NIGERIA - 2008 AGOA ELIGIBILITY REVIEW

UNCLAS SECTION 01 OF 05 ABUJA 002108 SIPDIS SIPDIS DEPARTMENT FOR AF/EPS (POTASH) DEPARTMENT PASS TO USTR (HAMILTON) E.O. 12598: N/A TAGS: ETRD AGOA ECON NI SUBJECT: NIGERIA - 2008 AGOA ELIGIBILITY REVIEW REF: STATE 132189 ¶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 continues to struggle to consolidate democracy during handover from civilian to civilian rule in its national and state elections in April 2007 that were marred by irregularities and fraud. The government is making slow progress in developing an open economy, minimizing government interference, and promoting free market principles. Comments on Eligibility Requirements - Market-based Economy -------------- ¶3. (U) Major Strengths Identified: The government has committed to transitioning from a state directed economy to one driven by market forces. The economy has witnessed overall macroeconomic stability in recent times characterized by stable foreign exchange rates, single-digit inflation, and falling interest rates. The "Wholesale Dutch Auction" system of foreign exchange trading was introduced in early 2006, and has led to a sharp reduction in the spread between the official and parallel market exchange rates. The government has also restructured its domestic debt portfolio from 91-day Treasury Bills to Bonds with one to ten years duration. Nigeria received debt relief from the Paris Club during the fourth quarter of 2005 resulting in a debt write-off of $18 billion. The government paid up its London Club debts during the first quarter of 2007. ¶4. (U) The government has a Policy Support Instrument (PSI) with the IMF, which is a new approach to IMF monitoring. In August 2007, the IMF conducted its fourth and final review under the PSI and the outcome of the evaluation was positive. The IMF assessment team considered the overall economic outlook as positive. The government is in discussions with the IMF regarding another PSI covering 2008-2010. ¶5. (U) Power sector reforms are ongoing and the unbundling of the National Electric Power Authority (NEPA) has been concluded. A holding company made up of 18 companies, Power Holding Company (PHCN),has taken over the assets and liabilities of NEPA, while an electricity regulatory commission (NERC) has been established. 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. ¶6. (U) The Fiscal Responsibility Act to ensure transparency in the use of government revenue and a Public Procurement Act to ensure transparency and value for money in government procurement have been passed. There are plans to enact both laws in the 36 states of the federation before the end of 2007. The Nigerian Communications Commission (NCC) introduced a 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 and sold to Transcorp, a local conglomerate. 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 completed. ¶7. (U) 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. The NEEDS program is due for review at the end of 2007. Savings from excess monies from crude oil sales above the budget 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 which resulted in the creation of the excess crude account. Prudent public expenditure management resulted in an accumulated savings of $24.36 billion in 2006. The savings comprised the $9.08 billion unspent from the 2005 excess crude earnings and $15.28 billion accumulated in 2006. ¶8. (U) Financial sector reforms are ongoing. The Central Bank of Nigeria's directive that banks recapitalize from the 2 billion naira ($16 million) to 25 billion naira ($197 million) 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 are moving forward. A Trade and Investment Framework Agreement (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 4% in 2005 over 2004. In 2006, U.S. ABUJA 00002108 002 OF 005 exports to Nigeria increased 37.6% from 2005. ¶9. (U) Major Issues/Problems Identified: The government has been challenged regarding the constitutionality of setting aside oil revenues above the budget benchmark price in the Excess Crude Account (ECA). The constitution requires that all oil revenue be deposited into the Federation Account and then shared among the federal, states and local governments. The ECA was established without an enabling law, yet was implemented. The federal government plans to introduce legislation that would make an oil reserve account legal. To achieve this, a constitutional amendment may be required because the constitution stipulates that all the revenues accruing to the federation account must be shared by the federal, states, and local governments. The challenge of fiscal dominance and continuing structural reforms exists. ¶10. (U) A 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 or nontransparent and fuel prices continue to be regulated and subsidized. The Nigerian National Petroleum Corporation (NNPC) directly accesses the national treasury; and the potential for corruption and abuse are enormous. Economic data and statistics are of unreliable quality and availability. Inadequate and unreliable infrastructure is a major barrier to private sector activity. Nigeria faces growing pressure for looser fiscal and monetary policy. ¶11. (U) The establishment of the Nigerian Intellectual Property Commission (NIPCOM) that was announced early 2007 is yet to be backed by enabling legislation. The 1978 Land Use Act mandates state ownership of land; private use of land 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. ¶12. (U) Multiple bans in violation of WTO rules in the last three years have affected imports of many agricultural products and others. These 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. Little if any progress has been made as the result of TIFA negotiations. Negotiators reported that the former President ultimately made decisions on trade and investment issues. ¶13. (U) 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 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 on 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. Political Reforms/Rule of Law/Anti-Corruption -------------- ¶14. (U) Major Strengths Identified: Elections were held in April 2007 for state governors and assemblies, national legislators and the President, and despite being significantly flawed, represented the first transition from one civilian elected government to another since Nigeria's independence in 1960. The Nigerian judiciary has made several landmark decisions in 2007, affirming its role as an independent arbiter of the national constitution. The results of the elections tribunals will, however, be closely watched as a measure of judicial fairness and independence. ¶15. (U) Nigeria signed a transparency and anti-corruption agreement with the United States and other G-8 members at the Sea Island ABUJA 00002108 003 OF 005 Summit in 2004. Nigeria has established programs to combat corruption, many of which receive support from the United States and other donors. Since its establishmen{bwzQSFogtT jQrndering and misappropriation of funds and had been on trial, was recently released through a plea bargain that resulted in the forfeiture of several of his properties and bank accounts both locally and internationally. Five former state governors are currently facing trial. The EFCC is investigating ongoing corruption charges against some former state governors and their associates. The top levels at the Customs Administration were replaced following corruption charges. In 2005, 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. ¶16. (U) Major Issues/Problems Identified: The elections of 2007 were marred by serious irregularities and fraud, with violence in some areas. International and domestic observers pointed to widespread corruption of the electoral process, including ballot stuffing, intimidation and violence, deliberate miscounting, results tampering, and exclusion of opposition candidates. More than 600 petitions were filed with the electoral tribunals, contesting QIUC!