VZCZCXRO4278
PP RUEHMA RUEHPA
DE RUEHUJA #2108/01 2751250
ZNR UUUUU ZZH
P 021250Z OCT 07
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 1086
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 7996
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 05 ABUJA 002108 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR AF/EPS (POTASH) 
DEPARTMENT PASS TO USTR (HAMILTON) 
 
E.O. 12598: N/A 
TAGS: ETRD AGOA ECON NI
SUBJECT: NIGERIA - 2008 AGOA ELIGIBILITY REVIEW 
 
REF: STATE 132189 
 
¶1. (U) Country:  Nigeria 
Current AGOA Status:  Eligible 
 
¶2. (U) Country Background Summary:  Estimated population of 140 
million.  2005 GNI was $74.2 billion; 2005 GNI per capita was $560 
(World Bank 2006 Data).  Nigeria continues to struggle to 
consolidate democracy during handover from civilian to civilian rule 
in its national and state elections in April 2007 that were marred 
by irregularities and fraud.  The government is making slow progress 
in developing an open economy, minimizing government interference, 
and promoting free market principles. 
 
Comments on Eligibility Requirements - Market-based Economy 
---------------------------------------- 
 
¶3. (U) Major Strengths Identified:  The government has committed to 
transitioning from a state directed economy to one driven by market 
forces.  The economy has witnessed overall macroeconomic stability 
in recent times characterized by stable foreign exchange rates, 
single-digit inflation, and falling interest rates.  The "Wholesale 
Dutch Auction" system of foreign exchange trading was introduced in 
early 2006, and has led to a sharp reduction in the spread between 
the official and parallel market exchange rates.  The government has 
also restructured its domestic debt portfolio from 91-day Treasury 
Bills to Bonds with one to ten years duration.  Nigeria received 
debt relief from the Paris Club during the fourth quarter of 2005 
resulting in a debt write-off of $18 billion.  The government paid 
up its London Club debts during the first quarter of 2007. 
 
¶4. (U) The government has a Policy Support Instrument (PSI) with the 
IMF, which is a new approach to IMF monitoring.  In August 2007, the 
IMF conducted its fourth and final review under the PSI and the 
outcome of the evaluation was positive.  The IMF assessment team 
considered the overall economic outlook as positive.  The government 
is in discussions with the IMF regarding another PSI covering 
2008-2010. 
 
¶5. (U) Power sector reforms are ongoing and the unbundling of the 
National Electric Power Authority (NEPA) has been concluded.  A 
holding company made up of 18 companies, Power Holding Company 
(PHCN), has taken over the assets and liabilities of NEPA, while an 
electricity regulatory commission (NERC) has been established.  The 
Bureau of Public Enterprises (BPE) plans to privatize all the 
companies and enable private investment in generation and 
distribution.  Port concessions are moving forward and an 
international company was awarded the concession to manage the 
country's largest port--Apapa Port in Lagos. 
 
¶6. (U) The Fiscal Responsibility Act to ensure transparency in the 
use of government revenue and a Public Procurement Act to ensure 
transparency and value for money in government procurement have been 
passed.  There are plans to enact both laws in the 36 states of the 
federation before the end of 2007.  The Nigerian Communications 
Commission (NCC) introduced a unified licensing regime in the first 
quarter of 2006 to further deregulation and spur competition. 
Nigeria Telecommunications Ltd (NITEL) privatization was concluded 
in July 2006 and sold to Transcorp, a local conglomerate.  Nigeria 
is a WTO member.  Civil Service reform is progressing with the 
monetization of in-kind benefits implementation, and downsizing of 
33,000 public servants completed. 
 
