This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 10 ABUJA 000118 
 
SIPDIS 
 
TREASURY FOR DO/GCHRISTOPOLUS, USDOC FOR ITA/ATAYLOR 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV NI
SUBJECT: TRADE AND INVESTMENT CLIMATE STATEMENT, NIGERIA 
 
REF:  STATE 250356 
 
Overview 
 
With an estimated population of 140 million, Nigeria is 
Africa's most populous nation.  It offers investors a 
low-cost labor pool, abundant natural resources, and 
potentially the largest domestic market in sub-Saharan 
Africa.  Unfortunately, much of that market potential is 
unrealized.  Impediments to investment include inadequate 
infrastructure, corruption, an inefficient system of 
registering property, an inconsistent regulatory 
environment, misguided macroeconomic policies, and slow and 
ineffective courts and dispute resolution mechanisms. 
 
To succeed, investors must understand the Nigerian business 
environment and engage in problem solving with local staff, 
Nigerian partners and officials.  Potential investors must 
devise means of coping with poorly maintained infrastructure 
and arbitrary policy changes.  Security is of special 
concern.  Inadequate law enforcement compounds the country's 
high crime rate, and sporadic outbreaks of ethnic and 
religious violence continue. 
 
Military rule ended with the May 1999 inauguration of 
President Olusegun Obasanjo, leader of the dominant People's 
Democratic Party.  Obasanjo won a second term in Nigeria's 
largely peaceful April 2003 elections, but members of the 
opposition and international and domestic observers cited 
significant electoral malpractice in some parts of the 
country. 
 
The GON embarked on a reform program in late 2003 christened 
the National Economic Empowerment and Development Strategy 
(NEEDS), which attempts to address many of the problems 
caused by mismanagement and bad governance under years of 
military rule.  Freedom of expression and of the press is 
observed, and human rights violations have been reduced. 
Controls over foreign investment have been loosened, and 
earlier decrees inhibiting competition or conferring 
monopoly powers on public enterprises have been repealed or 
amended.  Despite these actions, policymakers' protectionist 
bent remains evident.  Trade policy is inconsistent, and the 
GON prohibits the importation of many goods, ostensibly to 
foster domestic production. 
 
Openness to Foreign Investment 
 
Since its inception in 1999, the Obasanjo administration has 
been soliciting foreign investment. President Obasanjo has 
traveled around the globe in pursuit of foreign investment. 
 
Legal Framework: With a few exceptions, the Nigerian 
Investment Promotion Commission (NIPC) Decree of 1995 allows 
100 percent foreign ownership of firms outside the petroleum 
sector, where investment is limited to existing joint 
ventures or new production-sharing agreements.  Industries 
considered crucial to national security, such as firearms, 
ammunition, and military and paramilitary apparel, are 
reserved for domestic investors.  Foreign investors must 
register with the NIPC after incorporation under the 
Companies and Allied Matters Decree of 1990.  The decree 
prohibits the nationalization or expropriation of foreign 
enterprises except in cases of national interest. 
 
Nigerian laws apply equally to domestic and foreign 
investors.  These include the Securities and Exchange Act of 
1999, the Foreign Exchange Act of 1995, the Money Laundering 
Act of 2003, the Banking and Other Financial Institutions 
Act of 1991, and the National Office of Technology 
Acquisition and Promotion Act of 1979. 
 
Privatization: Thtthe Privatization and Commercialization 
Act of 1999 established both the National Council on 
Privatization, the policymaking body overseeing the 
privatization of state-owned enterprises, and the Bureau of 
Public Enterprises (BPE), the body responsible for 
implementing the program.  The privatization of key sectors, 
including telecommunications and power, calls for core 
investors to acquire controlling shares in formerly state- 
owned enterprises.  To make the privatization program 
effective, the GON repealed or amended decrees that 
inhibited competition or conferred monopoly powers on 
parastatal firms.  Since 1999, the BPE has raised nearly 
$500 million by privatizing more than 30 enterprises, 
including cement manufacturing firms, banks, hotels, and 
vehicle assembly plants.  The BPE has failed, however, in 
its attempts to privatize the NICON Hilton Hotel and 
Nigerian Telecommunications Limited (NITEL).  Legislation 
that would provide a legal basis for privatization in some 
key sectors has yet to pass the National Assembly, though 
there are prospects for enactment in 2005. An example is the 
Power Sector Reform Bill that would open the power sector to 
competition, thereby ending the monopoly of the government- 
owned National Electric Power Authority (NEPA). 
 
The GON has substantially opened Nigeria's 
telecommunications sector.  The Telecommunications Act of 
2001 abolished requirements for standard mobile technologies 
and authorized the Nigerian Communications Commission (NCC) 
to issue licenses to existing and prospective service 
providers, effectively ending NITEL's monopoly over 
telecommunications services.  In early 2001, the NCC 
auctioned off GSM licenses, an effort that received 
commendation both in local and international circles for its 
transparency.  Four enterprises, including NITEL, won 
licenses.  Globacom won mobile, fixed, and international 
gateway licenses as Nigeria's second national operator in 
mid-2002. According to the NCC, the estimated total number 
of phone lines (both mobile and fixed line) in Nigeria at 
the end of 2004 was 9 million, and plans were underway for a 
total of 20 million lines by the end of 2005. 
 
