ENHANCING AND ENFORCING A REGULATORY

FRAMEWORK FOR HOSPITALITY INDUSTRY IN NIGERIA –

THE CHALLENGES AND PROSPECTS

BY

MUNZALI DANTATA

DIRECTOR GENERAL

National Institute for Hospitality & Tourism (NIHOTOUR), Nigeria

www.nihotour.org

dantata.munzali@yahoo.com

BEING

A PAPER PRESENTED AT THE

NIGERIA HOTEL ASSOCIATION ANNUAL GENERAL MEETING (AGM) AND

SYMPOSIUM HELD AT ABUJA SHERATON HOTEL AND TOWERS, ABUJA.

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 25TH MARCH, 2011.

TABLE OF CONTENT

1. Keywords
3
2. Abstract
4
3. Introduction
5
4. Background
7
5. Problem
8
6. Aim and objective
10
7. Review of literature
11
8. Methodology
14
9. Observation and discussion
15
10. Challenges of enhancing and enforcing regulatory framework
25
11. Prospect of enhancing and enforcing regulatory framework
27
12. Conclusion
28
13. Recommendations
29
14. References
30

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 i. Keywords:

Tourism

Hotel

Catering

Hospitality

Entertainment

Accommodation

Operation

Regulations

Law

Act

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 ii. ABSTRACT:

This paper believes that legislation is the foundation on which any industry
is built. Nigeria’s determined efforts to promote the tourism Industry started
since 1962 with the government’s involvement in the hospitality
enterprises. The business however blossomed to the admiration of private
investors. Today, every town and city is having one hotel or other sectors of
the industry. The major problem with the hospitality industry is the non
existence of indigenous laws and regulatory guidelines for sustained
operations, tax evasion through false declaration of profit; violation of
standard regulations of the national regulatory bodies and non legislation of
the sector by the National Assembly with disregard for operational laws.
Hence, the need for current laws is most beneficial to increase the volume
of inflows and receipts in tourism trade for socio-economic development of
our nation. Disrespect for the few laws in place has further priced the nation
low in choice destinations. The paper concluded that Nigeria has rich
tourism resources both developed and underdeveloped. Yet, the only legal
act empowering the industry lacks full powers to prosecute basic function
with mitigations particularly on hotel and catering operations. The paper
however recommended that for the industry to forge ahead and support
the tourism industry in the global market, legal aspect relating to the
hospitality and related service provisions in the industry must be reviewed
and amended with new enactments to achieve the sustainable tourism
development and the Vision 20 2020 goals.

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 iii. INTRODUCTION:

As related by Cournoyer, Marshall and Morris (1999:504), it is recognized

that hotels, restaurants, airlines, entertainment and the tourism industry
worldwide are operating in a rapidly changing environment By the
seventies, hotels, airlines and travel agents were enjoying such services,
backed by independent specialized reservation companies. By the early
nineties, travelers have started booking hotel rooms and airline seats sitting
right there in their homes, without having to visit offices of hotels, airlines or
travel agents. By the late nineties, travelers were paying for hotel rooms
and buying airline e-tickets online, courtesy of internet facilities.

At the beginning of the twentieth century innkeepers around the world were
offering beds to wayfarers in single location small inns. By the middle of the
century it became common place for hotels to have many branches in
different locations, and offering bigger facilities; heralding the era of mega
international hotel chain companies.

In today’s litigious society, a growing number of people would not just forget
about a failed airline or hotel booking or food poisoning in a restaurant
which necessitates constant review of laws. Rapid developments in the
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hospitality and tourism industry, therefore, have resulted overtime in the
emergence of related legislation in many countries of the world covering
new trends from premises and food liability, to franchising, employment and
management contracts etc.

Existing law in Nigeria covers the tourism and hospitality industry such as
food liability which has seen cases based in tort law. Other laws covering
transportation, labour, taxation etc also impact on the tourism and
hospitality industry.

Meanwhile, the 1999 Constitution, the supreme of the land, is silent on

tourism, which therefore places tourism under the Concurrent list. This
means that tourism is not on the Exclusive List of the Federal Government,
or the National Assembly, and State Governments and their assemblies
have jurisdiction over tourism(CFRN:1999).
Various administrations in the Nigeria’s governments in the last few
decades have taken steps to promote tourism in pursuit of initiatives aimed
at diversifying the national economy from a mono-based economy, heavily
dependent on the oil industry. The steps include the establishment of the
Nigerian Tourism Board (NTB) in 1976, which became the Nigerian Tourism
Development Corporation (NTDC) in 1992.

To give directions and guide to the development of the industry, a new

National Tourism Policy (NTP) was launched in 2006 to replace the National
Trade and Tourism Policy (NTTP) of 1990. This however came on the heels
of the Nigerian Tourism Development Master Plan (NTDMP) launched by the
Federal Government in 2006. Both the Act and the policy encouraged
investments from domestic and foreign interest in form of management
contract to include hotel franchise amongst others. All these have legal
implications to bear with its operations.