¶7. (U) Nigeria 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.  The NEEDS program is 
due for review at the end of 2007.  Savings from excess monies from 
crude oil sales above the budget benchmark price have been put into 
a special reserve account, rather than used to fuel fiscal 
expansion.  The government budget process is taking its rightful 
position as an economic policy and management tool.  The budget 
deficit has been kept in check.  All three tiers of government are 
adhering to fiscal discipline which resulted in the creation of the 
excess crude account.  Prudent public expenditure management 
resulted in an accumulated savings of $24.36 billion in 2006.  The 
savings comprised the $9.08 billion unspent from the 2005 excess 
crude earnings and $15.28 billion accumulated in 2006. 
 
¶8. (U) Financial sector reforms are ongoing.  The Central Bank of 
Nigeria's directive that banks recapitalize from the 2 billion naira 
($16 million) to 25 billion naira ($197 million) by December 31, 
2005 was successfully completed, leading to a reduction in the 
number of banks from 89 to 25 banking groups.  Pension and insurance 
reform are moving forward.  A Trade and Investment Framework 
Agreement (TIFA) with the 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 4% in 2005 over 2004.  In 2006, U.S. 
 
ABUJA 00002108  002 OF 005 
 
 
exports to Nigeria increased 37.6% from 2005. 
 
¶9. (U) Major Issues/Problems Identified: The government has been 
challenged regarding the constitutionality of setting aside oil 
revenues above the budget benchmark price in the Excess Crude 
Account (ECA).  The constitution requires that all oil revenue be 
deposited into the Federation Account and then shared among the 
federal, states and local governments.  The ECA was established 
without an enabling law, yet was implemented.  The federal 
government plans to introduce legislation that would make an oil 
reserve account legal.  To achieve this, a constitutional amendment 
may be required because the constitution stipulates that all the 
revenues accruing to the federation account must be shared by the 
federal, states, and local governments.  The challenge of fiscal 
dominance and continuing structural reforms exists. 
 
¶10. (U) A huge and inefficient public sector dominates and inhibits 
faster development of the formal sector.  Much of the nation's 
wealth is concentrated in the hands of tiny military, political, and 
commercial elites through corruption and non-transparent government 
contracting practices.  The banking system is poorly performing 
intermediation, therefore impeding small and medium investors. 
Regulatory and tax regimes are arbitrarily enforced.  Regulatory 
bodies are weak and ineffective.  Oil and gas receipts account for 
80% of government revenues and over 95% of exports.  Fuel subsidies 
are not budgeted or nontransparent and fuel prices continue to be 
regulated and subsidized.  The Nigerian National Petroleum 
Corporation (NNPC) directly accesses the national treasury; and the 
potential for corruption and abuse are enormous.  Economic data and 
statistics are of unreliable quality and availability.  Inadequate 
and unreliable infrastructure is a major barrier to private sector 
activity.  Nigeria faces growing pressure for looser fiscal and 
monetary policy. 
 
¶11. (U) The establishment of the Nigerian Intellectual Property 
Commission (NIPCOM) that was announced early 2007 is yet to be 
backed by enabling legislation.  The 1978 Land Use Act mandates 
state ownership of land; private use of land is restricted to a 
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. 
 
¶12. (U) Multiple bans in violation of WTO rules in the last three 
years have affected imports of many agricultural products and 
others.  These arbitrary bans encourage smuggling.  Import bans 
accompanied by sole source importation rights to favorite partners 
have impeded competition.  Comprehensive trade reform by adoption of 
the ECOWAS Common External Tariff was implemented in the last 
quarter of 2005; however, 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.  Little if any 
progress has been made as the result of TIFA negotiations. 
Negotiators reported that the former President ultimately made 
decisions on trade and investment issues. 
 
¶13. (U) The Nigerian government procurement process 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.  The 
availability of fuel import subsidies are limited to NNPC, forcing 
out potential competitors in the downstream fuel market.  Local 
content requirements impose additional costs on investments.  Across 
several sectors, the government employs predatory negotiating 
tactics, including threats to access to inputs, customs and other 
legal approval processes, and transferring contracts to entities 
that cannot uphold contract terms.  Foreign Exchange repatriation 
regulations are enforced arbitrarily.  Access to imported inputs 
under the Manufacturers-in-Bond Scheme is suspended, highly 
politicized and is available only by Presidential directive. 
 
