NIGERIA 2008 NATIONAL TRADE ESTIMATE

UNCLAS SECTION 01 OF 04 ABUJA 002369 SIPDIS SIPDIS DEPARTMENT FOR AF/W (SILSKI) AND EB/TPP/BTA DEPARTMENT PLEASE PASS TO USTR (GBLUE, LAGAMA) E.O. 12598: N/A TAGS: ETRD ECON EFIN NI SUBJECT: NIGERIA 2008 NATIONAL TRADE ESTIMATE ¶1. The following information is Nigeria's 2008 National Trade Estimate. Trade Summary -------------- ¶2. The U.S. goods trade deficit with Nigeria was $25.7 billion in 2006, an increase of $3.1 billion from $22.6 billion in 2005. U.S. goods exports in 2006 were $2.2 billion, up 37.6 percent from the previous year. Corresponding U.S. imports from Nigeria were $27.9 billion, up 15.2 percent. Nigeria is currently the 50th largest export market for U.S. goods. The stock of U.S. foreign direct investment (FDI) in Nigeria in 2005 was $874 million (latest data available),down from $2.0 billion in 2004. U.S. FDI in Nigeria is concentrated largely in the mining, and wholesale trade sectors. Import Policies -------------- ¶3. Nigeria uses a combination of tariff and non-tariff barriers, which continues to be a major source of concern to its trading partners. It also practices a destination inspection policy for imports. Tariffs -------------- ¶4. Tariffs provide the Nigerian government (GON) with its second-largest source of revenue after oil exports. In October 2005, the GON implemented the Economic Community of West African States (ECOWAS) Common External Tariff (CET) reducing the number of tariff bands in Nigeria from twenty to five. The five tariff bands are: zero duty on capital goods, machinery and essential drugs not produced locally; 5 percent duty on imported raw materials; 10 percent duty on intermediate goods; 20 percent duty on finished goods; and 50 percent duty on goods in the industries that the government seeks to protect. The 50 percent tariff covers many items currently subject to import bans. Items deemed to be necessities such as anti-retroviral drugs for the treatment of patients with HIV/AIDS are imported duty-free. ¶5. Partial adoption of the CET is part of the ongoing economic reforms aimed at improving Nigeria's trade and investment environment and harmonization in the sub-region. However, excessively high tariffs, non-transparent tariffs, frequent policy changes and unclear interpretations by the Nigerian Customs Service (NCS) make importing difficult and expensive, and occasionally create severe bottlenecks for commercial activities. Some importers complain that the tariffs are excessively high, and that the GON uses arbitrary reference prices at times. This problem is aggravated by Nigeria's dependence on imported raw materials and finished goods, which affects both foreign and domestic manufacturers. Many importers resort to under-valuing and smuggling to avoid paying full tariffs. Some of the products that attract very high tariffs include sparkling wine (100 percent); rice (110 percent); and tomato puree (50 percent). Non-Tariff Trade Barriers -------------- ¶6. Despite partial adoption of the CET, the GON continues to ban certain imports citing the need to protect local industries. Items on the import prohibition list include maize (corn); bird's eggs; cocoa butter, powder, and cakes; millet; pork; beef; live birds; frozen poultry; fresh and dried fruit; wheat flour; sorghum; vegetable oil and fats; cassava; bottled water; biscuits; spaghetti; noodles; fruit juice in retail packs; beer; non-alcoholic wine; alcoholic beverages; and bagged cement. Items removed from the list of prohibited imports in 2005 and 2006 were certain textile products (textile fabrics, yarn, nylon tire cord, conveyor belts, trimmings and linings, gloves for industrial use, elastic bands, mosquito nets, motifs),chocolates, white cement, linseed oils, castor oils, hydrogenated vegetable fats used as industrial raw materials, all raw materials for the manufacture of soap and detergents, safety shoes used in the oil industry, sports shoes, stadium chairs and fittings, accessories used in furniture making, and prefabricated buildings. These items remained on the list of imports allowed in ¶2007. Customs Barriers -------------- ¶7. Nigerian port practices continue to present major obstacles to trade. Importers face long clearance procedures, high berthing and unloading costs, erratic application of customs regulations, and corruption. Customs exemptions granted to U.S. firms as a concession for setting up operations in Nigeria have not always been ABUJA 00002369 002 OF 004 honored. In December 2005, the government released import guidelines for the implementation of a physical destination inspection regime that commenced in January 2006. Under the destination inspection scheme, all imports are inspected on arrival into Nigeria. These guidelines are implemented by the Destination Inspection Service Providers, which is a team comprised of NCS and three firms that provide scanning services. Standards, Testing, Labeling, and Certification -------------- -- ¶8. Rules concerning sanitary and phytosanitary standards, testing, and labeling are well defined, but bureaucratic hurdles slow the import approval process. Regardless of origin, all food, drug, cosmetic, and pesticide imports must be accompanied by certificates of analysis from manufacturers and appropriate national authorities and specified animal products, plants, seeds, and soils must be accompanied by proper inspection certificates. U.S. exporters may obtain these certificates from the U.S. Department of Agriculture and other relevant federal or state agencies. By law, items entering Nigeria must be labeled exclusively in the metric system. The NCS is charged with preventing the entry of products with dual or multiple markings, but such items are often found in Nigerian markets. ¶9. High tariffs and uneven application of import and labeling regulations make importing