US embassy cable - 05ABUJA1900

UNCLAS SECTION 01 OF 04 ABUJA 001900 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS TO USTR FOR C. HAMILTON 
 
E.O.  12598: N/A 
TAGS: ETRD, PHUM, NI, AGOA 
SUBJECT: NIGERIA AGOA SUBMISSION AND RECOOMENDATION 
 
 
1. (U) Country:  Nigeria 
Current AGOA Status:  Eligible 
 
2. (U) Country Background Summary:  Estimated population of 
140 million.  2004 GNI was $55.9 billion; 2004 GNI per 
capita was $390. (World Bank 8/2005 Data)  Nigeria completed 
civilian-run national and state elections in 2003 that were 
marred by irregularities and fraud and continued to struggle 
to consolidate democracy.  The Government continues to make 
slow progress toward developing an open economy, minimizing 
government interference, and promoting free market 
principles. 
 
Comments on Eligibility Requirements Market-based Economy: 
--------------------------------------------- ------------ 
 
3. (SBU)   Major Strengths Identified:   Government 
committed to transitioning from state directed economy to 
one driven by market forces.   Economy expanding about 6% 
due to improved macroeconomic environment.  Has a modified 
"Dutch Auction" mechanism to narrow spread between official 
and parallel exchange rates. Plans to introduce daily 
wholesale Dutch auction in 2006. Nigeria has agreed in 
principle to a comprehensive debt relief package with Paris 
Club creditors including the U.S. Final details and approval 
are pending.  The management of the Bureau of Public 
Enterprises was replaced to improve the pace of 
privatization.  The Power Bill was passed, setting the stage 
to unbundle the Nigeria Electric Power Authority and enable 
private investment in generation and distribution. Port 
concessions are moving forward, with an international 
company awarded the concession to manage the country's 
largest port--Apapa Port in Lagos.  Nigerian Communications 
Commission (NCC) announced in February 2005 that a unified 
licensing regime would be introduced in February 2006 to 
further deregulation and spur competition.  NITEL 
privatization underway.  WTO member. Civil Service reform is 
progressing with the monetization of in-kind benefits 
implemented. Launched 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.  Saving excess monies from crude oil 
sales above $27 benchmark price in a special reserve 
account, rather than using it to fuel fiscal expansion. 
Government budget process taking its rightful position as an 
economic policy and management tool.  Budget deficit has 
been kept in check. All three tiers of government adhering 
to fiscal discipline with a consolidated surplus of 10% in 
2004. New Chart of Accounts introduced in 2005. Central Bank 
of Nigeria's directive that banks recapitalize from the 
Naira 2 billion to Naira 25 billion by December 31, 2005, 
progressing well. Pension and insurance reform moving 
forward. 
 
4. (SBU) Major Issues/Problems Identified: 
Huge and inefficient public sector dominates and inhibits 
faster development of formal sector. Much of nation's wealth 
concentrated in hands of tiny military, political, and 
commercial elite through corruption and non-transparent 
government contracting practices.  Banking system poorly 
performing intermediation, impeding small and medium 
investors.  Regulatory and tax regimes arbitrarily enforced. 
Regulatory bodies weak and ineffective. Oil and gas receipts 
account for 80% of government revenues and over 95% of 
exports.  Fuel subsidies are not budgeted and 
nontransparent; NNPC directly accesses national Treasury; 
potential for corruption and abuse are enormous.  Nigeria 
has not adopted IMF Stand-By Agreement. Economic data and 
statistics are of unreliable quality and availability 
Regulatory bodies are weak and ineffective. Fuel prices 
continue to be regulated and subsidized.  Inadequate and 
unreliable infrastructure is major barrier to private sector 
activity. Nigeria faces growing pressure for looser fiscal 
and monetary policy. Intellectual Property Rights Commission 
not established as announced. 1978 Land Use Act mandates 
state ownership of land; private use of land is restricted 
to 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. 
 
Political Reforms/Rule of Law/Anti-Corruption 
--------------------------------------------- --------------- 
---------------------- 
 
5. (SBU) Major Strengths Identified: 
Elections held in 2003 for some local governments, state 
governors and assemblies, and national legislators, and the 
President.   Elected civilian government in its sixth year. 
Thirty political parties participated in 2003 elections. 
Progress recognizing political pluralism, and establishing 
right to fair trial and equal protection under law, rights 
guaranteed constitutionally.  Nigerian Supreme Court made 
landmark decisions in early 2002 affirming its role as 
arbiter of the national constitution.  Signed transparency 
and anti-corruption agreement with the United States and 
other G-8 members at the Sea Island Summit in 2004. 
Established programs to combat corruption, many of which 
receive support from the United States and other donors. 
The Economic and Financial Crimes Commission (EFCC) has 
seized $670 million in assets from corruption cases, 
arresting several high level officials. The Inspector- 
General of Police and the Minister of Education were fired 
for corruption. The Senate President was removed from his 
post for corruption, though he retained his Senate seat. 
EFCC is investigating corruption charges against state 
governors and their associates.  Top levels at the Customs 
Administration were replaced on corruption charges. 
 
