US embassy cable - 03ABUJA680

UNCLAS SECTION 01 OF 05 ABUJA 000680 
 
SIPDIS 
 
 
STATE FOR AF/W, AF/EPS AND EB/TPP 
SATE PASS USTR PCOLEMAN AND WJACKSON 
TASHKENT FOR BURKHALTER 
COMMERCE FOR ITA/MAC 
 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, EINV, ELAB, PHUM, PREL, NI, AGOA 
SUBJECT: NIGERIA: SUBMISSION FOR 2003 PRESIDENT'S 
REPORT ON AGOA 
 
 
REF: STATE 53658 
 
 
1. The following paragraphs provide information on 
Nigeria for use in the President's 2003 report to 
Congress on AGOA, as requested in Reftel, in the 
following areas: 
--AGOA Trade and Investment 
--Progress Toward a Market-Based Economy 
--Political Pluralism and The Rule of Law 
--Poverty Reduction 
--Labor/Child Labor/Human Rights 
--AGOA Outreach, Technical Assistance, and Trade 
Capacity Needs 
 
 
AGOA Trade and Investment 
------------------------- 
2. Nigeria has not capitalized on Africa Growth and 
Opportunity Act (AGOA) benefits to a discernible 
degree. There has been negligible progress in 
developing alternative exports to petroleum or, with 
the exception of the telecommunications sector, to 
attract significant U.S. interest in the non-oil 
sectors of the economy. 
 
 
Progress Toward a Market-Based Economy 
-------------------------------------- 
3. Since its inauguration in 1999, the elected 
government of Olusegun Obasanjo has made incremental 
progress toward establishing a market-based economy 
that protects private property rights, incorporates an 
open rules-based trading system, and generally reduces 
government interference in the economy. Government 
controls over foreign investment were loosened. For 
example, previous government decrees that inhibited 
competition or conferred monopoly powers on public 
enterprises in the petroleum, telecommunications, 
power, and mineral sectors were repealed or amended. 
 
 
4. Despite strong political resistance, the 
administration moved forward with an ambitious 
privatization program. However, in 2002 attempts to 
privatize the national telecommunications monopoly 
NITEL fell through when core investors were unable to 
secure financing. Meanwhile, efforts are underway to 
privatize hotels in Abuja and a ship-repair facility 
in Lagos, as well as newsprint, sugar refining, 
fertilizer production, tractor manufacturing, and 
other companies throughout the country. 
 
 
5. After the GON successfully auctioned three GSM 
licenses in 2001, a second national telecommunications 
carrier was designated in August 2002. Recently, a 
U.S. firm won a $49 million contract to participate in 
the expansion of NITEL's GSM network. 
 
 
6. This contract award could signify a greater 
transparency in government contract processes. 
Previously, U.S. firms had encountered difficulties 
obtaining government procurement contracts or taking 
advantage of trade opportunities. Some U.S. bidders 
alleged foreign competitors engaged in non-transparent 
lobbying practices that undercut U.S. corporations. 
U.S. firms also complained of foreign competitors 
utilizing fraudulent import documentation schemes to 
avoid payment of tariffs. 
 
 
7. In 2002, President Obasanjo established an office 
to review all capital projects exceeding the naira 
equivalent of $100,000. This effort reduced the most 
blatant forms of corruption in new capital projects, 
but the procedure is time-consuming, implemented by a 
small staff, not widely understood by contractors or 
civil servants, and can be circumvented by innovative 
contracting schemes. Nonetheless, it was this review 
process that helped secure the NITEL contract for a 
U.S. firm. 
 
 
8. Throughout 2002, the National Assembly and the 
Presidency battled over control of the budget process; 
a justification by the legislature for initiating 
impeachment proceedings against President Obasanjo in 
August 2002 was that the Executive spent at lower 
levels than the budget passed by the National 
Assembly. The 2002 budget as passed by the National 
Assembly was expansionary, almost 20 percent higher 
than the Executive's proposal. In the end, the GON 
restricted deficit spending to 12.5 percent of the 
annual recurrent budget, creating a spend-as-you- 
receive system of disbursements, paying salaries and 
overhead expenses only when oil revenues arrived; this 
process also delayed, even stopped work on most 
capital projects. 
 
