US embassy cable - 04ABUJA2080

UNCLAS SECTION 01 OF 05 ABUJA 002080 
 
SIPDIS 
 
USTR/G. BLUE AND EB/MTA/MST 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ETRD, NI 
SUBJECT: NATIONAL TRADE ESTIMATE REPORT, NIGERIA 
 
REF:  STATE 240980 
 
Below is the National Trade Estimate Report for Nigeria, 
2005. 
 
Begin report. 
 
TRADE SUMMARY 
 
The U.S. trade deficit with Nigeria was $9.4 billion in 
2003, an increase of $4.5 billion from $4.9 billion in 
2002.  U.S. goods exports to Nigeria in 2003 were $1.0 
billion, down 9.1 percent from the previous year. 
Corresponding U.S. imports from Nigeria were $10.4 billion, 
up 73.3 percent from 2002.  Petroleum products accounted 
for 91 percent of these imports from Nigeria. Nigeria is 
the 52nd-largest export market for U.S. goods and the 
leading sub-Saharan African exporter to the U.S market. 
Nigeria accounted for 40.5 percent of total U.S. imports 
from sub-Saharan Africa in 2003.  U.S. foreign direct 
investment (FDI) in Nigeria in 2003 was $2.1 billion at 
historical cost, up from $1.5 billion in 2001.  U.S. FDI in 
Nigeria is concentrated in the petroleum sector. 
 
IMPORT POLICIES 
 
Tariffs 
 
Tariffs provide the Nigerian Government with its second- 
largest source of revenue after oil exports.  In its last 
major tariff revision in March 2003, the Nigerian 
Government cut duties on 230 tariff line items (mostly raw 
materials, base metals, and capital equipment) to as low as 
2.5 percent, while raising them on 30 line items (largely 
plastic, rubber, and aluminum articles) to as high as 65 
percent.  Tariffs on agricultural products such as corn and 
rice were also raised to 70 percent and 100 percent, 
respectively. President Obasanjo announced in October 2004 
that Nigeria will begin harmonizing its tariff structure 
with that of the Economic Community of West African States 
in January 2005, for implementation in July 2005.  Items 
banned would remain so until sometime in 2007, when the 
bans would be replaced by tariffs.  Frequent import regime 
changes and uneven duty collection make importing difficult 
and expensive and occasionally create severe commercial 
bottlenecks.  This problem is aggravated by Nigeria's 
dependence on imported raw materials and finished goods and 
affects foreign and domestic manufacturers.  Many importers 
resort to under-invoicing and smuggling to avoid tariffs or 
bans. 
 
Non-tariff trade barriers 
 
The Nigerian Government continues to violate WTO 
prohibitions against non-tariff trade barriers.  Bans on a 
variety of items  sorghum, millet, wheat flour, cassava, 
frozen meat and poultry products, vegetable oil (in bulk), 
biscuits, pasta (including spaghetti), bottled water, fruit 
juice in retail packs, cookies, confectionery and chocolate 
products, beer, kaolin, gypsum, mosquito repellent coils, 
printed fabrics, used clothing, cars more than eight years 
old, and bagged cement  continued into 2004.  Men's 
footwear, leather bags and plastic bags (excluding ladies 
purses), all textiles and yarn, furniture, toothpaste, 
household plastic ware, soap and detergents, fresh and 
plastic flowers, and fresh fruits were added to the list of 
banned items in 2004. 
 
Customs barriers 
 
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.  The Nigeria Customs 
Service (NCS) stepped up its enforcement of a 100-percent 
physical inspection program in an attempt to reduce 
smuggling and under-valuation of imports, but officials 
admit they do not have the resources to inspect every 
incoming container.  The NCS operates a preshipment 
inspection regime under which contracted inspection 
companies at ports of origin issue inspection reports 
(sampling inspections) that their Nigerian counterparts use 
to indicate the value of items shipped, and applicable 
customs duties. 
 
The NCS had planned to replace its preshipment inspection 
regime with the physical inspection in port of all import 
shipments in 2002 and 2003, but the change was deferred 
after importers protested that NCS officials might use 
their positions as sole-valuation authorities to extract 
unauthorized facilitation fees.  Although the Nigerian 
Government now hopes to introduce such an inspection regime 
in early 2005, NCS risk-assessment and other databases are 
not fully operational. 
 
