VZCZCXRO2520
PP RUEHMA RUEHPA
DE RUEHUJA #0122/01 0191020
ZNR UUUUU ZZH
P 191020Z JAN 07
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 8368
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 5950
RUEHWR/AMEMBASSY WARSAW 0067
RUEHCD/AMCONSUL CIUDAD JUAREZ 0065
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPCIM/CIMS NTDB WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 10 ABUJA 000122 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EB/IFD/BOIA 
DEPARTMENT PLEASE PASS TO USTR 
 
E.O. 12598: N/A 
TAGS: KTDB EINV ETRD EFIN OPIC USTR NI
SUBJECT: NIGERIA: 2007 INVESTMENT CLIMATE STATEMENT 
 
REF: 06 STATE 178303 
 
ABUJA 00000122  001.2 OF 010 
 
 
¶1. (U) The following information is Nigeria's 2007 Investment 
Climate Statement. 
 
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, 
restrictive trade 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 cope 
with poorly maintained infrastructure and arbitrary policy 
changes.  Security is of special concern.  There are repeated 
cases of hostage taking in the oil-rich Niger Delta region. 
Inadequate law enforcement compounds the country's high crime 
rate, and sporadic outbreaks of communal 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 which were marred by significant 
electoral malpractice in some parts of the country. General 
elections are due in April 2007 and Obasanjo is constitutionally 
required to hand over power on May 29, 2007. 
 
The government of Nigeria (GON) embarked on a reform program in 
late 2003 christened the National Economic Empowerment and 
Development Strategy (NEEDS).  Freedom of expression and of the 
press is observed, and human rights violations have been reduced 
from the time of military rule, although the country's human 
rights record remains poor.  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 1999, 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: The Privatization and Commercialization Act of 
1999 established the National Council on Privatization, the 
policymaking body overseeing the privatization of state-owned 
enterprises, and the Bureau of Public Enterprises (BPE), to 
implement the program.  The privatization of key sectors, 
including telecommunications and power, calls for core investors 
to acquire controlling shares in formerly state-owned 
enterprises.  The GON repealed or amended decrees that inhibited 
competition or conferred monopoly powers on parastatal firms. 
Since 1999, the BPE has raised over $500 million by privatizing 
more than 100 enterprises, including cement manufacturing firms, 
 
ABUJA 00000122  002.2 OF 010 
 
 
banks, hotels, and vehicle assembly plants. 
 
With the passage of the Power Sector Reform Bill in 2005, a power 
sector regulator, the Nigerian Electricity Regulatory Commission 
(NERC) was created with responsibility for tariff regulation and 
economic and technical regulation of the electricity supply 
industry.  Since its inception, the NERC has issued nine licenses 
to independent power producers in the electricity industry. 
 
The privatization of Nigeria's Power Holding Company of Nigeria 
(PHCN -- formerly the National Electric Power Authority or NEPA) 
has moved slowly.  Given the complex nature of the sale and the 
entity's poor financial condition, privatization will likely be 
difficult.  PHCN is moving slowly to restructure its services 
into autonomous firms encompassing power generation, 
transmission, distribution, and billing. 
 
The GON has substantially opened Nigeria's telecommunications 
sector.  The Telecommunications Act of 2001 authorizes the 
Nigerian Communications Commission (NCC) to issue licenses to 
existing and prospective service providers.  Four enterprises, 
including NITEL, have 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 August 2006 was 27.95 million and teledensity is 
23.29.  This is an improvement from the December 2005 figure of 
19.8 million lines and teledensity of 16.27.  The NCC began the 
unified licensing regime in May 2006, awarding the first batch of 
unified licenses to four telecommunication service providers. 
The unified license permits telecommunications companies to offer 
services across the board in telecommunications, including fixed 
line, wireless, data services, etc.  This marks the end of the 
five-year exclusivity incentive granted the mobile telephone 
licensees in 2001. 
 
The NCC recently announced its intention to auction radio 
spectrum in the 1800 MHz, 3G and 450 MHz bands, leading to the 
award of new licenses.  The NCC appointed the PA Consulting 
Group, a firm of international management consultants, to assist 
it with the licensing process slated for early 2007. 
 
Telecommunications deregulation has led to the issuance of 
licenses for fixed wireless networks, internet services, and VSAT 
(very small aperture terminal) satellite telecommunications 
equipment services.  However, the GON's hefty fees and opaque 
contract bidding procedures tend to slow the spread of these 
technologies. 
 
Conversion and Transfer Policies 
 
The Foreign Exchange Monitoring Decree of 1995 opened Nigeria's 
foreign exchange market.  In February 2006, in accordance with 
its plan to liberalize the foreign exchange market, Nigeria 
adopted a Wholesale Dutch Auction System (W-DAS) which gives 
banks more control of the foreign exchange market, though the 
Central Bank retains its supervisory role over the market. 
 