 
9. The Central Bank of Nigeria reduced borrowing by 
states and local government authorities by mandating 
that banks set aside reserve requirements of 50 
percent for government loans, and requiring that the 
loans be paid in full by the spring 2003 end of tenure 
date for elected governments. Disagreement over fiscal 
policy was one factor that led the GON to announce the 
end of its monitoring agreement with the International 
Monetary Fund (IMF) in April 2002. 
 
 
10. A rash of deficit spending in 2000 and 2001 led to 
high inflation. More prudent government policies, 
including the fiscal policy rule and reduced growth of 
the money supply helped lower year-on-year inflation 
from 16.5 in 2001 to 12.2 percent in 2002. 
 
 
11. In July 2002, the Central Bank of Nigeria (CBN) 
re-introduced a modified Dutch Auction System (DAS) 
for foreign exchange that tied officially traded Naira 
to a market mechanism, greatly reducing the discount 
between the parallel market and officially traded 
Naira. Prior to the DAS, the spread between the two 
rates had risen to 17-20 percent, thus diverting a 
significant amount of banking activities from 
investment into non-productive arbitrage activities. 
 
 
12. 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 to 
provide sufficient capital to rejuvenate the country's 
declining industrial and agricultural sectors. 
Meanwhile, the GON-imposed interest rate caps on 
commercial sector lending in December 2002. 
Predictably, most banks now lend to only the most 
creditworthy customers at the GON-imposed rates and 
charge others informal fees in addition to interest in 
order to approximate the market rate. 
 
 
13. Tariff policy during 2002 took a step backward. 
Tariffs were raised on a number of finished products 
as well as raw and processed material inputs. Critical 
consumer items and foodstuffs such as printed 
textiles, wheat flour and frozen chicken were banned, 
while the tariffs on rice and detergent were raised to 
100 percent. The government seeks to enforce its 
tariff policy through 100 percent inspection of all 
goods entering the country, further hampering already 
poorly functioning ports. Tariff policy is 
inconsistent and subject to unexpected changes. An 
example: For much of 2002, the GON imposed a 100 
percent tariff on mosquito netting, reneging on 
Obasanjo's 2001 pledge to eliminate tariffs on goods 
vital to the control of malaria. That tariff is now 40 
percent. 
 
 
14. The GON continues to work toward restructuring the 
intellectual property rights regime. However, piracy 
of optical media remains a major issue. Lack of 
enforcement resources and trained enforcement staff, 
coupled with inadequate public and government 
understanding and appreciation of the benefits of IPR 
protection, make reversing this situation a difficult, 
long-term effort. The GON--by far the largest user of 
computers in the country--is making a serious effort 
to see that all government agencies use only licensed 
software, but it still remains the largest user of 
pirated software in the country. Meanwhile, the GON 
appears stalled in its efforts to bring its IPR 
legislation into full compliance with WTO TRIPS. 
 
 
Political Pluralism and the Rule of Law 
--------------------------------------- 
15. The elected civilian government is now in its 
fourth year, and the GON has repeated its commitment 
to the rule of law. Despite an executive-legislature 
impasse over budget and spending processes, and the 
threatened impeachment proceedings against President 
Obasanjo in fall 2002, the vast majority of Nigerians 
steadfastly support the democratic process. In late 
2002, the Independent National Election Commission 
(INEC) registered 27 new political parties, bringing 
the number of parties in the country to 30. A voter 
registration program was conducted in September 2002, 
albeit with widespread complaints that many Nigerians 
were unable to register due to a lack of materials and 
other irregularities. National elections, including 
presidential, state, and local elections, are 
scheduled for April 2003. 
 
