TRADE AND INVESTMENT CLIMATE STATEMENT, NIGERIA

UNCLAS SECTION 01 OF 10 ABUJA 000118

SIPDIS

TREASURY FOR DO/GCHRISTOPOLUS, USDOC FOR ITA/ATAYLOR

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB PGOV NI
SUBJECT: TRADE AND INVESTMENT CLIMATE STATEMENT, NIGERIA

REF: STATE 250356

Overview

With an estimated population of 140 million, Nigeria is
Africa's most populous nation. It offers investors a
low-cost labor pool, abundant natural resources, and
potentially the largest domestic market in sub-Saharan
Africa. Unfortunately, much of that market potential is
unrealized. Impediments to investment include inadequate
infrastructure, corruption, an inefficient system of
registering property, an inconsistent regulatory
environment, misguided macroeconomic policies, and slow and
ineffective courts and dispute resolution mechanisms.

To succeed, investors must understand the Nigerian business
environment and engage in problem solving with local staff,
Nigerian partners and officials. Potential investors must
devise means of coping with poorly maintained infrastructure
and arbitrary policy changes. Security is of special
concern. Inadequate law enforcement compounds the country's
high crime rate, and sporadic outbreaks of ethnic and
religious violence continue.

Military rule ended with the May 1999 inauguration of
President Olusegun Obasanjo, leader of the dominant People's
Democratic Party. Obasanjo won a second term in Nigeria's
largely peaceful April 2003 elections, but members of the
opposition and international and domestic observers cited
significant electoral malpractice in some parts of the
country.

The GON embarked on a reform program in late 2003 christened
the National Economic Empowerment and Development Strategy
(NEEDS),which attempts to address many of the problems
caused by mismanagement and bad governance under years of
military rule. Freedom of expression and of the press is
observed, and human rights violations have been reduced.
Controls over foreign investment have been loosened, and
earlier decrees inhibiting competition or conferring
monopoly powers on public enterprises have been repealed or
amended. Despite these actions, policymakers' protectionist
bent remains evident. Trade policy is inconsistent, and the
GON prohibits the importation of many goods, ostensibly to
foster domestic production.

Openness to Foreign Investment

Since its inception in 1999, the Obasanjo administration has
been soliciting foreign investment. President Obasanjo has
traveled around the globe in pursuit of foreign investment.

Legal Framework: With a few exceptions, the Nigerian
Investment Promotion Commission (NIPC) Decree of 1995 allows
100 percent foreign ownership of firms outside the petroleum
sector, where investment is limited to existing joint
ventures or new production-sharing agreements. Industries
considered crucial to national security, such as firearms,
ammunition, and military and paramilitary apparel, are
reserved for domestic investors. Foreign investors must
register with the NIPC after incorporation under the
Companies and Allied Matters Decree of 1990. The decree
prohibits the nationalization or expropriation of foreign
enterprises except in cases of national interest.

Nigerian laws apply equally to domestic and foreign
investors. These include the Securities and Exchange Act of
1999, the Foreign Exchange Act of 1995, the Money Laundering
Act of 2003, the Banking and Other Financial Institutions
Act of 1991, and the National Office of Technology
Acquisition and Promotion Act of 1979.

Privatization: Thtthe Privatization and Commercialization
Act of 1999 established both the National Council on
Privatization, the policymaking body overseeing the
privatization of state-owned enterprises, and the Bureau of
Public Enterprises (BPE),the body responsible for
implementing the program. The privatization of key sectors,
including telecommunications and power, calls for core
investors to acquire controlling shares in formerly state-
owned enterprises. To make the privatization program
effective, the GON repealed or amended decrees that
inhibited competition or conferred monopoly powers on
parastatal firms. Since 1999, the BPE has raised nearly
$500 million by privatizing more than 30 enterprises,
including cement manufacturing firms, banks, hotels, and
vehicle assembly plants. The BPE has failed, however, in
its attempts to privatize the NICON Hilton Hotel and
Nigerian Telecommunications Limited (NITEL). Legislation
that would provide a legal basis for privatization in some
key sectors has yet to pass the National Assembly, though
there are prospects for enactment in 2005. An example is the
Power Sector Reform Bill that would open the power sector to
competition, thereby ending the monopoly of the government-
owned National Electric Power Authority (NEPA).