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.  There is a $4,000 quarterly Personal Travel Allowance 
for foreign exchange and a $5,000 quarterly Business Travel 
Allowance per individual. Foreign exchange for travel is usually 
issued in travelers checks by commercial banks while some 
authorized dealers also issue pre-paid cards that can be used on 
Visa machines worldwide.  Persons may obtain lesser amounts in 
foreign exchange in a single transaction and travelers checks 
from registered bureau 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 1970s. 
 
Dispute Settlement 
 
ABUJA 00000122  003.2 OF 010 
 
 
 
Investment Disputes:  Nigeria's civil courts handle disputes 
between corporate bodies and the GON as well as between Nigerian 
businesses and foreign investors.  The courts occasionally rule 
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 
composed of English common law, Islamic law, and Nigerian 
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. 
 
The public increasingly resorts to the court system and is more 
willing to litigate and seek redress.  However, use of the courts 
does not automatically imply fair or impartial judgments.  In the 
World Bank's publication, Doing Business 2007 How to Reform, 
which surveyed 175 countries including Nigeria, concluded GON 
efforts have led to improvements in the way business is 
conducted.  Regarding the enforcement of contracts countries 
surveyed Nigeria was ranked 66 out of 175.  This is an 
improvement compared with the 2005 survey where it was classified 
as the eighth slowest country to enforce contracts, out of 145 
countries surveyed.  In addition, the report revealed that 
contract enforcement required 23 procedures and 457 days, the 
cost of which averaged 27 percent of the value of the contract, 
an improvement from its 2005 position of 23 procedures, 730 days, 
and a cost of 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 encourages 
corruption and undermines enforcement. 
 
Alternative Dispute Resolution:  The Arbitration and Conciliation 
Act of 1988 (the Arbitration Act) 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, 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 (TRIMS) 
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 
 
ABUJA 00000122  004.2 OF 010 
 
 
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 
use 60 to 80 percent local raw materials 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.  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. 
 
Import Policies:  Tariffs provide the GON its (distant) second 
largest source of revenue after oil exports.  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 October 2005, the GON 
announced that it was implementing the ECOWAS Common Economic 
Tariff (CET) regime, which places all items in one of five tariff 
bands. 
 
Bans prohibit the import of various goods including meat, fresh 
fruit, cassava, pasta, fruit juice in retail packs, toothpicks, 
soaps and detergents, textiles, plastics, and barite.  In 2006, 
the GON removed some textile items from its list of prohibited 
imports. The GON announced in late 2004 that it would phase out 
the bans by January 2007 in line with the conclusion of 
negotiations with its West African neighbors under the ECOWAS 
CET.  Unfortunately, the expected the CET negotiations are 
unlikely to conclude before 2008 and the government has announced 
that bans will be phased out 'over time'. 
 
The Nigerian Customs Service (NCS) and the Nigerian Ports 
Authority (NPA) have exclusive jurisdiction over customs services 
and port operations.  Nigerian law allows importers to clear 
goods on their own, but most importers employ clearing and 
forwarding agents. 
 
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 GON began a destination 
inspection regime in January 2006, which had earlier been shelved 
on four different occasions since 2002.  Under the destination 
inspection scheme, goods destined for Nigeria's ports would be 
inspected at the point of entry rather than at the point of 
shipment.  Guidelines for the new scheme were announced, and 
three companies were awarded a seven-year contract to act as 
inspection agents at Nigeria's seaports, border posts, and 
airports.  The companies are Cotecna, SGS, and Global Scan.  The 
exclusive contract will expire by 2012, if Nigerian Customs 
 
ABUJA 00000122  005.2 OF 010 
 
 
officials have completed training on the new scheme and on the 
handling of the scanning machines, which would be handed over to 
the NCS at the expiration of the contract. 
 
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: Most export incentives were recently 
abolished, though the government is reviewing reinstating some 
selected incentives. 
 
Although highly underused, 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. 
 
Agencies meant to promote industrial exports remain burdened by 
uneven management, vaguely defined policy guidelines, and 
corruption.  Nigeria's high production costs because of 
inadequate infrastructure and strong currency also leave Nigerian 
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 
become slightly 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. 
 
The Budget Monitoring and Price Intelligence Unit (BMPIU) acts as 
a clearinghouse for government contracts and procurement, and 
monitors 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 2007 How to Reform, reported that Nigeria has the sixth 
least efficient system for registering property, requiring 16 
procedures and 80 days, at a cost of 21.2 percent of the property 
value.  In 2005, Nigeria was classified as the least efficient of 
145 countries surveyed, requiring 21 procedures and 274 days, at 
a cost of 27.2 percent of the property value. 
 
