NIGERIA AGOA SUBMISSION AND RECOOMENDATION

UNCLAS SECTION 01 OF 04 ABUJA 001900

SIPDIS

SENSITIVE

STATE PASS TO USTR FOR C. HAMILTON

E.O. 12598: N/A
TAGS: ETRD PHUM NI AGOA
SUBJECT: NIGERIA AGOA SUBMISSION AND RECOOMENDATION



1. (U) Country: Nigeria
Current AGOA Status: Eligible


2. (U) Country Background Summary: Estimated population of
140 million. 2004 GNI was $55.9 billion; 2004 GNI per
capita was $390. (World Bank 8/2005 Data) Nigeria completed
civilian-run national and state elections in 2003 that were
marred by irregularities and fraud and continued to struggle
to consolidate democracy. The Government continues to make
slow progress toward developing an open economy, minimizing
government interference, and promoting free market
principles.

Comments on Eligibility Requirements Market-based Economy:
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3. (SBU) Major Strengths Identified: Government
committed to transitioning from state directed economy to
one driven by market forces. Economy expanding about 6%
due to improved macroeconomic environment. Has a modified
"Dutch Auction" mechanism to narrow spread between official
and parallel exchange rates. Plans to introduce daily
wholesale Dutch auction in 2006. Nigeria has agreed in
principle to a comprehensive debt relief package with Paris
Club creditors including the U.S. Final details and approval
are pending. The management of the Bureau of Public
Enterprises was replaced to improve the pace of
privatization. The Power Bill was passed, setting the stage
to unbundle the Nigeria Electric Power Authority and enable
private investment in generation and distribution. Port
concessions are moving forward, with an international
company awarded the concession to manage the country's
largest port--Apapa Port in Lagos. Nigerian Communications
Commission (NCC) announced in February 2005 that a unified
licensing regime would be introduced in February 2006 to
further deregulation and spur competition. NITEL
privatization underway. WTO member. Civil Service reform is
progressing with the monetization of in-kind benefits
implemented. Launched National Economic Empowerment &
Development Strategy (NEEDS),a medium-term economic reform
program (2003-2007) focused on privatization, good
governance, macroeconomic stability, anti-corruption, and
public service reforms. Saving excess monies from crude oil
sales above $27 benchmark price in a special reserve
account, rather than using it to fuel fiscal expansion.
Government budget process taking its rightful position as an
economic policy and management tool. Budget deficit has
been kept in check. All three tiers of government adhering
to fiscal discipline with a consolidated surplus of 10% in

2004. New Chart of Accounts introduced in 2005. Central Bank
of Nigeria's directive that banks recapitalize from the
Naira 2 billion to Naira 25 billion by December 31, 2005,
progressing well. Pension and insurance reform moving
forward.


4. (SBU) Major Issues/Problems Identified:
Huge and inefficient public sector dominates and inhibits
faster development of formal sector. Much of nation's wealth
concentrated in hands of tiny military, political, and
commercial elite through corruption and non-transparent
government contracting practices. Banking system poorly
performing intermediation, impeding small and medium
investors. Regulatory and tax regimes arbitrarily enforced.
Regulatory bodies weak and ineffective. Oil and gas receipts
account for 80% of government revenues and over 95% of
exports. Fuel subsidies are not budgeted and
nontransparent; NNPC directly accesses national Treasury;
potential for corruption and abuse are enormous. Nigeria
has not adopted IMF Stand-By Agreement. Economic data and
statistics are of unreliable quality and availability
Regulatory bodies are weak and ineffective. Fuel prices
continue to be regulated and subsidized. Inadequate and
unreliable infrastructure is major barrier to private sector
activity. Nigeria faces growing pressure for looser fiscal
and monetary policy. Intellectual Property Rights Commission
not established as announced. 1978 Land Use Act mandates
state ownership of land; private use of land is restricted
to 99-year lease, and subject to government confiscation
without a Certificate of Occupancy or Governor's consent.
Conveyance of land requires high level government approval,
promoting corruption and inhibiting property transactions.

Political Reforms/Rule of Law/Anti-Corruption
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5. (SBU) Major Strengths Identified:
Elections held in 2003 for some local governments, state
governors and assemblies, and national legislators, and the
President. Elected civilian government in its sixth year.
Thirty political parties participated in 2003 elections.
Progress recognizing political pluralism, and establishing
right to fair trial and equal protection under law, rights
guaranteed constitutionally. Nigerian Supreme Court made
landmark decisions in early 2002 affirming its role as
arbiter of the national constitution. Signed transparency
and anti-corruption agreement with the United States and
other G-8 members at the Sea Island Summit in 2004.
Established programs to combat corruption, many of which
receive support from the United States and other donors.
The Economic and Financial Crimes Commission (EFCC) has
seized $670 million in assets from corruption cases,
arresting several high level officials. The Inspector-
General of Police and the Minister of Education were fired
for corruption. The Senate President was removed from his
post for corruption, though he retained his Senate seat.
EFCC is investigating corruption charges against state
governors and their associates. Top levels at the Customs
Administration were replaced on corruption charges.