The GON has substantially opened Nigeria's
telecommunications sector. The Telecommunications Act of
2001 abolished requirements for standard mobile technologies
and authorized the Nigerian Communications Commission (NCC)
to issue licenses to existing and prospective service
providers, effectively ending NITEL's monopoly over
telecommunications services. In early 2001, the NCC
auctioned off GSM licenses, an effort that received
commendation both in local and international circles for its
transparency. Four enterprises, including NITEL, won
licenses. Globacom won mobile, fixed, and international
gateway licenses as Nigeria's second national operator in
mid-2002. According to the NCC, the estimated total number
of phone lines (both mobile and fixed line) in Nigeria at
the end of 2004 was 9 million, and plans were underway for a
total of 20 million lines by the end of 2005.

Deregulation of the telecommunications sector has led to the
issuance of licenses for fixed wireless networks, internet
services, and VSAT (very small aperture terminal) satellite
telecommunications equipment services. The GON's hefty fees
and opaque contract bidding procedures tend to slow the
spread of these technologies, however.

A GON attempt to privatize NITEL in late 2001 stalled when
the winning bidder failed to meet payment deadlines. When
the reserve bidder declined to negotiate a contract, the GON
chose not to move forward with NITEL's privatization.
Instead the GON instructed the BPE to solicit expressions of
interest for a three-year management contract. The GON
selected Pentascope International, a Dutch
telecommunications consortium, to manage NITEL until 2006.
The agreement requires Pentascope to supply 600,000 new
fixed lines (to bring total installed capacity to 1.3
million lines) and 1.2 million new mobile lines, up from
about 120,000 now. The GON will again try to privatize NITEL
in 2005 by selling at least 51 percent of NITEL shares at
the end of Pentascope's management contract. Pentascope has
been performing below the agreed benchmarks of the
management contract signed in 2003.

The privatization of Nigeria's National Electric Power
Authority (NEPA) has moved slowly. Given the complex nature
of the sale, NEPA's poor financial condition, and strong
public opposition, privatization will likely be difficult.
NEPA is moving slowly to restructure its services into
autonomous firms encompassing power generation,
transmission, distribution, and billing.

Conversion and Transfer Policies

The Foreign Exchange Monitoring Decree of 1995 opened
Nigeria's foreign exchange market. The Interbank Foreign
Exchange Market (IFEM),established in 1999, was replaced in
July 2002 by a modified Dutch Auction System (DAS) that tied
officially traded naira to a controlled market mechanism,
thereby reducing the discount between the official and
parallel markets to between five and eight percent by the
end of 2004. Earlier spreads of 17 to 20 percent had
diverted an inordinate amount of banking activity to foreign
exchange arbitrage.

Foreign companies and individuals can hold domiciliary
accounts in banks. Account holders have unlimited use of
their funds, and foreign investors are allowed unfettered
entry and exit of capital. On a day-to-day basis, however,
banks often lack sufficient foreign exchange. In 2002, in
an attempt to reduce demand for foreign exchange, the
Central Bank reduced the $10,000 per person Personal Travel
Allowance to $4,000 and reduced the Business Travel
Allowance to $10,000. Officially, foreign exchange for
travel must be issued in traveler's checks by commercial
banks. Persons may obtain less foreign exchange in a single
transaction and travelers checks from registered bureaux de
change.

The NIPC guarantees investors unrestricted transfer of
dividends (net a 10 percent withholding tax). Companies
must provide evidence of income earned and taxes paid before
making remittances. Money transfers usually take less than
two weeks. All transfers are required by law to be made
through banks, because banks are the only licensed foreign
exchange agents.

Expropriation and Compensation
The GON has not expropriated or nationalized foreign assets
since the late seventies.

Dispute Settlement

Investment Disputes: Nigeria's civil courts handle disputes
between corporate bodies and the GON as well as between
Nigerian businesses and foreign investors. Court decisions
occasionally go against the GON. Nigerian law allows the
enforcement of foreign judgments after proper hearings in
Nigerian courts. Plaintiffs receive monetary judgments in
the currency specified in their claims.
Legal System: Nigeria has a complex three-tiered legal
system comprised of English common law, Islamic law, and
customary law. Most business transactions are governed by
common law as modified by statutes to meet local demands and
conditions. At the pinnacle of the judicial system is the
Supreme Court, which has original and appellate jurisdiction
in specific constitutional, civil, and criminal matters as
prescribed by Nigeria's constitution. The Federal High
Court has jurisdiction over revenue matters, admiralty law,
banking, foreign exchange, other currency and monetary or
fiscal matters, and lawsuits to which the federal government
or any of its agencies are party. Debtors and creditors
rarely have recourse to Nigeria's pre-independence
bankruptcy law. In the Nigerian business culture,
businessmen generally do not seek bankruptcy protection.
Even in cases where creditors obtain a judgment against
defendants, claims often go unpaid.