6. (SBU) Major Issues/Problems Identified: 
Communal violence continues, especially the latter in the 
oil-rich Niger Delta.  Elections of 2003 were married by 
serious irregularities, fraud, with violence in some areas. 
The Independent National Electoral Commission (INEC), the 
body charged with conduct of elections, is not independent, 
and argued in court throughout 2004-2005 that it need not be 
independent.  Judges are subject to both bribery and 
intimidation, if not outright threats.  Corruption remains 
an overwhelming problem. To date there have been no 
convictions of any high-level official for corruption. 
Use of militias and vigilante groups by politicians 
continues. Government remains unable to guarantee citizens 
right to speedy, fair trial.  Government has failed to 
implement some key court decisions. The judicial system is 
weak and in need of serious reform. Excessive violence, 
lethal force, and corruption at police and military 
roadblocks and checkpoints continue, despite the Acting 
Inspector-General of Police's announcement in January 2005 
that police roadblocks would be eliminated. Prison and 
detention conditions remain harsh and life threatening. 
Some prisons held 200 to 300 percent more persons than their 
designed capacity.  Failure to curb oil bunkering fuels 
corruption, arms trafficking and political instability. 
 
Elimination of barriers to U.S. Trade and Investment 
--------------------------------------------- ------- 
 
7. (SBU) Major Strengths Identified: 
TIFA with U.S. provides a mechanism to address trade and 
investment issues.  Nigeria is a top destination of U.S. 
investment in Africa, due to investment in the petroleum 
sector.  U.S. exports to Nigeria rose by more than 50% in 
2004 over 2003. In the first seven months of 2005 U.S. 
exports increased 18% over the same period in 2004. 
Tax administration reform is progressing. 
 
8. (SBU) Major Problems/Issues Identified: 
Multiple bans in violation of WTO rules in the last three 
years have affected imports of many agricultural products. 
Arbitrary ban encourage smuggling. Import bans accompanied 
by sole source importation rights to favorite partners 
impede competition.  Comprehensive trade reform by adoption 
of the ECOWAS Common External Tariff was postponed from its 
promised July 1, 2005 implementation date.  Trade and 
investment policies are frequently changed, suspended, 
cancelled or implemented inconsistently.  Some U.S. firms 
with contracts with the government face consistent problems 
receiving timely payments.  No progress has been made as the 
result of TIFA negotiations. Negotiators report that the 
President ultimately makes decisions on trade and investment 
issues.  Nigerian government procurement lacks transparency. 
Nigeria's Cabotage Law is a barrier to trade and investment 
and has compelled U.S. firms to exit Nigeria.  In the oil 
and gas sector Nigeria is imposing or threatening to impose 
requirements to invest in power production or refining, in 
an attempt to force investment in unprofitable sectors. 
Availability of fuel import subsidies limited to Nigerian 
National Petroleum Corporation (NNPC), forcing out potential 
competitors in the downstream fuel market. Local content 
requirements impose additional costs in investments.  Across 
several sector, the government employs predatory negotiating 
tactics, including threats to access to inputs, customs and 
other legal approval process, and transferring contracts to 
entities that cannot uphold contract terms.  Foreign 
Exchange repatriation regulations enforced arbitrarily. 
Access to imported inputs under the Manufacturers-in-Bond 
Scheme suspended available only by Presidential directive, 
and highly politicized. 
 
Poverty Reduction 
----------------- 
 
9. (SBU)  Major Strengths Identified:  National Planning 
Commission finalized the National Economic Empowerment and 
Development Strategy (NEEDS), Nigeria's homegrown Poverty 
Reduction Strategy.  The National Poverty Eradication 
Program (NAPEP) being implemented at the local government 
level, focusing on micro-enterprise development and other 
programs. 
 
10. (SBU) Major Issues/Problems Identified:  Government 
poverty strategy does not clearly link goals and methods; 
National Assembly has refused to fund poverty alleviation; 
serious concerns remain about fiscal transparency; human 
capacity for project implementation weak.  Government is 
implementing the poverty program slowly. 
Workers' Rights/Child Labor/Human Rights 
---------------------------------------- 
 
11. (SBU)  Major Strengths Identified:  Improvements in some 
areas of human rights, including the arrest o several 
traffickers of persons; yet 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. 
Nigerian Constitution protects the right of association and 
the right to organize and bargain collectively, but 
statutory restrictions remain in place.  In June 2005, a 
court struck down legislation that required a police permit 
for all public rallies and processions. 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. All known 
political prisoners and most known political detainees have 
been released.  Security forces still commit human rights 
violations, but these no longer appear to be systematic or 
officially sanctioned.  Workers, except members of armed 
forces, police, and employees designated essential by 
Government, may join trade unions and strike, but reasons 
for striking are limited.  In 2002, President Obasanjo 
signed the instruments of ratification for ILO convention 
182, Worst Forms of Child Labor; Convention 138, Minimum age 
for Employment; and Convention 111, Equality of Occupation. 
Ratified ILO convention 87 on freedom of association and 
convention 98 on the right to organize and collective 
bargaining. Also ratified ILO conventions on forced labor. 
Worker rights and child labor laws have been enacted, but to 
date Child Rights Act has only been ratified by six states. 
New legislation was passed in 2003 outlawing human 
trafficking, and the National Agency for the Prohibition of 
Trafficking in Persons (NAPTIP) was established. 
 
