One major fear every foreign investor has is the 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.
As part of the efforts 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, it is
hoped, will help revive the economy, accelerate growth and development and
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:
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.
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
(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.
The degree of interference with the property
There is broad support for the
proposition that 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.
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”.
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, international law also
sets circumstances for the legitimacy of expropriation of foreign
investors‘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 Esq
Adedunmade Onibokun is a legal practitioner, publisher and blogger. He
holds an LLM in International Business Law from the University of
Bradford and publishes the Nigerian law blog Legalnaija.