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2. BACKGROUND

The development of the hospitality sector by the colonialist is apparent with

the development of ubiquitous government “Catering Rest Houses”
established mostly between 1920s and 1930s in virtually all the provinces
across the country. Other guest house, inns, lodges and hotels sprang up
over time and were run by corporate organizations. From what was then the
catering rest house, they developed into full fledged hotels owned by the
Federal and State governments. Instances are given of the Metropolitan
hotel, Port Harcourt, Central Hotel, Kano; Ikoyi Hotel, Lagos; Hill Station
Hotel, Jos among others. These hotels came under the management of
Nigeria Hotels Limited and some were sold to private individuals under the
privatization exercise (BPE: 2003). Some States also inherited the rest
houses to transform them into State Hotels like those found in Maiduguri in
the 1930s.

The Public Corporations and Organised Private Sector were also encouraged
to participate in the hotel business and that gave birth to most high class
hotels found across the cities to include Transcorp Hotel which was once
under Contract Management of Hilton Group.

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Hospitality legislation in Nigeria is rooted in the laws of the United Kingdom
(UK) inherited with the colonization of Nigeria effective from the 1st day of
January 1900. The laws that rules the industry today is deeply rooted in the
Inns and Hotel Proprietors’ Acts.

3. THE PROBLEM

Nigeria is a nation blessed with abundance of tourism potentials ranging

from a rich cultural heritage, ecosystem and other natural and man-made
resources, with abundance of developed tourism services covering
transport, and other sub-sectors with active service providers such as tour
operators, travel agencies, hotels and resorts operating, but whose services
are not well actualised in the absence of where to stay and eat i.e the
hospitality. The hospitality sector is most spread across the nation yet it is
not organized due to lack of adequate legal frameworks.

For the hotel and catering business there are no such international
organizations with powers to sanction hotels for not meeting set down
standards. This is most witnesses with the hotels managed on contract
under the auspices of hotel franchise. The laws covering the hospitality sub-
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sector are scattered among many statutes. Amongst the laws or legislation
governing the operations of the hotels for instance is the Hotel Proprietors’
Act which is foreign and outdated.

Also still enforced but due for review in Nigeria is the Inn Keepers’ Act of
1878 received from the UK laws that regulated the hospitality industry in
the colony of Nigeria from the 1900s up to near independence. This
however influenced the Hotel Proprietors’ Act of 1956, and the Occupiers’
Liability Act of 1957.

The primary concern of these legislations was safety of life and property of
visiting guests, with a reasonable “duty of care” placed on hoteliers. This
legislation is grossly abused to the detriment of the client and the industry
at large Cournoyer, N.G., Marshall, A.G. and Karen L. Morris (1999:504),
Jefferies (1990:401) and Jefferies (1975:402).
Soon after the independence, Nigeria became a federation of three regions,
and there after four with each having parliaments making laws for their
regions which gave very little attention to the laws relating to the industry.

Given the call for foreign investment in the sector, franchising as a form of
management contract was introduced to have chains like Hilton, Sheraton,
Le Meridien and Protea taking over three to five stars hotels to manage.
Hence, cases of tax evasion, false declaration of profits for capital gains
were common features among repatriation of capital which is seen as a
serious economic sabotage through leakages.

Conflicting interest between the government agencies at the Federal level

to effect registration of hotels and related outfits at some States like Lagos,
Osun, Delta to mention a few are cases that have legal implications. All
these are becoming hard nuts to crack because the laws are new changes
which people ordinarily resist.

Poor legislation of the sector by the National Assembly is another case in

point when the number of laws enacted to legislate the sector are
considered.

Nigeria is a federation of thirty six states, and one federal capital territory.
Since the NTDC Decree of 1992, there has not been any new legislation
from the central government. However, since the new democratic
dispensation from 1999, some of the states have enacted laws regulating
hotels, food, gaming and liquor business in their states. While there is only
one body at the centre i.e. the NTDC that regulates tourism and hospitality,
some States have State Hotel Boards and Liquor License Boards and other
boards regulating hotel, bar, gaming and other related businesses, which
are separate from the NTDC’s role and not under the State Tourism Boards.
These and more are some of the basic problems with the regulatory

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framework in place.

4. AIM AND OBJECTIVES

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The aim of this paper is to improve the services of the hospitality industry as
a prelude to sanitizing the tourism industry and making Nigeria the ultimate
tourism destination in Africa. This will be pursued through the legislation
and actualisation of hotel franchising laws and its adherence in the
hospitality sub-sector. A review of the laws related to hotel business in
Nigeria with interest in hospitality business registration, operations including
franchising. Challenges and prospects of hospitality operations in line with
legal frameworks of the laws at domestic and international standards for the
elimination of substandard and poorly managed hotel establishments for
best practice are issues of concern.

5.0 REVIEW OF LITERATURE

INTRODUCTION

Suffice it to say that tourism and hospitality law according to Burkart et al

(1980) regulates methods and conditions for performing travel, trade and
hospitality services. The law regulates promotion and measures to direct the
development and creation of tourism products. Tourism trade in the context
of this law is the offering of services by tourist agencies, tourist guides,
escorts, event organizers and representatives, in the fields, in nautical,
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rural, health, religious, congress, sports, youth and other forms of tourism
as well as providing other tourism services such as hunting, fishing, rafting
and others.

The hospitality industry in the context of this law is the preparation of food
and providing of food service, preparation and serving of drinks and
beverages, and offering accommodation services, as well as food
preparation that will be consumed at other venues (during travel, at events
and similar) and supply of such food (catering).

