VZCZCXRO0328
PP RUEHMA RUEHPA
DE RUEHUJA #1977/01 2811437
ZNR UUUUU ZZH
P 071437Z OCT 08
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 4104
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 0038
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 06 ABUJA 001977 
 
SIPDIS 
 
DEPARTMENT FOR AF/EPS (BREITER & MALLORY) 
DEPARTMENT PASS TO USTR (HAMILTON) 
 
E.O. 12598: N/A 
TAGS: ETRD AGOA ECON NI
SUBJECT: NIGERIA - 2009 AGOA ELIGIBILITY REVIEW 
 
REF: STATE 85086 
 
¶1. (U) Country:  Nigeria 
Current AGOA Status:  Eligible 
 
¶2. (U) Country Background Summary:  Estimated population of 147 
million.  2006 GDP was $115.3 billion; 2006 GNI per capita was $620 
(World Bank 2008 data).  Nigeria continues to struggle to 
consolidate its fragile democracy following a civilian-to-civilian 
handover of power in its national and state elections in April 2007, 
which were seriously marred by irregularities and fraud.  The 
government is making slow progress in developing an open economy, 
minimizing government interference, and promoting free market 
principles.  On September 25, 2008 the Ministry of Finance announced 
that the number of banned import categories would decrease from 44 
to 26 items and that there would be tariff reductions on a wide 
range of products. 
. 
Comments on Eligibility Requirements - Market-based Economy 
---------------------------------------- 
. 
¶3. (U) Major Strengths Identified: The government has committed to 
transitioning from a state-directed economy to one driven by market 
forces.  The economy has witnessed overall macroeconomic stability 
in recent years though inflationary pressures are beginning to arise 
due to rising global food and energy prices and poor infrastructure. 
 However, the foreign exchange rate has been fairly stable.  The 
"Wholesale Dutch Auction" system of foreign exchange trading was 
introduced in early 2006, and has led to a sharp reduction in the 
spread between the official and parallel market exchange rates.  The 
government has also restructured its domestic debt portfolio from 
91-day Treasury Bills to Bonds with one to ten years duration. 
 
¶4. (U) The government maintains a cordial and productive 
relationship with the IMF.  Discussions are ongoing on a successor 
program to the Policy Support Instrument (PSI) which ended in August 
¶2007.  In August 2007, the IMF conducted its fourth and final review 
under the PSI.  The IMF assessment team considered the overall 
economic outlook as positive.  The Nigerian Electricity Regulatory 
Commission (NERC) has issued 25 licenses to private companies 
involved in electricity generation and distribution.  A Multi-Year 
Tariff Order (MYTO) for the determination of charges and tariffs for 
electricity generation, transmission and retail tariffs was recently 
announced.  The MYTO, which would be for the period July 1, 2008 to 
June 30, 2013, will result in the upward adjustment of the 
electricity tariff to market rates to ensure that investors in the 
power sector recoup their investments and turn a reasonable profit. 
Port concessions are moving forward and an international company was 
awarded the concession to manage the country's largest port--Apapa 
Port in Lagos. 
 
¶5. (U) The Fiscal Responsibility Act to ensure transparency in the 
use of government revenue and a Public Procurement Act to ensure 
transparency and value for money in government procurement were 
passed in 2007.  There are plans to enact both laws in the 36 states 
of the federation before the end of 2008. 
 
¶6. (U) The National Economic Empowerment & Development Strategy 
(NEEDS), a medium-term economic reform program (2003-2007) focused 
on privatization, good governance, macroeconomic stability, 
anti-corruption, and public service reforms is undergoing review to 
incorporate President Yar'Adua's Seven Point Agenda, which focuses 
on energy, food security, land reforms, wealth creation, education, 
security, and transportation.  The NEEDS-2 program is due to be 
presented to the public before the end of 2008.  Savings from excess 
monies from crude oil sales above the budget benchmark price have 
been put into a special reserve account, rather than used to fuel 
fiscal expansion.  In practice, however, the Excess Crude Account 
(ECA) only holds about $8 billion at any given time.  The government 
budget process is taking its rightful position as an economic policy 
and management tool and the President has promised an earlier 
submission of the draft budget for the coming year with the 
expectation that the National Assembly would pass the budget 
earlier.  The budget deficit has been kept in check.  There are 
concerns, however about the degree of execution of the Capital 
Account.  Failure to execute fully is a drag on infrastructure 
investments.  There are ongoing discussions about creating a 
Sovereign Wealth Fund, though the modalities and the form it will 
take have not been finalized as yet. 
 