Deregulation of the telecommunications sector has led to the 
issuance of licenses for fixed wireless networks, internet 
services, and VSAT (very small aperture terminal) satellite 
telecommunications equipment services.  The GON's hefty fees 
and opaque contract bidding procedures tend to slow the 
spread of these technologies, however. 
 
A GON attempt to privatize NITEL in late 2001 stalled when 
the winning bidder failed to meet payment deadlines.  When 
the reserve bidder declined to negotiate a contract, the GON 
chose not to move forward with NITEL's privatization. 
Instead the GON instructed the BPE to solicit expressions of 
interest for a three-year management contract.  The GON 
selected Pentascope International, a Dutch 
telecommunications consortium, to manage NITEL until 2006. 
The agreement requires Pentascope to supply 600,000 new 
fixed lines (to bring total installed capacity to 1.3 
million lines) and 1.2 million new mobile lines, up from 
about 120,000 now. The GON will again try to privatize NITEL 
in 2005 by selling at least 51 percent of NITEL shares at 
the end of Pentascope's management contract. Pentascope has 
been performing below the agreed benchmarks of the 
management contract signed in 2003. 
 
The privatization of Nigeria's National Electric Power 
Authority (NEPA) has moved slowly.  Given the complex nature 
of the sale, NEPA's poor financial condition, and strong 
public opposition, privatization will likely be difficult. 
NEPA is moving slowly to restructure its services into 
autonomous firms encompassing power generation, 
transmission, distribution, and billing. 
 
Conversion and Transfer Policies 
 
The Foreign Exchange Monitoring Decree of 1995 opened 
Nigeria's foreign exchange market.  The Interbank Foreign 
Exchange Market (IFEM), established in 1999, was replaced in 
July 2002 by a modified Dutch Auction System (DAS) that tied 
officially traded naira to a controlled market mechanism, 
thereby reducing the discount between the official and 
parallel markets to between five and eight percent by the 
end of 2004.  Earlier spreads of 17 to 20 percent had 
diverted an inordinate amount of banking activity to foreign 
exchange arbitrage. 
 
Foreign companies and individuals can hold domiciliary 
accounts in banks.  Account holders have unlimited use of 
their funds, and foreign investors are allowed unfettered 
entry and exit of capital.  On a day-to-day basis, however, 
banks often lack sufficient foreign exchange.  In 2002, in 
an attempt to reduce demand for foreign exchange, the 
Central Bank reduced the $10,000 per person Personal Travel 
Allowance to $4,000 and reduced the Business Travel 
Allowance to $10,000.  Officially, foreign exchange for 
travel must be issued in traveler's checks by commercial 
banks.  Persons may obtain less foreign exchange in a single 
transaction and travelers checks from registered bureaux de 
change. 
 
The NIPC guarantees investors unrestricted transfer of 
dividends (net a 10 percent withholding tax).  Companies 
must provide evidence of income earned and taxes paid before 
making remittances.  Money transfers usually take less than 
two weeks. All transfers are required by law to be made 
through banks, because banks are the only licensed foreign 
exchange agents. 
 
Expropriation and Compensation 
The GON has not expropriated or nationalized foreign assets 
since the late seventies. 
 
Dispute Settlement 
 
Investment Disputes: Nigeria's civil courts handle disputes 
between corporate bodies and the GON as well as between 
Nigerian businesses and foreign investors.  Court decisions 
occasionally go against the GON.  Nigerian law allows the 
enforcement of foreign judgments after proper hearings in 
Nigerian courts.  Plaintiffs receive monetary judgments in 
the currency specified in their claims. 
Legal System: Nigeria has a complex three-tiered legal 
system comprised of English common law, Islamic law, and 
customary law.  Most business transactions are governed by 
common law as modified by statutes to meet local demands and 
conditions.  At the pinnacle of the judicial system is the 
Supreme Court, which has original and appellate jurisdiction 
in specific constitutional, civil, and criminal matters as 
prescribed by Nigeria's constitution.  The Federal High 
Court has jurisdiction over revenue matters, admiralty law, 
banking, foreign exchange, other currency and monetary or 
fiscal matters, and lawsuits to which the federal government 
or any of its agencies are party.  Debtors and creditors 
rarely have recourse to Nigeria's pre-independence 
bankruptcy law.  In the Nigerian business culture, 
businessmen generally do not seek bankruptcy protection. 
Even in cases where creditors obtain a judgment against 
defendants, claims often go unpaid. 
 