The Nigerian government’s first intervention in the tourism and hospitality

sub sector after independence was in 1962 with the formation of the quasi
official Nigeria Tourist Association (NTA) founded by public and private
sector corporations which led to the admission of Nigeria in 1964 as a full
member of the International Union of Official Travel Organization (IUOTO),
the precursor of the United Nations World Tourism Organization (UNWTO).

In 1976, the military administration promulgated Decree 54 creating the

Nigeria Tourism Board (NTB), partially preparatory to the hosting of the
famous world Festival of Arts and Culture (FESTAC) which was successfully
held in 1977.

In 1992, Decree 81 replaced Decree 54 (of 1976) which transformed NTB

into the Nigeria Tourism Development Corporation (NTDC) with a broader
operational base to promote, develop and regulate the tourism and
hospitality.

Nigeria Tourism Development Corporation:

Narrowing the review down to the basics, the main tourism legislation in
Nigeria is the Nigeria Tourism Development Corporation (NTDC) Act, which
is Decree No: 81 of 1992 establishing the NTDC as the apex regulatory
governance body for the Nigerian industry. The main functions of the
Corporation by law includes (1) encouraging people living in Nigeria to take
their holidays in Nigeria, and people abroad to visit Nigeria; (2)
Improvement of tourism amenities and facilities including the development
of hotels and ancillary services; (3) Providing advisory and information
services; (4) Promoting and undertaking research on tourism; (5) Rendering
technical advice to states and LGCs in tourism field; (6) Registering,
Classifying and Grading of hospitality and tourism enterprises, travel
agencies and tour operators; (7) Assist in the development of museums, and
historical sites, parks, parks, game reserves, beaches, natural beauty spots,
holiday resorts, souvenir industries and publicizing tourism.

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State Tourism Boards:

The Act also provides for State Tourism Board (STB) in each State which is
expected to assist the Corporation in implementing the Act. This includes
among others (1) To recommend measures in their opinion which will enable
full effect to be given to be provisions of the Act; (2) Devise and carry out
schemes aimed at encouraging Nigerians to visit the State; (3) Identify,
preserve and protect and develop tourism resources and co-ordinate the
activities of tourism activities.

Local Government Tourism Committee:

Section 10 of the Act established Local Government Tourism Committees

(LGTC) whose responsibility is subject to the control of the STB and the
NTDC. Basically, the functions of the LGTC are to: (1) Recommend to the
STB projects for development as tourist attractions in their locality; (2)
Serve in advisory capacity on matters relating to tourism within their LG
Area; (3) Preserve and maintain monuments and museums in their areas of
jurisdiction and (4) Promoting and sustaining communal interest in tourism.

Hotel Inspectorate Division:

Of interest is the Act (Section 14) which establishes the Hotel

Inspectorate Division with the mandate to Register, Classify, Grade and
monitor hotels and other hospitality establishments.

The Act empowers the NTDC to impose penalties on erring establishments

that undermines the mandate of the NTDC. The Act also provide for the
maintenance of a fund consisting of monies provided by Federal
Government and other sources and to be used to defray expenses incurred
by the corporation.

Another area of interest on the Act is that is the subsidiary legislation which
makes it mandatory for hospitality and tourism establishments to register
with their services in accommodation and food, and grading of travel
amusement parks etc.

State Legislation:

At State level, Cross Rivers State, among a few other States such as Lagos
enacted an Edict with regulations for tourism and hospitality development.
Cross River is today regarded one of the most developed and new tourist
destinations in Nigeria.

Lagos State, as host of the main gateway of Nigeria (Murtala Mohammed

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Airport) and the largest number of hotels in Nigeria has for long established
its tourism industry on a sound legal footing, with all the hospitality service
providers and facilitators guided by operational laws (ROM:2006).

One big task for the Corporation is the sharing of powers and responsibilities
with such active State Governments such as Cross River and Lagos States
especially with regards to registration of hotels and the power for collection
of registration fees and power to close down establishments for non
compliance of registration requirements.

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6. METHODOLOGY

The paper is purposive and evaluative in nature. Documentary facts and

records are contacted with reference to the Nigeria Tourism Development
Corporation Act. References are made to other State Edits, Licensing Laws,
Corporate Affairs Commission, Nigeria Export Promotion Commission,
National Tourism Policy for Nigeria, UK Hotels and Restaurant Acts, United
States Automobile Accommodation Association Act on Hotel registration,
Classification and Grading, National Office for Technology Acquisition and
Promotion (otherwise known as NOTAP) within and abroad to discuss
observed happenings.

