US embassy cable - 02ABUJA3358

UNCLAS SECTION 01 OF 05 ABUJA 003358 
 
SIPDIS 
 
 
STATE FOR EB/TPP/MTA/MST AND AF/W 
STATE PASS USTR FOR GBLUE AND PCOLEMAN 
STATE PASS DEPARTMENT OF ENERGY 
 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, EINV, EFIN, NI 
SUBJECT: NIGERIA: 2003 NATIONAL TRADE ESTIMATE DRAFT 
 
REF: STATE 225281 
 
 
1. Following is Post's draft of the 2003 National Trade 
Estimate for Nigeria. Dept. is requested to provide end-year 
trade and investment data in the trade summary. 
 
 
2. 
NIGERIA 
 
 
TRADE SUMMARY 
In 2002, the U.S. trade deficit with Nigeria was $X.X 
billion, an improvement over the 2001 deficit of $X.X 
billion. U.S. goods exports to Nigeria were $XXX million in 
2002, an increase of XX.X percent from 2001. U.S. goods 
imports from Nigeria were $X.X billion in 2002, a decrease of 
almost XX.X percent from 2001. Nigeria was the United States' 
XXth largest export market in 2002. 
 
 
In 2001, the stock of U.S. foreign direct investment in 
Nigeria was $X.X billion, an increase of about XX percent 
from 2000. 
 
 
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 2002, the Nigerian government 
cut duties on 123 tariff line items (mostly raw materials and 
capital equipment) to as low as 2.5 percent, while raising 
them on 62 line items (largely finished goods and 
agricultural commodities) to as high as 100 percent. The 
government announced similar cuts and increases--often on the 
same good from year-to-year--in 2000 and 2001. The government 
will likely announce another round of tariff adjustments as 
part of the 2003 budget process. 
 
 
The arbitrary nature of Nigeria's tariffs and uneven 
collection of duties help make the import process difficult 
and expensive and create a severe bottleneck for commercial 
activities.  The problem affects foreign investors, as well, 
and is aggravated by Nigeria's high-level of dependence on 
imported goods, both finished products and raw materials. 
High duties create the incentive to avoid tariff payments. 
Common illicit practices include under-invoicing imports, 
"round-tripping" foreign exchange, and smuggling. The gap 
between the official exchange rate for the naira (used for 
most imports) and the parallel market's discounted rate 
(between 5 and 20 percent during most of 2002, at 10 percent 
by year's end) accentuates the demand for foreign exchange 
and encourages corrupt practices that are difficult to 
eliminate. In general, most leading Nigerian importers of 
high tariff items successfully avoid payment of full tariffs. 
 
 
Non-tariff trade barriers 
Nigeria appears not to be fully compliant with its WTO 
obligations because of implementation of new non-tariff trade 
barriers.  In 2002, the Nigerian Government imposed new 
non-tariff trade barriers on a number of goods, reversing a 
trend over recent years to eliminate such barriers.  In March 
2002, the government banned the import of vehicles over five 
years old; it also banned used refrigerators, air 
conditioners, and compressors.  Textiles containing 
"hazardous chemicals such as chlorides" were banned early in 
2002, and in September 2002, the government banned all 
imports of printed textiles sold in Nigeria as "African 
Prints."  In August 2002 bans were placed on the import of 
sorghum, millet, wheat flour, cassava, frozen poultry, and 
vegetable oil in. Bans on imports of kaolin, gypsum, mosquito 
repellent coils, used clothing, and bagged cement also remain 
in effect. 
 
 
Customs barriers 
Nigeria's ports continue to be a major obstacle to imports. 
Importers face long clearance procedures, corruption, high 
berthing and unloading costs, and uncertain application of 
customs regulations.   In 2001, the Nigeria Customs Service 
(NCS) began a 100 percent inspection regime at Nigerian ports 
to reduce smuggling and under-valuation of imports.  The NCS 
continues to operate a pre-shipment inspection regime, in 
which contracted shipping inspection companies at the port of 
origin issue inspection reports that their counterparts in 
Nigeria use to create a Clean Report of Inspection for NCS, 
which lists the items shipped, their value, and applicable 
customs duties. 
 
 
The NCS planned to launch a 100 percent destination 
inspection regime in 2002. Under that regime, the NCS would 
act as the sole entity conducting valuation at Nigerian ports 
of destination. Introduction was delayed after protests from 
importers who feared that without a pre-shipment inspection 
report NCS officials might use the new authority to extract 
additional unauthorized facilitation fees. NCS risk 
assessment and other databases are not yet fully operational, 
another reason for delay. 
 
 
STANDARDS, TESTING, LABELING, AND CERTIFICATION 
The combination of high import duties and uneven application 
of import and labeling regulations makes legal importation of 
high-value perishable products problematic. Disputes among 
Nigerian agencies over the interpretation of regulations 
often cause import delays.  The frequent changes in customs 
guidelines help slow the movement of goods through the port 
of Lagos, resulting in product deterioration and significant 
losses for importers of perishables. 
The National Agency for Food and Drug Administration and 
Control (NAFDAC), which is charged with protecting the 
Nigerian consumer from fraudulent or unhealthy products, has 
targeted for special attention the illicit importation of 
counterfeit and expired pharmaceuticals, particularly from 
the Far East and South Asia. However, NAFDAC has also on 
occasion challenged legitimate, processed food imports, 
including those from U.S. exporters. NAFDAC's severely 
limited institutional capacity to carry out inspection and 
testing contributes to an occasionally heavy-handed or 
arbitrary approach in regulatory enforcement. 
 
