NIGERIA - 2009 AGOA ELIGIBILITY REVIEW

UNCLAS SECTION 01 OF 06 ABUJA 001977

SIPDIS

DEPARTMENT FOR AF/EPS (BREITER & MALLORY)
DEPARTMENT PASS TO USTR (HAMILTON)

E.O. 12598: N/A
TAGS: ETRD AGOA ECON NI
SUBJECT: NIGERIA - 2009 AGOA ELIGIBILITY REVIEW

REF: STATE 85086


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


2. (U) Country Background Summary: Estimated population of 147
million. 2006 GDP was $115.3 billion; 2006 GNI per capita was $620
(World Bank 2008 data). Nigeria continues to struggle to
consolidate its fragile democracy following a civilian-to-civilian
handover of power in its national and state elections in April 2007,
which were seriously marred by irregularities and fraud. The
government is making slow progress in developing an open economy,
minimizing government interference, and promoting free market
principles. On September 25, 2008 the Ministry of Finance announced
that the number of banned import categories would decrease from 44
to 26 items and that there would be tariff reductions on a wide
range of products.
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Comments on Eligibility Requirements - Market-based Economy
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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 years though inflationary pressures are beginning to arise
due to rising global food and energy prices and poor infrastructure.
However, the foreign exchange rate has been fairly stable. 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.


4. (U) The government maintains a cordial and productive
relationship with the IMF. Discussions are ongoing on a successor
program to the Policy Support Instrument (PSI) which ended in August

2007. In August 2007, the IMF conducted its fourth and final review
under the PSI. The IMF assessment team considered the overall
economic outlook as positive. The Nigerian Electricity Regulatory
Commission (NERC) has issued 25 licenses to private companies
involved in electricity generation and distribution. A Multi-Year
Tariff Order (MYTO) for the determination of charges and tariffs for
electricity generation, transmission and retail tariffs was recently
announced. The MYTO, which would be for the period July 1, 2008 to
June 30, 2013, will result in the upward adjustment of the
electricity tariff to market rates to ensure that investors in the
power sector recoup their investments and turn a reasonable profit.
Port concessions are moving forward and an international company was
awarded the concession to manage the country's largest port--Apapa
Port in Lagos.


5. (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 were
passed in 2007. There are plans to enact both laws in the 36 states
of the federation before the end of 2008.


6. (U) The 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 is undergoing review to
incorporate President Yar'Adua's Seven Point Agenda, which focuses
on energy, food security, land reforms, wealth creation, education,
security, and transportation. The NEEDS-2 program is due to be
presented to the public before the end of 2008. 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. In practice, however, the Excess Crude Account
(ECA) only holds about $8 billion at any given time. The government
budget process is taking its rightful position as an economic policy
and management tool and the President has promised an earlier
submission of the draft budget for the coming year with the
expectation that the National Assembly would pass the budget
earlier. The budget deficit has been kept in check. There are
concerns, however about the degree of execution of the Capital
Account. Failure to execute fully is a drag on infrastructure
investments. There are ongoing discussions about creating a
Sovereign Wealth Fund, though the modalities and the form it will
take have not been finalized as yet.


7. (U) Financial sector reforms have slowed during President
Yar'Adua's first year in office, but are still 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 stronger, better capitalized
banking groups (now 24 banks). In addition to the regulatory
increase in the banks' capital base, many banks have raised
additional capital from the capital market. Between January 2006

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and January 2008, approximately $15 billion was raised by the banks
via share offerings ranging from Initial Public Offers, Private
Placements, and Global Depository Receipts. Sixteen Nigerian banks
now rank in the top 1,000 in the world, while five Nigerian banks
now rank among the top ten in Africa, compared with 2005 when only
four Nigerian banks were ranked among the top 1,000 and in 2004 when
no Nigerian banks made it to the top 1,000. Pension and insurance
reform are also moving forward.


8. (U) 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 for U.S. investment in Africa, due to
investment in the petroleum sector. In 2007, U.S. exports to
Nigeria increased 24.4% from 2006.


9. (U) Major Issues/Problems Identified: Militant and criminal
activities in the oil-rich Niger-Delta have shut-in up to 30 percent
of oil production, thereby reducing revenues to the federation with
its attendant negative impact on budget implementation. A court
challenge was raised regarding whether the government has the
authority within the constitution to set aside oil revenues above
the budget benchmark price in the ECA. The constitution requires
that all oil revenue should be deposited into the Federation Account
and then shared among the federal, state and local governments.
Despite this, the ECA was established in 2003 by the federal
government without passage of an enabling law. The government plans
to introduce legislation that would legalize an oil reserve account,
however, a constitutional amendment may be required


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 a tiny group of military,
political, and commercial elites through corruption and
non-transparent government contracting practices. The banking
system is performing intermediation poorly, thereby impeding small
and medium investors. Regulatory and tax regimes are arbitrarily
enforced, and 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 transparent, and fuel
prices continue to be regulated and subsidized. Economic data and
statistics are of unreliable quality and availability. Inadequate
and unreliable infrastructure is a major barrier to private sector
activity. At this writing, inflation is in the low double digits,
up from single digit performance over the past couple of years.