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7. OBSERVATIONS AND DISCUSSIONS

To discuss the topical issue adequately, it is necessary to note the

following:-

* Nigerians are good travelers at both in-bound and out-bound levels;

* Better part of the travels are for the purposes of business, Visiting
Friends and Relatives (VFR), religion, health and pleasure/holidays;

* That in the cause of stay at the destinations, all forms of

accommodation and catering services are sought and patronized;

* That accommodation facilities are found in what ever part of the towns
with most of them having limited or no practicing laws adhered to;

* That hotel and Restaurants businesses are the most lucrative due to non
regulation aside petroleum oil with minimal overhead cost to bear;

* Non regulation of the industry has made service quality so chequered

even among the foreign managed outfits;

* Introduction of hotel registration to the hoteliers without knowledge of

the benefits is being resisted;

* Franchised hotel management do not respect technology transfer for

the indigenes;

* Employees of the industry are poorly remunerated;

* Employers of labour shy away from employing hospitality graduates

for fear of paying higher wages and salaries;

* Investors in the industry are mostly not socially responsible;

* The hotel industry record a high level of employee turn over;

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While the volume of hospitality operations in the country is appreciated with
regards to investment and the multiplier effect witnessed from the industry,
the need to regulate the various sectors can not be over emphasised. At the
governmental and administration level, one core organization responsible
for tourism operates under the only recognizable Act is the Nigeria Tourism
Development Corporation. Others related laws are those of Bar and Liquor
License and the Hotel Proprietors’ Act and Innkeeper’s Act.

In the works of Agbu (2008) ‘The Hospitality Franchise Agreement: A tool for
Investment Promotion In Nigeria’ Website Paper on line
www.google.com/hospitality franchise, other organisations which are foreign
and acting under the management contract laws are the major franchise
companies which undertake management contracts for hotel properties as
an additional or supplemental system to their existing systems of franchise
arrangements. Major chains like Hyatt, Sheraton and Hilton operate
hundreds of properties under management contracts in Nigeria and other
countries.

In Nigeria, the franchise relationship inevitably includes a management

contract for the three stars to the five star hotel categories. Holiday Inn,
Sheraton, Hilton, le Meridien were some of the early internationally
recognizable franchise names before the entrance of Sofitel and Protea and
in most recent times independent non-foreign names that seek to establish
their identities as franchise concepts in the packaging of their business.
Leading the pack in this later category is the Eko hotel and Suites in Lagos
which has since 1974 passed through the hands of four franchisors before
taking the decision to go it on its own in 2004.

Under the management contracts, chain companies furnish management for

hotel properties that are owned by other parties. The chain company as
manager provides its franchise to the property, and uses its trademarks,
logos, and reservations systems in promoting the property. A good example
of this arrangement was provided when in 2001 Protea Hotels; a South
African hospitality chain management brand went into partnership with
Capital Alliance Nigeria, an investments and advisory company focused on
promoting private sector-led investments in Nigeria and other West African
countries. .

The use of the management contract has proven very successful to major
chains as a means of rapidly expanding their operations with far less
investment than direct ownership requires. With expertise in franchise
operations, financial management, and staffing, marketing, sales, and
reservation services, the chain operator in Nigeria has an advantage over an
independent company in seeking management contracts. The operating
environment would make, for instance, the cost of marketing and

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reservation services per property lower for the chain operator, based on the
information distribution network and economy of scale.

In a typical management contract, the manager is responsible for the

operation and management of the property and pays the related expenses.
The manager thereafter deducts its fees according to the agreed formula or
percentage. The remaining cash, if any, goes to the owner who more often
than not bears the burden of most or all of the financial and legal
responsibilities–debt service, insurance, taxes, solicitor’s fees e.t.c The term
of the contract is as agreed by the parties and some could be as long as
twenty years.

The management contract appears to have an in-built safeguard in the

sense that the manager has no choice but to make profit to be able to
deduct its fees or otherwise the entire arrangement will fail. The hotel
franchise containing the supplemental system of management in the recent
past came under criticism in Nigeria in respect of some five star hotels
previously owned by the government and operated by foreign chains. Prior
to the privatization of these hotels, the foreign managers were accused of
not having any succession plan for the indigenous workers.

Training of employees of the franchisee is a serious condition in the

contract, and the foreign managers were perceived not to be doing this. The
rationale for their engagement in the first place which was to insulate
government owned enterprises from the bureaucracy of government
management and leave them free to compete in the market environment
was seen as being abused, as the managers may have used that status to
gain undue advantage. The notion that experienced and specialized
hospitality industry managers may not be readily available outside the chain
groups was also considered unacceptable.

The hospitality Industry in Nigeria under a privatized economy and with the
return of a democratic system of government has become an investor’s
delight as more properties spring up in the major cities of Nigeria and the
demand for standardized accommodation by discerning guests and patrons
continues to grow. As witnessed in the fast foods restaurant business, it will
not be long before strong locally developed brands begin to sell their
franchises and with that their managerial competence to other hospitality
establishments in the country and the West African sub-region *2 * 3.

The situation that is found under reforms in the legal environment for
hospitality franchises are that at the first instance, there is the issue of
antitrust or anti competition in place. This is also reflective of Nigeria where
such transactions abound like the Hilton franchise matter.

The foregoing provision underlines the seriousness of the consequences for

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violation of antitrust laws. It is therefore of urgent importance for the legal
regime that supports a burgeoning franchise system of doing business that
antitrust laws be put in place. The Bureau for Public Enterprises (BPE) has in
the past years championed the call for a Competition/Antitrust laws in
Nigeria, but the efforts are yet to result in the enactment of a
law(BPE:2003).

Until the enactment of such a law, the following activities that restrain
competition in the Nigeria’s hospitality industry will remain unaddressed.
These are in respect of the following:-

* Price-fixing agreements, in which competitors agree among

themselves to sell goods at a certain price and not lower Territorial division
agreements, in which competitors assign each other a territory and agree
not to compete in the others’ territories, thereby each obtaining a territorial
monopoly.