 
16. Ethnic and religious tensions continued in parts 
of the country, including the Niger Delta. Communal 
clashes in the city of Warri and its environs left 
many dead. Oil fields in the region were shut down due 
to clashes between armed ethnic groups. Unrest 
continues to be a recurrent problem in Plateau State. 
More than two hundred persons died in rioting in 
Kaduna sparked by attempts to host the Miss World 
beauty pageant in Abuja. The GON continues to support 
peaceful ways of ending ethnic violence. Politically 
motivated assassinations increased in the last few 
months and the inability of the security forces to 
arrest the perpetrators of these crimes remains a big 
test for the rule of law. 
 
 
17. The Supreme Court made landmark decisions in early 
2002 that affirmed its role as the final arbiter of 
the national constitution in the ongoing process of 
the evolution of Nigeria's democratic federalist 
system. While the Supreme Court and Appellate Courts 
have distinguished themselves, overall the judicial 
system lacks the resources and administrative 
capability to function effectively. This results in 
long delays in resolving civil and criminal cases. 
 
 
18. In several instances in 2002, local Sharia courts 
imposed stoning sentences against women for adultery, 
which is a crime under the new Sharia code in many 
States in Nigeria. Several of the cases have been 
dismissed. In the highly publicized case of Safiya 
Husseini, the stoning sentence was overturned by a 
State Appellate Court in March. Another well- 
publicized stoning case is in the appellate process. 
The Federal Government has stated its opposition to 
these sentences, but says that, under the Nigerian 
constitution, the judicial process must resolve these 
matters. 
 
 
19. Corruption remains endemic throughout Nigerian 
institutions. Although an Independent Corrupt 
Practices and other Related Offences Commission (ICPC) 
is in place, the act establishing the commission is 
being challenged under a new "Anti-Corruption 
Commission Bill" passed by the National Assembly. 
President Obasanjo has refused to sign the new bill. 
Observers believe that the new corruption bill was 
passed in bad faith. The new bill focuses more on the 
structure and appointment of members of the Commission 
than punishment to be meted out to offenders. The new 
bill also gives immunity to the sitting members of the 
Nigerian Senate who were being probed by the ICPC. It 
was also these same senators who authored the new 
anti-corruption legislation. Under the new bill the 
Senate must ratify the appointment of the chairman of 
the commission who must be a retired judge of the 
court of appeals and will be appointed by a majority 
of the members of the commission itself. The president 
would no longer have any role in the appointment of 
the commission. Meanwhile, the current act has been 
criticized as a political tool of the Presidency that 
limits independent inquiries into allegations of 
corruption. 
 
 
Poverty Reduction 
----------------- 
20. Poverty reduction is the stated objective of the 
GON's economic agenda--nearly 70 percent of Nigerian 
live below the poverty line. Despite some improvement 
in the provision of basic services such as education 
and health, poverty reduction efforts have been 
stymied by a lack of policy cohesion and direction. As 
a result, many programs compete for limited 
international donor and GON resources. 
 
 
21. The GON is working 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 pace of economic growth and investment needed to 
spur poverty reduction. More emphasis must be placed 
on reviving Nigeria's now moribund agricultural 
sector. 
Labor/Child Labor/Human Rights 
------------------------------ 
22. All citizens have the right to form or belong to 
any trade union or other association for the 
protection of their interests. However, law permits 
only a single central labor federation, the Nigerian 
Labor Congress (NLC), and the GON recognizes only 29 
trade unions. According to figures provided by the 
NLC, total union membership was approximately 4 
million; less than 10 percent of the total work force 
was organized. The informal sector, and small and 
medium enterprises, largely remained unorganized. The 
labor laws provide for both the right to organize and 
the right to bargain collectively between management 
and trade unions. Collective bargaining occurred 
throughout the public sector and the organized private 
sector. Workers had the right to strike; however, 
certain essential workers were required to provide 
advance notice of a strike. The GON retained broad 
legal authority over labor matters and often 
intervened in disputes seen to challenge key political 
or economic objectives. However, the labor movement 
increasingly was active on issues affecting workers. 
The law prohibits forced or bonded labor; however, 
there were reports that it occurred and enforcement of 
the law was not effective. 
 