The Nigerian Customs Service is understaffed, and turnover 
of its port personnel is very high. 
STANDARDS, TESTING, LABELING, AND CERTIFICATION 
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.  By law, items entering Nigeria 
must be labeled exclusively in the metric system.  The NCS 
should prevent the entry of products with dual or multiple 
markings, but such items are often found in Nigerian 
markets. 
 
High tariffs and erratic application of import and labeling 
regulations make importing high-value perishable products 
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 events often result in 
product deterioration and significant losses for 
perishable-goods importers. 
 
The National Agency for Food and Drug Administration and 
Control (NAFDAC) is charged with protecting Nigerian 
consumers from fraudulent or unhealthful products.  The 
agency recently targeted the illicit importation of 
counterfeit and expired pharmaceuticals for special 
attention, particularly imports from the Far East and South 
Asia.  NAFDAC's severely limited capacity for carrying out 
inspections and testing contributes to an occasionally 
heavy-handed or arbitrary approach to regulatory 
enforcement, and the agency has occasionally challenged 
legitimate food imports. 
 
U.S. products do not appear to be subject to extraordinary 
or discriminatory restrictions or regulations, but the 
widespread use of fraudulent documentation by non-U.S. 
exporters may put U.S. exporters at a competitive 
disadvantage. 
 
GOVERNMENT PROCUREMENT 
 
The Obasanjo administration has made modest progress on its 
pledge to practice open and competitive bidding and 
contracting for government procurement and privatization. 
The initial stages of the tendering process tend to be 
transparent and even-handed, but as tenders move through 
the decision-making process, they often become opaque. 
Allegations by unsuccessful bidders of corrupt behavior by 
senior government officials and foreign companies are 
common, but they rarely provoke substantive reactions. 
 
New procurement and contracting guidelines were issued in 
January 2001, and a due-process office, the Budget 
Monitoring and Price Intelligence Unit, was also 
established.  The unit acts as a clearing house for 
government contracts and procurement and monitors the 
implementation of projects to ensure compliance with 
contract terms and budgetary restrictions.  Procurement 
orders exceeding 50 million naira (about $385,000) are 
subject to "due process" review.  (Due process 
certification aims at ensuring that the procurement process 
for public projects adheres to international standards for 
competitive bidding.)  In December 2004, the Government 
submitted a bill to establish a Bureau of Public 
Procurement to the National Assembly. 
 
Foreign companies incorporated in Nigeria receive national 
treatment, and government tenders are published in local 
newspapers.  U.S. companies have won Nigerian Government 
contracts in several sectors.  Unfortunately, many 
companies who have won contracts have subsequently had 
difficulty getting them funded, and some companies having 
won contracts for which funds were allocated have had 
trouble getting paid. 
 
EXPORT SUBSIDIES 
 
The Nigerian Export Promotion Council and the Nigerian 
Export-Import Bank administer export incentive programs 
that include tax concessions, export development funds, 
capital assets depreciation allowances, and foreign 
currency retention programs. Funding constraints limit the 
effectiveness of these programs.  Since many businessmen 
alleged that only favored individuals and businesses 
benefit, the government suspended indefinitely the export- 
expansion grant program in 2004 until government 
investigations into corrupt practices associated with its 
implementation are concluded. Aside from these incentive 
programs, Nigeria's non-oil export sector does not benefit 
from subsidies or other significant support from the 
government. 
 
To attract investment in export-oriented industries, the 
Nigerian Government established the Nigerian Export 
Processing Zone Authority (NEPZA) in 1992.  Of five zones 
established under NEPZA, only the Calabar and Bonny Island 
(Onne) export-processing zones function.  NEPZA rules 
dictate that at least 75 percent of production in the zones 
be exported, but lower export levels are tolerated.  The 
Nigerian Government converted the Calabar export-processing 
zone into a free-trade zone in 2001.  It is unclear whether 
the new designation has improved its export performance. 
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
 
Nigeria is a member of the World Intellectual Property 
Organization (WIPO) and a signatory to the Universal 
Copyright Convention (UCC), the Berne Convention, and the 
Paris Convention (Lisbon text).  Legislation pending in the 
National Assembly may establish a legal framework for an 
IPR system compliant with WTO rules.  At the moment, 
Nigeria's IPR laws afford protection that complies with 
most WTO provisions. 
 