Political Reforms/Rule of Law/Anti-Corruption 
--------------------------------------------- 
 
¶14. (U) Major Strengths Identified:  Elections were held in April 
2007 for state governors and assemblies, national legislators and 
the President, and despite being significantly flawed, represented 
the first transition from one civilian elected government to another 
since Nigeria's independence in 1960.  The Nigerian judiciary has 
made several landmark decisions in 2007, affirming its role as an 
independent arbiter of the national constitution.  The results of 
the elections tribunals will, however, be closely watched as a 
measure of judicial fairness and independence. 
 
¶15. (U) Nigeria signed a transparency and anti-corruption agreement 
with the United States and other G-8 members at the Sea Island 
 
ABUJA 00002108  003 OF 005 
 
 
Summit in 2004.  Nigeria has established programs to combat 
corruption, many of which receive support from the United States and 
other donors.  Since its establishmen{bwzQSFogtT 
jQrndering and 
misappropriation of funds and had been on trial, was recently 
released through a plea bargain that resulted in the forfeiture of 
several of his properties and bank accounts both locally and 
internationally.  Five former state governors are currently facing 
trial.  The EFCC is investigating ongoing corruption charges against 
some former state governors and their associates.  The top levels at 
the Customs Administration were replaced following corruption 
charges.  In 2005, 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. 
 
¶16. (U) Major Issues/Problems Identified:  The elections of 2007 
were marred by serious irregularities and fraud, with violence in 
some areas.  International and domestic observers pointed to 
widespread corruption of the electoral process, including ballot 
stuffing, intimidation and violence, deliberate miscounting, results 
tampering, and exclusion of opposition candidates.  More than 600 
petitions were filed with the electoral tribunals, contesting QIUC!~+{Qentified:  The government poverty 
strategy does not clearly link goals and methods; serious concerns 
remain about fiscal transparency; and human capacity for project 
implementation is weak.  The government is implementing the poverty 
program slowly. 
 
Workers' Rights/Child Labor/Human Rights 
---------------------------------------- 
 
¶20. (U) Major Strengths Identified:  The Nigerian constitution 
protects the right of association and the right to organize and 
bargain collectively, but statutory restrictions remain. 
Improvements are in place.  Most workers, except for members of the 
armed forces, police, employees designated essential by government, 
and employees in export processing zones, may join trade unions and 
strike, but reasons for striking are limited.  In June 2005, a court 
struck down legislation that required a police permit for all public 
rallies and processions. 
 
¶21. (U) In 2002, President Obasanjo signed the International Labor 
Organization (ILO) Conventions 182 on the Worst Forms of Child 
Labor, 138 on Minimum Age for Employment, and111 on Equality of 
 
ABUJA 00002108  004 OF 005 
 
 
Occupation.  The GON ratified ILO Conventions 87 on Freedom of 
Association and 98 on the Right to Organize and Collective 
Bargaining.  The government has also ratified ILO conventions on 
forced labor.  Worker rights and child labor laws have been enacted, 
but to date the Child Rights Act has only been ratified by six 
states.  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.  New legislation 
was passed in 2003 outlawing human trafficking, and the National 
Agency for the Prohibition of Trafficking in Persons (NAPTIP) was 
established.  The country made some progress in the area of human 
rights, including the arrests of 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. 
 
¶22. (U) The relationship between the government and the two union 
federations (the Nigerian Labor Congress and Trade Union Congress) 
has improved with the swearing in of the Yar'Adua administration.  A 
national labor strike in June 2007 was peaceful, with security 
forces and labor members showing considerable restraint.  The 
Yar'Adua administration reversed several policies of the Obasanjo 
government opposed by labor, including: a partial reduction of the 
fuel price increase and a guarantee not to raise the price further 
for one year, a reversal of the VAT increase, a review of the Port 
Harcourt and Kaduna refinery sales, and an agreement to pay an owed 
civil servant salary increase. 
 