Since 1999, the application of the rule of law has improved.
The public is less reluctant to resort to the court system
and more willing to litigate and seek redress without fear
of reprisal. However, use of the courts does not
automatically imply fair or impartial judgments. The
Nigerian court system was recently classified by the World
Bank's publication, Doing Business in 2005, as the eighth
slowest country to enforce contracts, out of one hundred and
forty-five countries surveyed. The report revealed that
contract enforcement required 23 procedures and 730 days,
the cost of which averaged 37.2 percent of the value of the
contract. The Nigerian court system has too few court
facilities, lacks computerized document processing systems,
and poorly remunerates judges and other court officials, all
of which encourage corruption and undermine enforcement.

Alternative Dispute Resolution: The GON promulgated the
Arbitration and Conciliation Act of 1988 (the Arbitration
Act) that provides for a unified and straightforward legal
framework for the fair and efficient settlement of
commercial disputes by arbitration and conciliation. The
Act established internationally competitive arbitration
mechanisms and fixed proceeding schedules, provided for the
application of the UNCITRAL (United Nations Commission on
International Trade Law) arbitration rules or any other
international arbitration rule acceptable to the parties,
and made the Convention on the Recognition and Enforcement
of Arbitral Awards (New York Convention) applicable to
contract enforcement, based on reciprocity. The Act allows
parties to challenge arbitrators and provides that an
arbitration tribunal shall ensure that the parties are
accorded equal treatment, and that each party has full
opportunity to present its case.

Performance Requirements/Incentives

Nigeria regulates investment in line with the World Trade
Organization's Trade-Related Investment Measures Agreement.
Foreign companies operate successfully in Nigeria's service
sector, including telecommunications, accounting, insurance,
banking, and advertising. The Securities and Exchange Act
of 1988, amended in 1999 and renamed the Investment and
Securities Act, forbids monopolies, insider trading, and
unfair practices in securities dealings.

To meet performance requirements, foreign investors must
register with the Nigerian Investment Promotion Commission,
incorporate as a limited liability company (private or
public) with the Corporate Affairs Commission, procure
appropriate business permits, and (when applicable) register
with the Securities and Exchange Commission. Manufacturing
companies are sometimes required to meet local content
requirements. Expatriate personnel do not require work
permits, but they are subject to "needs quotas" requiring
them to obtain residence permits that allow salary
remittances abroad. Larger quotas are allowed for
professions deemed in short supply, such as deepwater
oilfield divers. U.S. companies often report problems
obtaining quota permits.

The GON maintains many different and overlapping incentive
schemes. The Industrial Development/Income Tax Relief Act
No. 22 of 1971, amended in 1988, provides incentives to
pioneer industries deemed beneficial to Nigeria's economic
development and to labor-intensive industries, such as
apparel. Companies that receive pioneer status may benefit
from a nonrenewable 100 percent tax holiday of five years
(seven years if the company is located in an economically
disadvantaged area). Industries that achieve minimum local
raw materials utilization of 60 to 80 percent may benefit
from a 30 percent tax concession for five years, and
investments employing labor-intensive modes of production
may enjoy a 15 percent tax concession for five years.
Additional incentives exist for the natural gas sector,
including allowances for capital investments and tax-
deductible interest on loans. The GON encourages foreign
investment in agriculture, mining and mineral extraction
(non-oil),oil and gas, and the export sector. In practice,
these incentive programs meet with varying degrees of
success.

Technology Transfer Requirements: The National Office of
Industrial Property Act of 1979 established the National
Office of Technology Acquisition and Promotion (NOTAP) to
facilitate the acquisition, development, and promotion of
foreign and indigenous technologies. NOTAP registers
commercial contracts and agreements dealing with the
transfer of foreign technology and ensures that investors
possess licenses to use trademarks and patented inventions
and meet other requirements before sending remittances
abroad. With the Ministry of Finance, NOTAP administers 120
percent tax deductions for research and development expenses
if carried out in Nigeria and 140 percent deductions for
research and development using local raw materials.

NOTAP recently shifted its focus from regulatory control and
technology transfer to promotion and development, although
the law establishing NOTAP has not changed. With the
assistance of the World Intellectual Property Organization,
NOTAP has established a patent information and documentation
center for the dissemination of technology information to
end-users. The office has a mandate to commercialize
institutional research and development with industry.
Unfortunately, following decades of neglect, most Nigerian
research and development institutions operate far below
optimal capacity.