The Nigerian 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; and fraudulent alteration 
of IPR documentation is common.  Despite Nigeria's active 
participation in the conventions mentioned above, its 
reasonably comprehensive IPR laws, and growing interest 
among Nigerians in seeing their intellectual property 
protected, piracy is rampant in Nigeria. Counterfeit auto 
parts, pharmaceuticals, business and entertainment 
software, music and video recordings, and other consumer 
goods are sold openly throughout the country. 
 
Patent and trademark enforcement remains weak, and judicial 
procedures are slow and subject to corruption. 
Nonetheless, recent government efforts to curtail IPR abuse 
have yielded results.  The Federal High Court of Enugu, 
Nigeria, issued an interim injunction on November 23, 2004 
against several firms infringing Honeywell International's 
patented Autolite spark plugs.  The court warned all 
distributors, dealers, and retailers in Nigeria that the 
sale of Autolite spark plugs not manufactured by Honeywell 
International is illegal and constitutes an offense 
punishable by fine or imprisonment. 
 
Nigeria's broadcast regulations do not permit 
rebroadcasting 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. 
 
IPR problems in Nigeria's film industry worsened following 
the Nigerian Government's 1981 nationalization of the 
country's filmmaking and distribution enterprises as part 
of its campaign to "indigenize" the economy.  The 
legitimate film distribution market has yet to recover. 
Almost no foreign feature films have been distributed in 
the country in the last two decades, and only one multiplex 
movie theater operates in Nigeria.  Widespread pirating of 
foreign and domestic videotapes discourages the entry of 
licensed distributors. 
 
The Nigerian police force, working closely with the 
Nigerian Copyright Commission, nevertheless 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. 
Most cases have been settled out of court, if at all. 
 
SERVICES BARRIERS 
 
Foreign participation in the services sector is generally 
not restricted.  Regulations provide 100-percent foreign 
access to service sectors, including banking, insurance, 
telecommunications, and securities.  Central Bank of 
Nigeria directives stipulate minimum levels of paid-up 
capital.  At least three foreign banks operate in Nigeria, 
and several Nigerian banks have foreign shareholders. 
 
Professional societies in engineering, accounting, 
medicine, and law define minimum professional requirements. 
Nigeria imposes quotas on expatriate employment based on 
the issued capital of firms.  Quotas are especially strict 
in the oil and gas sector.  Oil 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 relations 
are almost exclusively reserved for Nigerians; certain 
geoscience and management positions may be filled by 
expatriates with the approval of the National Petroleum 
Investment and Management Services (NAPIMS) agency.  Each 
oil company must negotiate its expatriate worker allotment 
with NAPIMS. 
 
INVESTMENT BARRIERS 
 
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 by the Nigerian 
Government except in cases of the national interest. 
 
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.  Foreign 
oil companies are under much pressure to increase 
procurement from indigenous firms.  NAPIMS has set a target 
of 40 percent local content for oil-related projects by 
2005 and 60 percent by 2010.  How this is to be achieved 
whether it is to be based on the value of a contract or the 
nature of the goods and services used and whether a 
Nigerian partner or subcontractor will do, regardless of 
the origin of equipment or raw materials  remains nebulous 
and subject to negotiation project by project. 
 
Nigerian Government 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) have increased.  With the encouragement and 
cooperation of U.S. law enforcement agencies, the Nigerian 
Government is now prosecuting more "419" perpetrators.  But 
fraud, theft, and extortion remain rampant. 
 
International monitoring groups routinely rank Nigeria 
among the most corrupt countries in the world. 
Transparency International, for example, ranked Nigeria the 
third most corrupt nation in the world in 2004. 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 U.S. Foreign Corrupt Practices Act, and believe 
its restrictions help minimize their exposure to 
corruption. 
 
ELECTRONIC COMMERCE 
 
The growth of electronic commerce and telecommunications in 
Nigeria, albeit from a low base, offers opportunities for 
the provision of U.S. products and services.  While there 
are no trade restrictions against such U.S. services, the 
high technology industry suffers from the same constraints 
affecting other industries. 
 
2.  End report. 
 
FUREY 
NIGERIA