NIGERIA: 2007 INVESTMENT CLIMATE STATEMENT

UNCLAS SECTION 01 OF 10 ABUJA 000122

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SUBJECT: NIGERIA: 2007 INVESTMENT CLIMATE STATEMENT

REF: 06 STATE 178303

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1. (U) The following information is Nigeria's 2007 Investment
Climate Statement.

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,
restrictive trade 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 cope
with poorly maintained infrastructure and arbitrary policy
changes. Security is of special concern. There are repeated
cases of hostage taking in the oil-rich Niger Delta region.
Inadequate law enforcement compounds the country's high crime
rate, and sporadic outbreaks of communal 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 which were marred by significant
electoral malpractice in some parts of the country. General
elections are due in April 2007 and Obasanjo is constitutionally
required to hand over power on May 29, 2007.

The government of Nigeria (GON) embarked on a reform program in
late 2003 christened the National Economic Empowerment and
Development Strategy (NEEDS). Freedom of expression and of the
press is observed, and human rights violations have been reduced
from the time of military rule, although the country's human
rights record remains poor. 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repealed or amended.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 1999, 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: The Privatization and Commercialization Act of
1999 established the National Council on Privatization, the
policymaking body overseeing the privatization of state-owned
enterprises, and the Bureau of Public Enterprises (BPE),to
implement the program. The privatization of key sectors,
including telecommunications and power, calls for core investors
to acquire controlling shares in formerly state-owned
enterprises. The GON repealed or amended decrees that inhibited
competition or conferred monopoly powers on parastatal firms.
Since 1999, the BPE has raised over $500 million by privatizing
more than 100 enterprises, including cement manufacturing firms,

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banks, hotels, and vehicle assembly plants.

With the passage of the Power Sector Reform Bill in 2005, a power
sector regulator, the Nigerian Electricity Regulatory Commission
(NERC) was created with responsibility for tariff regulation and
economic and technical regulation of the electricity supply
industry. Since its inception, the NERC has issued nine licenses
to independent power producers in the electricity industry.

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

The GON has substantially opened Nigeria's telecommunications
sector. The Telecommunications Act of 2001 authorizes the
Nigerian Communications Commission (NCC) to issue licenses to
existing and prospective service providers. Four enterprises,
including NITEL, have 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 August 2006 was 27.95 million and teledensity is
23.29. This is an improvement from the December 2005 figure of
19.8 million lines and teledensity of 16.27. The NCC began the
unified licensing regime in May 2006, awarding the first batch of
unified licenses to four telecommunication service providers.
The unified license permits telecommunications companies to offer
services across the board in telecommunications, including fixed
line, wireless, data services, etc. This marks the end of the
five-year exclusivity incentive granted the mobile telephone
licensees in 2001.

The NCC recently announced its intention to auction radio
spectrum in the 1800 MHz, 3G and 450 MHz bands, leading to the
award of new licenses. The NCC appointed the PA Consulting
Group, a firm of international management consultants, to assist
it with the licensing process slated for early 2007.

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

Conversion and Transfer Policies

The Foreign Exchange Monitoring Decree of 1995 opened Nigeria's
foreign exchange market. In February 2006, in accordance with
its plan to liberalize the foreign exchange market, Nigeria
adopted a Wholesale Dutch Auction System (W-DAS) which gives
banks more control of the foreign exchange market, though the
Central Bank retains its supervisory role over the market.

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. There is a $4,000 quarterly Personal Travel Allowance
for foreign exchange and a $5,000 quarterly Business Travel
Allowance per individual. Foreign exchange for travel is usually
issued in travelers checks by commercial banks while some
authorized dealers also issue pre-paid cards that can be used on
Visa machines worldwide. Persons may obtain lesser amounts in
foreign exchange in a single transaction and travelers checks
from registered bureau 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 1970s.

Dispute Settlement

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Investment Disputes: Nigeria's civil courts handle disputes
between corporate bodies and the GON as well as between Nigerian
businesses and foreign investors. The courts occasionally rule
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
composed of English common law, Islamic law, and Nigerian
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.