Import Policies: Tariffs provide the Government of Nigeria
(GON) its (distant) second largest source of revenue after
oil exports. But frequent policy changes and uneven duty
collection make importing difficult and expensive and create
severe bottlenecks. Nigeria's dependence on imports
aggravates the situation. In its last major tariff revision
in March 2003, the GON cut duties on 230 line items (mostly
raw materials, base metals, and capital equipment) but
raised tariffs on 30 others (largely plastic, rubber, and
aluminum articles). Most increases were relatively small.
The GON had announced similar cuts and increases in 2001 and

2002. The GON announced in late 2004 that it will harmonize
its tariff structure with the ECOWAS band of tariffs by the
end of June 2005.

Bans prohibit the import of about 60 specific goods
including meat, fresh fruit, cassava, pasta, fruit juice in
retail packs, toothpicks, soaps and detergents, textiles,
plastics, and barite. The GON banned 41 items in January

2004. The GON announced in late 2004 that it will phase out
the bans by January 2007.

The Nigeria Customs Service (NCS) and the Nigerian Ports
Authority (NPA) have exclusive jurisdiction over customs
services and port operations. Nigerian customs regulations
and tariffs are set forth in the Customs, Excise, and Tariff
(Consolidation) Decree No. 4 of 1995. Nigerian law allows
importers to clear goods on their own, but most importers
employ clearing and forwarding agents. Pre-shipment
inspection (PSI) must be completed for all imports except
those destined for free trade zones.

In 2001 and again in 2003, Nigeria reduced its port
taxes/levies and removed certain administrative obstacles
that hampered efficient operations, reducing the number of
security agencies stationed at the ports from over fifteen
to just five. The NCS announced plans to computerize its
Lagos offices, and the NPA promised to begin clearing
imports within 48 hours.

Many importers under-invoice shipments and engage in
currency arbitrage to minimize tariffs and lower their
landed costs. Others ship their goods to ports in
neighboring countries, after which they are transported
overland. The NCS stepped up enforcement of its 100 percent
physical inspection policy in 2001 in an attempt to check
these practices, but officials admit they do not have the
resources to inspect every incoming container. Officials
conduct spot checks on samples from most containers and
profile importers for likely violations. The NCS levies a
50 percent surcharge on undeclared imports to penalize
intentional duty evasion.

In 2002 and again in 2003, the GON announced plans to
replace its pre-shipment inspection regime with a regime
mandating 100 percent destination inspections at Nigerian
ports of entry. The proposed change was twice deferred amid
doubts about officials' ability to implement it. Importers
feared corruption would increase if the Nigerian Customs
Service had sole purview over goods' classification and
valuation. . Many major shippers prefer pre-shipment
inspection because it provides them with official
documentation to refute charges of overvaluation or
inappropriately classified goods. In October 2004, President
Obasanjo announced the GON's resolve to commence destination
inspection in 2005. The GON plans to announce a timetable
for implementation of the scheme in 2005.

Shippers report that efforts to modernize and
professionalize the NCS and the NPA have reduced port
congestion and clearance times, particularly at Lagos' Apapa
Port, which handles over 40 percent of Nigeria's trade.
This is particularly the case for container traffic.
Nevertheless, bribery of customs and port officials remains
commonplace, and smuggled goods routinely enter Nigeria's
seaports and cross its land borders.

Export Incentives: Investors registered with the Nigerian
Export Promotion Council (NEPC) may benefit from certain
export incentives. A duty drawback scheme provides a 60
percent refund to qualified importers, and an export
development fund provides financial assistance to private
exporters for expenses related to export promotion.
Companies exporting at least 60 percent of their product may
benefit from a 10 percent tax concession for five years. A
manufacture-in-bond scheme allows manufacturers that submit
bonds for 110 percent of the value of duties assessed to
import raw materials, intermediate products and machinery,
other equipment, and spare parts duty-free. The GON
provides capital asset depreciation allowances of five
percent on plant and machinery to manufacturers exporting at
least 50 percent of their annual turnover if their products
have at least 40 percent local raw materials content or 35
percent value added. An export grant funding scheme
provides cash incentives for exporters who have exported a
minimum of N50,000 ($375) of semi-manufactured products.
The Central Bank allows exporters to retain foreign currency
export proceeds. In practice, however, these programs
benefit few individuals and businesses.

Although highly underutilized, the Nigerian Export-Import
Bank provides commercial bank guarantees and direct lending
to facilitate export sector growth. The bank's Foreign
Input Facility provides normal commercial terms of three to
five years (or longer) for the importation of machinery and
raw materials used for generating exports.

While these agencies are meant to promote industrial
exports, they remain burdened by uneven management, vaguely
defined policy guidelines, and corruption. Nigeria's
overvalued currency also leaves exporters at a disadvantage.