 
Not only do products enter Nigeria without full payment of 
tariffs, many imports do not fulfill the country's health, 
labeling, and sanitary standards.  Nigeria's rules concerning 
labeling, testing, and sanitary and phytosanitary standards 
are relatively well defined. Regardless of origin, all food, 
drug, cosmetic, and pesticide imports must be accompanied by 
a certificate of analysis from the manufacturer and 
appropriate national authority. Specified animal products, 
plants, seeds, and soils must possess sanitation 
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; products with dual or multi-markings will be refused 
entry.  However, products not meeting these criteria can be 
found throughout Nigeria's markets.  While U.S. products do 
not appear to be subject to extraordinary restrictions or 
regulations, the widespread use of fraudulent documentation 
by non-U.S. exporters can prejudice the access for U.S. 
exporters.  When the level of illicit, undocumented imports 
for particular products such as frozen chicken exceed that of 
legal imports, meeting stipulated Nigerian standards does not 
necessarily ease access to the Nigerian market. 
 
 
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 
Nigerian Government has succeeded in reducing the most 
blatant forms of corruption, but it has been less successful 
in eradicating back-room maneuvers that bias decisions. 
Particularly in the initial stages of the tendering process, 
the Nigerian Government has demonstrated transparency, 
even-handedness, and, at times, even excessive meticulousness 
in weighing competitive bids.  However, as tenders proceed 
through the decision-making system, the process often becomes 
more opaque. Allegations by unsuccessful bidders of corrupt 
behavior by senior government officials and foreign companies 
are common. 
 
 
In January 2001, the Government issued new procurement and 
government contract policy guidelines.  The guidelines 
clarify competitive tendering and decision-making procedures, 
define bid security and mobilization fee rules, and provide 
for audits of capital projects.   However, it is alleged that 
to avoid this due diligence process some government agencies 
are tendering contracts the value of which is smaller than 
the threshold amount of one million naira (about $7,700). 
Foreign companies incorporated in Nigeria receive national 
treatment, and government tenders are published in local 
newspapers.  According to Nigerian Government sources, 
approximately five percent of all government procurement has 
been awarded to U.S. companies. 
 
 
EXPORT SUBSIDIES 
The Nigerian Export Promotion Council (NEPC) and the Nigerian 
Export-Import Bank (NEXIM) administer incentive programs for 
industrial exports that include a duty drawback program, an 
export development fund, tax relief, a capital assets 
depreciation allowance, and a foreign currency retention 
program. However, funding constraints limit the effectiveness 
of these programs. In addition, only favored individuals and 
businesses allegedly have derived any benefit from them. 
Aside from these limited incentive programs, Nigeria's 
non-oil export sector firms do not receive subsidies or other 
significant support from the government. Recognizing that 
Nigerian exporters were penalized by the official exchange 
rate, in late 2001 the government agreed to permit exporters 
to repatriate their earnings at an exchange rate slightly 
higher than the official rate, but lower than the parallel 
market rate. Nigeria imposes on foreign oil companies some of 
the stiffest restrictions and fee structures of any in effect 
in the oil producing countries in the world. 
 
 
In an effort 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 
must be exported, although lower export levels are reportedly 
being tolerated. In 2001, the Government converted the 
Calabar Export Processing Zone into a free trade zone; it is 
unclear whether the new designation will help to improve its 
export performance. 
 
 
In March 2002, the Ministry of Finance established export 
incentives for agricultural cash crops.  Cocoa, groundnuts, 
rubber, cotton, palm oil, gum arabic, and ginger are eligible 
for a five-percent export expansion grant. This program was 
not operational as of January 2003. 
 
 
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 would establish the legal framework for a 
TRIPS compliant IPR system in Nigeria. However, IPR law in 
force does, in principal, afford rightholders a degree of 
protection in compliance with most TRIPS provisions. 
 
 
Following the advent of democracy in 1999, Nigerian 
artists--including writers, filmmaker, and musicians--have 
mounted a campaign calling for more effective copyright 
protection and amendment to existing law. Lawyers active in 
IPR issues formed the Industrial Property Law Interest Group 
(IPLIG) to educate the public and lobby on behalf of 
industrial IPR issues. IPLIG has sponsored several copyright 
conferences and initiated an IPR course at the Lagos Law 
School. Software company representatives continue to work 
directly with the Nigerian Government to reduce the number of 
agencies using pirated software. Nigerian filmmakers formed 
the Proteus Entertainment Agency to challenge copyright 
infringement and promote stronger copyright laws and law 
enforcement. 
 