¶7. (U) Financial sector reforms have slowed during President 
Yar'Adua's first year in office, but are still ongoing.  The Central 
Bank of Nigeria's directive that banks recapitalize from the 2 
billion naira ($16 million) to 25 billion naira ($197 million) by 
December 31, 2005 was successfully completed, leading to a reduction 
in the number of banks from 89 to 25 stronger, better capitalized 
banking groups (now 24 banks).  In addition to the regulatory 
increase in the banks' capital base, many banks have raised 
additional capital from the capital market.  Between January 2006 
 
ABUJA 00001977  002 OF 006 
 
 
and January 2008, approximately $15 billion was raised by the banks 
via share offerings ranging from Initial Public Offers, Private 
Placements, and Global Depository Receipts.  Sixteen Nigerian banks 
now rank in the top 1,000 in the world, while five Nigerian banks 
now rank among the top ten in Africa, compared with 2005 when only 
four Nigerian banks were ranked among the top 1,000 and in 2004 when 
no Nigerian banks made it to the top 1,000.  Pension and insurance 
reform are also moving forward. 
 
¶8. (U) A Trade and Investment Framework Agreement (TIFA) with the 
U.S. provides a mechanism to address trade and investment issues. 
Nigeria is a top destination for U.S. investment in Africa, due to 
investment in the petroleum sector.  In 2007, U.S. exports to 
Nigeria increased 24.4% from 2006. 
 
¶9. (U) Major Issues/Problems Identified: Militant and criminal 
activities in the oil-rich Niger-Delta have shut-in up to 30 percent 
of oil production, thereby reducing revenues to the federation with 
its attendant negative impact on budget implementation.  A court 
challenge was raised regarding whether the government has the 
authority within the constitution to set aside oil revenues above 
the budget benchmark price in the ECA.  The constitution requires 
that all oil revenue should be deposited into the Federation Account 
and then shared among the federal, state and local governments. 
Despite this, the ECA was established in 2003 by the federal 
government without passage of an enabling law.  The government plans 
to introduce legislation that would legalize an oil reserve account, 
however, a constitutional amendment may be required 
 
¶10. (U) A huge and inefficient public sector dominates and inhibits 
faster development of the formal sector.  Much of the nation's 
wealth is concentrated in the hands of a tiny group of military, 
political, and commercial elites through corruption and 
non-transparent government contracting practices.  The banking 
system is performing intermediation poorly, thereby impeding small 
and medium investors.  Regulatory and tax regimes are arbitrarily 
enforced, and regulatory bodies are weak and ineffective.  Oil and 
gas receipts account for 80% of government revenues and over 95% of 
exports.  Fuel subsidies are not budgeted or transparent, and fuel 
prices continue to be regulated and subsidized.  Economic data and 
statistics are of unreliable quality and availability.  Inadequate 
and unreliable infrastructure is a major barrier to private sector 
activity.  At this writing, inflation is in the low double digits, 
up from single digit performance over the past couple of years. 
 
¶11. (U) The establishment of the Nigerian Intellectual Property 
Commission (NIPCOM) that was announced in early 2007 is yet to be 
backed by enabling legislation.  The 1978 Land Use Act mandates 
state ownership of land; private use of land is restricted to a 
99-year lease and subject to government confiscation without a 
Certificate of Occupancy or Governor's consent.  Conveyance of land 
requires high-level government approval, promoting corruption and 
inhibiting property transactions. 
 
¶12. (U) Despite the September 25, 2008 Ministry of Finance 
announcement that the number of banned import categories would 
decrease from 44 to 26 items, the existence of any bans is in 
violation of WTO rules and in the last three years have affected 
imports of many agricultural and manufactured products.  These 
arbitrary bans encourage smuggling.  Import bans accompanied by sole 
source importation rights to favored companies have impeded 
competition and are major impediments to imports of a wide range of 
U.S. products.  The Ministry of Finance has also stated that there 
may be near-term tariff reductions on a wide range of products. 
Comprehensive trade reform by adoption of the ECOWAS Common External 
Tariff (CET) was agreed to in the last quarter of 2005; however, the 
government is presently reviewing its implementation of the CET.  In 
line with the review, on September 25, 2008 the Ministry of Finance 
proposed a fifth band duty rate of 35 percent.  This new proposed 
duty rate is a decrease from the government's earlier proposal of 50 
percent. 
 
¶13. (U) Some U.S. firms with contracts with government entities at 
the federal, state and local levels face problems receiving timely 
payments.  The Nigerian government's procurement process lacks 
transparency.  Nigeria's Cabotage Law is a barrier to trade and 
investment and has compelled U.S. firms to exit Nigeria. 
 