Since 1999, the application of the rule of law has improved. 
The public is less reluctant to resort to the court system 
and more willing to litigate and seek redress without fear 
of reprisal.  However, use of the courts does not 
automatically imply fair or impartial judgments.  The 
Nigerian court system was recently classified by the World 
Bank's publication, Doing Business in 2005, as the eighth 
slowest country to enforce contracts, out of one hundred and 
forty-five countries surveyed. The report revealed that 
contract enforcement required 23 procedures and 730 days, 
the cost of which averaged 37.2 percent of the value of the 
contract. The Nigerian court system has too few court 
facilities, lacks computerized document processing systems, 
and poorly remunerates judges and other court officials, all 
of which encourage corruption and undermine enforcement. 
 
Alternative Dispute Resolution: The GON promulgated the 
Arbitration and Conciliation Act of 1988 (the Arbitration 
Act) that provides for a unified and straightforward legal 
framework for the fair and efficient settlement of 
commercial disputes by arbitration and conciliation.  The 
Act established internationally competitive arbitration 
mechanisms and fixed proceeding schedules, provided for the 
application of the UNCITRAL (United Nations Commission on 
International Trade Law) arbitration rules or any other 
international arbitration rule acceptable to the parties, 
and made the Convention on the Recognition and Enforcement 
of Arbitral Awards (New York Convention) applicable to 
contract enforcement, based on reciprocity.  The Act allows 
parties to challenge arbitrators and provides that an 
arbitration tribunal shall ensure that the parties are 
accorded equal treatment, and that each party has full 
opportunity to present its case. 
 
Performance Requirements/Incentives 
 
Nigeria regulates investment in line with the World Trade 
Organization's Trade-Related Investment Measures Agreement. 
Foreign companies operate successfully in Nigeria's service 
sector, including telecommunications, accounting, insurance, 
banking, and advertising.  The Securities and Exchange Act 
of 1988, amended in 1999 and renamed the Investment and 
Securities Act, forbids monopolies, insider trading, and 
unfair practices in securities dealings. 
 
To meet performance requirements, foreign investors must 
register with the Nigerian Investment Promotion Commission, 
incorporate as a limited liability company (private or 
public) with the Corporate Affairs Commission, procure 
appropriate business permits, and (when applicable) register 
with the Securities and Exchange Commission.  Manufacturing 
companies are sometimes required to meet local content 
requirements. Expatriate personnel do not require work 
permits, but they are subject to "needs quotas" requiring 
them to obtain residence permits that allow salary 
remittances abroad.  Larger quotas are allowed for 
professions deemed in short supply, such as deepwater 
oilfield divers.  U.S. companies often report problems 
obtaining quota permits. 
 
The GON maintains many different and overlapping incentive 
schemes.  The Industrial Development/Income Tax Relief Act 
No. 22 of 1971, amended in 1988, provides incentives to 
pioneer industries deemed beneficial to Nigeria's economic 
development and to labor-intensive industries, such as 
apparel.  Companies that receive pioneer status may benefit 
from a nonrenewable 100 percent tax holiday of five years 
(seven years if the company is located in an economically 
disadvantaged area).  Industries that achieve minimum local 
raw materials utilization of 60 to 80 percent may benefit 
from a 30 percent tax concession for five years, and 
investments employing labor-intensive modes of production 
may enjoy a 15 percent tax concession for five years. 
Additional incentives exist for the natural gas sector, 
including allowances for capital investments and tax- 
deductible interest on loans.  The GON encourages foreign 
investment in agriculture, mining and mineral extraction 
(non-oil), oil and gas, and the export sector.  In practice, 
these incentive programs meet with varying degrees of 
success. 
 
Technology Transfer Requirements: The National Office of 
Industrial Property Act of 1979 established the National 
Office of Technology Acquisition and Promotion (NOTAP) to 
facilitate the acquisition, development, and promotion of 
foreign and indigenous technologies.  NOTAP registers 
commercial contracts and agreements dealing with the 
transfer of foreign technology and ensures that investors 
possess licenses to use trademarks and patented inventions 
and meet other requirements before sending remittances 
abroad.  With the Ministry of Finance, NOTAP administers 120 
percent tax deductions for research and development expenses 
if carried out in Nigeria and 140 percent deductions for 
research and development using local raw materials. 
 
NOTAP recently shifted its focus from regulatory control and 
technology transfer to promotion and development, although 
the law establishing NOTAP has not changed.  With the 
assistance of the World Intellectual Property Organization, 
NOTAP has established a patent information and documentation 
center for the dissemination of technology information to 
end-users.  The office has a mandate to commercialize 
institutional research and development with industry. 
Unfortunately, following decades of neglect, most Nigerian 
research and development institutions operate far below 
optimal capacity. 
 