The public increasingly resorts to the court system and is more
willing to litigate and seek redress. However, use of the courts
does not automatically imply fair or impartial judgments. In the
World Bank's publication, Doing Business 2007 How to Reform,
which surveyed 175 countries including Nigeria, concluded GON
efforts have led to improvements in the way business is
conducted. Regarding the enforcement of contracts countries
surveyed Nigeria was ranked 66 out of 175. This is an
improvement compared with the 2005 survey where it was classified
as the eighth slowest country to enforce contracts, out of 145
countries surveyed. In addition, the report revealed that
contract enforcement required 23 procedures and 457 days, the
cost of which averaged 27 percent of the value of the contract,
an improvement from its 2005 position of 23 procedures, 730 days,
and a cost of 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 encourages
corruption and undermines enforcement.

Alternative Dispute Resolution: The Arbitration and Conciliation
Act of 1988 (the Arbitration Act) 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, 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 (TRIMS)
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

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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
use 60 to 80 percent local raw materials 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. 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.

Import Policies: Tariffs provide the GON its (distant) second
largest source of revenue after oil exports. 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 October 2005, the GON
announced that it was implementing the ECOWAS Common Economic
Tariff (CET) regime, which places all items in one of five tariff
bands.

Bans prohibit the import of various goods including meat, fresh
fruit, cassava, pasta, fruit juice in retail packs, toothpicks,
soaps and detergents, textiles, plastics, and barite. In 2006,
the GON removed some textile items from its list of prohibited
imports. The GON announced in late 2004 that it would phase out
the bans by January 2007 in line with the conclusion of
negotiations with its West African neighbors under the ECOWAS
CET. Unfortunately, the expected the CET negotiations are
unlikely to conclude before 2008 and the government has announced
that bans will be phased out 'over time'.

The Nigerian Customs Service (NCS) and the Nigerian Ports
Authority (NPA) have exclusive jurisdiction over customs services
and port operations. Nigerian law allows importers to clear
goods on their own, but most importers employ clearing and
forwarding agents.

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 GON began a destination
inspection regime in January 2006, which had earlier been shelved
on four different occasions since 2002. Under the destination
inspection scheme, goods destined for Nigeria's ports would be
inspected at the point of entry rather than at the point of
shipment. Guidelines for the new scheme were announced, and
three companies were awarded a seven-year contract to act as
inspection agents at Nigeria's seaports, border posts, and
airports. The companies are Cotecna, SGS, and Global Scan. The
exclusive contract will expire by 2012, if Nigerian Customs

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officials have completed training on the new scheme and on the
handling of the scanning machines, which would be handed over to
the NCS at the expiration of the contract.

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: Most export incentives were recently
abolished, though the government is reviewing reinstating some
selected incentives.

Although highly underused, 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.

Agencies meant to promote industrial exports remain burdened by
uneven management, vaguely defined policy guidelines, and
corruption. Nigeria's high production costs because of
inadequate infrastructure and strong currency also leave Nigerian
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
become slightly 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.

The Budget Monitoring and Price Intelligence Unit (BMPIU) acts as
a clearinghouse for government contracts and procurement, and
monitors 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 2007 How to Reform, reported that Nigeria has the sixth
least efficient system for registering property, requiring 16
procedures and 80 days, at a cost of 21.2 percent of the property
value. In 2005, Nigeria was classified as the least efficient of
145 countries surveyed, requiring 21 procedures and 274 days, at
a cost of 27.2 percent of the property value.

Fee simple property rights are rare. Most property is long-term
leases with certificates of occupancy acting as title deeds.
Transfers are complex and must usually go through state

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governor's offices. In Abuja, the Federal Capital Territory
cancelled and began a process of reregistering all property
allotments, refusing to renew those it deemed not in accordance
with the city master plan. Buildings on these properties have
frequently been demolished, even in the face of court
injunctions. Therefore acquiring and maintaining rights to real
property are a major challenge.