¶14. (U) In the oil and gas sector, Nigeria wants existing operators 
to invest in power production or refining, in an attempt to bring 
about investment in these sectors.  Fuel subsidies distort the local 
market, discouraging investment in downstream oil and gas 
activities.  Draft legislation mandating high levels of local 
content in oil and gas related activities is in the National 
Assembly and may impose additional costs on investments. 
 
¶15. (U) Across several sectors, the government sometimes employs 
predatory negotiating tactics, including threats to access to 
inputs, customs and other legal approval processes, and transferring 
 
ABUJA 00001977  003 OF 006 
 
 
contracts to entities that cannot uphold contract terms.  Foreign 
exchange repatriation regulations are enforced arbitrarily and 
hinder the transfer of funds.  The Manufacturers-in-Bond Scheme has 
been canceled, and the Export Expansion Grant is the only export 
incentive available for exporters. 
. 
Political Reforms/Rule of Law/Anti-Corruption 
--------------------------------------------- 
. 
¶16. (U) Major Strengths Identified:  Elections were held in April 
2007 for state governors and assemblies, national legislators and 
the President, and despite being severely flawed, represented the 
first transition from one civilian elected government to another 
since Nigeria's independence in 1960.  The Nigerian judiciary made 
several landmark decisions in 2007 and the trend continued in 2008, 
affirming its role as an independent arbiter of the national 
constitution.  The election tribunals overturned the results of 
seven state governorship elections and some legislative elections. 
The appellate court ruled in five appeals that the gubernatorial 
elections were nullified, thereby necessitating a re-run in those 
five states.  Three gubernatorial election cases remain open pending 
appeals at the appellate court level. 
 
¶17. (U) Nigeria has established programs to combat corruption, many 
of which receive support from the United States and other donors. 
Since its establishment five years ago, the Economic and Financial 
Crimes Commission (EFCC) has arrested several high-level officials 
in connection with corruption cases and reported it has seized over 
$5 billion in assets.  The governor of Bayelsa State in southern 
Nigeria, who was impeached in December 2005 for money laundering and 
misappropriation of funds and had been on trial, was released 
through a plea bargain that resulted in the forfeiture of several of 
his properties and bank accounts both locally and internationally. 
The EFCC claims it is continuing to investigate ongoing corruption 
charges against some former state governors and their associates. 
Approximately ten former state governors are currently facing 
corruption charges, with the cases against them in varying stages of 
completion.  Also three former ministers and a serving senator are 
currently facing trial. 
 
¶18. (U) In 2005 the former Inspector-General of Police and the 
Minister of Education were fired for corruption.  The former 
Inspector General was tried in court and subsequently jailed.  The 
former Senate President was removed from his leadership post for 
corruption, though he retained his Senate seat.  In 2007, the 
Speaker of the House of Representatives was removed from her 
position under allegations of corruption and misappropriation of 
House funds, although she retained her House seat.  In 2008, two 
former Ministers of Aviation and the standing Minister of Health 
were charged with corruption, as well as the Director of the Police 
Equipment Fund. 
 
¶19. (U) Major Issues/Problems Identified:  The elections of 2007 
were marred by serious irregularities and fraud, with violence in 
some areas.  International and domestic observers pointed to 
widespread corruption throughout the electoral process, including 
ballot stuffing, intimidation and violence, deliberate miscounting, 
results tampering, and exclusion of opposition candidates.  More 
than 1,200 petitions were filed with the electoral tribunals 
contesting the announced results.  The Independent National 
Electoral Commission (INEC), the body charged with the conduct of 
elections, is not independent, and it was alleged to have conspired 
with the ruling Peoples Democratic Party (PDP) to manipulate the 
outcome of the elections.  Politicians continue to solicit support 
from, use and manipulate militias and vigilante groups for their own 
interests. 
 
¶20. (U) Police and security forces continue to use excessive and 
sometimes lethal force to beat protesters, suspects, detainees and 
prisoners, and to conduct arbitrary arrest and detention.  Army 
troops killed nearly 200 unarmed civilians in October 2001 in Benue 
state, but to date there has been no accountability for the 
incident.  Perpetrators of violence often enjoyed impunity for their 
deeds. Despite some measured improvement, the judicial system 
remains inefficient, corrupt, and in need of serious reforms. 
Judges are subject to both extortion and intimidation, if not 
outright violence.  Some judges are corrupt.  Prolonged pretrial 
detention is an ongoing problem.  The government does not provide 
citizens the right to a speedy and fair trial.  Prison and detention 
conditions remain harsh and life-threatening.  Some prisons hold 200 
to 300 percent more persons than their designated capacity 
 
¶21. (U) Corruption remains an overwhelming problem at all levels of 
government and throughout the security forces. Despite the arrest of 
several high-ranking Nigerian officials by the EFCC, allegations 
continue that agency investigations target individuals out-of-favor 
with the government, while those in-favor continue their activities 
with impunity.  The EFCC's inability to bring a number of corruption 
investigations to closure; the replacement of its internationally 
 
ABUJA 00001977  004 OF 006 
 
 
respected Chairman; and the transfer of many senior personnel have 
raised questions about the GON's commitment to fighting corruption. 
 