6. (SBU) Major Issues/Problems Identified:
Communal violence continues, especially the latter in the
oil-rich Niger Delta. Elections of 2003 were married by
serious irregularities, fraud, with violence in some areas.
The Independent National Electoral Commission (INEC),the
body charged with conduct of elections, is not independent,
and argued in court throughout 2004-2005 that it need not be
independent. Judges are subject to both bribery and
intimidation, if not outright threats. Corruption remains
an overwhelming problem. To date there have been no
convictions of any high-level official for corruption.
Use of militias and vigilante groups by politicians
continues. Government remains unable to guarantee citizens
right to speedy, fair trial. Government has failed to
implement some key court decisions. The judicial system is
weak and in need of serious reform. Excessive violence,
lethal force, and corruption at police and military
roadblocks and checkpoints continue, despite the Acting
Inspector-General of Police's announcement in January 2005
that police roadblocks would be eliminated. Prison and
detention conditions remain harsh and life threatening.
Some prisons held 200 to 300 percent more persons than their
designed capacity. Failure to curb oil bunkering fuels
corruption, arms trafficking and political instability.

Elimination of barriers to U.S. Trade and Investment
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7. (SBU) Major Strengths Identified:
TIFA with U.S. provides a mechanism to address trade and
investment issues. Nigeria is a top destination of U.S.
investment in Africa, due to investment in the petroleum
sector. U.S. exports to Nigeria rose by more than 50% in
2004 over 2003. In the first seven months of 2005 U.S.
exports increased 18% over the same period in 2004.
Tax administration reform is progressing.


8. (SBU) Major Problems/Issues Identified:
Multiple bans in violation of WTO rules in the last three
years have affected imports of many agricultural products.
Arbitrary ban encourage smuggling. Import bans accompanied
by sole source importation rights to favorite partners
impede competition. Comprehensive trade reform by adoption
of the ECOWAS Common External Tariff was postponed from its
promised July 1, 2005 implementation date. Trade and
investment policies are frequently changed, suspended,
cancelled or implemented inconsistently. Some U.S. firms
with contracts with the government face consistent problems
receiving timely payments. No progress has been made as the
result of TIFA negotiations. Negotiators report that the
President ultimately makes decisions on trade and investment
issues. Nigerian government procurement lacks transparency.
Nigeria's Cabotage Law is a barrier to trade and investment
and has compelled U.S. firms to exit Nigeria. In the oil
and gas sector Nigeria is imposing or threatening to impose
requirements to invest in power production or refining, in
an attempt to force investment in unprofitable sectors.
Availability of fuel import subsidies limited to Nigerian
National Petroleum Corporation (NNPC),forcing out potential
competitors in the downstream fuel market. Local content
requirements impose additional costs in investments. Across
several sector, the government employs predatory negotiating
tactics, including threats to access to inputs, customs and
other legal approval process, and transferring contracts to
entities that cannot uphold contract terms. Foreign
Exchange repatriation regulations enforced arbitrarily.
Access to imported inputs under the Manufacturers-in-Bond
Scheme suspended available only by Presidential directive,
and highly politicized.

Poverty Reduction
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9. (SBU) Major Strengths Identified: National Planning
Commission finalized the National Economic Empowerment and
Development Strategy (NEEDS),Nigeria's homegrown Poverty
Reduction Strategy. The National Poverty Eradication
Program (NAPEP) being implemented at the local government
level, focusing on micro-enterprise development and other
programs.


10. (SBU) Major Issues/Problems Identified: Government
poverty strategy does not clearly link goals and methods;
National Assembly has refused to fund poverty alleviation;
serious concerns remain about fiscal transparency; human
capacity for project implementation weak. Government is
implementing the poverty program slowly.
Workers' Rights/Child Labor/Human Rights
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11. (SBU) Major Strengths Identified: Improvements in some
areas of human rights, including the arrest o several
traffickers of persons; yet serious problems remain, such as
continued lack of accountability for past abuses. The
Constitution provides for freedom of religion, and the
Government generally respects that right, although some
state governments place restrictions on freedom of religion.
Nigerian Constitution protects the right of association and
the right to organize and bargain collectively, but
statutory restrictions remain in place. In June 2005, a
court struck down legislation that required a police permit
for all public rallies and processions. Nigerian law
prohibits forced or bonded labor, forbids the employment of
children younger than age 15 in commerce and industry, and
restricts other child labor to home-based agricultural or
domestic work for a maximum of eight hours a day. All known
political prisoners and most known political detainees have
been released. Security forces still commit human rights
violations, but these no longer appear to be systematic or
officially sanctioned. Workers, except members of armed
forces, police, and employees designated essential by
Government, may join trade unions and strike, but reasons
for striking are limited. In 2002, President Obasanjo
signed the instruments of ratification for ILO convention
182, Worst Forms of Child Labor; Convention 138, Minimum age
for Employment; and Convention 111, Equality of Occupation.
Ratified ILO convention 87 on freedom of association and
convention 98 on the right to organize and collective
bargaining. Also ratified ILO conventions on forced labor.
Worker rights and child labor laws have been enacted, but to
date Child Rights Act has only been ratified by six states.
New legislation was passed in 2003 outlawing human
trafficking, and the National Agency for the Prohibition of
Trafficking in Persons (NAPTIP) was established.


