Identifier
Created
Classification
Origin
06ABUJA2725
2006-10-13 13:37:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Abuja
Cable title:  

AGOA ELIGIBILITY REVIEW - NIGERIA

Tags:  ETRD AGOA ECON NI 
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VZCZCXRO8683
PP RUEHMA RUEHPA
DE RUEHUJA #2725/01 2861337
ZNR UUUUU ZZH
P 131337Z OCT 06
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 7491
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 5306
RUEHZK/ECOWAS COLLECTIVE
UNCLAS SECTION 01 OF 04 ABUJA 002725 

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT FOR AF/W (SILSKI) AND AF/EPS (POTASH)
DEPARTMENT PASS TO USTR (HAMILTON)

E.O. 12598: N/A
TAGS: ETRD AGOA ECON NI
SUBJECT: AGOA ELIGIBILITY REVIEW - NIGERIA

REF: STATE 163056

UNCLAS SECTION 01 OF 04 ABUJA 002725

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT FOR AF/W (SILSKI) AND AF/EPS (POTASH)
DEPARTMENT PASS TO USTR (HAMILTON)

E.O. 12598: N/A
TAGS: ETRD AGOA ECON NI
SUBJECT: AGOA ELIGIBILITY REVIEW - NIGERIA

REF: STATE 163056


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


2. (U) Country Background Summary: Estimated population of 140
million. 2005 GNI was $74.2 billion; 2005 GNI per capita was $560.
(World Bank 2006 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. General
elections are slated for 2007 marking a hand-over from civilian to
civilian rule, but the electoral commission seems unprepared. 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
-------------- -------------- -------------- -------------- --------------


3. (SBU) Major Strengths Identified: The government committed to
transitioning from state directed economy to one driven by market
forces. The economy expanded by 6% due to an improved macroeconomic
environment. "Wholesale Dutch Auction" system of foreign exchange
trading was introduced early 2006, and has led to a sharp reduction
in the spread between the official and parallel market exchange
rates. Nigeria received debt relief from the Paris Club during the
fourth quarter of 2005 resulting in a debt write-off of about $18
billion. The government is also nearly finished with plans to pay
its London Club debt. The government has a Policy Support
Instrument (PSI) with the IMF, which is a new approach to IMF
monitoring. In September 2006, the IMF assessment team confirmed
that Nigeria met all the benchmarks for the review period. Power
sector reforms are ongoing. The unbundling of the National Electric
Power Authority (NEPA) has been concluded. A holding company, Power
Holding Company (PHCN) has taken over the assets and liabilities of
NEPA, while an electricity regulatory commission has been
established. PHCN is made up of 18 companies. The Bureau of Public
Enterprises (BPE) plans to privatize all the companies and enable
private investment in generation and distribution. Port concessions
are moving forward and an international company was awarded the

concession to manage the country's largest port--Apapa Port in
Lagos. The Nigerian Communications Commission (NCC) introduced the
unified licensing regime in the first quarter of 2006 to further
deregulation and spur competition. Nigeria Telecommunications Ltd
(NITEL) privatization was concluded in July 2006 though it seems
unclear if the preferred bidder, Transcorp, has made the full
payment. Negotiations are yet to be concluded between BPE and
Transcorp but a payment of $750 million has been made. Nigeria is a
WTO member. Civil Service reform is progressing with the
monetization of in-kind benefits implementation and downsizing of
33,000 public servants is expected to be completed before the end of

2006. Nigeria 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. Savings from excess
monies from crude oil sales above the $35 benchmark price have been
put into a special reserve account, rather than used to fuel fiscal
expansion. The government budget process is taking its rightful
position as an economic policy and management tool. The budget
deficit has been kept in check. All three tiers of government are
adhering to fiscal discipline with a consolidated surplus of 10% in

2004. New Chart of Accounts introduced in 2005. Banking reforms
are ongoing. Central Bank of Nigeria's directive that banks
recapitalize from the Naira 2 billion to Naira 25 billion by
December 31, 2005 was successfully completed, leading to a reduction
in the number of banks from 89 to 25 banking groups. Pension and
insurance reform also moving forward.


4. (SBU) Major Issues/Problems Identified:
Huge and inefficient public sector dominates and inhibits faster
development of the formal sector. Much of the nation's wealth is
concentrated in the hands of tiny military, political, and
commercial elites through corruption and non-transparent government
contracting practices. The banking system is poorly performing
intermediation, therefore impeding small and medium investors.
Regulatory and tax regimes are arbitrarily enforced. Regulatory
bodies are 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; the Nigerian National Petroleum
Corporation (NNPC) directly accesses national treasury; potential
for corruption and abuse are enormous. 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 a major
barrier to private sector activity. Nigeria faces growing pressure
for looser fiscal and monetary policy. The Intellectual Property
Rights Commission (IPRC) was not established as announced. The 1978
Land Use Act mandates state ownership of land; private use of land

ABUJA 00002725 002 OF 004


is restricted to a 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
-------------- -------------- -- --------------