* Group boycott, in which two or more sellers refuse to do business

with a particular person or company, intending thereby to eliminate
competition or block entry to a market. Resale price maintenance
agreements, in which a manufacturer determines the price at which the
retailer must sell.

* Price discrimination, where a seller of goods charges different prices

to different buyers for the same product (not applicable to services).

* Under the Law of the Federation, Exclusive dealing contracts, a seller

(usually a wholesaler) forbids a buyer (usually a retailer) from purchasing
the products of the seller’s competitors.

* In relation to the franchise relationship, tying arrangements pose the

most serious antitrust issue. Under this arrangement, the franchisor often
wants its franchisees to purchase supplies and equipment from the
franchisor. The obligation to purchase products by the franchisee from the
franchisor is tied to the grant of the franchise. The result is that the
franchisor is spared from competition from other suppliers and they in turn
are denied access to the market for the tied product. Furthermore, this
arrangement which appears to be heavily weighted in favour of the
franchisor ensures the franchisor of both a market for its products and the
uniformity that is so important to franchise operations.

* Until there is specific legislation to provide for these issues it will not
be possible to draw the distinction between activities which are per se
violations and those which are subject to the rule of reason: i.e. these
activities are not always illegal, but rather their benefits (such as economic
activity) are balanced against their anticompetitive effects in a particular
case. Where the benefits outweigh the negatives, the activity will be
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permitted, but where the impact is too great, the activity is forbidden by
law.

Another area of interest is the intellectual property right regime whose

traits are very much found in the country. Though there is no specific
legislation dealing with franchising in Nigeria, the legal components of
intellectual property rights which form the privileges and benefits in the
franchise package are protected by existing intellectual property laws.
Intellectual Property Rights are the basis upon which the franchise
relationship is built. The Intellectual property regime extends and has
significant effects on industrial property legislation, copyright legislation, the
institutional mechanisms established for the administration of the two
legislations and human resources engaged in intellectual property matters.

The intellectual property laws are governed by the Copyright law, the Patent
and Design Act, and the Trademarks Act .In international relationships, the
international conventions and other regulations of international origin are to
be taken into account. Franchisors are particularly very protective of their
trademarks since the trademarks are the centre of their licensing
agreements and the basis of their profitability. They are of fundamental
importance. Trademark Infringement may take the form of using recognized
marketing strategies, or capitalizing on the franchised name, if only by
changing slightly or copying other aspects of the franchised company’s
products and services.

In general, it has been stated that “a healthy commercial law environment

is of paramount importance for franchising. Indeed without it franchising is
not able to function. A “healthy commercial law environment” may be
defined as one with general legislation on commercial contracts, with an
adequate company law, where there are sufficient notions of joint ventures,
where intellectual property rights are in place and enforced and where
companies can rely on ownership of trademarks and know-how as well as on
confidentiality agreements”.

It is also that recently, all the intellectual property rights legislation has
been compiled into one, to be known as the Intellectual Property Laws of
Nigeria. To consolidate on this development, the Nigeria Government has
also considered the adoption of a single institutional framework called the
Intellectual Property Commission of Nigeria (IPCON) to administer the
Intellectual Property Laws under one body. It will be stating the obvious to
say that soundness, certainty and uniformity in the legal regime of
intellectual and industrial property will certainly inure to the benefit of a
virile franchise regime in a healthy and investor-friendly commercial law
environment.

The Law regulating the transfer of technology in the sector under

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franchise agreement in the country are specific and expected to be
compliant. As earlier stated, Section 2(1)(d) of the National Office for
Technology Acquisition and Promotion Act. No.70, 1979 provides that the
National Office (otherwise known as NOTAP) shall carry out the following
function – “the registration of all contracts or agreements having effect in
Nigeria on the date of coming into force of this Act, and of all contracts and
agreements hereafter entered into, for the transfer of foreign technology to
Nigeria parties; and without prejudice to the generality of the foregoing,
every such contract or agreement shall be so registrable if its purpose or
intent is, in the opinion of the National office, wholly or partially for or in
connection with the specifications Araba (2000:55).

From the foregoing provisions, it is to be assumed that franchising is

covered by the broad definition of transfer of technology contained in the
provisions. On that premise, a franchisor entering into a contract with
‘Nigeria parties” that includes the use of trademarks and patented
inventions, technical assistance of any description whatsoever and training
of personnel will have to seek registration of the contract from NOTAP.
NOTAP therefore registers all license agreements which involve the use of a
foreign franchise by Nigerians. During the registration exercise NOTAP
ensures that the terms and conditions including the consideration in the
agreement are fair and equitable.

In this regard NOTAP seems to have partially filled the vacuum created by
the absence of antitrust/competition laws in our legal environment as most
of the specifications listed in Section 6(2)(a) -(r) are aimed at protecting
Nigerians entering into agreements for transfer of foreign technology.
Consider the following specifications: -

a licensee is not obliged to purchase equipment, tools, or raw materials

exclusively from the licensor(f) ensuring that prices at which a licensor
supplies goods and services are competitive (b) the Nigeria party is free to
export its products to other countries. (g) It is within the powers of NOTAP to
grant waivers of the specifications under Section 6(3) of the Act if the
Governing Council so decides in the “national interest”. This power of waiver
has in the past been exercised in respect of the Hospitality Industry in
relation to the requirement that Royalties, license fees, and other fees
payable by the franchisees to the franchisors (technology transferees to
transferors) do not exceed 5% of net sales.