Government Procurement: The GON awards contracts under an
open-tender system, advertising tenders in Nigerian
newspapers and opening them to domestic and foreign
companies. Procurement has gradually become more
transparent, but corruption persists.

Procurement for capital projects is often subject to over-
invoicing, which permits improper payments to private and
public sector officials. Many U.S. companies claim they are
disadvantaged in obtaining GON contracts, even when they
appear to have the best bids in technical and financial
terms. Unsuccessful U.S. bidders sometimes allege collusion
between foreign competitors and key GON officials.

In January 2001, the GON issued new procurement and
contracting guidelines clarifying competitive tendering and
decision-making procedures, defining bid security and
mobilization fee rules, and providing for audits of capital
projects. The GON then established the Budget Monitoring
and Price Intelligence Unit (BMPIU) to act as a
clearinghouse for government contracts and procurement, and
to monitor the implementation of projects to ensure
compliance with contract terms and budgetary restrictions.
Procurements above N50 million (about $380,000) are subject
to full "due process," as the process is called, by the
BMPIU. The GON has submitted public procurement legislation
to the National Assembly to reorganize the BMPIU as a Bureau
of Public Procurement. This act would require similar
legislation to be enacted and procurement offices to be
created by the state and local governments.

Visa Requirements: Investors sometimes encounter
difficulties acquiring entry visas and residency permits.
Foreigners must obtain entry visas from Nigerian embassies
or consulates abroad, seek expatriate position authorization
from the Nigerian Investment Promotion Commission, and
request residency permits from the Nigerian Immigration
Service. Investors report that this cumbersome process can
take from two to 24 months and cost from $1,000 to $3,000 in
facilitation fees.

Right to Private Ownership and Establishment

In accordance with the NIPC Decree of 1995, the GON supports
competitive business practices and protects private
property.

Protection of Property Rights

The GON recognizes secured interests in property, such as
mortgages. The recording of security instruments and their
enforcement are subject to the same inefficiencies as those
in the judicial system. The World Bank's publication, Doing
Business in 2005, which surveyed 145 countries including
Nigeria, revealed that Nigeria has the least efficient
system for registering property, requiring 21 procedures and
274 days, at a cost of 27.2 percent of the property value.

Nigeria is a member of the World Intellectual Property
Organization (WIPO) and a signatory to the Universal
Copyright Convention, the Berne Convention, and the Paris
Convention (Lisbon text). The Patents and Design Decree of
1970 governs the registration of patents, and the Standards
Organization of Nigeria is responsible for issuing patents,
trademarks, and copyrights. Once conferred, a patent
conveys an exclusive right to make, import, sell, or use a
product or apply a process. The Trademarks Act of 1965
gives trademark holders exclusive rights to use registered
trademarks for a specific product or class of products. The
Copyright Decree of 1988, based on WIPO standards and U.S.
copyright law, makes it a crime to export, import,
reproduce, exhibit, perform, or sell any work without the
permission of the copyright owner. Nigeria's copyright
statutes also include the National Film and Video Censors
Board Act and the Nigerian Film Policy Law of 1993.

In 1999, amendments to the Copyright Decree incorporated
trade-related aspects of international property rights
(TRIPS) protection for copyrights, except provisions to
protect geographical indications and undisclosed business
information. The amendment also gave the Nigerian Copyright
Commission (NCC) additional enforcement powers.

Four TRIPS-related bills and amendments are in various
stages of preparation, but none has been forwarded to the
National Assembly. The bills would establish an
Intellectual Property Commission, amend the Patents and
Design Decree to make comprehensive provisions for the
registration and proprietorship of patents and designs,
amend the Trademarks Act to improve existing legislation
relating to the recording, publishing, and enforcement of
trademarks, and provide protection for plant varieties
(including biotechnology) and animal breeds.

The GON has signed the WIPO Internet treaties but has yet to
ratify the treaties. The NCC claims, however, that it is
already implementing the terms of the treaties.

Patent and trademark enforcement remains weak, and judicial
procedures are slow and subject to corruption. Relevant
Nigerian institutions suffer from low morale, poor training,
and limited resources. A key deficiency is inadequate
appreciation of the benefits of IPR protection among
regulatory officials, distributor networks, and consumers.
The over-stretched and under-trained Nigerian police have
little understanding of intellectual property rights. The
Nigeria Customs Service has received some WIPO-sponsored
training, but officers who identify pirated imports are not
allowed to impound offending materials unless the copyright
owner has filed a complaint against a particular shipment,
which happens rarely.
Companies do not often seek trademark or patent protection,
the enforcement mechanisms of which they consider
ineffective. Nonetheless, recent efforts to curtail abuse
have yielded results. The Nigerian police and the NCC have
raided enterprises producing and selling pirated software
and videos, and a number of businesses have filed high-
profile charges against IPR violators. In June 2004 in
Lagos, duplicating equipment worth over $5 million was
seized. Microsoft reported successful raids in 2002, and a
bank using its software illegally was forced to buy an
appropriate license.