12. (SBU) Major Issues/Problems Identified:
Most major social indicators remain weak; for example, under-
5 child mortality is at an alarmingly high level of 20
percent. Domestic violence and discrimination against women
remained widespread. Outbreaks of violence and community
unrest in the oil-producing Niger Delta caused occasional
disruption in Nigeria's oil production.
Army troops killed about 200 unarmed civilians in October
2001 in Benue state, but to date there has been no
accountability. Police and security forces continue to use
excessive and sometimes lethal force to beat protesters,
suspects, detainees and convicts, and to use arbitrary
arrest and detention; prolonged pretrial detention remains a
problem. No laws prohibit retribution against strikers.
The Trade Unions Act does not ensure workers right to form
and join unions of their own choosing, deems all registered
trade unions to be affiliated with the central labor
organization, and violates ILO convention on right of
association. Trade Unions (Amendment) Decree of 1996 makes
check-off payment of dues conditional on a "no-strike"
clause during the lifetime of the collective agreement. The
Trade Unions Amendment Act of March 2005 criminalizes
meetings between labor and civil society organizations and
bans nation-wide strikes on any issue but service
conditions. The Act ended the Nigerian Labor Congress'
status as the sole, central labor organization, and the
Trade Union Congress y received official federal government
recognition. While decentralization may seem better for the
right to form and join unions, it has weakened the labor
movement in Nigeria. Labor rights have been limited by
targeted layoffs and terminations of labor activists, by
intimidation to press workers to leave unions, by the
increasing use of casual labor, especially in the oil
industry. Payment of salaries to government workers often
several months in arrears; workers who protest or strike
over arrearages face dismissals, threats of layoffs, and
pressure to agree to lowered minimum wages. Government
places limits on freedom of assembly and association, citing
security concerns. Trafficking in persons for purposes of
prostitution and forced labor is a problem, allegedly with
collusion of government officials. Some persons including
children subjected to forced labor, and child labor rising.
Government relations with the NLC remain severely strained
since 2003 because of the President's determination to
deregulate fuel prices, and the trade union's use of general
strikes to protest price hikes.


International Terrorism/U.S. National Security
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13. (SBU) Major Strengths Identified: President Obasanjo
personally acting to build West African support for anti-
terrorism coalition activities. Central Bank of Nigeria
pledged to identify and freeze terrorist assets in Nigerian
banks.


14. (SBU) Major Issues/Problems Identified: None.

Mission Recommendation
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15. (SBU) The Mission recommends that Nigeria be found
eligible to participate in AGOA for 2006.


16. (SBU) Although slow, Nigeria has continued to make
progress on economic reform and in combating corruption in
2004 and 2005. Macro-economic stability contributed to 7.4%
growth in the non-oil sector in 2004, while prudent
management of windfall oil revenues has been maintained in
the face of increasing pressure. Continued progress also has
been made increasing transparency of revenue and in budget
implementation. After a disappointing year, a new team
appears to be reinvigorating the privatization process.
These achievements are not trivial.


17. (SBU) We make this recommendation despite the fact that
barriers to trade and investment, highlighted in last year's
letter from Dr. Rice to President Obasanjo are growing in
Nigeria. Though some individual issues have been resolved,
overall the trend has worsened. The promised moved to the
ECOWAS CET, has been postponed, and although the Government
of Nigeria is now stating that it will be implemented in
October 2005, the Government does not appear to be preparing
for implementation actively. Key outstanding problems
include the failure of the GON to renew contractually
mandated tax exemptions for AES, and proposals to force oil
producers to refine domestically and/or invest in
refineries. Despite these real and serious problems both
U.S. exports and investment levels are growing.


18. (SBU) Maintaining the status quo by approving Nigerian
eligibility for AGOA would not have a significant impact.
Finding Nigeria ineligible, however, would have significant
negative symbolism, and would be seen as a real blow to the
President and the economic team. It would certainly be used
as ammunition by the critics of the economic team. Nigeria
does not take much advantage of AGOA, and non-oil exports to
the U.S. have been falling. Thus it does not provide
significant practical leverage on the Government of Nigeria
to push action on the issues which concern us. Balancing the
limited efficacy of an ineligibility finding in pressuring
the GON on trade and investment issues against the real harm
of undermining the position of the economic reform leaders,
we support finding Nigeria eligible as more productive in
forwarding U.S. foreign policy goals in Nigeria.
CAMPBELL