Fee simple property rights are rare.  Most property is long-term 
leases with certificates of occupancy acting as title deeds. 
Transfers are complex and must usually go through state 
 
ABUJA 00000122  006.2 OF 010 
 
 
governor's offices.  In Abuja, the Federal Capital Territory 
cancelled and began a process of reregistering all property 
allotments, refusing to renew those it deemed not in accordance 
with the city master plan.  Buildings on these properties have 
frequently been demolished, even in the face of court 
injunctions.  Therefore acquiring and maintaining rights to real 
property are a major challenge. 
 
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 incorporate trade- 
related aspects of intellectual property rights (TRIPS) 
protection for copyrights, except provisions to protect 
geographical indications and undisclosed business information. 
Four TRIPS-related bills and amendments have been forwarded to 
the National Assembly.  An amendment to the Copyright Act is also 
expected to be forwarded to the National Assembly during the 
first quarter of 2007.  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 them.  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 Nigerian 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. 
There are sometimes opportunities for public comment and input 
into proposed regulations. 
 
 
ABUJA 00000122  007.2 OF 010 
 
 
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. 
 
Trading on the NSE remained buoyant in 2006.  The exchange 
operates nine branches nationwide, and the volume of shares 
traded and market capitalization continues to rise.  The 
introduction of the contributory pension system in late 2005, 
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.  Currently, 260 equities are listed on the exchange. 
 
Government debt instruments are available.  Since the inception 
of the present civilian government in 1999, state governments 
have availed themselves of opportunities on the Nigerian capital 
market.  About five state governments have issued bonds to 
finance development projects.  The Nigerian Securities and 
Exchange Commission (SEC) has issued stringent guidelines for 
states that wish to raise funds on capital markets, such as a 
credit assessment conducted by a recognized credit rating agency. 
The credit rating agencies recognized by the SEC are Agusto and 
Co., and Global Credit Rating (GCR) of South Africa.  The GON has 
also begun issuing bonds of 2-5 years maturity to restructure its 
domestic debt portfolio, which heretofore has consisted primarily 
of treasury bills of 90-180 days maturity. 
 
Banking System:  As of December 2006, twenty-five commercial 
banks are operating in Nigeria. 
 
Health of the Banking System:  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 was the new minimum capital requirement of 25 billion 
naira ($190 million) that all commercial banks must meet by 
December 31, 2005.  The new capital requirement led to 
consolidation in the industry in the form of mergers and 
acquisitions.  At the end of the consolidation deadline, seventy- 
five banks merged into twenty-five banking groups in contrast to 
the eighty-nine banks that existed at the end of December 2004. 
 
Political Violence 
 
Social unrest, religious and ethnic strife, and crime affect many 
parts of Nigeria.  In the oil-rich Niger Delta region, 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 
 
ABUJA 00000122  008.2 OF 010 
 
 
implement social and economic development projects in the Delta 
region, but the NDDC has been ineffective.  State and local 
governments offer few social services and 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 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 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.  In February 2006, 
riots in response to the Danish cartoon publication took place in 
the north-eastern city of Maiduguri with reprisal attacks in the 
south-eastern city of Onitsha.  The violence led to the death of 
over thirty people.  Vigilante groups in various parts of the 
country have exacerbated violence. 
 
Corruption 
 
Domestic and foreign observers recognize corruption as a serious 
obstacle to economic growth and poverty reduction.  Nigeria was 
14th in Transparency International's 2006 Corruption Perceptions 
Index, an improvement from its sixth position in the 2005 
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 (EFCC) was 
established to prosecute individuals involved in financial crimes 
and other acts of economic sabotage.  The EFCC has been 
successful in obtaining some high profile convictions such as the 
prosecution of the former Inspector General of Police, and it is 
presently pursuing a case against two former governors in the law 
courts.  The Paris-based Financial Action Task Force removed 
Nigeria from its list of Non-Cooperative Countries and 
Territories in June 2006.  Nigeria is a pilot participant in the 
Extractive Industry Transparency Initiative, which seeks to 
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, France, 
Taiwan, Netherlands and Romania. 
 
Investment Insurance Programs 
 
The U.S. Overseas Private Investment Corporation offers 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, over half of all 
Nigerians work in the informal sector and agriculture.  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. 
 
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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 has 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 
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 the GON and the NLC 
since 1999." 
 
Collective bargaining in the petroleum industry is relatively 
efficient compared to 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.  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 occur frequently. 
 
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. 
Union leaders 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. 
 
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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 
imports.  Another free trade zone, the Tinapa Free Trade Zone 
owned by the Cross River state government is expected to be 
commissioned during the first quarter of 2007.  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 
 
According to data from the United Nations World Investment Report 
of 2006, in 2005 the stock of foreign direct investment (FDI) in 
Nigeria was estimated at $34.8 billion, which accounted for about 
35.1 percent of GDP.  Total FDI Inflow was $3.4 billion in 2005 
and accounted for 31.2 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