high-value perishable products into Nigeria difficult. Disputes between Nigerian agencies over the interpretation of regulations often cause delays and frequent changes in customs guidelines slow the movement of goods through Nigerian ports. These factors can contribute to product deterioration and may translate into significant losses for perishable goods importers. ¶10. The National Agency for Food and Drug Administration and Control (NAFDAC) is charged with protecting Nigerian consumers from fraudulent or unhealthy products. The agency continues to target the illicit importation of counterfeit and expired pharmaceuticals for special attention, particularly imports from East and South Asia. NAFDAC's severely limited capacity for carrying out inspections and testing contributes to what some have characterized as an occasionally heavy-handed or arbitrary approach to regulatory enforcement and the agency has occasionally challenged legitimate food imports. Government Procurement -------------- ¶11. The GON has made modest progress on its pledge to operate an open and competitive bidding process for government procurement. The Public Procurement Act was signed into law in June 2007 by President Yar'adua's administration. The Act established the Bureau of Public Procurement (BPP) replacing the Budget Monitoring and Price Intelligence Unit a.k.a "due-process" office. Public procurement reforms are aimed at ensuring that the procurement process for public projects adheres to international standards for competitive bidding. The BPP acts as a clearing house for government contracts and monitors the implementation of projects to ensure compliance with contract terms and budgetary restrictions. Procurement above 50 million naira ($419,000) is subject to the "due process" review. The 36 state governments have also agreed to pass the Public Procurement Act in their respective states. ¶12. Foreign companies incorporated in Nigeria receive national treatment, and government tenders are published in local newspapers and a tenders journal is sold at local newspaper outlets. U.S. companies have won government contracts in several sectors. Unfortunately, many companies that have won contracts have subsequently had difficulty receiving funding, usually as a result of delays in the national budget process. Some companies that won contracts for which funds were allocated have had trouble getting paid. Nigeria is not a signatory to the WTO Agreement on Government Procurement. Export Subsidies -------------- ¶13. The GON through its agencies administer various export incentives such as tax concessions, export development funds, capital asset depreciation allowances, foreign currency retention programs, Free Trade Zones, and Export Processing Zones. In September 2007, the GON announced a freeze on new tax and duty waivers, exemptions, and other incentives and ordered an investigation on their implementation. Businesses that were granted incentives before the freeze will continue to enjoy the incentives granted until when the investigation is concluded and the GON acts on the recommendations. The investigation is expected to be ABUJA 00002369 003 OF 004 completed before the end of 2007. ¶14. The Nigerian Export Processing Zone Authority (NEPZA) is responsible for attracting investment in export-oriented industries. Of the five zones established under NEPZA, only the Calabar and Bonny Island (Onne) export processing zones are operational, with some difficulties reported. The Calabar export processing zone also functions as a free trade zone. NEPZA rules dictate that at least 75 percent of production in the zones be exported, but lower export levels are permitted. A third free zone, Tinapa Free Zone and Tourist Resort, recently commenced operation in 2007. Tinapa is owned by the Cross-River State Government. Intellectual Property Rights (IPR) Protection -------------- ¶15. Nigeria is a member of the World Intellectual Property Organization (WIPO),a party to the Universal Copyright Convention (UCC),the Berne Convention, and the Paris Convention for the Protection of Industrial Property, and has signed the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. Legislation pending in the National Assembly is intended to establish a legal framework for an IPR system that complies with WTO obligations. ¶16. The government's lack of institutional capacity to address IPR issues is a major constraint to enforcement. Relevant Nigerian institutions suffer from low morale, poor training, and limited resources. Fraudulent alteration of IPR documentation is common. Despite Nigeria's active participation in the conventions cited above, its reasonably comprehensive IPR laws and growing interest among Nigerians in seeing their intellectual property protected, piracy is rampant. Counterfeit automotive parts, pharmaceuticals, business and entertainment software, music and video recordings, and other consumer goods are sold openly and intellectual property infringers from other countries appear increasingly to be using Nigeria as a base for the production of pirated goods. In 2004, U.S. industry reported a growth of optical disc manufacturing plants, some of which may be contributing to the production of pirated optical disc products. Additionally, book piracy remains a problem. ¶17. Patent and trademark enforcement remains weak, and judicial procedures are slow and subject to corruption. Nonetheless, government efforts to curtail IPR abuse have yielded limited results. Nigeria's broadcast regulations do not permit rebroadcast or excerpting of foreign programs unless the station has an affiliate relationship with a foreign broadcaster. This regulation is generally respected but some cable providers illegally transmit foreign programs. The National Broadcasting Commission monitors the industry and is responsible for punishing