Most raids involving copyright, patent, or trademark
infringement appear to target small rather than large and
well-connected pirates. Very few cases have been
successfully prosecuted. Most cases are settled out of
court, if at all. Those adjudicated in court are handled
primarily by the Federal High Court, whose judges are
generally broadly familiar with intellectual property rights
law.

Transparency of the Regulatory System

Nigeria's legal, accounting, and regulatory systems are
consistent with international norms, but enforcement is
uneven. Since 1999, opportunities for public comment and
input into proposed regulations have increased.

Professional organizations set standards for the provision
of professional services: e.g., accounting, law, medicine,
engineering, and advertising. These standards are usually
consistent with international norms. No legal barriers
prevent entry into business.

Taxation: In general, Nigeria's tax laws do not impede
investment, but the imposition and administration of taxes
is highly uneven and lacks transparency. Tax evasion is
common, and individuals and businesses often collude with
relevant officials to avoid paying taxes. Nigeria has
signed double taxation agreements with several countries,
including Great Britain, France, the Philippines and Japan.
The GON imposes a 7.5 percent tax rate on dividends,
interest, rent, and royalties when paid to a bona-fide
beneficiary under a tax treaty.

Multiple taxes are a problem for businesses at state and
local levels. Companies within concurrent state and local
jurisdictions may be expected to pay several taxes and
levies.

Efficient Capital Markets and Portfolio Investment

The Nigerian Investment Promotion Commission Decree of 1995
liberalized Nigeria's foreign investment regime, which has
facilitated access to credit instruments provided by
financial institutions. Foreign investors who have
incorporated their companies in Nigeria have equal access to
all financial instruments. Many investors consider the
capital market, specifically the Nigerian Stock Exchange
(NSE),a financing option, given commercial banks' high
lending rates and short maturities of debt instruments.
Despite restrictions on interest rates that banks agreed to
in November 2002, commercial interest rates often exceed 20
percent when fees and charges are included, and most loans
are granted for no more than 360 days.

Trading on the NSE remained buoyant in 2004.. The exchange
operates six branches nationwide, and the volume of shares
traded and market capitalization continue to rise. The
GON's divestment of equity in parastatal companies as well
as initial public offerings (IPOs) and issuances of
additional shares by listed companies have contributed to
the exchange's growth. The NSE continues to expand its
membership and investor pool. Some 207 enterprises are
listed on the exchange.

Government debt instruments are available. Unlike federal
government instruments of short and medium maturity,
instruments of state governments are often considered high
risk because of their historically poor performance.

Banking System: Eighty-nine commercial banks operate in
Nigeria. The introduction of universal banking practices in
December 2000 allowed banks to expand their services.

Health of the Banking System: Capital concentration is
significant, as Nigeria's 16 largest commercial banks held
about 60 percent of the total industry assets, while the 5
largest banks controlled about 40 percent of the industry's
deposits in 2004. The Central Bank of Nigeria's initial 2004
assessment of the banking industry revealed that 62 of
Nigeria's 89 commercial banks were sound and satisfactory,
14 marginal, 11 unsound, and two that could not be assessed
because they had not rendered returns for the period. In
2003, the Nigerian Deposit Insurance Corporation had
reported that the industry's non-performing loans equaled
21.6 percent of total loans granted in 2003.

Following its early 2004 assessment, the CBN embarked on a
reform of the banking system. On July 6, 2004 the CBN
announced a fourteen-point reform program for the banking
industry. The cardinal point of the reform program is the
new minimum capital requirement of N25 billion ($190
million) that all commercial banks must meet by December 31,

2005. Although the new capital requirement is expected to
lead to consolidation in the industry in the form of mergers
and acquisitions, most banks are recapitalizing through the
public sale of shares and private placements. The
Investment and Securities Act (1999) provides for mergers
and acquisitions.

Political Violence

Social unrest, religious and ethnic strife, and crime affect
many parts of Nigeria. In the oil-rich Niger Delta, decades
of official neglect, persistent poverty, as well as
dislocations and environmental damage caused by energy
projects have aggravated socioeconomic unrest. Sabotage and
vandalism of pipelines and other installations and
kidnapping of Nigerian and expatriate oil workers are
regular occurrences. Many of these criminal activities are
designed to extort cash from foreign operators.