Import Policies: Tariffs provide the Government of Nigeria 
(GON) its (distant) second largest source of revenue after 
oil exports.  But frequent policy changes and uneven duty 
collection make importing difficult and expensive and create 
severe bottlenecks. Nigeria's dependence on imports 
aggravates the situation. In its last major tariff revision 
in March 2003, the GON cut duties on 230 line items (mostly 
raw materials, base metals, and capital equipment) but 
raised tariffs on 30 others (largely plastic, rubber, and 
aluminum articles).  Most increases were relatively small. 
The GON had announced similar cuts and increases in 2001 and 
¶2002. The GON announced in late 2004 that it will harmonize 
its tariff structure with the ECOWAS band of tariffs by the 
end of June 2005. 
 
Bans prohibit the import of about 60 specific goods 
including meat, fresh fruit, cassava, pasta, fruit juice in 
retail packs, toothpicks, soaps and detergents, textiles, 
plastics, and barite.  The GON banned 41 items in January 
¶2004. The GON announced in late 2004 that it will phase out 
the bans by January 2007. 
 
The Nigeria Customs Service (NCS) and the Nigerian Ports 
Authority (NPA) have exclusive jurisdiction over customs 
services and port operations.  Nigerian customs regulations 
and tariffs are set forth in the Customs, Excise, and Tariff 
(Consolidation) Decree No. 4 of 1995.  Nigerian law allows 
importers to clear goods on their own, but most importers 
employ clearing and forwarding agents.  Pre-shipment 
inspection (PSI) must be completed for all imports except 
those destined for free trade zones. 
 
In 2001 and again in 2003, Nigeria reduced its port 
taxes/levies and removed certain administrative obstacles 
that hampered efficient operations, reducing the number of 
security agencies stationed at the ports from over fifteen 
to just five.  The NCS announced plans to computerize its 
Lagos offices, and the NPA promised to begin clearing 
imports within 48 hours. 
 
Many importers under-invoice shipments and engage in 
currency arbitrage to minimize tariffs and lower their 
landed costs.  Others ship their goods to ports in 
neighboring countries, after which they are transported 
overland.  The NCS stepped up enforcement of its 100 percent 
physical inspection policy in 2001 in an attempt to check 
these practices, but officials admit they do not have the 
resources to inspect every incoming container.  Officials 
conduct spot checks on samples from most containers and 
profile importers for likely violations.  The NCS levies a 
50 percent surcharge on undeclared imports to penalize 
intentional duty evasion. 
 
In 2002 and again in 2003, the GON announced plans to 
replace its pre-shipment inspection regime with a regime 
mandating 100 percent destination inspections at Nigerian 
ports of entry. The proposed change was twice deferred amid 
doubts about officials' ability to implement it. Importers 
feared corruption would increase if the Nigerian Customs 
Service had sole purview over goods' classification and 
valuation. .  Many major shippers prefer pre-shipment 
inspection because it provides them with official 
documentation to refute charges of overvaluation or 
inappropriately classified goods. In October 2004, President 
Obasanjo announced the GON's resolve to commence destination 
inspection in 2005. The GON plans to announce a timetable 
for implementation of the scheme in 2005. 
 
Shippers report that efforts to modernize and 
professionalize the NCS and the NPA have reduced port 
congestion and clearance times, particularly at Lagos' Apapa 
Port, which handles over 40 percent of Nigeria's trade. 
This is particularly the case for container traffic. 
Nevertheless, bribery of customs and port officials remains 
commonplace, and smuggled goods routinely enter Nigeria's 
seaports and cross its land borders. 
 
Export Incentives: Investors registered with the Nigerian 
Export Promotion Council (NEPC) may benefit from certain 
export incentives.  A duty drawback scheme provides a 60 
percent refund to qualified importers, and an export 
development fund provides financial assistance to private 
exporters for expenses related to export promotion. 
Companies exporting at least 60 percent of their product may 
benefit from a 10 percent tax concession for five years.  A 
manufacture-in-bond scheme allows manufacturers that submit 
bonds for 110 percent of the value of duties assessed to 
import raw materials, intermediate products and machinery, 
other equipment, and spare parts duty-free.  The GON 
provides capital asset depreciation allowances of five 
percent on plant and machinery to manufacturers exporting at 
least 50 percent of their annual turnover if their products 
have at least 40 percent local raw materials content or 35 
percent value added.  An export grant funding scheme 
provides cash incentives for exporters who have exported a 
minimum of N50,000 ($375) of semi-manufactured products. 
The Central Bank allows exporters to retain foreign currency 
export proceeds.  In practice, however, these programs 
benefit few individuals and businesses. 
 
Although highly underutilized, the Nigerian Export-Import 
Bank provides commercial bank guarantees and direct lending 
to facilitate export sector growth.   The bank's Foreign 
Input Facility provides normal commercial terms of three to 
five years (or longer) for the importation of machinery and 
raw materials used for generating exports. 
 
While these agencies are meant to promote industrial 
exports, they remain burdened by uneven management, vaguely 
defined policy guidelines, and corruption.  Nigeria's 
overvalued currency also leaves exporters at a disadvantage. 
 