infractions. ¶18. Almost no foreign feature films have been legally distributed in the country in the last two decades. Widespread pirating of foreign and domestic videotapes discourages the entry of licensed distributors. In 2004, the Nigerian Copyright Commission launched an anti-piracy initiative named "Strategy Against Piracy" (STRAP). The Nigerian police force, working closely with the Nigerian Copyright Commission, has raided enterprises producing and selling pirated software and videos and a number of high-profile charges have been filed against IPR violators. Unfortunately, most raids appear to target small rather than large and well-connected pirates, and very few cases involving copyright, patent, or trademark infringement have been successfully prosecuted. Services Barriers -------------- ¶19. Foreign participation in the services sector is generally not restricted. Regulations provide for 100 percent foreign ownership in many service sectors, including banking, insurance, telecommunications, and securities. The Central Bank of Nigeria's directives stipulates minimum levels of paid-up capital. At least three foreign banks operate in Nigeria and several Nigerian banks have foreign shareholders. ¶20. Professional societies in engineering, accounting, medicine, and law define minimum professional requirements. Nigeria imposes quotas on foreign employment based on the issued capital of firms. Quotas on foreign workers are especially strict in the oil and gas sector and may apply to both production and service companies. Oil and gas companies must hire Nigerian workers unless they can demonstrate that particular positions require expertise not found in the local workforce. Positions in finance and human resources are almost exclusively reserved for Nigerians. ¶21. Certain geoscience and management positions may be filled by foreign workers with the approval of the National Petroleum ABUJA 00002369 004 OF 004 Investment and Management Services (NAPIMS) agency. Each oil company must negotiate its foreign worker allotment with NAPIMS. Significant delays in the approval of this allotment and in subsequent approval of visas for foreign personnel present serious management challenges to the energy industry's efforts to acquire the necessary personnel and maintain their legal immigration status in Nigeria. NAPIM's approval is required for all procurement in the energy sector above $500,000. Approval processes are slow and can significantly escalate the time and cost required for a given project, as well as provide opportunities for corruption and favoritism. Investment Barriers -------------- ¶22. Under the Nigerian Investment Promotion Commission (NIPC) Decree of 1995, Nigeria allows 100 percent foreign ownership of firms outside the petroleum sector. Investment in the petroleum sector is limited to existing joint ventures or production-sharing agreements. Foreign investors may buy shares of any Nigerian firm except firms on a "negative list" (such as manufacturers of firearms, ammunition, and military and paramilitary apparel). Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Decree of 1990. The decree prohibits nationalization or expropriation of a foreign enterprise, except when necessary to protect the national interest. ¶23. Despite efforts to improve the country's investment climate, disincentives to investing in Nigeria continue to plague foreign entrepreneurs. Potential investors must contend with poor infrastructure, complex tax administration procedures, confusing land ownership laws, arbitrary application of regulations, corruption, and extensive crime. The sanctity of contracts is often violated, and Nigeria's court system for settling commercial disputes is weak and sometimes biased. ¶24. Foreign oil companies are under significant pressure to increase procurement from domestic firms. The GON, through the Nigerian Content Division (NCD) of the Nigerian National Petroleum Corporation (NNPC),set a target of 45 percent local content for oil-related projects by 2006 and 70 percent by 2010. In many cases, sufficiently trained personnel and physical infrastructure do not currently exist to meet the government's local content targets. The NCD of the NNPC is working toward identifying and certifying domestic firms with specific skill sets through the Joint Qualification System (JQS). Although some domestic firms possess adequate technical expertise, managerial and financial capabilities are often lacking. Legislation to codify various levels of Nigerian content in specific petroleum activities failed to pass the National Assembly last term. The bill's sponsors plan to reintroduce it this year. Other Barriers -------------- ¶25. The GON has increased its efforts to eliminate financial crimes such as money laundering and advance-fee fraud (or "419" fraud named after the relevant section of the Nigerian Criminal Code). With the encouragement and cooperation of U.S. law enforcement agencies, the GON is now prosecuting more "419" perpetrators. In May 2007, Nigeria was admitted into the Egmont Group of Financial Intelligence Units (FIUs). In June 2006, the Financial Action Task Force removed Nigeria's name from the list of non-cooperating countries and territories in the fight against money laundering and other financial crimes. ¶26. International monitoring groups routinely rank Nigeria among the most corrupt countries in the world. While sales of U.S. goods and services to public- and private-sector enterprises are not restricted, some U.S. suppliers believe they lose sales when they refuse to engage in illicit or corrupt behavior. Other U.S. exporters say Nigerian businessmen and officials understand that U.S. firms must adhere to the U.S. Foreign Corrupt Practices Act, and they believe that the law's restrictions help minimize their exposure to corruption. PIASCIK