The Niger Delta Development Commission (NDDC) has a mandate
to implement social and economic development projects in the
Delta region, but the NDDC has been feckless. State and
local governments offer few social services. Niger Delta
residents continue to seek direct payments and other
assistance from oil companies. Some have implemented their
own socioeconomic development programs to assist local
communities, but many communities consider the company
programs inadequate.

Nigeria continues to experience religious and communal
violence. In November 2002, riots sparked by an editorial
regarding the Miss World pageant left more than 200 dead in
Kaduna. Violence in the North-eastern state of Adamawa
resulted in about 100 deaths in the first half of 2003, and
sporadic ethno-religious violence in Plateau State resulted
in several hundred deaths and the declaration of martial law
in early 2004. The advent of vigilante groups in various
parts of the country has exacerbated violence.

Corruption

Domestic and foreign observers recognize corruption as a
serious obstacle to economic growth and poverty reduction.
Nigeria was third only to Bangladesh and Haiti in
Transparency International's 2004 Corruption Perceptions
Index.

The Corrupt Practices and Other Related Offences Act of 2001
established an Independent Corrupt Practices and Other
Related Offences Commission (ICPC) to prosecute individuals,
government officials, and businesses accused of corruption.
Over 19 offenses are punishable under the Act, including
accepting or giving gratification, fraudulent acquisition of
property, and concealment of fraud. Nigerian law stipulates
that giving and receiving bribes are criminal offences and,
as such, are not tax deductible. Despite the new
legislation, few people have been indicted, and corruption
remains endemic.

The Economic and Financial Crimes Commission was established
also to prosecute individuals involved in financial crimes
and other acts of economic sabotage. The EFCC now has over
500 individuals in custody and about50 cases in court, but
it has achieved only one conviction.

Nigeria is a pilot participant in the Extractive Industry
Transparency Initiative, which will help ensure audits of
Nigeria's oil accounts.


Nigeria is a signatory to the UN Anticorruption Convention,
but has yet to ratify it.

Bilateral Investment Agreements

Investment Agreements: While a Trade and Investment
Framework Agreement (TIFA) has been signed with the United
States, a bilateral investment treaty is not in place.
Nigeria has bilateral investment agreements with the United
Kingdom, Germany, Belgium, South Africa, Italy, Argentina,
Egypt, South Korea, China, Jamaica, Sweden, Switzerland,
Turkey, Uganda, and Romania.

Investment Insurance Programs

In 2002, Nigeria put into effect a 1999 agreement allowing
the U.S. Overseas Private Investment Corporation to offer
all its products to U.S. investors in Nigeria.

Labor

Over the past decade, Nigeria's skilled labor pool has
declined as vocational and university educational standards
have plummeted, mainly because of poor funding. Given the
low employment capacity of Nigeria's formal sector, nearly
half of all Nigerians are unemployed or underemployed and
rely on the informal sector as a means of support. In the
formal sector, companies involved in businesses such as
banking and insurance possess an adequately skilled
workforce (often trained abroad, in private institutions, or
at the better-funded universities). In the manufacturing
sector, workers often require additional training and
supervision, but there are too few supervisory personnel to
ensure that this is done well. . Labor-management
relations in some sectors, especially in the country's
profitable oil and gas industries, are strained.

The Right of Association: Nigeria's Constitution guarantees
the rights of free assembly and association and protects
workers' rights to form or belong to trade unions. Several
statutory laws nonetheless restrict the rights of workers to
associate or disassociate with labor organizations. Since
the establishment of the single trade federation system in
1978, non-management senior staff have been prohibited from
joining government-recognized trade unions. Although the
Trade Union Congress and the Congress of Free Trade Unions
are regarded as influential labor federations, the two
senior staff associations are denied seats on Nigeria's
National Labor Advisory Council (NLAC). A GON bill to amend
the law is working its way through the National Assembly.

Nigeria's single central labor federation, the Nigeria
Labour Congress (NLC),comprises twenty-nine industrial
unions. According to figures provided by the NLC, total
union membership at the end of 2002 was about 4 million.
Less than 10 percent of the total work force is unionized,
and except for a few workers engaged in commercial food
processing, those in the agricultural sector, which employs
the bulk of the work force, are not organized.

Collective Bargaining: Collective bargaining occurred
throughout the public sector and the organized private
sector in 2002 and 2003, but public sector employees have
become increasingly concerned about the GON's commitment to
the collective bargaining process in resolving conflicts.
According to the NLC, the GON's failure to implement
agreements threatens to "devalue the enviable record of
dialogue, consultation, and mutual trust that has
characterized the relationship between Federal Government
and the NLC since 1999."