Government Procurement: The GON awards contracts under an 
open-tender system, advertising tenders in Nigerian 
newspapers and opening them to domestic and foreign 
companies.  Procurement has gradually become more 
transparent, but corruption persists. 
 
Procurement for capital projects is often subject to over- 
invoicing, which permits improper payments to private and 
public sector officials.  Many U.S. companies claim they are 
disadvantaged in obtaining GON contracts, even when they 
appear to have the best bids in technical and financial 
terms.  Unsuccessful U.S. bidders sometimes allege collusion 
between foreign competitors and key GON officials. 
 
In January 2001, the GON issued new procurement and 
contracting guidelines clarifying competitive tendering and 
decision-making procedures, defining bid security and 
mobilization fee rules, and providing for audits of capital 
projects.  The GON then established the Budget Monitoring 
and Price Intelligence Unit (BMPIU) to act as a 
clearinghouse for government contracts and procurement, and 
to monitor the implementation of projects to ensure 
compliance with contract terms and budgetary restrictions. 
Procurements above N50 million (about $380,000) are subject 
to full "due process," as the process is called, by the 
BMPIU. The GON has submitted public procurement legislation 
to the National Assembly to reorganize the BMPIU as a Bureau 
of Public Procurement. This act would require similar 
legislation to be enacted and procurement offices to be 
created by the state and local governments. 
 
Visa Requirements: Investors sometimes encounter 
difficulties acquiring entry visas and residency permits. 
Foreigners must obtain entry visas from Nigerian embassies 
or consulates abroad, seek expatriate position authorization 
from the Nigerian Investment Promotion Commission, and 
request residency permits from the Nigerian Immigration 
Service.  Investors report that this cumbersome process can 
take from two to 24 months and cost from $1,000 to $3,000 in 
facilitation fees. 
 
Right to Private Ownership and Establishment 
 
In accordance with the NIPC Decree of 1995, the GON supports 
competitive business practices and protects private 
property. 
 
Protection of Property Rights 
 
The GON recognizes secured interests in property, such as 
mortgages.  The recording of security instruments and their 
enforcement are subject to the same inefficiencies as those 
in the judicial system. The World Bank's publication, Doing 
Business in 2005, which surveyed 145 countries including 
Nigeria, revealed that Nigeria has the least efficient 
system for registering property, requiring 21 procedures and 
274 days, at a cost of 27.2 percent of the property value. 
 
Nigeria is a member of the World Intellectual Property 
Organization (WIPO) and a signatory to the Universal 
Copyright Convention, the Berne Convention, and the Paris 
Convention (Lisbon text).  The Patents and Design Decree of 
1970 governs the registration of patents, and the Standards 
Organization of Nigeria is responsible for issuing patents, 
trademarks, and copyrights.  Once conferred, a patent 
conveys an exclusive right to make, import, sell, or use a 
product or apply a process.  The Trademarks Act of 1965 
gives trademark holders exclusive rights to use registered 
trademarks for a specific product or class of products.  The 
Copyright Decree of 1988, based on WIPO standards and U.S. 
copyright law, makes it a crime to export, import, 
reproduce, exhibit, perform, or sell any work without the 
permission of the copyright owner.  Nigeria's copyright 
statutes also include the National Film and Video Censors 
Board Act and the Nigerian Film Policy Law of 1993. 
 
In 1999, amendments to the Copyright Decree incorporated 
trade-related aspects of international property rights 
(TRIPS) protection for copyrights, except provisions to 
protect geographical indications and undisclosed business 
information.  The amendment also gave the Nigerian Copyright 
Commission (NCC) additional enforcement powers. 
 
Four TRIPS-related bills and amendments are in various 
stages of preparation, but none has been forwarded to the 
National Assembly.  The bills would establish an 
Intellectual Property Commission, amend the Patents and 
Design Decree to make comprehensive provisions for the 
registration and proprietorship of patents and designs, 
amend the Trademarks Act to improve existing legislation 
relating to the recording, publishing, and enforcement of 
trademarks, and provide protection for plant varieties 
(including biotechnology) and animal breeds. 
 
The GON has signed the WIPO Internet treaties but has yet to 
ratify the treaties. The NCC claims, however, that it is 
already implementing the terms of the treaties. 
 
Patent and trademark enforcement remains weak, and judicial 
procedures are slow and subject to corruption.  Relevant 
Nigerian institutions suffer from low morale, poor training, 
and limited resources.  A key deficiency is inadequate 
appreciation of the benefits of IPR protection among 
regulatory officials, distributor networks, and consumers. 
The over-stretched and under-trained Nigerian police have 
little understanding of intellectual property rights.  The 
Nigeria Customs Service has received some WIPO-sponsored 
training, but officers who identify pirated imports are not 
allowed to impound offending materials unless the copyright 
owner has filed a complaint against a particular shipment, 
which happens rarely. 
Companies do not often seek trademark or patent protection, 
the enforcement mechanisms of which they consider 
ineffective.  Nonetheless, recent efforts to curtail abuse 
have yielded results.  The Nigerian police and the NCC have 
raided enterprises producing and selling pirated software 
and videos, and a number of businesses have filed high- 
profile charges against IPR violators.  In June 2004 in 
Lagos, duplicating equipment worth over $5 million was 
seized. Microsoft reported successful raids in 2002, and a 
bank using its software illegally was forced to buy an 
appropriate license. 
 
