VZCZCXRO2496
PP RUEHMA RUEHPA
DE RUEHUJA #1306/01 1910657
ZNR UUUUU ZZH
P 090657Z JUL 08
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 3305
INFO RUEHOS/AMCONSUL LAGOS 9546
RUEHZK/ECOWAS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS SECTION 01 OF 03 ABUJA 001306 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS TO USTR-AGAMA 
TREASURY FOR PETERS AND HALL 
DOC FOR 3317/ITA/OA/KBURRESS, 3130/USFC/OIO/ANESA/DHARRIS 
DOE FOR GPERSON, HAYLOCK 
 
E.O. 12958:  N/A 
TAGS: ETRD ECIN ECON PGOV PREL NI
SUBJECT: NIGERIA: TRADE POLICY REFORM PROMISES BUT LITTLE ACTION 
 
REF: A. ABUJA 893 
 ¶B. ABUJA 870 
 ¶C. ABUJA 817 
      ¶D. ABUJA 760 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR DISTRIBUTION OUTSIDE USG 
 
¶1. (SBU) Summary.  The Government of Nigeria's (GON) trade policy 
has seen few reforms lately, with banned products, high tariffs and 
incomplete implementation of the Economic Community of West African 
States (ECOWAS) Common External Tariff (CET).  The use of a 
combination of tariff and non-tariff barriers is a standard import 
substitution policy; however, GON officials have contended that full 
implementation of the CET, removal of, some, if not all, of the 46 
import bans and a reduction in tariffs will take place soon.  The 
recent decision to temporarily remove tariffs on rice was a positive 
step forward.  CET negotiations were not concluded by December 31, 
2007 as earlier scheduled, because of wrangling among ECOWAS member 
states on Nigeria's proposed fifth tariff band (50% tariff on these 
products) and Type B exceptions.  Notwithstanding this, the GON 
contends it remains committed to the CET.  The GON provides export 
incentives to exporters to enhance the contribution of the non-oil 
sector to the national economy.  Septels will report on the 
Ambassador's recent discussions on Nigeria's trade regime with the 
Ministers of Commerce and Industry and Agriculture.  End summary. 
. 
CET Update 
---------- 
. 
¶2. (U) In October 2005, the GON began to implement the ECOWAS CET, 
reducing the number of tariff bands in Nigeria from twenty to five. 
The five tariff bands are: zero duty on capital goods, machinery and 
essential drugs not produced locally; 5 percent duty on imported raw 
materials; 10 percent duty on intermediate goods; 20 percent duty on 
finished goods; and 50 percent duty on goods in industries that the 
government seeks to protect.  The proposed 50 percent tariff applies 
to 17 product categories or 113 tariff lines, representing 
approximately 9.3% of regional imports from the rest of the world, 
but not all items currently subject to import bans.  Items deemed to 
be necessities such as anti-retroviral drugs for the treatment of 
patients with HIV/AIDS are imported duty-free.  GON officials 
contend they remain committed to full implementation of the CET, 
will continue good faith negotiations, and see the CET as part of 
the GON's ongoing economic reforms to improve its trade and 
investment environment and the harmonization of trade in the 
sub-region. 
. 
Tariffs Number Two Source of Government Revenue 
--------------------------------------------- -- 
. 
¶3. (SBU) Tariffs provide the GON with its second-largest source of 
revenue after oil exports.  Excessively high tariffs, a 
non-transparent tariff regime, frequent policy changes, and the 
usually unclear interpretation of government directives by the 
Nigerian Customs Service make importing difficult and expensive, and 
sometimes create severe bottlenecks for commercial activities.  Many 
importers complain that the tariffs presently charged are 
excessively high, and the GON uses arbitrary reference prices at 
times.  Many importers resort to under-valuing and smuggling to 
avoid paying full tariffs.  Some of the products that attract very 
high tariffs include sparkling wine (100 percent); rice (109 
percent) and tomato puree (50 percent).  (Note: The tariff on rice 
was temporarily suspended for six months because of the global food 
crisis and high prices in Nigeria in particular by Nigeria's Federal 
Executive Council (FEC) on May 7, 2008 - reftels A & B.  End Note) 
 