The international hotel chains group has succeeded in getting NOTAP to

revise its rules to allow in addition to an incentive fee “other payments (to
the hotel chains) which are internationally accepted within applicable hotel
chains”. The apparent loose wording of Section 6 and loopholes for
avoidance of the scrutiny of NOTAP have been noted as minuses for the
effectiveness of the Act as the only law offering specific. Guideline no. 17(c)
of the Revised Guidelines on Acquisition of Foreign Technology released in
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July 2003 by the Honourable Minister of the Federal Ministry of Science and
Technology stipulates the rates payable for Management Services under the
new technology fee structure as follows:

(i) A management fee ranging between 2-5% of profit before tax

should apply to management services except for the management
of Hotels by international hotel chains. However, management
services of project where profit is not anticipated during the early
years will attract a fee ranging from 1-2% of net sales during the
first three to five years only.

(ii) Hotel Services – A basic fee or lump sum not exceeding 5% of

turnover plus an incentive fee not exceeding 12% of Gross
Operating Profit (GOP) shall be applicable. Other payments which
are internationally accepted within applicable Hotel chains may
also be allowed. Only hotels initially located in the disadvantaged
areas will attract the upper limits of the basic and the incentive
fees.

As for the protection for the Nigeria franchisee in foreign franchise

arrangements. Section 7 of the Act states that “no payment shall be made
in Nigeria to the credit of any person outside Nigeria by or on the authority
of the Federal Ministry of Finance, The Central Bank of Nigeria or any
licensed bank in Nigeria in respect of any payments due under a contract or
agreement mentioned in this Act, unless a certificate of registration issued
under this Act is presented by the party or parties concerned together with
a copy of the contract or agreement certified by the National Office in that
behalf”.

The situation here is that the provision represents the main disadvantage
stated in the Act for non-registration with NOTAP by owners of foreign
franchises wishing to do business with Nigerians. There appears to be no
sanction for non-registration.

The identified disadvantage is rendered completely irrelevant where the

parties choose to draft their contracts with a requirement that the
franchisee remits all royalties to the franchisor through offshore accounts
thereby circumventing the Federal Ministry of Finance, the Central Bank and
other banks in Nigeria and making registration with NOTAP completely
unnecessary.

There is a need to strengthen the NOTAP law to ensure registration

compliance by parties to a franchise arrangement if that is the intention of
the makers of the law and fill the gap created by the non-existence of
disclosure legislation in Nigeria. In doing this, it must be borne in mind that

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only a few States have attempted to regulate franchising. Such attempts
have been in the area of domestic franchising and not in international
franchising which is more related to the subject of transfer of technology.

Coming back to the Nigeria Tourism Development Corporation (NTDC), it

was established to amongst other functions, register, classify and grade
all hospitality and tourism enterprises, travel agencies and tour
operators in such manner as may be prescribed.

Section 4(2)d Under the NTDC Act state, the Minister with the approval of
the President of the Country was empowered to make regulations in
particular requiring the classification or grading of hotels, restaurants and
night clubs and prescribing standards for their upkeep.

Pursuant to this power the Hospitality and Tourism Establishments

(Registration, Grading and Classification) Regulations came into force as a
subsidiary legislation as indicated in Section 20 of the act.

By the provisions of the regulations, no person shall operate a Hospitality or

Tourism establishment unless he has obtained and is in possession of a
current certificate of registration from the Corporation specifying the name
and the premises of the Hospitality or Tourism Establishment in respect of
which the certificate of registration is granted.
Regulation 1(3) of the Act thus refers that parties to a franchise
arrangement in the hospitality industry should take into consideration the
requirements of the NTDC Act in reaching agreements. Under this proviso,
the Corporation may refuse to grant a certificate or may grant same subject
to such terms or conditions as it may deem fit to impose in the
circumstances.

Some of the conditions that an applicant for a certificate is required to fulfill

are enshrined in Reg. 1(2) b and c to specifying as follows:-

(i) that the premises in respect of which the application is made is

structurally adapted for use as a Hospitality or Tourism establishment
and are in all respects suitable for such use;

(ii) Uninterrupted electricity, portable water, proper fire fighting

equipment and adequate security should be provided;

(iii) Proper provision should be made for storage, preparation and

serving of food in the Hospitality or Tourism Establishment;

(iv) The premises in respect of which the application is made complies

with the health requirements for the time being in force in Nigeria
and the prescribed minimum standards e.t.c The Corporation also
reserves the power to attach to any certificate of registration such
additional conditions as the Corporation may in its discretion and
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 having regard to all the circumstances of the case, deem fit.

The Corporation is further empowered to grade every Hospitality or Tourism

Establishment in a class which conforms to the minimum standard with
which it is proposed to be kept and managed considering all facilities
available at such Hospitality or Tourism Establishment. Hotels may be
classified and graded as, one, two, three, four and five stars hotels, whilst a
restaurant may be classified and graded as one, two, three, or four crown
restaurant.