Most raids involving copyright, patent, or trademark 
infringement appear to target small rather than large and 
well-connected pirates. Very few cases  have been 
successfully prosecuted. Most cases are settled out of 
court, if at all.  Those adjudicated in court  are handled 
primarily by the Federal High Court, whose judges are 
generally broadly familiar with intellectual property rights 
law. 
 
Transparency of the Regulatory System 
 
Nigeria's legal, accounting, and regulatory systems are 
consistent with international norms, but enforcement is 
uneven.  Since 1999, opportunities for public comment and 
input into proposed regulations have increased. 
 
Professional organizations set standards for the provision 
of professional services: e.g., accounting, law, medicine, 
engineering, and advertising.  These standards are usually 
consistent with international norms.  No legal barriers 
prevent entry into business. 
 
Taxation: In general, Nigeria's tax laws do not impede 
investment, but the imposition and administration of taxes 
is highly uneven and lacks transparency.  Tax evasion is 
common, and individuals and businesses often collude with 
relevant officials to avoid paying taxes.  Nigeria has 
signed double taxation agreements with several countries, 
including Great Britain, France, the Philippines and Japan. 
The GON imposes a 7.5 percent tax rate on dividends, 
interest, rent, and royalties when paid to a bona-fide 
beneficiary under a tax treaty. 
 
Multiple taxes are a problem for businesses at state and 
local levels.  Companies within concurrent state and local 
jurisdictions may be expected to pay several taxes and 
levies. 
 
Efficient Capital Markets and Portfolio Investment 
 
The Nigerian Investment Promotion Commission Decree of 1995 
liberalized Nigeria's foreign investment regime, which has 
facilitated access to credit instruments provided by 
financial institutions.  Foreign investors who have 
incorporated their companies in Nigeria have equal access to 
all financial instruments.  Many investors consider the 
capital market, specifically the Nigerian Stock Exchange 
(NSE), a financing option, given commercial banks' high 
lending rates and short maturities of debt instruments. 
Despite restrictions on interest rates that banks agreed to 
in November 2002, commercial interest rates often exceed 20 
percent when fees and charges are included, and most loans 
are granted for no more than 360 days. 
 
Trading on the NSE remained buoyant in 2004..  The exchange 
operates six branches nationwide, and the volume of shares 
traded and market capitalization continue to rise.  The 
GON's divestment of equity in parastatal companies as well 
as initial public offerings (IPOs) and issuances of 
additional shares by listed companies have contributed to 
the exchange's growth. The NSE continues to expand its 
membership and investor pool.  Some 207 enterprises are 
listed on the exchange. 
 
Government debt instruments are available. Unlike federal 
government instruments of short and medium maturity, 
instruments of state governments are often considered high 
risk because of their historically poor performance. 
 
Banking System: Eighty-nine commercial banks operate in 
Nigeria.  The introduction of universal banking practices in 
December 2000 allowed banks to expand their services. 
 
Health of the Banking System: Capital concentration is 
significant, as Nigeria's 16 largest commercial banks held 
about 60 percent of the total industry assets, while the 5 
largest banks controlled about 40 percent of the industry's 
deposits in 2004. The Central Bank of Nigeria's initial 2004 
assessment of the banking industry revealed that 62 of 
Nigeria's 89 commercial banks were sound and satisfactory, 
14 marginal, 11 unsound, and two that could not be assessed 
because they had not rendered returns for the period. In 
2003, the Nigerian Deposit Insurance Corporation had 
reported that the industry's non-performing loans equaled 
21.6 percent of total loans granted in 2003. 
 
Following its early 2004 assessment, the CBN embarked on a 
reform of the banking system. On July 6, 2004 the CBN 
announced a fourteen-point reform program for the banking 
industry. The cardinal point of the reform program is the 
new minimum capital requirement of N25 billion ($190 
million) that all commercial banks must meet by December 31, 
¶2005. Although the new capital requirement is expected to 
lead to consolidation in the industry in the form of mergers 
and acquisitions, most banks are recapitalizing through the 
public sale of shares and private placements.  The 
Investment and Securities Act (1999) provides for mergers 
and acquisitions. 
 
Political Violence 
 
Social unrest, religious and ethnic strife, and crime affect 
many parts of Nigeria.  In the oil-rich Niger Delta, decades 
of official neglect, persistent poverty, as well as 
dislocations and environmental damage caused by energy 
projects have aggravated socioeconomic unrest.  Sabotage and 
vandalism of pipelines and other installations and 
kidnapping of Nigerian and expatriate oil workers are 
regular occurrences.  Many of these criminal activities are 
designed to extort cash from foreign operators. 
 