12. (SBU) Major Issues/Problems Identified: 
Most major social indicators remain weak; for example, under- 
5 child mortality is at an alarmingly high level of 20 
percent.  Domestic violence and discrimination against women 
remained widespread. Outbreaks of violence and community 
unrest in the oil-producing Niger Delta caused occasional 
disruption in Nigeria's oil production. 
Army troops killed about 200 unarmed civilians in October 
2001 in Benue state, but to date there has been no 
accountability.  Police and security forces continue to use 
excessive and sometimes lethal force to beat protesters, 
suspects, detainees and convicts, and to use arbitrary 
arrest and detention; prolonged pretrial detention remains a 
problem. No laws prohibit retribution against strikers. 
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 the central labor 
organization, and violates ILO convention on right of 
association.  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 any issue but service 
conditions.  The Act ended the Nigerian Labor Congress' 
status as the sole, central labor organization, and the 
Trade Union Congress y received official federal government 
recognition.  While decentralization may seem better for the 
right to form and join unions, it has weakened the labor 
movement in Nigeria.  Labor rights have been limited by 
targeted layoffs and terminations of labor activists, by 
intimidation to press workers to leave unions, by the 
increasing use of casual labor, especially in the oil 
industry.  Payment of salaries to government workers 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.  Government 
places limits on freedom of assembly and association, citing 
security concerns.  Trafficking in persons for purposes of 
prostitution and forced labor is a problem, allegedly with 
collusion of government officials.  Some persons including 
children subjected to forced labor, and child labor rising. 
Government relations with the NLC remain severely strained 
since 2003 because of the President's determination to 
deregulate fuel prices, and the trade union's use of general 
strikes to protest price hikes. 
 
 
International Terrorism/U.S. National Security 
--------------------------------------------- - 
 
13. (SBU) Major Strengths Identified:   President Obasanjo 
personally acting to build West African support for anti- 
terrorism coalition activities.  Central Bank of Nigeria 
pledged to identify and freeze terrorist assets in Nigerian 
banks. 
 
14.  (SBU) Major Issues/Problems Identified:  None. 
 
Mission Recommendation 
---------------------- 
 
15. (SBU) The Mission recommends that Nigeria be found 
eligible to participate in AGOA for 2006. 
 
16. (SBU) Although slow, Nigeria has continued to make 
progress on economic reform and in combating corruption in 
2004 and 2005. Macro-economic stability contributed to 7.4% 
growth in the non-oil sector in 2004, while prudent 
management of windfall oil revenues has been maintained in 
the face of increasing pressure. Continued progress also has 
been made increasing transparency of revenue and in budget 
implementation. After a disappointing year, a new team 
appears to be reinvigorating the privatization process. 
These achievements are not trivial. 
 
17. (SBU) We make this recommendation despite the fact that 
barriers to trade and investment, highlighted in last year's 
letter from Dr. Rice to President Obasanjo are growing in 
Nigeria. Though some individual issues have been resolved, 
overall the trend has worsened. The promised moved to the 
ECOWAS CET, has been postponed, and although the Government 
of Nigeria is now stating that it will be implemented in 
October 2005, the Government does not appear to be preparing 
for implementation actively.  Key outstanding problems 
include the failure of the GON to renew contractually 
mandated tax exemptions for AES, and proposals to force oil 
producers to refine domestically and/or invest in 
refineries. Despite these real and serious problems both 
U.S. exports and investment levels are growing. 
 
18. (SBU) Maintaining the status quo by approving Nigerian 
eligibility for AGOA would not have a significant impact. 
Finding Nigeria ineligible, however, would have significant 
negative symbolism, and would be seen as a real blow to the 
President and the economic team. It would certainly be used 
as ammunition by the critics of the economic team.  Nigeria 
does not take much advantage of AGOA, and non-oil exports to 
the U.S. have been falling. Thus it does not provide 
significant practical leverage on the Government of Nigeria 
to push action on the issues which concern us. Balancing the 
limited efficacy of an ineligibility finding in pressuring 
the GON on trade and investment issues against the real harm 
of undermining the position of the economic reform leaders, 
we support finding Nigeria eligible as more productive in 
forwarding U.S. foreign policy goals in Nigeria. 
CAMPBELL