 
23. Children less than 15 years of age may not be 
employed in commerce and industry and children may not 
be employed in agricultural or domestic work for more 
than 8 hours per day. However, economic hardship has 
driven children to engage in commercial activities 
aimed at enhancing meager family income. The 
International Labor Organization (ILO) estimates that 
in 2002 approximately 12 million children between the 
ages of 10 and 14 (25 percent of all children) were 
employed in some capacity. Children frequently were 
employed as beggars, hawkers, and bus conductors in 
urban areas, and the use of children as domestic 
servants was common. Sadly, private and government 
initiatives to stem the growing incidence of child 
employment continued but were ineffective. President 
Obasanjo has taken an increased interest in this 
issue, particularly trafficking in children, and we 
expect more progress in this area in the future. 
 
 
24. Although there were improvements in several areas, 
the GON's human rights record remains mixed. The 
national police, military, and security forces have on 
occasion committed extrajudicial killings. The 
security forces have also been accused of using 
excessive force to apprehend criminal suspects and to 
quell incidents of ethno-religious violence. The GON 
continues to take steps to curb torture and beatings 
of detainees and prisoners. Sharia courts have 
sentenced persons to harsh punishments including 
amputations and death by stoning; however, no 
amputation or stoning sentences were carried out in 
2002. Prison conditions are harsh and life 
threatening, and the lack of sufficient food and 
adequate medical treatment contributed to the death of 
some inmates. Police and security forces use arbitrary 
arrest and detention, and prolonged pretrial detention 
remained a serious problem. The judicial system often 
was incapable of providing criminal suspects with 
speedy and fair trials. The GON generally respected 
freedom of speech and of the press; however, it placed 
some limits on freedom of assembly and association-- 
including religious proselytization--citing security 
concerns in areas that have experienced communal 
unrest. The GON occasionally restricted freedom of 
movement for security reasons in areas of unrest and 
used lethal force at checkpoints. 
 
 
AGOA Outreach, Technical Assistance, and Trade 
Capacity Needs 
--------------------------------------------- - 
25. The U.S. Mission in Nigeria is fully engaged in 
promoting AGOA throughout the country. In 2002, 
Mission economic, commercial, and public diplomacy 
officers worked closely with the Nigerian-American 
Chamber of Commerce, the Nigerian Stock Exchange, the 
Nigerian Economic Summit Group, and other Nigerian 
entities to facilitate business outreach and the 
development of strategic commercial partnerships to 
support AGOA. The U.S. Agency for International 
Development worked to promote agricultural exports, 
specifically working on gum arabic, sesame seeds, 
cashews, and other products. In particular, USAID 
supported the development of a laboratory to assist in 
export processing of gum arabic. In 2002, USAID also 
worked with two world-class textile and garment 
experts who demonstrated the large benefits in that 
sector that could accrue to Nigeria under AGOA. 
 
 
26. 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. 
 
 
27. 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 relative to 
foreign competition. In some less-serviced parts of 
Nigeria, they assert this figure climbs to 50 percent. 
Although infrastructure difficulties are real, an 
equally important obstacle is 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 cannot exploit AGOA on a large 
scale. A few products such as ginger, gum Arabic, and 
frozen prawns could possibly be exported to niche 
markets in the United States under AGOA, and USAID is 
working with potential exporters. Nigeria's reputation 
for corruption, criminal activity, and financial fraud 
serves as a disincentive to many potential U.S. 
importers and prevents them from engaging local 
entrepreneurs directly. 
 
 
28. Nigeria's business community is interested in the 
tariff benefits offered by AGOA, but in one key sector 
that could benefit from AGOA, textiles, the Nigerian 
National Assembly has yet to approve a visa regime 
that would allow such exports under AGOA. Even if this 
legislative hurdle is cleared, a poor investment 
climate, misguided macroeconomic policies, and a 
deficient infrastructure may prevent Nigeria from 
taking full advantage of AGOA within the textile 
industry. 
JETER