11. (U) The establishment of the Nigerian Intellectual Property
Commission (NIPCOM) that was announced in 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) Despite the September 25, 2008 Ministry of Finance
announcement that the number of banned import categories would
decrease from 44 to 26 items, the existence of any bans is in
violation of WTO rules and in the last three years have affected
imports of many agricultural and manufactured products. These
arbitrary bans encourage smuggling. Import bans accompanied by sole
source importation rights to favored companies have impeded
competition and are major impediments to imports of a wide range of
U.S. products. The Ministry of Finance has also stated that there
may be near-term tariff reductions on a wide range of products.
Comprehensive trade reform by adoption of the ECOWAS Common External
Tariff (CET) was agreed to in the last quarter of 2005; however, the
government is presently reviewing its implementation of the CET. In
line with the review, on September 25, 2008 the Ministry of Finance
proposed a fifth band duty rate of 35 percent. This new proposed
duty rate is a decrease from the government's earlier proposal of 50
percent.


13. (U) Some U.S. firms with contracts with government entities at
the federal, state and local levels face problems receiving timely
payments. The Nigerian government's procurement process lacks
transparency. Nigeria's Cabotage Law is a barrier to trade and
investment and has compelled U.S. firms to exit Nigeria.


14. (U) In the oil and gas sector, Nigeria wants existing operators
to invest in power production or refining, in an attempt to bring
about investment in these sectors. Fuel subsidies distort the local
market, discouraging investment in downstream oil and gas
activities. Draft legislation mandating high levels of local
content in oil and gas related activities is in the National
Assembly and may impose additional costs on investments.


15. (U) Across several sectors, the government sometimes employs
predatory negotiating tactics, including threats to access to
inputs, customs and other legal approval processes, and transferring

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contracts to entities that cannot uphold contract terms. Foreign
exchange repatriation regulations are enforced arbitrarily and
hinder the transfer of funds. The Manufacturers-in-Bond Scheme has
been canceled, and the Export Expansion Grant is the only export
incentive available for exporters.
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Political Reforms/Rule of Law/Anti-Corruption
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16. (U) Major Strengths Identified: Elections were held in April
2007 for state governors and assemblies, national legislators and
the President, and despite being severely flawed, represented the
first transition from one civilian elected government to another
since Nigeria's independence in 1960. The Nigerian judiciary made
several landmark decisions in 2007 and the trend continued in 2008,
affirming its role as an independent arbiter of the national
constitution. The election tribunals overturned the results of
seven state governorship elections and some legislative elections.
The appellate court ruled in five appeals that the gubernatorial
elections were nullified, thereby necessitating a re-run in those
five states. Three gubernatorial election cases remain open pending
appeals at the appellate court level.


17. (U) Nigeria has established programs to combat corruption, many
of which receive support from the United States and other donors.
Since its establishment five years ago, the Economic and Financial
Crimes Commission (EFCC) has arrested several high-level officials
in connection with corruption cases and reported it has seized over
$5 billion in assets. The governor of Bayelsa State in southern
Nigeria, who was impeached in December 2005 for money laundering and
misappropriation of funds and had been on trial, was released
through a plea bargain that resulted in the forfeiture of several of
his properties and bank accounts both locally and internationally.
The EFCC claims it is continuing to investigate ongoing corruption
charges against some former state governors and their associates.
Approximately ten former state governors are currently facing
corruption charges, with the cases against them in varying stages of
completion. Also three former ministers and a serving senator are
currently facing trial.


18. (U) In 2005 the former Inspector-General of Police and the
Minister of Education were fired for corruption. The former
Inspector General was tried in court and subsequently jailed. The
former Senate President was removed from his leadership post for
corruption, though he retained his Senate seat. In 2007, the
Speaker of the House of Representatives was removed from her
position under allegations of corruption and misappropriation of
House funds, although she retained her House seat. In 2008, two
former Ministers of Aviation and the standing Minister of Health
were charged with corruption, as well as the Director of the Police
Equipment Fund.


19. (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 throughout the electoral process, including
ballot stuffing, intimidation and violence, deliberate miscounting,
results tampering, and exclusion of opposition candidates. More
than 1,200 petitions were filed with the electoral tribunals
contesting the announced results. The Independent National
Electoral Commission (INEC),the body charged with the conduct of
elections, is not independent, and it was alleged to have conspired
with the ruling Peoples Democratic Party (PDP) to manipulate the
outcome of the elections. Politicians continue to solicit support
from, use and manipulate militias and vigilante groups for their own
interests.


