US embassy cable - 02ABUJA1214

NIGERIA: SUBMISSION FOR 2002 PRESIDENT'S REPORT ON AGOA

Identifier: 02ABUJA1214
Wikileaks: View 02ABUJA1214 at Wikileaks.org
Origin: Embassy Abuja
Created: 2002-04-17 17:38:00
Classification: UNCLASSIFIED
Tags: ETRD ECON ELAB EINV PHUM PREL NI AGOA
Redacted: This cable was not redacted by Wikileaks.
This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 ABUJA 001214 
 
SIPDIS 
 
 
STATE PASS USTR FOR PCOLEMAN, WJACKSON 
STATE ALSO PASS OPIC, EXIM 
 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, ELAB, EINV, PHUM, PREL, NI, AGOA 
SUBJECT: NIGERIA: SUBMISSION FOR 2002 PRESIDENT'S REPORT ON 
AGOA 
 
 
REF: A. A) STATE 64055 
     B. B) 01 ABUJA 2856 
 
 
1.  Overview: Nigeria is yet to generate any significant new 
export activity under AGOA.  Main reasons for this lack of 
progress appear to be Nigeria's unfavorable exchange rate and 
investment climate.  Moreover, the Government of Nigeria and 
USG have been unable to finalize the visa regime that would 
allow exports under the textile and apparel provisions of 
AGOA.  This is a joint Lagos/Abuja message.  End Overview. 
 
 
2.    Market Economy/Economic Reform/Elimination of Barriers 
to U.S. Trade: The Government of Nigeria, under 
democratically elected President Olusegun Obasanjo, has 
repeatedly stated its commitment to the free market and 
economic reform.  With assistance from donors and the 
International Monetary Fund (IMF), the GON initiated a 
program of deregulation and privatization. 
 
 
3.  Notwithstanding the efforts toward privatization and 
deregulation, the Government's overall economic policies have 
often been inconsistent with the putative goals of reform and 
opening its markets.  In late 2001, the formal program with 
the IMF was terminated because Nigeria did not meet key 
macro-economic targets established under that program.  In 
early 2002, the Government suspended implementation of an 
informal IMF program that sought more liberal exchange rate 
policies and fiscal restraint.  The Nigerian Government 
continues to support a fixed and arguably overvalued exchange 
rate and high protective tariffs that restrict export 
competition.  Policies that keep the Naira overvalued also 
effectively subsidize imports, penalize non-oil exports, and 
contribute to widespread currency arbitrage.  Deficit fiscal 
spending forces the Central Bank of Nigeria to employ harsh 
monetary policy in an effort to mop up excess liquidity. 
This activity contributes to extremely high real interest 
rates and the unavailability of affordable credit for long 
term investment.  Nigeria's erratic tariff regime seeks to 
protect domestic industry but discourages investment in 
productive activity, depresses market competition, and leads 
to the institutionalization of "tariff avoidance" behavior by 
importers. 
 
 
4.    The country's telecom sector experienced dramatic 
development resulting from the introduction of GSM service. 
Other aspects of Nigeria's infrastructure witnessed only 
modest improvement in 2001.  Notwithstanding the recent 
collapse of the effort to privatize NITEL, the Government 
continues to move forward with privatization.   But Nigeria's 
investment promotion efforts are unable to overcome valid 
perceptions of corruption, security problems, fraud, and 
bureaucratic red tape.  The development of capital markets, 
including a vibrant stock exchange, and a renewed focus on 
capitalizing and assisting small and medium-size enterprises, 
may offer hope for catalyzing domestic investment.  Nigeria's 
financial institutions, however, remain almost exclusively 
focused on foreign exchange transactions.  The domestic banks 
seem unable, at least in the short run, to provide sufficient 
capital to rejuvenate the country's declining industrial and 
agricultural sectors. 
 
 
5.    Nigeria is party to numerous conventions and agreements 
regarding patent, trademark, and copyright protection; the 
country's laws generally favor protection of intellectual 
property owners and provides criminal penalties for violation 
of their rights.  Regarding licensed information technology 
such as software, limited progress is being made, primarily 
through the efforts of the private sector.   However, 
enforcement of existing IPR laws is weak because of limited 
resources.   Piracy (counterfeiting of protected intellectual 
rights) remains commonplace, and the courts do not have the 
expertise to enforce the anti-piracy laws. 
 
