US embassy cable - 04LAGOS1410

UNCLAS SECTION 01 OF 03 LAGOS 001410 
 
SIPDIS 
 
ALSO FOR USTR, EXIM, OPIC 
 
E.O. 12958: N/A 
TAGS: EINV, EFIN, ETRD, ECON, ELAB, KTDB, NI, OPIC 
SUBJECT: JULY 2004 INTERIM UPDATE OF 2003 NIGERIA INVESTMENT 
CLIMATE STATEMENT 
 
REF: STATE 141379 
 
This appendix updates the 2003 Nigeria Investment Climate 
Statement.  It is intended for investors, pending re- 
publication of the Country Commercial Guide (CCG) (of which 
the Investment Climate Statement is a chapter).  The CCG 
will henceforth be released on a calendar year basis (i.e., 
in January rather than in August, as had been the practice). 
 
The text below reflects the significant changes in the 
investment climate that have occurred in Nigeria in the last 
year (July 2003 - July 2004). Those parts of the 2003 
Investment Climate Statement that remain valid have not been 
modified by this appendix since the U.S. Embassy in Nigeria 
is satisfied that they continue to reflect the state of 
affairs as of July 2004. 
 
Openness to Foreign Investment 
------------------------------ 
 
Replace paragraph 4 of this section by the following text: 
 
The GON has substantially opened Nigeria's 
telecommunications sector.  The Telecommunications Act of 
2001 abolished requirements for standard mobile technologies 
and authorized the Nigerian Communications Commission (NCC) 
to issue licenses to existing and prospective service 
providers, effectively ending NITEL's monopoly over 
telecommunications services.  In early 2001, the NCC 
auctioned off licenses for global systems for mobile 
communications (GSM), an effort commended in both local and 
international circles for its transparency.  Four 
enterprises, including NITEL, won licenses. Globacom won 
mobile, fixed, and international gateway licenses as 
Nigeria's second national operator in mid-2002.  By mid 
2004, Nigeria's leading mobile service providers supported 
slightly more than three million subscribers. 
 
Delete paragraph 6 of this section. 
 
Conversion and Transfer Policies 
-------------------------------- 
 
No significant change since 2003. 
 
Expropriation and Compensation 
------------------------------ 
 
No significant change since 2003. 
 
Dispute Settlement 
------------------ 
 
No significant change since 2003. 
 
Performance Requirements and Incentives 
--------------------------------------- 
 
Replace paragraph 1 by the following text: 
 
Import Policies1: Tariffs provide the Government of Nigeria 
(GON) its second largest source of revenue after oil 
exports.  But 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 its last major tariff revision in March 2003, the GON cut 
duties on 230 line items (mostly raw materials, base metals, 
and capital equipment), but raised tariffs on 30 others 
(largely plastic, rubber, and aluminum articles).  Most 
increases were relatively small.  The GON had announced 
similar cuts and increases in 2001 and 2002. 
 
Bans prohibit about 60 line-item goods imports including 
meat, fresh fruit, cassava, pasta, fruit juice in retail 
packs, toothpicks, soaps and detergents, textiles, plastics, 
and barite (used in well drilling).  The GON banned 41 items 
in January 2004. 
 
Under Import Policies, replace paragraph 5 by the following 
text: 
 
In 2002 and again in 2003, the GON announced plans to 
replace its pre-shipment inspection regime by one mandating 
100 percent destination inspections at Nigerian ports of 
entry.  The proposed change was twice deferred, however, 
amid doubts about officials' ability to implement it. 
Importers feared corruption would increase if the Nigerian 
Customs Service had sole purview over goods' classification 
and valuation.  Many major shippers prefer pre-shipment 
inspection because it provides them with official 
documentation to refute charges of overvaluation or 
inappropriately classified goods, if necessary. 
 
Under Government Procurement, replace paragraph 1 by the 
following text: 
 
 
The GON awards contracts under an open tender system, 
advertising tenders in Nigerian newspapers and opening them 
to domestic and foreign companies.  Procurement has 
gradually become more transparent, but corruption persists. 
 
Under Government Procurement, replace paragraph 3 by the 
following text: 
 
In January 2001, the GON issued procurement and contracting 
guidelines clarifying competitive tendering and decision- 
making procedures, defining bid security and mobilization 
fee rules, and providing for audits of capital projects. 
The GON then established the Budget Monitoring and Price 
Intelligence Unit to act as a clearinghouse for government 
contracts and procurement, and to monitor the implementation 
of projects to ensure compliance with contract terms and 
budgetary restrictions.  Procurements above N50 million 
(about $380,000) are subject to due diligence review through 
this Unit. 
 