¶4. (SBU) A study by the Carana Corporation that was funded by USAID 
reported that production has doubled in the Nigerian rice sector, in 
the last five years, but this increase has come at a significant 
cost to consumers.  In addition, it does not appear that producer 
prices have benefited commensurately.  In comparing Nigeria to 
Senegal, due to market inefficiency and the capture of rents in the 
Nigerian economy, the price paid to the producer is almost the same 
in Senegal (26 cents per kilo) and in Nigeria (21 cents per kilo); 
however, consumers pay 50% more in Nigeria (78 cents per kilo) than 
in Senegal (45 cents per kilo). (Comment: Promoting agriculture 
based on tariffs alone rarely leads to successful growth of 
agricultural industries.  Policies that are aimed at reducing the 
gap between producer and consumer prices will have a more 
stimulating effect on the industry than imposing a high tariff that 
does not necessarily benefit farmers.  End Comment.) 
. 
Non-Tariff Barriers (Import Prohibition) 
 
ABUJA 00001306  002 OF 003 
 
 
---------------------------------------- 
. 
¶5. (U) Despite continuing towards the adoption of the CET, the GON 
continues to ban the importation of 46 products - citing the need to 
protect local industries.  Items on the import prohibition list 
include maize (corn); bird's eggs; cocoa butter, powder, and cakes; 
millet; pork; beef; live birds; frozen poultry; fresh and dried 
fruit; wheat flour; sorghum; vegetable oil and fats; cassava; 
bottled water; biscuits; spaghetti; noodles; fruit juice in retail 
packs; beer; non-alcoholic wine; and alcoholic beverages.  These 
banned products violate Nigeria's World Trade Organization (WTO) 
commitments, but other WTO members have not challenged the GON 
within the WTO framework. 
 
¶6. (SBU) On July 2, Ikechukwu Oguejiofor, Acting Director of the 
Fiscal Policy of the  Ministry of Finance, informed EconSpec that 
the GON was making concerted efforts to substantially reduce the 
number of banned items.  Oguejiofor said that the Ministry of 
Finance would publish the 2008 - 2012 Tariff Book in one month, and 
the number of banned items will be reduced substantially.  (Note: 
Ministers of Agriculture and Commerce and Industry confirmed this to 
Ambassador in meetings on June 24 and June 10.  End Note)  Badeji 
Abikoye, Director of Trade at the Ministry of Commerce and Industry, 
also corroborated Oguejiofor's statement regarding changes to the 
upcoming Tariff Book, and underscored that the Ministers of Finance 
and Commerce and Industry have been collaborating to ensure that 
most of the bans are lifted. 
. 
Customs Barriers 
---------------- 
. 
¶7. (U) The Nigerian Customs Service (NCS) is responsible for 
implementing trade policy at the various ports.  NCS mismanagement 
has led to port delays, non-transparent valuation mechanisms, 
erratic application of government policies, high berthing and 
unloading costs, and corruption that have posed serious obstacles to 
trade.  President Yar'Adua's administration has promised to 
implement a comprehensive customs reform that would drastically 
reduce the time for clearing goods at the ports from the present two 
weeks to two days.  (Note: Despite the GON commitment to improve 
transparency and processing, relatively little has been done in that 
direction.  End Note) 
. 
Export Subsidies 
---------------- 
. 
¶8. (SBU) The GON through its ministries and other agencies 
administers various export incentives such as tax concessions, 
export development funds, capital asset depreciation allowances, 
foreign currency retention programs, Free Trade Zones, and Export 
Processing Zones.  The agencies responsible for the implementation 
of export incentives include the Nigerian Export Promotion Council, 
Ministry of Finance, Ministry of Commerce and Industry, Nigeria 
Customs Service, Central Bank of Nigeria, and the Nigerian Export 
Processing Zone Authority.  Funding constraints, misrepresentation 
by exporters and erratic application of regulations limit the 
effectiveness of these programs. 
 