The penalties for non-compliance with the provisions of the regulations

include fines and terms of imprisonment. In addition the Corporation can
close down any such Hospitality or Tourism Establishment. It is submitted
that such certainty and sanctions for offenders in the standardization and
grading of hospitality infrastructure and delivery were it to exist in Nigeria,
will augur well for the franchising environment with respect to
representations by the contracting parties and description of the business
models or concepts being franchised. Hotel and Restaurant franchise
arrangements will have to take into consideration the NTDC benchmarks in
finalizing agreements.

Unfortunately, the NTDC has met with some resistance in its attempt to
implement the provisions of the Act. Much of the opposition has arisen from
the fact that Tourism as a distinct item is not provided for in the Constitution
of the Federal Republic of Nigeria (1999), thereby creating a doubt at to
whose responsibility it is between the States and the Federal Government to
regulate Tourism and by extension Hospitality and Tourism establishments
in the Country.

Whereas such matters pertinent to franchising as Copyright, patents,

trademarks, industrial designs and merchandise marks are clearly listed in
the exclusive legislative list set out in Part 1 of the second schedule to the
Constitution in which only the National Assembly can legislate, Tourism is
neither listed in the exclusive nor in the Concurrent legislative list with the
conclusion that it is a residual matter, in which only the States has
legislative competence.

Though items 68 and 46 in the Exclusive Legislative List in Part 1 of the

Second Schedule confirms the power of the National Assembly to legislate
on any matter incidental or supplementary to any matter mentioned
elsewhere in the list, there is, it is submitted, no clarity yet, in the absence
of express provisions, as where the power to legislate for Tourism lies as
between the Federal and State Legislative Houses.

The most crucial step in reforming the Tourism Sector will be to give it
constitutional legitimacy by making the necessary amendments and
defining the roles of the legislative houses. And there will be nothing wrong

24 | P a g e
in fashioning a legal framework that is Nigeria to suit the Government’s
avowed quest for increased tourist arrivals in Nigeria and corresponding fall-
out of a proliferation of small fast food business franchises.

All provisions in the Constitution which touch indirectly on the business of

Tourism and Hospitality fall short of stipulating with certainty the legislative
competence of the Federal Government in that regard.

The recent Tourism Master plan which is to point the way forward, perhaps
as a result of the little or non-involvement of experienced Nigeria based
Industry Lawyers in its making regrettably fails to envisage, except for a
cursory mention of the splitting of roles between the federal and State
agencies, the legal and regulatory framework necessary for the realization
of the various recommendations and action plans set (NWLR PT264 AT 487;
NNTDMP: 2005).
There is furthermore, the franchise disclosure Laws which also have
bearing on the franchise operations in Nigeria. Question often asked is to
how a Solicitor rendering his professional services in an environment where
the Companies selling franchises are not open and honest in the description
of their offerings evaluate and actualize the purchase of a franchise for his
client. Potential franchisees legal and financial advisers would have to
envisage and perhaps answer in the unfolding Nigeria franchise
environment where no disclosure laws have been passed requiring
franchisors to disclose detailed information about their businesses.

The experience of Nations that have now passed both Federal and State
laws requiring franchisors to disclose detailed information about their
businesses before accepting the franchisee’s money is one the nascent
Nigeria franchising sector can learn from.

As in the works of Baldi (1987:100), Barth (2001:64) and Black’s Law

(1834:668), it was common place for unscrupulous franchisors to take the
money of unsuspecting franchisees and fail to provide the promised
services. The Federal Trade Commission (FTC) Rules which require national
compliance in the United States, requires franchisors to furnish prospective
franchisees with information about the franchisor, the franchisor’s business,
and the terms of the franchise agreement through a “Basic Disclosure
Document”, at least ten days before accepting money from the franchisee.
These rules require disclosure of the following information to prospective
franchisees:

Identifying information as to franchisor;

Business experience of franchisor’s directors and executive officers;

Business experience of the franchisor;

25 | P a g e
Litigation history;

Bankruptcy history;

Description of franchise;

Initial funds required to be paid by a franchise;

Recurring funds required to be paid by the franchisee;

Affiliated persons the franchisee is required or advised to do business with;

Financial arrangements;

Restriction of sales;

Personal participation required of the franchisee in the operation of the

franchise;

Termination, cancellation, and renewal of the franchise;

Statistical information concerning the number of franchises (and company-

owned outlets);

Site selection;

Training programs;

Public figure involvement in the franchise;

Financial information concerning the franchisor;

A franchisor that provides false information faces both civil and criminal
penalties including compensation in damages, jail, and fines. It is to be
noted that the constituent States in the United States are at liberty, in
addition to the adoption of similar rules, to impose different or more
stringent requirements upon the franchisors operating in such States.

The Federal Government of Nigeria in its drive to attract foreign investments

has eased restrictions and regulations that impeded growth in this respect.
This is an invitation to international business to come to Nigeria with
franchising which has been acknowledged as the business phenomenon of
the decade. Support this with the policy of the Government to encourage
the growth of small and medium enterprises which will find added impetus
in franchising, and there is an urgent need to address the issue of creating
the enabling environment for a growing and promising franchise sector by
passing the necessary disclosure laws for the regulation of this evolving
sector, which today accounts for over 400,000 businesses in the United
States of America, a true testament of free enterprise worthy of adoption in
Nigeria and all countries that need to promote investments for rapid
26 | P a g e
economic development.