~+{Qentified: The government poverty strategy does not clearly link goals and methods; serious concerns remain about fiscal transparency; and human capacity for project implementation is weak. The government is implementing the poverty program slowly. Workers' Rights/Child Labor/Human Rights -------------- ¶20. (U) Major Strengths Identified: The Nigerian constitution protects the right of association and the right to organize and bargain collectively, but statutory restrictions remain. Improvements are in place. Most workers, except for members of the armed forces, police, employees designated essential by government, and employees in export processing zones, may join trade unions and strike, but reasons for striking are limited. In June 2005, a court struck down legislation that required a police permit for all public rallies and processions. ¶21. (U) In 2002, President Obasanjo signed the International Labor Organization (ILO) Conventions 182 on the Worst Forms of Child Labor, 138 on Minimum Age for Employment, and111 on Equality of ABUJA 00002108 004 OF 005 Occupation. The GON ratified ILO Conventions 87 on Freedom of Association and 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. 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. New legislation was passed in 2003 outlawing human trafficking, and the National Agency for the Prohibition of Trafficking in Persons (NAPTIP) was established. The country made some progress in the area 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. ¶22. (U) The relationship between the government and the two union federations (the Nigerian Labor Congress and Trade Union Congress) has improved with the swearing in of the Yar'Adua administration. A national labor strike in June 2007 was peaceful, with security forces and labor members showing considerable restraint. The Yar'Adua administration reversed several policies of the Obasanjo government opposed by labor, including: a partial reduction of the fuel price increase and a guarantee not to raise the price further for one year, a reversal of the VAT increase, a review of the Port Harcourt and Kaduna refinery sales, and an agreement to pay an owed civil servant salary increase. ¶23. (U) Major Issues/Problems Identified: 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 a 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; however, these sections of the law have not been enforced in practice. The Act ended the Nigerian Labor Congress' status as the sole, central labor organization, and shortly there after, the Trade Union Congress 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, and by the increased use of casual labor, especially in the oil industry. ¶24. (U) The law provides all citizens with the right to form or belong to any trade union or other association for the protection of their interests, and while workers exercised this right in practice, several statutory restrictions on the right of association and on trade unions restricted this right. The informal sector, and small and medium enterprises, remained largely unorganized. The law prohibits national strikes and strikes on many issues, although this was not enforced. There are no laws to prohibit retribution against strikers, but strikers who believed they were victims of unfair retribution could submit their cases to Industrial Arbitration Panel (IAP). Decisions of these bodies infrequently carried the force of law. The labor laws apply to legal foreign workers, but not all companies respected these laws in practice. Payments of salaries to federal, state and local government workers are 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. ¶25. (U) The government places limits on freedom of assembly and association, citing security concerns. Trafficking in persons for purposes of sexual exploitation and forced labor is a problem, allegedly with the collusion of government officials. Some persons, including children, are subjected to forced labor and sexual exploitation. The rate of child labor is rising. Young boys were trafficked primarily to work as forced bondage laborers, street peddlers, and beggars; while girls were trafficked for domestic service and commercial sexual exploitation. Domestic violence and discrimination against women remain widespread, underreported, and considered socially acceptable. Police rarely intervene in cases of domestic abuse. Rape and sexual harassment are common, to the point that rape is considered epidemic at universities. Women and girls in all parts of the country are subjected to female genital mutilation (FGM),which the government publicly opposes. Laws protecting the rights of the child are inadequate and seldom enforced. Child abuse, abandonment, and exploitation for labor or sex remain serious problems. Outbreaks of violence and community unrest in the oil-producing Niger Delta caused disruption in Nigeria's oil production and proceeds. The law prohibits homosexuality; homosexual practices are punishable by prison ABUJA 00002108 005 OF 005 sentences of up to 14 years. In the 12 northern states that have adopted Shari'a law, adults convicted of having engaged in homosexual intercourse are subject to execution by stoning; however, this sentence has not yet been handed down in practice. Persons living with HIV/AIDS experienced widespread discrimination in seeking employment and health care services. International Terrorism/U.S. National Security -------------- - ¶26. (U) Major Strengths Identified: President Obasanjo took personal action in building West African support for anti-terrorism coalition activities. In June 2007, the Nigerian Financial Intelligence Unit (NFIU) was admitted as a member of the Egmont Group of FIUs. 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, Securities and Exchange Commission, Central Bank and other regulators in the financial services industry are collaborating to identify and freeze terrorist assets in Nigeria. ¶27. (U) Major Issues/Problems Identified: Although the Yar'Adua government has agreed to fulfill all existing commitments to provide peacekeepers, the new administration has been slow in implementing commitments in Darfur and Somalia. PIASCIK