¶22. (U) Communal violence continues, especially in the oil-rich 
Niger Delta.  Illegal oil bunkering, which the government failed to 
curb, has fueled corruption, arms trafficking and political 
instability.  At this writing there were anecdotal reports that 
efforts of the federal government's military Joint Task Force (JTF) 
have reduced illegal bunkering in certain areas. 
. 
Poverty Reduction 
----------------- 
. 
¶23. (U) Major Strengths Identified:  The National Planning 
Commission is reviewing NEEDS-2, Nigeria's homegrown Poverty 
Reduction Strategy.  The National Poverty Eradication Program 
(NAPEP) is being implemented at the local government level, and 
focusing on micro-enterprise development and other programs.  A 
Microfinance Policy was launched by the Central Bank of Nigeria 
(CBN) in 2005, with a requirement that all community banks convert 
to microfinance banks by December 31, 2007.  Since 2007 at least 600 
microfinance banks have met the stipulated requirements and been 
licensed by the CBN. 
 
¶24. (U) Agriculture and energy prices are increasing, putting 
pressure on poor families with few resources to weather food 
insecurity.  The government has developed a program to start 
addressing agriculture and rural led economic growth 
 
¶25. (U) Major Issues/Problems Identified:  While overall economic 
growth is good, there remain serious structural problems with 
unequal growth for the general public and high income disparities 
between rich and poor.  The government poverty strategy does not 
clearly link goals and methods; serious concerns remain about fiscal 
transparency; and human capacity for project implementation is weak. 
 The government is implementing the poverty reduction program 
slowly. 
 
¶26. (U) The country has been slow to meet its commitment to develop 
a compact to implement the Comprehensive African Agriculture 
Development Program (CAADP).  Federal and State level commitment to 
health and education reforms remains weak, progress against the key 
Millenium Development Goals is poor. 
. 
Workers' Rights/Child Labor/Human Rights 
---------------------------------------- 
. 
¶27. (U) Major Strengths Identified:  The Nigerian constitution 
protects the right of association and the right to organize and 
bargain collectively, but statutory restrictions remain.  Most 
workers, except for members of the armed forces, police, employees 
designated essential by the government, and employees in export 
processing zones, may join trade unions and strike, but the law 
limits justifications for strikes. 
 
¶28. (U) In 2002, Nigeria signed the International Labor Organization 
(ILO) Conventions 182 on the Worst Forms of Child Labor, 138 on 
Minimum Age for Employment, and 111 on Equality of Occupation. 
Worker rights and child labor laws have been enacted.  Nigerian law 
prohibits forced or bonded labor, forbids the employment of children 
younger than age 15 in commerce and industry, and restricts other 
child labor to home-based agricultural or domestic work for a 
maximum of eight hours a day. 
 
¶29. (U) During the year the Ministry of Employment, Labor, and 
Productivity trained approximately 120 labor inspection officers on 
child labor laws.  Eighty officers were trained to perform 
inspections in high-risk sectors such as agriculture, mining, and 
the informal sector.  The Ministry also sponsored awareness-raising 
and law-familiarization training programs for local law enforcement, 
customs, and other government officials.  New legislation was passed 
in 2003 outlawing human trafficking, and the National Agency for the 
Prohibition of Trafficking in Persons (NAPTIP) was established. 
 
¶30. (U) The country made some progress in the area of human rights, 
including making several arrests for trafficking in persons; 
however, serious problems remain, such as continued lack of 
accountability for past abuses.  The Constitution provides for 
freedom of religion, and the government generally respects that 
right, although some state governments place restrictions on freedom 
of religion. 
 