The Niger Delta Development Commission (NDDC) has a mandate 
to implement social and economic development projects in the 
Delta region, but the NDDC has been feckless.  State and 
local governments offer few social services.  Niger Delta 
residents continue to seek direct payments and other 
assistance from oil companies.  Some have implemented their 
own socioeconomic development programs to assist local 
communities, but many communities consider the company 
programs inadequate. 
 
Nigeria continues to experience religious and communal 
violence.  In November 2002, riots sparked by an editorial 
regarding the Miss World pageant left more than 200 dead in 
Kaduna.  Violence in the North-eastern state of Adamawa 
resulted in about 100 deaths in the first half of 2003, and 
sporadic ethno-religious violence in Plateau State resulted 
in several hundred deaths and the declaration of martial law 
in early 2004.  The advent of vigilante groups in various 
parts of the country has exacerbated violence. 
 
Corruption 
 
Domestic and foreign observers recognize corruption as a 
serious obstacle to economic growth and poverty reduction. 
Nigeria was third only to Bangladesh and Haiti in 
Transparency International's 2004 Corruption Perceptions 
Index. 
 
The Corrupt Practices and Other Related Offences Act of 2001 
established an Independent Corrupt Practices and Other 
Related Offences Commission (ICPC) to prosecute individuals, 
government officials, and businesses accused of corruption. 
Over 19 offenses are punishable under the Act, including 
accepting or giving gratification, fraudulent acquisition of 
property, and concealment of fraud.  Nigerian law stipulates 
that giving and receiving bribes are criminal offences and, 
as such, are not tax deductible.  Despite the new 
legislation, few people have been indicted, and corruption 
remains endemic. 
 
The Economic and Financial Crimes Commission was established 
also to prosecute individuals involved in financial crimes 
and other acts of economic sabotage. The EFCC now has over 
500 individuals in custody and about50 cases in court, but 
it has achieved only one conviction. 
 
Nigeria is a pilot participant in the Extractive Industry 
Transparency Initiative, which will help ensure audits of 
Nigeria's oil accounts. 
 
 
Nigeria is a signatory to the UN Anticorruption Convention, 
but has yet to ratify it. 
 
Bilateral Investment Agreements 
 
Investment Agreements: While a Trade and Investment 
Framework Agreement (TIFA) has been signed with the United 
States, a bilateral investment treaty is not in place. 
Nigeria has bilateral investment agreements with the United 
Kingdom, Germany, Belgium, South Africa, Italy, Argentina, 
Egypt, South Korea, China, Jamaica, Sweden, Switzerland, 
Turkey, Uganda, and Romania. 
 
Investment Insurance Programs 
 
In 2002, Nigeria put into effect a 1999 agreement allowing 
the U.S. Overseas Private Investment Corporation to offer 
all its products to U.S. investors in Nigeria. 
 
Labor 
 
Over the past decade, Nigeria's skilled labor pool has 
declined as vocational and university educational standards 
have plummeted, mainly because of poor funding.  Given the 
low employment capacity of Nigeria's formal sector, nearly 
half of all Nigerians are unemployed or underemployed and 
rely on the informal sector as a means of support.  In the 
formal sector, companies involved in businesses such as 
banking and insurance possess an adequately skilled 
workforce (often trained abroad, in private institutions, or 
at the better-funded universities).  In the manufacturing 
sector, workers often require additional training and 
supervision, but there are too few supervisory personnel to 
ensure that this is done well.  .  Labor-management 
relations in some sectors, especially in the country's 
profitable oil and gas industries, are strained. 
 
The Right of Association: Nigeria's Constitution guarantees 
the rights of free assembly and association and protects 
workers' rights to form or belong to trade unions.  Several 
statutory laws nonetheless restrict the rights of workers to 
associate or disassociate with labor organizations.  Since 
the establishment of the single trade federation system in 
1978, non-management senior staff have been prohibited from 
joining government-recognized trade unions.  Although the 
Trade Union Congress and the Congress of Free Trade Unions 
are regarded as influential labor federations, the two 
senior staff associations are denied seats on Nigeria's 
National Labor Advisory Council (NLAC).  A GON bill to amend 
the law is working its way through the National Assembly. 
 
Nigeria's single central labor federation, the Nigeria 
Labour Congress (NLC), comprises twenty-nine industrial 
unions.  According to figures provided by the NLC, total 
union membership at the end of 2002 was about 4 million. 
Less than 10 percent of the total work force is unionized, 
and except for a few workers engaged in commercial food 
processing, those in the agricultural sector, which employs 
the bulk of the work force, are not organized. 
 
Collective Bargaining: Collective bargaining occurred 
throughout the public sector and the organized private 
sector in 2002 and 2003, but public sector employees have 
become increasingly concerned about the GON's commitment to 
the collective bargaining process in resolving conflicts. 
According to the NLC, the GON's failure to implement 
agreements threatens to "devalue the enviable record of 
dialogue, consultation, and mutual trust that has 
characterized the relationship between Federal Government 
and the NLC since 1999." 
 