Collective bargaining in the petroleum industry is
relatively efficient compared to that in other sectors.
Except for a longstanding unresolved dispute over the
industry's use of contract labor, issues pertaining to
salaries, benefits, health and safety, and working
conditions tend generally to be resolved quickly through
negotiations. However, organized labor's efforts to address
broad political issues, however, have resulted in
industrial actions, such as general strikes over fuel prices
that continue to affect industry productivity.

Workers under collective bargaining agreements cannot
participate in strikes unless their unions comply with the
requirements of the law, which includes provisions for
mandatory mediation and referral of disputes to the GON.
The law provides the GON the option of referring matters to
a labor conciliator, an arbitration panel, a board of
inquiry, or the National Industrial Court (NIC). Although
the law forbids employers from granting general wage
increases to workers without prior government approval, the
law is not often enforced. Strikes in both the private and
public sectors nonetheless often occur.
The Nigerian labor minister may refer unresolved disputes to
the Industrial Arbitration Panel (IAP) and the NIC. Union
officials question the effectiveness and independence of the
NIC in view of its refusal to resolve disputes stemming from
the GON's failure to fulfill contract provisions for public
sector employees. The NIC was reconstituted in 2001.
Several new members were added including a formerly
imprisoned trade unionist, Milton Dabibi, but union leaders
continue to criticize the arbitration system's dependence on
the labor minister's referrals.

Child Labor: Nigeria has ratified the International Labor
Organization (ILO) convention on the elimination of the
worst forms of child labor. The 1974 Labor Decree and the
1979 Constitution prohibit forced or compulsory labor and
restrict the employment of children under the age of 15 to
home-based agricultural or domestic work for no more than
eight hours per day. The Decree allows the apprenticeship
of youths as of the age of 13 under specific conditions.

Despite this, Nigeria's weak economy has forced many
children into commercial activities to enhance family
income. The ILO estimates that about 12 million children
between the ages of 10 and 14 (25 percent of all Nigerian
children) were employed in some capacity in 2002, often as
beggars, hawkers, or domestic servants.

Acceptable Conditions of Work: Nigeria's 1974 Labor Decree
provides for a 40-hour workweek, two to four weeks of annual
leave, and overtime and holiday pay for all workers except
agricultural and domestic. No law prohibits compulsory
overtime. The Decree establishes general health and safety
provisions, some of which are specific to young or female
workers, and requires the factory division of the Ministry
of Labor and Employment to inspect factories for compliance
with health and safety standards. Under-funding and limited
resources undermine the agency's oversight capacity, and
construction sites and other non-factory work sites are
often ignored. Nigeria's labor law requires employers to
compensate injured workers and dependent survivors of
laborers killed in industrial accidents, but the Labor
Ministry has been ineffective in identifying violators and
has failed to implement ILO recommendations to update its
inspection program and reporting of accidents.

Foreign Trade Zones/Free Ports

To attract export-oriented investment, the GON established
the Nigerian Export Processing Zone Authority (NEPZA) in

1992. NEPZA allows duty-free import of all equipment and
raw materials into its zones. Up to 25 percent of
production in an export processing zone may be sold
domestically upon payment of applicable duties. Investors
in the zones are exempt from foreign exchange regulations
and taxes and may freely repatriate capital.

Of the five export processing zones established under NEPZA,
just two, in Calabar and Onne, function properly. In 2001,
both were converted into free trade zones, thereby freeing
them from the export requirement. As a result, investment
is quickly moving into Calabar, almost exclusively in
industries that add value to Nigerian imports. Only one
firm in Calabar appears to be exporting in a consistent
fashion. Oil and gas companies use the Onne free port zone
as a bonded warehouse for supplies and equipment and for the
export of liquefied natural gas.

Foreign Direct Investment

In 2003, the stock of foreign direct investment (FDI) in
Nigeria was estimated at $24 billion, which accounted for
about 43 percent of GDP. Total FDI Inflow was $1.2 billion
in 2003 and accounted for 36 percent of gross fixed capital
formation. The stock of U.S. FDI in Nigeria totaled $2.1
billion in 2003, up from $1.8 billion the year before. Most
FDI is concentrated in the oil and gas sector. Oil
companies report that much FDI continues to fund oil and gas
exploration and production, liquefied natural gas projects,
and related activities. Some FDI is channeled into
telecommunications and manufacturing, but the total remains
small relative to oil sector investment.

CAMPBELL