 
6.    Nigeria does not discriminate against U.S. goods or 
services and allows for the free movement of foreign exchange 
into and out of the country. However, U.S. firms have 
sometimes encountered difficulties obtaining government 
procurement contracts or taking advantage of trade 
opportunities.  Some U.S. bidders allege foreign competitors 
are engaged in non-transparent lobbying practices that 
undercut U.S. corporations, even when the U.S. firm enjoys a 
financial or technical advantage.  U.S. firms also complain 
of foreign competitors utilizing fraudulent import 
documentation schemes to avoid payment of tariffs. 
Sensitive to these allegations, the Nigerian Government has 
issued concise procurement guidelines and has begun a due 
diligence process for capital expenditures over 5 million 
Naira (about USD 45,000) and 100 percent customs inspection 
of goods entering the country. 
7.  Rule of Law/Political Pluralism/Anti-Corruption: The May 
1999 inauguration of a democratically-elected president ended 
nearly sixteen consecutive years of military rule.  During 
these years of military rule, the institutions of government 
were mismanaged and allowed to atrophy.  Since the return of 
democracy, these institutions have begun to rebound. 
National and state assemblies are functioning.  There are 
three recognized political parties and several others that 
are seeking to register with the Electoral Commission. 
Opposition politicians and the media openly criticize the 
Government and are free to express differing points of view. 
In 2003, democratization in Nigeria will pass another 
milestone with the holding of national and state elections. 
Free and fair elections will help consolidate democracy, 
opening the door to more political and economic reform. 
8.  Respect for the rule of law has improved since the 1999 
return of democratic government.  For example, the Supreme 
Court recently made landmark decisions that affirm its role 
as the final arbiter of the national constitution and help 
define the contours of Nigerian federalism.  However, the 
judicial system overall faces a lack of resources and 
inadequate administration that delay resolution of cases. 
There is a widespread perception that many lower level judges 
and magistrates are susceptible to inducements.  This 
perception affects investor confidence in the court system's 
ability to safeguard intellectual and other property rights 
and the courts' ability to provide equal protection under the 
law.  Efforts to reform the judiciary are underway, but 
comprehensive reform will be a long process. 
 
 
9.    Corruption is a problem not only in the courts, but 
throughout government and society.  President Obasanjo has 
publicly committed to fight corruption, calling this one of 
his top priorities.  Pursuant to this commitment, the 
Independent Corrupt Practices and Other Related Offences 
Commission (ICPC) was founded to investigate official 
corruption.  The ICPC receives some training assistance from 
the U.S. Department of Justice.  Despite ICPC and other 
initiatives to eliminate corruption in the federal 
government's contracting processes, corruption remains a 
persistent problem. 
 
 
10.  Poverty Reduction: Poverty reduction is the stated 
lodestar of the Government,s economic agenda, but progress 
has been minimal.  While greater attention has been placed on 
provision of basic services such as education and health, 
there has been little effective reform in these areas. 
Efforts in poverty reduction, including education and health 
care, have lacked cohesion and direction with many programs 
competing for limited international donor and GON resources. 
 Government is engaged with the World Bank and International 
Monetary Fund, supported by USAID and other donors, to 
develop a Poverty Reduction Strategy Paper.  The most 
effective poverty reduction approach might be to focus on 
per-capita economic growth, industrial capacity utilization, 
gainful employment and support for a heretofore shrinking 
Nigerian middle class.  For poverty reduction to take root, 
government policies must be revised as the overall effect of 
its macroeconomic and investment policies appear to retard 
the economic growth and investment needed to spur poverty 
reduction. 
 
 
11. Labor/Child Labor/Human Rights: Nigeria has a small but 
influential organized labor movement.  Except for members of 
the armed forces and certain essential government security 
personnel, Nigerian workers may join trade unions and strike. 
 The Government of Nigeria is engaged in addressing the 
problems of child labor and is a participant in efforts to 
eliminate trafficking in women and children.  Worker rights 
and child labor laws are on the books but law enforcement is 
weak.  Although its position on human rights is a vast 
improvement over the former military regimes, the 
Government's record on human rights is mixed.  While civil 
liberties and political rights are well respected, security 
forces have often employed excessive force to quell civil 
unrest.  Extra-judicial killings have been committed by 
security forces in their attempt to control outbreaks of 
communal tensions which escalated during 2001.  Although they 
do so less frequently than they did during military rule, 
security officials still beat detainees, and arbitrarily 
arrest and detain suspects. 
 