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 incorporate trade-
related aspects of intellectual property rights (TRIPS)
protection for copyrights, except provisions to protect
geographical indications and undisclosed business information.
Four TRIPS-related bills and amendments have been forwarded to
the National Assembly. An amendment to the Copyright Act is also
expected to be forwarded to the National Assembly during the
first quarter of 2007. 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 them. 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 Nigerian 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.
There are sometimes opportunities for public comment and input
into proposed regulations.


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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.

Trading on the NSE remained buoyant in 2006. The exchange
operates nine branches nationwide, and the volume of shares
traded and market capitalization continues to rise. The
introduction of the contributory pension system in late 2005,
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. Currently, 260 equities are listed on the exchange.

Government debt instruments are available. Since the inception
of the present civilian government in 1999, state governments
have availed themselves of opportunities on the Nigerian capital
market. About five state governments have issued bonds to
finance development projects. The Nigerian Securities and
Exchange Commission (SEC) has issued stringent guidelines for
states that wish to raise funds on capital markets, such as a
credit assessment conducted by a recognized credit rating agency.
The credit rating agencies recognized by the SEC are Agusto and
Co., and Global Credit Rating (GCR) of South Africa. The GON has
also begun issuing bonds of 2-5 years maturity to restructure its
domestic debt portfolio, which heretofore has consisted primarily
of treasury bills of 90-180 days maturity.

Banking System: As of December 2006, twenty-five commercial
banks are operating in Nigeria.

Health of the Banking System: 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 was the new minimum capital requirement of 25 billion
naira ($190 million) that all commercial banks must meet by
December 31, 2005. The new capital requirement led to
consolidation in the industry in the form of mergers and
acquisitions. At the end of the consolidation deadline, seventy-
five banks merged into twenty-five banking groups in contrast to
the eighty-nine banks that existed at the end of December 2004.

Political Violence

Social unrest, religious and ethnic strife, and crime affect many
parts of Nigeria. In the oil-rich Niger Delta region, 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

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implement social and economic development projects in the Delta
region, but the NDDC has been ineffective. State and local
governments offer few social services and 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 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 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. In February 2006,
riots in response to the Danish cartoon publication took place in
the north-eastern city of Maiduguri with reprisal attacks in the
south-eastern city of Onitsha. The violence led to the death of
over thirty people. Vigilante groups in various parts of the
country have exacerbated violence.

Corruption

Domestic and foreign observers recognize corruption as a serious
obstacle to economic growth and poverty reduction. Nigeria was
14th in Transparency International's 2006 Corruption Perceptions
Index, an improvement from its sixth position in the 2005
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 (EFCC) was
established to prosecute individuals involved in financial crimes
and other acts of economic sabotage. The EFCC has been
successful in obtaining some high profile convictions such as the
prosecution of the former Inspector General of Police, and it is
presently pursuing a case against two former governors in the law
courts. The Paris-based Financial Action Task Force removed
Nigeria from its list of Non-Cooperative Countries and
Territories in June 2006. Nigeria is a pilot participant in the
Extractive Industry Transparency Initiative, which seeks to
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, France,
Taiwan, Netherlands and Romania.

Investment Insurance Programs

The U.S. Overseas Private Investment Corporation offers 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, over half of all
Nigerians work in the informal sector and agriculture. 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.

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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 has 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
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 the GON and the NLC
since 1999."

Collective bargaining in the petroleum industry is relatively
efficient compared to 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. 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 occur frequently.

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.
Union leaders 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.

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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
imports. Another free trade zone, the Tinapa Free Trade Zone
owned by the Cross River state government is expected to be
commissioned during the first quarter of 2007. 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

According to data from the United Nations World Investment Report
of 2006, in 2005 the stock of foreign direct investment (FDI) in
Nigeria was estimated at $34.8 billion, which accounted for about
35.1 percent of GDP. Total FDI Inflow was $3.4 billion in 2005
and accounted for 31.2 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