5. (SBU) Major Strengths Identified:
Elections held in 2003 for some local governments, state governors
and assemblies, and national legislators, and the President. The
elected civilian government is in its seventh year. Thirty
political parties participated in 2003 elections. There was
progress recognizing political pluralism, and establishing the 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. Nigeria signed transparency and anti-corruption
agreement with the United States and other G-8 members at the Sea
Island Summit in 2004. It has 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 $5
billion in assets from corruption cases since it was established
three years ago, arresting several high level officials. In
December 2005, the governor of Bayelsa State in south-south Nigeria
was impeached for money laundering and misappropriation of funds.
He is currently facing trial. 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. The EFCC is investigating ongoing
corruption charges against state governors and their associates.
The 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. The elections of 2003 were married by serious
irregularities, fraud, with violence in some areas. The Independent
National Electoral Commission (INEC),the body charged with the
conduct of elections, is not independent, and argued in court
throughout 2004-2005 that it need not be independent. Public
opinion is that the INEC is not prepared for the 2007 general
elections. 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. The government remains unable to guarantee citizens the
right to a speedy and fair trial. The government has failed to
implement some key court decisions. The judicial system is weak and
in need of serious reforms. Excessive violence, lethal force, and
corruption at police and military roadblocks and checkpoints
continues, 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. The failure to curb oil bunkering fuels
corruption, arms trafficking and political instability.


Elimination of barriers to U.S. Trade and Investment
-------------- -- -------------- -- -------------- -------------- --- --------------


7. (SBU) Major Strengths Identified:
A TIFA with the 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 about 4% in 2005 over 2004. In the first seven
months of 2006 U.S. exports increased 35% over the same period in

2005.


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. The arbitrary bans
encourage smuggling. Import bans accompanied by sole source
importation rights to favorite partners have impeded competition.
Comprehensive trade reform by adoption of the ECOWAS Common External
Tariff was implemented in the last quarter of 2005. However, 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. The Nigerian government procurement
process 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

ABUJA 00002725 003 OF 004


impose requirements to invest in power production or refining, in an
attempt to force investment in unprofitable sectors. The
availability of fuel import subsidies are limited to NNPC, forcing
out potential competitors in the downstream fuel market. Local
content requirements impose additional costs in investments. Across
several sectors, the government employs predatory negotiating
tactics, including threats to access to inputs, customs and other
legal approval processes, and transferring contracts to entities
that cannot uphold contract terms. Foreign Exchange repatriation
regulations are enforced arbitrarily. Access to imported inputs
under the Manufacturers-in-Bond Scheme is suspended, highly
politicized and is available only by Presidential directive.

Poverty Reduction
--------------


9. (SBU) Major Strengths Identified: National Planning Commission
finalized NEEDS, Nigeria's homegrown Poverty Reduction Strategy.
NEEDS is due for review in 2007. The National Poverty Eradication
Program (NAPEP) is being implemented at the local government level,
and focusing on micro-enterprise development and other programs.
the National Assembly appropriated over Naira 100bn for spending
towards Millennium Development Goals in Budget 2006


10. (SBU) Major Issues/Problems Identified: The government poverty
strategy does not clearly link goals and methods; serious concerns
remain about fiscal transparency; human capacity for project
implementation is weak. The government is implementing the poverty
program slowly.

Workers' Rights/Child Labor/Human Rights
--------------


11. (SBU) Major Strengths Identified: Improvements in some areas of
human rights, including the arrests of 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. The 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
International Labor Organization (ILO) convention 182, Worst Forms
of Child Labor; Convention 138, Minimum age for Employment; and
Convention 111, Equality of Occupation. It ratified ILO convention
87 on the Freedom of Association and Convention 98 on the Right to
Organize and Collective Bargaining. The government has also
ratified ILO conventions on forced labor. Worker rights and child
labor laws have been enacted, but to date the 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 remains widespread.
Outbreaks of violence and community unrest in the oil-producing
Niger Delta caused occasional disruption in Nigeria's oil
production. Army troops killed nearly 200 unarmed civilians in
October 2001 in Benue state, but to date there has been no
accountability for the incident. 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. There exist no laws that 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 the ILO convention on the Right of Association. The
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,

ABUJA 00002725 004 OF 004


central labor organization, and the Trade Union Congress has yet to
receive 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, and by
the increased use of casual labor, especially in the oil industry.
Payment of salaries to government workers is 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. The 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 are subjected to forced labor, and child labor is
rising. The relationship between the government and the National
Labor Congress (NLC) remains 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
-------------- -------------- -------------- --------------


13. (SBU) Major Strengths Identified: President Obasanjo has taken
personal action in building West African support for anti-terrorism
coalition activities. In June 2006, Nigeria was de-listed from the
Financial Action Task Force list of Non-Cooperative Countries and
Entities. The Nigerian Financial Intelligence Unit, Economic and
Financial Crimes Commission (EFCC),Securities and Exchange
Commission, Central Bank and other regulators in the financial
services industry are collaborating to identify and freeze terrorist
assets in Nigeria.


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

FUREY