 
12. AGOA Trade and Investment: Interest in the tariff 
benefits offered by AGOA remains high among Nigeria's 
business community, but the GON and the Nigerian private 
sector have been unable to develop an AGOA-related export 
sector to date.  Nigerians are increasingly aware they are 
unprepared to exploit AGOA.  To our knowledge, Nigeria has 
been unable to generate any new AGOA-related 
investment/exports.  Growth in foreign direct investment in 
Nigeria's non-oil sector, while positive, is disappointing 
and well below the GON's stated goals. 
 
 
13.    AGOA Outreach/Technical Assistance: The U.S, Mission 
in Nigeria is highly engaged in promoting AGOA throughout the 
country. 
-- In 2001, the Economic and Commercial Counselors 
participated in AGOA workshops sponsored by the Nigerian 
Economic Summit Group and the Nigerian Association of 
Chambers of Commerce of Industry, Mining, and Agriculture. 
-- The Public Diplomacy office is enlisting a speaker to 
address processing exports and will send two AF/PD-sponsored 
AGOA Interns to the U.S. for training. 
-- The Foreign Commercial Service is working closely with the 
Nigerian-American Chamber of Commerce, the Nigerian Stock 
Exchange, and other Nigerian entities to facilitate business 
outreach and the development of strategic commercial 
partnerships. 
-- The U.S. Agency for International Development is promoting 
agricultural exports, specifically working on gum Arabic, 
sesame seeds, cashews, and other products.  In addition, all 
USAID efforts to influence economic policy take into the 
account the importance of AGOA and other export 
opportunities.  Examples of  2001/2002 USAID reports and 
studies that include AGOA are: 
     "Comparative Evaluation of Draft Trade and Industrial 
Policies". 
     "Constraints to Investment and Exporting in Nigeria: 
Towards An Agenda for Donor Intervention". 
     "Implementing Nigeria's Export Promotion Policy". 
     "Comments on Draft Trade Policy". 
     "WTO Membership Obligations: Nigeria in Comparison to a 
New Member". 
     "Implementing Trade Policy in Nigeria: Findings and 
Recommendations". 
     "Nigerian Tariff Liberalization and Nigerian Exports: 
Analysis and Comparative Performance". 
     "Issues in Harmonizing the Structure of Protection in 
ECOWAS: The Case of Nigeria". 
     "Proposed National Framework: Trade and Commercial 
Policy". 
     "Cassava Export Potential". 
 
 
14.    Led by the Ministry of Commerce, Nigeria has 
established an inter-agency AGOA committee that has received 
USAID assistance.  USAID is also working to strengthen 
individual textile firms that could benefit from AGOA when 
the textile visa system is operative.  Both the Ministry and 
the Nigerian Investment Promotion Commission have AGOA 
offices.  Legislation to allow a needed increase in the 
penalty for transshipment is caught in the political 
stalemate that has affected almost all legislation in the 
National Assembly, and the GON has been responsive to 
numerous suggestions from the USTR on its AGOA-related 
regulations. 
 
 
15.    Host Country Trade Capacity Building Needs: Due to the 
country's constrained infrastructure capacity, particularly 
an erratic power supply, Nigerian businessmen claim they face 
a cost disadvantage of at least 25 percent compared with 
foreign competition.  In some less serviced parts of Nigeria, 
they assert this figure climbs to 50 percent.  Although 
infrastructure difficulties are real, a more important 
obstacle is probably macro-economic mismanagement that has 
led to high inflation and a non-competitive exchange rate. 
With the loss of cash crop production during the last 30 
years, the agriculture sector currently is unable  to exploit 
AGOA on large scale.  A few products such as ginger, gum 
Arabic, and frozen prawns have possibilities for establishing 
niche markets in the U.S. under AGOA, and USAID is working 
with potential exporters.  Nigeria's reputation for 
corruption, criminal activity, and financial fraud serves as 
a disincentive for many potential U.S. importers and keeps 
them from engaging local entrepreneurs directly. 
 
 
16. Misguided macro-economic policies and a deficient 
infrastructure prevent Nigeria from taking advantage of AGOA. 
 Government completion of agreements on textile and apparel 
provisions will allow these items to benefit from AGOA 
tariff-free treatment, but without improved macroeconomic 
conditions Nigeria may not be competitive with its African 
neighbors who started much earlier.  Another question is 
whether Nigeria can jumpstart its Free Trade Zones where red 
tape and other negatives are minimized.  These, too, however, 
are subject to infrastructure deficiencies and exchange rate 
difficulties and so far have not met expectations. 
 
 
 
 
Andrews 

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