A good example can be cited of a hotel group that is a global company

operating in the hospitality and gaming markets with the leading brand
names. The group enhances shareholder value by exploiting its prime
position in these international markets, both of which are expected to
experience significant long-term growth.

Since it commenced franchising business in Nigeria, its existence with few

high class hotels is an indication of well being. Even in the face of some
misgivings, it is believed that corporate obligations are fairly maintained.
But lately, it was discovered that NOTAP and BPE beamed their search lights
on the group and the company had to withdraw its services for another.

8. CHALLENGES OF ENHANCING AND ENFORCING REGULATORY

FRAMEWORK

As seen from the above observations and discussions, the challenges of

enhancing and enforcing regulatory framework in the hospitality industry
can be summarised thus:-

* Easy entry into the hospitality business without recourse to the

implication of the venture;

* Ignorance of the investors to comply with operational rules in the service

industry:

* Lack of awareness of the investors of the laws relating to registration

exercises especially by the tourism regulatory agencies;

* Reluctance of the investors and operators to register their businesses

27 | P a g e
with the tourism regulatory agencies;

* Non regulation of the industry through a Charter with operational and

professional ethics to be adhered to;

* The industry is over powered by investors, operators and employees

whose professional background is not of the industry hence exhibit
lukewarm attitude to complying with laid down operational rules;

* The process of registering hospitality outfits is not too friendly hence

resisted.

* Environmental and health Inspectors do not enforce their laws to the

latter which allows for unhealthy practices around the outfit premises;

* Lack of passage of most tourism and hospitality related Bills is affecting

standard operations in the industry;

* Non enforcement of the existing hospitality and tourism laws by the

respective agencies due to risks involved;

* Multiple registrations i.e with Corporate Affairs Commission, Local

Government Authority, State Ministry of Commerce and Industry, State
Hotels Board, NTDC etc.

28 | P a g e
9. PROSPECTS OF ENHANCING AND ENFORCING REGULATORY
FRAMEWORK

The prospects of enhancing and enforcing the regulatory framework for the
industry include the following:-

* The existence of the hospitality market and high demand for the
services;

* The wide spread of investments in the various sectors of the hospitality

industry;

* The vested interest in the tourism industry backed by a functional full

fledged Ministry of Tourism, Culture and National Orientation with ten
Parastatals;

* The existence of regulatory frameworks of tourism and related agencies

like NTDC, NOTAP, Health Inspectors, Nigeria Investment and Export
Promotion agencies, FEPA, UNWTO Charter on Global Ethics and Best
Practice to sanitise and standardize the industry;

* Existence of Stakeholders’ forum to create awareness to the investors,

operators and employees to appreciate operational regulations for optimal
performance;

* Re branding Nigeria Campaign of the Federal Ministry of Information is

readily existent to partner and create the needed awareness to regulate the
industry;

* Existence of the provisions in hotel and restaurant chain contract

management to transfer knowledge to indigene employees for industry
capacity building;

29 | P a g e
10. CONCLUSION

The pillar of effective tourism operation is legislation; hence, the hospitality

and tourism industry stands to gain tremendously from review of the laws
impacting on tourism. The powers conferred on NTDC are not exclusive
hence, can not exercise such fully. This factor needs to be reviewed even in
respect of checking actualization of franchise and management contract
hotels.

The inadequacies in the regulatory laws are another area that needs to be
visited.

Dependence on old laws do not mean well for the industry given the strive
to improve on the quality of services in the country as a tourist destination.

Issues of antitrust matters require reforms to make it more viable. The

efforts of the Federal Ministry of Tourism, Culture and National Orientation
to review all the law regulating the industry is a step towards the right
direction. When reviewed, it is believed the laws will accommodate matters
relating to transfer of technology, grading of hotels and other related
agencies including franchise disclosure laws.

30 | P a g e
11. RECOMMENDATIONS

To effectively enhance and enforce regulatory framework of the hospitality

industry in Nigeria, it is recommended that:-

i. The Tourism Charter Bill should be passed to empower the regulation of

the industry as seen in other industries like the medical, accountants,
engineering, marine, transport etc.

ii. NTDC should undertake a mass sensitisation campaign to create

awareness on the regulatory powers given it and the way out of
registering hospitality outfits.

iii The feud between the NTDC and some tourism friendly States should
be resolved through the intervention of the Stakeholders of the
industry.

iv. The role of NTDC and its scope seem too wide. The law should be
amended and the Corporation reorganized. That while a new agency such
as a Hotel Boards or Hotel Inspectorate should be created with function
bordering on licensing of hotels and inspections be handed over to it while
NTDC concentrates on either tourism development or marketing per se.

iv. Concurrent powers of State Governments should also be taken into

account, to avoid clashes between them and the NTDC.

v. Old laws of the colonial days including those of Nigeria’s related to

the industry should be reviewed to make them more viable for the
growth and development of the industry at large.
31 | P a g e
 vi. Reform of the antitrust matters in the hotel franchise should be
ensured in all its ramifications.
vii. A synergy of the stakeholders and the tourism officials should be
established to review and upgrade the regulatory frame of the
tourism industry in Nigeria for enhanced service delivery in the sector
of the economy.

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