20. (U) Police and security forces continue to use excessive and
sometimes lethal force to beat protesters, suspects, detainees and
prisoners, and to conduct arbitrary arrest and detention. Army
troops killed nearly 200 unarmed civilians in October 2001 in Benue
state, but to date there has been no accountability for the
incident. Perpetrators of violence often enjoyed impunity for their
deeds. Despite some measured improvement, the judicial system
remains inefficient, corrupt, and in need of serious reforms.
Judges are subject to both extortion and intimidation, if not
outright violence. Some judges are corrupt. Prolonged pretrial
detention is an ongoing problem. The government does not provide
citizens the right to a speedy and fair trial. Prison and detention
conditions remain harsh and life-threatening. Some prisons hold 200
to 300 percent more persons than their designated capacity


21. (U) Corruption remains an overwhelming problem at all levels of
government and throughout the security forces. Despite the arrest of
several high-ranking Nigerian officials by the EFCC, allegations
continue that agency investigations target individuals out-of-favor
with the government, while those in-favor continue their activities
with impunity. The EFCC's inability to bring a number of corruption
investigations to closure; the replacement of its internationally

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respected Chairman; and the transfer of many senior personnel have
raised questions about the GON's commitment to fighting corruption.


22. (U) Communal violence continues, especially in the oil-rich
Niger Delta. Illegal oil bunkering, which the government failed to
curb, has fueled corruption, arms trafficking and political
instability. At this writing there were anecdotal reports that
efforts of the federal government's military Joint Task Force (JTF)
have reduced illegal bunkering in certain areas.
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Poverty Reduction
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23. (U) Major Strengths Identified: The National Planning
Commission is reviewing NEEDS-2, Nigeria's homegrown Poverty
Reduction Strategy. The National Poverty Eradication Program
(NAPEP) is being implemented at the local government level, and
focusing on micro-enterprise development and other programs. A
Microfinance Policy was launched by the Central Bank of Nigeria
(CBN) in 2005, with a requirement that all community banks convert
to microfinance banks by December 31, 2007. Since 2007 at least 600
microfinance banks have met the stipulated requirements and been
licensed by the CBN.


24. (U) Agriculture and energy prices are increasing, putting
pressure on poor families with few resources to weather food
insecurity. The government has developed a program to start
addressing agriculture and rural led economic growth


25. (U) Major Issues/Problems Identified: While overall economic
growth is good, there remain serious structural problems with
unequal growth for the general public and high income disparities
between rich and poor. 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 reduction program
slowly.


26. (U) The country has been slow to meet its commitment to develop
a compact to implement the Comprehensive African Agriculture
Development Program (CAADP). Federal and State level commitment to
health and education reforms remains weak, progress against the key
Millenium Development Goals is poor.
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Workers' Rights/Child Labor/Human Rights
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27. (U) Major Strengths Identified: The Nigerian constitution
protects the right of association and the right to organize and
bargain collectively, but statutory restrictions remain. Most
workers, except for members of the armed forces, police, employees
designated essential by the government, and employees in export
processing zones, may join trade unions and strike, but the law
limits justifications for strikes.


28. (U) In 2002, Nigeria signed the International Labor Organization
(ILO) Conventions 182 on the Worst Forms of Child Labor, 138 on
Minimum Age for Employment, and 111 on Equality of Occupation.
Worker rights and child labor laws have been enacted. 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.


29. (U) During the year the Ministry of Employment, Labor, and
Productivity trained approximately 120 labor inspection officers on
child labor laws. Eighty officers were trained to perform
inspections in high-risk sectors such as agriculture, mining, and
the informal sector. The Ministry also sponsored awareness-raising
and law-familiarization training programs for local law enforcement,
customs, and other government officials. New legislation was passed
in 2003 outlawing human trafficking, and the National Agency for the
Prohibition of Trafficking in Persons (NAPTIP) was established.


30. (U) The country made some progress in the area of human rights,
including making several arrests for trafficking in persons;
however, 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.


31. (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 President Yar'Adua's
administration. A national labor strike in June 2007 was peaceful,
with security forces and labor members showing considerable
restraint. As a result of that strike, the Yar'Adua administration
reversed several policies of the Obasanjo government that were

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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.


32. (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 issues
of national economic policy; however, these sections of the law have
not been enforced in practice.


33. (U) 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. Several statutory restrictions on the right of
association and on trade unions restricted the right to form or
belong to any trade union or association. 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.


34. (U) 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. The government places limits on freedom of assembly
and association, citing security concerns.


35. (U) 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. 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. Child labor continues
to be a problem. To date the Child Rights Act has only been
ratified by sixteen states. It has passed the State House of
Assembly in three more states and is currently awaiting the
Governor's signature.


36. (U) 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.


37. (U) The law prohibits homosexuality; homosexual practices are
punishable by prison 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.
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International Terrorism/U.S. National Security
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38. (U) Major Strengths Identified: 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.


39. (U) Major Issues/Problems Identified: Militant activities in
the Niger-Delta have led to a reduction in oil production, reducing
revenues to the federal government and hampering effective
implementation of the national budget. Events in Nigeria can
negatively affect world oil supplies and prices.


40. (U) There are concerns about the president's health, which
invariably affects how government is run in Nigeria. Most Nigerians
opine that the current administration is too slow in implementing

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its programs.

PIASCIK