 
Despite Nigeria's active participation in these conventions, 
its reasonably comprehensive domestic IPR laws, and growing 
interest among individuals in seeing their intellectual 
property protected, piracy is rampant. Counterfeit 
pharmaceuticals, business and entertainment software, and 
music and video recordings, and other consumer goods are sold 
openly throughout the country. 
 
 
The government's lack of institutional capacity to address 
IPR issues is a major constraint to enforcing IPR. The key 
Nigerian institutions suffer from low morale, poor training, 
and limited resources. Neither the Trademarks Office in the 
Ministry of Commerce nor the National Agency for Food and 
Drug Administration and Control, two agencies responsible for 
significant IPR protection, are computerized. Fraudulent 
alteration of IPR documentation is reportedly common, even in 
government offices. 
 
 
Law enforcement, particularly for patents and trademarks, 
remains weak, and the judicial process is slow and subject to 
corruption. Companies rarely seek trademark or patent 
protection because they generally perceive it as ineffective. 
Nonetheless, recent government efforts to curtail IPR abuse 
have yielded some results. A number of high profile actions 
have been taken against IPR violators. The Nigerian Police, 
working closely with the Nigerian Copyright Commission (NCC), 
has occasionally raided enterprises allegedly producing and 
selling pirated software and videos. However, most raids 
appear to be conducted against small pirates, not large and 
well-connected ones. Moreover, very few cases involving 
copyright, patent, or trademark infringement have been 
successfully prosecuted, and most cases have been settled out 
of court, if any final resolution occurs at all. 
 
 
Nigeria's broadcast regulations do not permit re-broadcasting 
or excerpting foreign programs unless the station has an 
affiliate relationship with the foreign broadcaster. This 
regulation is generally respected. Some cable providers do 
illicitly transmit foreign programs, however. The National 
Broadcasting Commission (NBC) monitors the industry and is 
responsible for punishing infractions. 
 
 
IPR problems in Nigeria's film industry worsened dramatically 
following the government's 1981 nationalization of the 
country's filmmaking and distribution enterprises, part of 
its campaign to "indigenize" the economy. The legitimate film 
distribution market has yet to recover. Almost no feature 
films have been distributed in the country in two decades, 
and the widespread pirating of foreign and domestic videos 
appears to have discouraged the entry of licensed 
distributors in this medium as well. 
 
 
SERVICES BARRIERS 
Foreign participation in the services sectors is generally 
not restricted, and regulations provide 100 percent access to 
service sectors including banking, insurance, and securities. 
Central Bank of Nigeria (CBN) directives stipulate minimum 
levels of paid-in capital. At least two foreign banks have 
initiated operations in Nigeria in recent years and other 
Nigerian banks have received infusions of foreign capital. 
Professional bodies in engineering, accounting, medicine and 
law define the minimum personal qualifications required for 
participation. Nigeria does not impose limits on expatriate 
employment, except in the oil and gas sector. 
 
 
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" 
(for example, manufacturers of firearms and 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 
abolished the expatriate quota system, except in the oil 
sector, and prohibits nationalization or expropriation of a 
foreign enterprise by the Nigerian government except for 
cases determined to be in the national interest. 
 
 
Despite extensive government efforts led by NIPC to improve 
the country's investment climate, disincentives to investing 
in Nigeria continue to plague foreign entrepreneurs. Among 
the hurdles to overcome: high business taxes, confusing land 
ownership laws, activist labor unions, arbitrary application 
of regulations, corruption and extensive crime. There is not 
a tradition supporting the sanctity of contracts, and the 
court system for settling commercial disputes is weak, and 
some believe biased.  Local content restrictions are 
encroaching upon the oil sector; foreign oil companies are 
under pressure to increase procurement from indigenous firms. 
 
 
Government efforts to eliminate financial crime such as money 
laundering and advance-fee fraud (or "419 fraud" after the 
relevant section of the Nigerian Criminal Code) have grown in 
recent years but are largely ineffective. Meanwhile, fraud, 
theft, and extortion are endemic. With the help of U.S. law 
enforcement agencies, "419" perpetrators are being prosecuted 
by the government. 
International watchdog groups routinely rank Nigeria among 
the most corrupt countries in the world. Yet, Nigeria is now 
beginning to show signs of reversing decades of corruption 
and economic neglect. In general, U.S. investors remain 
cautious about conducting business in Nigeria.  The sale of 
U.S. goods and services to either public or private sector 
enterprises is not restricted.  However, anti-competitive 
behavior throughout the Nigerian economy is endemic, 
affecting U.S. products and services. The export of U.S. 
goods and commodities to Nigeria also suffers from unfair 
trade practices by foreign competitors who are often willing 
to accommodate Nigerian requests for improper documentation 
and payments.  Some U.S. exporters believe sales are lost 
when they refuse to engage in illicit or corrupt behavior. 
Other U.S. businesses with extensive experience in Nigeria 
believe that strict adherence to U.S. Foreign Corrupt 
Practices Act (FCPA) standards is understood by their 
Nigerian business counterparts and ultimately helps these 
U.S. companies 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 that discriminate against U.S. products, 
high technology industries suffer from the same constraints 
noted for more traditional industries. 
ANDREWS