¶9. (U) In 2007, President Yar'adua ordered the suspension of all 
waivers on taxes and import duties, because such waivers resulted in 
large losses to government revenue intake and were not bolstering 
manufacturing productivity.  Currently, the Export Expansion Grant 
(EEG) is the only export subsidy available to exporters because of 
the GON's rescission of all other export subsidies after it began 
implementing the CET in October 2005.  The GON argued that the CET 
automatically favors manufacturers through its lower tariffs on 
capital goods and raw materials. 
 
¶10. (U) The EEG is a scheme that provides a financial inducement to 
exporters who have exported a minimum of 500,000 naira ($4,273) 
worth of semi-processed and finished products.  Under the EEG, 
exporters of processed commodities and unprocessed mineral and 
agricultural commodities are entitled to a specified percentage 
grant on their export turnover, subject to the confirmation receipt 
of repatriation of export proceeds from the Central Bank of Nigeria. 
 The percentage payment received by exporters under the EEG are in 
two categories -- Category A (40 percent for intermediate and fully 
manufactured products with a high value addition); and Category B (5 
percent for all other exports not classified under Category A). 
. 
Industry Support Committee 
-------------------------- 
. 
 
ABUJA 00001306  003 OF 003 
 
 
¶11. (SBU) The GON setup an Industry Support Committee (ISC) in 2007 
to investigate and audit waivers, tax concessions and export 
subsidies granted by the GON to manufacturers and importers, assess 
their impact on GON fiscal objectives.  Contacts have reported that 
the ISC has completed its assignment and its findings were submitted 
to President Yar'adua.  It is expected that the Federal Executive 
Council (the Cabinet) will discuss the recommendations contained in 
the ISC report in the next few months. 
. 
Comment 
------- 
. 
¶12. (SBU) On the global level, examples of protected infant 
industries achieving global competitiveness under high tariff 
protections schemes are scarce.  Nigeria's import substitution 
strategy followed by most developing countries from the 1960's to 
the 80s has not been a best practices success story.  Despite 
Nigeria's large market and significant trade restrictions, 
manufacturing sectors - excluding oil-related activities - have 
stagnated and even declined.  Tariffs and bans are protecting 
existing activities but not as a bridge to greater competitiveness 
or the emergence of new ones. 
 
¶13. (SBU) Economic growth in Nigeria should be built on three 
important pillars: (1) efficient administration, (2) developed 
infrastructure (transport, communications and energy) and (3) 
education.  Current tariff protections have impeded market pressures 
that could drive investment and reform in governance, infrastructure 
and education.  If Nigeria chooses to pursue a fifth band it needs 
to also put in place policy initiatives facilitating access to 
capital markets, infrastructure and energy supplies that will 
support growth of private enterprise.  A Ministerial Monitoring 
Committee, at its meeting held in Nouakchott on February 21, 2008, 
requested that the ECOWAS and West African Economic and Monetary 
Union (WAEMU) Commissions conduct a study on the impact of creating 
a fifth band, determine its rate and the list of products that it 
will cover among other issues relating to protection instruments to 
complement customs duties, taking into account ongoing experiences 
in the region and World Trade Organization provisions. 
 
¶14. (SBU) Import bans, high tariffs and CET accession issues have 
been ongoing for several years and the GON has previously promised 
to address them.  In October 2004, former President Obasanjo in his 
address to the GON National Assembly on the 2005 budget said Nigeria 
would implement the CET by July 2005 and rescind all import bans by 
December 31, 2007.  Minister of Commerce and Industry Ugwuh informed 
USG officials during the 2007 TIFA Council meeting in Abuja that 
though he is in support of removing the bans achieving that goal has 
political undertones.  Continued USG engagement during the July 
14-15 AGOA Forum in Washington and the fall TIFA Council Meeting 
provide opportunities to advocate for further reforms. 
 
¶15. (U) Septels will report on the Ambassador's recent discussions 
on Nigeria's trade regime with the Minister of Commerce and Industry 
and the Minister of Agriculture, including the establishment of 
working groups under the U.S.-Nigeria Framework for Partnership to 
the assist the GON in its transition to a more productive trade 
regime. 
 
SANDERS