Private Equity- Regulatory Summary of 2018

January 22, 2020

Increased investor appetite in Nigeria

A survey carried out by the African Private Equity and Venture Capital Association (AVCA) in 2018 indicates that Private Equity and Venture Capital (PE) activity in Africa has been increasingly consistent over the years, with West Africa and Nigeria in particular selected as the most attractive destinations for PE Investments.[1]

Industry experts suggest that Nigeria attracted the highest PE deals in the continent as a result of the potential investors see in the country despite the inherent risks. The growing population and increasing market size, advancement in technology and innovation in business as well as increased efforts by the Federal Government and some State Governments to improve the ease of doing business are some of the catalysts that have improved the investment climate in Nigeria. In light of the increased investor activity, the crucial role played by all levels of government and the relevant government agencies to sustain investor appetite cannot be overemphasised.

Ease of doing business

One of the ways the government has awakened to its responsibilities is the continuous efforts made to implement the policies introduced by the Federal Government’s Presidential Enabling Business Environment Council (PEBEC) which targeted eight specific areas indicated by the World Bank as crucial to the ease of doing business. The areas are: starting a business, obtaining construction permits, getting connected to the grid, registering property, access to credit facilities, paying taxes, trading across borders, and entry and exit of people. The federal and state governments continue to strive to ensure the polices they implement are aligned with the objective of boosting development in identified areas.

Business registration

The influence of the government to the improvement in ease of starting a business was quite obvious in 2018. This is evinced by the improved efficiency of the Corporate Affairs Commission (CAC) with regard to online registration and improved timing for registration of business entities, and reduced cost of business registration. Whilst the process remains far from seamless, the measures implemented will no doubt go a long way in encouraging small and medium scale enterprises to set up businesses and ultimately attract investors.

Pension Funds

The appetite of Pension Fund Administrators (PFAs) for PE investments in Nigeria remained consistent following the National Pension Commission (PENCOM)’s approval of PE Funds as asset classes for pension fund investments, subject to the maximum limit of 5% of the total pension assets to be invested in the PE Funds. PENCOM’s release of the Amended Regulations on Investment of Pension Fund Assets, 2017 which reduced the minimum threshold of pension fund assets required to be invested in Nigeria from 75% to 60% did not seem to affect the appetite of the PFAs in 2018 in light of the overall attraction for investments in Nigeria.

Energy sector

Increasing energy demands and limited capacity to meet the demands is one of the problems Nigeria has battled with for several decades and in recent times, estimated billing has been one of the challenges faced by consumers of energy in Nigeria.

In a bid to address some of the challenges to the Nigerian energy sector, a bill to amend the Electric Power Sector Reform Act 2005 was proposed at the National Assembly to prohibit and criminalise estimated billing by Electricity Distribution Companies (Discos) as well as provide for compulsory installation of pre-paid metres to consumers to ensure consumers pay for the actual energy consumed and prevent Discos from issuing electricity bills based on assumptions rather than facts.

The problems identified above amongst others have without a doubt influenced the increase in the volume of investments in the Nigerian energy sector, as investors contribute to put an end to these problems through the provision of various options such as captive, embedded and more recently, renewable energy solutions. 2018 witnessed a lot of state governments partnering with private companies backed by foreign investors to provide renewable energy solutions for both public and private consumption.

Other legislative reforms

A major highlight of 2018 was the re-passage of the Federal Competition and Consumer Protection Bill by the Nigerian Senate in December 2018. The Bill aims to create an equilibrium between protecting consumers and addressing competition stifling practices by businesses. The Bill however still awaits assent by the Nigerian president and will not become operative until the president gives his assent to the Bill or a refusal by the president to give his assent is vetoed by the National Assembly.

There are also other pending Bills going through the legislative process, which if passed into law will encourage more investments into the country. One of such is the Bill for the repeal and re-enactment of the Companies and Allied Matters Act (“CAMA”), the primary legislation that governs the regulation of corporate entities in Nigeria. Amongst its other notable amendments, the industry expects the proposed amendments in this Bill aimed at enabling the registration of Limited Partnerships (“LPs”) and Limited Liability Partnerships (“LLPs”) within the framework of the CAMA, will give sufficient comfort to PE Funds and other investors seeking to establish local entities in Nigeria as LPs or LLPs. Currently, the framework for the set-up of LPs and LLPs is only available under a state law.

Another significant pending Bill is for the Bill for the amendment of the Investment and Securities Act.

Foreign Exchange controls

The Central Bank of Nigeria’s maintenance of the Foreign Exchange Window for Investors and Exporters (the FX window) which was introduced to boost liquidity in the FX market and ensure timely execution and settlement for eligible transactions helped reduce exchange rate volatility and stabilise the Naira. With the CBN intervention, there has been improved liquidity of FX and stability of the Naira against the United States Dollar, which has helped improve investor confidence.


PE funding remains a more viable alternative for budding businesses in light of the excessive and sometimes cut-throat cost of funding offered by commercial banks and the likes. Whilst the efforts put in place by the government to boost investor confidence and support local businesses is recognised, a lot is still required for improvement to the business climate. Government and investors must therefore keep the communication channels open with a view to ensuring both parties work together to achieve their objectives and ultimately, for the benefit of the country as a whole.

[1] AVCA 2018 H1 Private Equity Data Tracker

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