacity, the Federal Government of Nigeria has developed a package of incentives for various sectors of the economy. These incentives are helping to revive the economy, accelerate growth and development and reduce poverty. Most importantly, the Nigerian government has passed into law the Nigerian Investment Promotion Act which serves to protect the rights of foreign investors in the economy.
Expropriation or “wealth deprivation” could take different forms; it could be direct, where an investment is nationalized or otherwise directly expropriated through formal transfer of title or outright physical seizure. Expropriation or deprivation of property could also occur through interference by a state in the use of that property or with the enjoyment of the benefits even where the property is not seized and the legal title to the property is not affected.
Section 25 of the Nigerian Investment Promotion Act guarantees against expropriation of foreign investments, it provides that:
(1) Subject to subsections (2) and (3) of this section-
(a) No enterprise shall be nationalized or expropriated by any Government of the Federation; and
(b) No person who owns, whether wholly or in part, the capital of any enterprise shall be compelled by law to surrender his interest in the capital to any other person.
(2) There shall be no acquisition of an enterprise to which this Act applies by the Federal Government, unless the acquisition is in the national interest or for a public purpose and under a law which makes provision for-
(a) Payment of fair and adequate compensation; and
(b) A right of access to the courts for the determination of the investor's interest or right and the amount of compensation to which he is entitled.
(3) Any compensation payable under this section shall be paid without undue delay,and authorisation for its repatriation in convertible currency shall where applicable, be issued.
Criteria for determining indirect expropriation
i) The degree of interference with the property right,
In order for expropriation to be indirect, the interference has to be substantial in order to constitute expropriation, i.e. when it deprives the foreign investor of fundamental rights of ownership, or when it interferes with the investment for a significant period of time. Several international tribunals have found that a regulation may constitute expropriation when it substantially impairs the investor’s economic rights, i.e. ownership, use, enjoyment or management of the business, by rendering them useless.
ii) The character of governmental measures, i.e. the purpose and the context of the governmental measure,
A very significant factor in characterizing a government measure as falling within the expropriation sphere or not, is whether the measure refers to the State’s right to promote a recognised “social purpose” or the “general welfare” by regulation. “The existence of generally recognised considerations of the public health, safety, morals or welfare will normally lead to a conclusion that there has been no ‘taking’”. “Non-discriminatory measures related to anti-trust, consumer protection, securities, environmental protection, land planning are non-compensable takings since they are regarded as essential to the functioning of the state”.
iii) The interference of the measure with reasonable and investment-backed expectations.
Another criterion identified is whether the governmental measure affects the investor’s reasonable expectations. In these cases the investor has to prove that his/her investment was based on a state of affairs that did not include the challenged regulatory regime. The claim must be objectively reasonable and not based entirely upon the investor’s subjective expectations.
However, it is important to note that international law also sets circumstances for the legitimacy of expropriation of foreign investor’s assets. Essentially, it would appear that under international law, foreign investors should only be deprived of their property rights for a public purpose, in a non-discriminatory way, on the condition that there is payment of compensation and upon the basis of due process.
Adedunmade Onibokun is a legal practitioner, publisher and blogger based in Lagos, Nigeria.
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