¶31. (U) The relationship between the government and the two union 
federations (the Nigerian Labor Congress and Trade Union Congress) 
has improved with the swearing in of President Yar'Adua's 
administration.  A national labor strike in June 2007 was peaceful, 
with security forces and labor members showing considerable 
restraint.  As a result of that strike, the Yar'Adua administration 
reversed several policies of the Obasanjo government that were 
 
ABUJA 00001977  005 OF 006 
 
 
opposed by labor, including: a partial reduction of the fuel price 
increase and a guarantee not to raise the price further for one 
year, a reversal of the VAT increase, a review of the Port Harcourt 
and Kaduna refinery sales, and an agreement to pay an owed civil 
servant salary increase. 
 
¶32. (U) Major Issues/Problems Identified:  The Trade Unions Act does 
not ensure workers' right to form and join unions of their own 
choosing, deems all registered trade unions to be affiliated with a 
central labor organization, and violates the ILO convention on the 
Right of Association.  The Trade Unions (Amendment) Decree of 1996 
makes check-off payment of dues conditional on a "no-strike" clause 
during the lifetime of the collective agreement.  The Trade Unions 
Amendment Act of March 2005 criminalizes meetings between labor and 
civil society organizations and bans nation-wide strikes on issues 
of national economic policy; however, these sections of the law have 
not been enforced in practice. 
 
¶33. (U) Labor rights have been limited by targeted layoffs and 
terminations of labor activists, by intimidation to press workers to 
leave unions, and by the increased use of casual labor, especially 
in the oil industry.  Several statutory restrictions on the right of 
association and on trade unions restricted the right to form or 
belong to any trade union or association.  There are no laws to 
prohibit retribution against strikers, but strikers who believed 
they were victims of unfair retribution could submit their cases to 
Industrial Arbitration Panel (IAP).  Decisions of these bodies 
infrequently carried the force of law. 
 
¶34. (U) The labor laws apply to legal foreign workers, but not all 
companies respected these laws in practice.  Payments of salaries to 
federal, state and local government workers are often several months 
in arrears; workers who protest or strike over arrearages face 
dismissals, threats of layoffs, and pressure to agree to lowered 
minimum wages.  The government places limits on freedom of assembly 
and association, citing security concerns. 
 
¶35. (U) Trafficking in persons for purposes of sexual exploitation 
and forced labor is a problem, allegedly with the collusion of 
government officials.  Some persons, including children, are 
subjected to forced labor and sexual exploitation.  Young boys were 
trafficked primarily to work as forced bondage laborers, street 
peddlers, and beggars, while girls were trafficked for domestic 
service and commercial sexual exploitation.  Child labor continues 
to be a problem.  To date the Child Rights Act has only been 
ratified by sixteen states.  It has passed the State House of 
Assembly in three more states and is currently awaiting the 
Governor's signature. 
 
¶36. (U) Domestic violence and discrimination against women remain 
widespread, underreported, and considered socially acceptable. 
Police rarely intervene in cases of domestic abuse.  Rape and sexual 
harassment are common, to the point that rape is considered epidemic 
at universities.  Women and girls in all parts of the country are 
subjected to female genital mutilation (FGM), which the government 
publicly opposes.  Laws protecting the rights of the child are 
inadequate and seldom enforced.  Child abuse, abandonment, and 
exploitation for labor or sex remain serious problems. 
 
¶37. (U) The law prohibits homosexuality; homosexual practices are 
punishable by prison sentences of up to 14 years.  In the 12 
northern states that have adopted Shari'a law, adults convicted of 
having engaged in homosexual intercourse are subject to execution by 
stoning; however, this sentence has not yet been handed down in 
practice.  Persons living with HIV/AIDS experienced widespread 
discrimination in seeking employment and health care services. 
. 
International Terrorism/U.S. National Security 
--------------------------------------------- - 
. 
¶38. (U) Major Strengths Identified:  In June 2007, the Nigerian 
Financial Intelligence Unit (NFIU) was admitted as a member of the 
Egmont Group of FIUs.  In June 2006, Nigeria was de-listed from the 
Financial Action Task Force list of Non-Cooperative Countries and 
Entities.  The Nigerian Financial Intelligence Unit, Economic and 
Financial Crimes Commission, Securities and Exchange Commission, 
Central Bank and other regulators in the financial services industry 
are collaborating to identify and freeze terrorist assets in 
Nigeria. 
 
¶39. (U) Major Issues/Problems Identified:  Militant activities in 
the Niger-Delta have led to a reduction in oil production, reducing 
revenues to the federal government and hampering effective 
implementation of the national budget.  Events in Nigeria can 
negatively affect world oil supplies and prices. 
 
¶40. (U) There are concerns about the president's health, which 
invariably affects how government is run in Nigeria.  Most Nigerians 
opine that the current administration is too slow in implementing 
 
ABUJA 00001977  006 OF 006 
 
 
its programs. 
 
PIASCIK