Right to Private Ownership and Establishment 
-------------------------------------------- 
 
No significant change since 2003. 
 
Protection of Property Rights 
----------------------------- 
 
Delete paragraph 2.  Replace paragraphs 9 and 10 by the 
following text: 
 
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 
(IPR) law.  Lower court judges, as well as most legal 
practitioners, are often unfamiliar with IPR, so 
misapplication of the law is common. 
 
Transparency of the Regulatory System 
------------------------------------- 
 
No significant change since 2003. 
 
Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ----- 
 
Replace paragraphs 3 and 4 by the following text: 
 
The Nigerian Stock Exchange (NSE) was buoyant in 2003 and 
remained so as of July 2004.  The NSE operates six branches 
nationwide. The volume of shares traded and market 
capitalization continue to rise.  The NSE continues to 
expand its membership and investor pool, and some 200 
enterprises are listed on the exchange. 
 
Government debt instruments are available. Except for 
federal government instruments of short and medium maturity, 
other instruments of state governments and parastatal 
companies are often considered high risk because of the 
historically poor performance of Nigeria's public 
enterprises. 
 
Eighty-nine full-service commercial banks operate in 
Nigeria, a number reflecting the rarity of bank mergers and 
acquisitions.  Capital concentration is nonetheless 
significant, as Nigeria's 10 largest commercial banks held 
55.3 percent of total bank assets and 56.2 percent of total 
deposit liabilities as of the end of 2003, and accounted for 
44.3 percent of total credit extended that year.  Central 
Bank guidelines stipulate a 2 billion naira ($15 million) 
minimum capital requirement for new banks; existing banks 
must maintain 1 billion naira ($7.5 million) in capital. 
 
In July 2004, the new Governor of the Central Bank of 
Nigeria Charles Soludo announced a new capital requirement 
of 25 billion naira ($187 million) for all banks in the 
country. The Central Bank has set a December 2005 deadline 
for compliance with this directive. Governor Saludo has 
stated that the new capitalization requirement will 
encourage bank mergers and acquisitions, and will thus 
strengthen the banking industry, as well as the Central 
Bank's regulatory and supervisory capabilities. 
 
The implementation of tight monetary policies by the Central 
Bank to stabilize the naira and curb imprudent lending has 
led to liquidity problems at some banks in the last year. 
The Nigeria Deposit Insurance Corporation (NDIC) had 
reported that unsound loans and advances increased from 4.6 
to 12 percent of the industry total during 2002, reaching 
105 billion naira ($783 million).  In 2003, the NDIC 
committed itself to scrutinizing and closing unsound 
financial institutions.  High reserve requirements for 
public sector lending have dramatically reduced lending to 
government and parastatal entities. 
Political Violence 
------------------ 
 
Replace paragraph 3 by the following text: 
 
Nigeria continues to experience communal violence.  . 
Violence in the Delta region, the middle-belt states, and 
Kano resulted in hundreds of deaths in 2003, and sporadic 
ethno-religious violence in Plateau State resulted in 
several hundred deaths and the declaration of a state of 
emergency in early 2004.  The advent of vigilante groups in 
various parts of the country, particularly the Delta region 
and Eastern Benue State, has exacerbated communal violence. 
 
Corruption 
---------- 
 
No significant change since 2003. 
 
Bilateral Investment Agreements 
------------------------------- 
 
No significant change since 2003. 
 
OPIC and Other Investment Insurance Programs 
-------------------------------------------- 
 
No significant change since 2003. 
 
Labor 
----- 
 
Insert the following new paragraph after paragraph 4 
(paragraph entitled "Collective Bargaining"): 
 
Collective bargaining in the petroleum industry is 
relatively efficient compared to that in 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 other working 
conditions tend generally to be resolved quickly through 
negotiation. Organized labor's efforts to address broad 
political issues, however, have resulted in industrial 
actions that continue to affect industry productivity. 
 
Foreign Trade Zones/Free Ports 
------------------------------ 
 
No significant change since 2003. 
 
Foreign Direct Investment Statistics 
------------------------------------ 
 
These statistics will be updated in the next Investment 
Climate Statement, which will be published in January 2005. 
 
KRAMER