Collective  bargaining in the petroleum industry is 
relatively efficient compared to that in other sectors. 
Except for a longstanding unresolved dispute over the 
industry's use of contract labor, issues pertaining to 
salaries, benefits, health and safety, and working 
conditions tend generally to be resolved quickly through 
negotiations.  However, organized labor's efforts to address 
broad political issues, however, have resulted in 
industrial actions, such as general strikes over fuel prices 
that continue to affect industry productivity. 
 
Workers under collective bargaining agreements cannot 
participate in strikes unless their unions comply with the 
requirements of the law, which includes provisions for 
mandatory mediation and referral of disputes to the GON. 
The law provides the GON the option of referring matters to 
a labor conciliator, an arbitration panel, a board of 
inquiry, or the National Industrial Court (NIC).  Although 
the law forbids employers from granting general wage 
increases to workers without prior government approval, the 
law is not often enforced.  Strikes in both the private and 
public sectors nonetheless often occur. 
The Nigerian labor minister may refer unresolved disputes to 
the Industrial Arbitration Panel (IAP) and the NIC.  Union 
officials question the effectiveness and independence of the 
NIC in view of its refusal to resolve disputes stemming from 
the GON's failure to fulfill contract provisions for public 
sector employees.  The NIC was reconstituted in 2001. 
Several new members were added including a formerly 
imprisoned trade unionist, Milton Dabibi, but union leaders 
continue to criticize the arbitration system's dependence on 
the labor minister's referrals. 
 
Child Labor: Nigeria has ratified the International Labor 
Organization (ILO) convention on the elimination of the 
worst forms of child labor.  The 1974 Labor Decree and the 
1979 Constitution prohibit forced or compulsory labor and 
restrict the employment of children under the age of 15 to 
home-based agricultural or domestic work for no more than 
eight hours per day.  The Decree allows the apprenticeship 
of youths as of the age of 13 under specific conditions. 
 
Despite this, Nigeria's weak economy has forced many 
children into commercial activities to enhance family 
income.  The ILO estimates that about 12 million children 
between the ages of 10 and 14 (25 percent of all Nigerian 
children) were employed in some capacity in 2002, often as 
beggars, hawkers, or domestic servants. 
 
Acceptable Conditions of Work: Nigeria's 1974 Labor Decree 
provides for a 40-hour workweek, two to four weeks of annual 
leave, and overtime and holiday pay for all workers except 
agricultural and domestic.  No law prohibits compulsory 
overtime.  The Decree establishes general health and safety 
provisions, some of which are specific to young or female 
workers, and requires the factory division of the Ministry 
of Labor and Employment to inspect factories for compliance 
with health and safety standards.  Under-funding and limited 
resources undermine the agency's oversight capacity, and 
construction sites and other non-factory work sites are 
often ignored.  Nigeria's labor law requires employers to 
compensate injured workers and dependent survivors of 
laborers killed in industrial accidents, but the Labor 
Ministry has been ineffective in identifying violators and 
has failed to implement ILO recommendations to update its 
inspection program and reporting of accidents. 
 
Foreign Trade Zones/Free Ports 
 
To attract export-oriented investment, the GON established 
the Nigerian Export Processing Zone Authority (NEPZA) in 
¶1992.  NEPZA allows duty-free import of all equipment and 
raw materials into its zones.  Up to 25 percent of 
production in an export processing zone may be sold 
domestically upon payment of applicable duties.  Investors 
in the zones are exempt from foreign exchange regulations 
and taxes and may freely repatriate capital. 
 
Of the five export processing zones established under NEPZA, 
just two, in Calabar and Onne, function properly.  In 2001, 
both were converted into free trade zones, thereby freeing 
them from the export requirement.  As a result, investment 
is quickly moving into Calabar, almost exclusively in 
industries that add value to Nigerian imports.  Only one 
firm in Calabar appears to be exporting in a consistent 
fashion.  Oil and gas companies use the Onne free port zone 
as a bonded warehouse for supplies and equipment and for the 
export of liquefied natural gas. 
 
Foreign Direct Investment 
 
In 2003, the stock of foreign direct investment (FDI) in 
Nigeria was estimated at $24 billion, which accounted for 
about 43 percent of GDP.  Total FDI Inflow was $1.2 billion 
in 2003 and accounted for 36 percent of gross fixed capital 
formation. The stock of U.S. FDI in Nigeria totaled $2.1 
billion in 2003, up from $1.8 billion the year before.  Most 
FDI is concentrated in the oil and gas sector.  Oil 
companies report that much FDI continues to fund oil and gas 
exploration and production, liquefied natural gas projects, 
and related activities.  Some FDI is channeled into 
telecommunications and manufacturing, but the total remains 
small relative to oil sector investment. 
 
CAMPBELL