¶23. (U) Major Issues/Problems Identified:  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 a 
central labor organization, and violates the ILO convention on the 
Right of Association.  The 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; however, these sections of the law 
have not been enforced in practice.  The Act ended the Nigerian 
Labor Congress' status as the sole, central labor organization, and 
shortly there after, the Trade Union Congress 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, and by the increased 
use of casual labor, especially in the oil industry. 
 
¶24. (U) The law provides all citizens with the right to form or 
belong to any trade union or other association for the protection of 
their interests, and while workers exercised this right in practice, 
several statutory restrictions on the right of association and on 
trade unions restricted this right.  The informal sector, and small 
and medium enterprises, remained largely unorganized.  The law 
prohibits national strikes and strikes on many issues, although this 
was not enforced.  There are no laws to prohibit retribution against 
strikers, but strikers who believed they were victims of unfair 
retribution could submit their cases to Industrial Arbitration Panel 
(IAP).  Decisions of these bodies infrequently carried the force of 
law.  The labor laws apply to legal foreign workers, but not all 
companies respected these laws in practice.  Payments of salaries to 
federal, state and local government workers are 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. 
 
¶25. (U) The government places limits on freedom of assembly and 
association, citing security concerns.  Trafficking in persons for 
purposes of sexual exploitation and forced labor is a problem, 
allegedly with the collusion of government officials.  Some persons, 
including children, are subjected to forced labor and sexual 
exploitation.  The rate of child labor is rising.  Young boys were 
trafficked primarily to work as forced bondage laborers, street 
peddlers, and beggars; while girls were trafficked for domestic 
service and commercial sexual exploitation.  Domestic violence and 
discrimination against women remain widespread, underreported, and 
considered socially acceptable.  Police rarely intervene in cases of 
domestic abuse.  Rape and sexual harassment are common, to the point 
that rape is considered epidemic at universities.  Women and girls 
in all parts of the country are subjected to female genital 
mutilation (FGM), which the government publicly opposes.  Laws 
protecting the rights of the child are inadequate and seldom 
enforced.  Child abuse, abandonment, and exploitation for labor or 
sex remain serious problems.  Outbreaks of violence and community 
unrest in the oil-producing Niger Delta caused disruption in 
Nigeria's oil production and proceeds.  The law prohibits 
homosexuality; homosexual practices are punishable by prison 
 
ABUJA 00002108  005 OF 005 
 
 
sentences of up to 14 years.  In the 12 northern states that have 
adopted Shari'a law, adults convicted of having engaged in 
homosexual intercourse are subject to execution by stoning; however, 
this sentence has not yet been handed down in practice.  Persons 
living with HIV/AIDS experienced widespread discrimination in 
seeking employment and health care services. 
 
International Terrorism/U.S. National Security 
--------------------------------------------- - 
 
¶26. (U) Major Strengths Identified:  President Obasanjo took 
personal action in building West African support for anti-terrorism 
coalition activities.  In June 2007, the Nigerian Financial 
Intelligence Unit (NFIU) was admitted as a member of the Egmont 
Group of FIUs.  In June 2006, Nigeria was de-listed from the 
Financial Action Task Force list of Non-Cooperative Countries and 
Entities.  The Nigerian Financial Intelligence Unit, Economic and 
Financial Crimes Commission, Securities and Exchange Commission, 
Central Bank and other regulators in the financial services industry 
are collaborating to identify and freeze terrorist assets in 
Nigeria. 
 
¶27. (U) Major Issues/Problems Identified:  Although the Yar'Adua 
government has agreed to fulfill all existing commitments to provide 
peacekeepers, the new administration has been slow in implementing 
commitments in Darfur and Somalia. 
 
PIASCIK