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Cablegate: Nigeria 2008 National Trade Estimate

VZCZCXRO4697
PP RUEHMA RUEHPA
DE RUEHUJA #2369/01 3171247
ZNR UUUUU ZZH
P 131247Z NOV 07
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 1415
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 8245
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 04 ABUJA 002369

SIPDIS

SIPDIS

DEPARTMENT FOR AF/W (SILSKI) AND EB/TPP/BTA
DEPARTMENT PLEASE PASS TO USTR (GBLUE, LAGAMA)

E.O. 12598: N/A
TAGS: ETRD ECON EFIN NI
SUBJECT: NIGERIA 2008 NATIONAL TRADE ESTIMATE

1. The following information is Nigeria's 2008 National Trade
Estimate.

Trade Summary
-------------

2. The U.S. goods trade deficit with Nigeria was $25.7 billion in
2006, an increase of $3.1 billion from $22.6 billion in 2005. U.S.
goods exports in 2006 were $2.2 billion, up 37.6 percent from the
previous year. Corresponding U.S. imports from Nigeria were $27.9
billion, up 15.2 percent. Nigeria is currently the 50th largest
export market for U.S. goods. The stock of U.S. foreign direct
investment (FDI) in Nigeria in 2005 was $874 million (latest data
available), down from $2.0 billion in 2004. U.S. FDI in Nigeria is
concentrated largely in the mining, and wholesale trade sectors.

Import Policies
---------------

3. Nigeria uses a combination of tariff and non-tariff barriers,
which continues to be a major source of concern to its trading
partners. It also practices a destination inspection policy for
imports.

Tariffs
-------

4. Tariffs provide the Nigerian government (GON) with its
second-largest source of revenue after oil exports. In October
2005, the GON implemented the Economic Community of West African
States (ECOWAS) Common External Tariff (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 the industries that the
government seeks to protect. The 50 percent tariff covers many
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.

5. Partial adoption of the CET is part of the ongoing economic
reforms aimed at improving Nigeria's trade and investment
environment and harmonization in the sub-region. However,
excessively high tariffs, non-transparent tariffs, frequent policy
changes and unclear interpretations by the Nigerian Customs Service
(NCS) make importing difficult and expensive, and occasionally
create severe bottlenecks for commercial activities. Some importers
complain that the tariffs are excessively high, and that the GON
uses arbitrary reference prices at times. This problem is
aggravated by Nigeria's dependence on imported raw materials and
finished goods, which affects both foreign and domestic
manufacturers. 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 (110
percent); and tomato puree (50 percent).

Non-Tariff Trade Barriers
-------------------------

6. Despite partial adoption of the CET, the GON continues to ban
certain imports 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;
alcoholic beverages; and bagged cement. Items removed from the list
of prohibited imports in 2005 and 2006 were certain textile products
(textile fabrics, yarn, nylon tire cord, conveyor belts, trimmings
and linings, gloves for industrial use, elastic bands, mosquito
nets, motifs), chocolates, white cement, linseed oils, castor oils,
hydrogenated vegetable fats used as industrial raw materials, all
raw materials for the manufacture of soap and detergents, safety
shoes used in the oil industry, sports shoes, stadium chairs and
fittings, accessories used in furniture making, and prefabricated
buildings. These items remained on the list of imports allowed in
2007.

Customs Barriers
----------------

7. Nigerian port practices continue to present major obstacles to
trade. Importers face long clearance procedures, high berthing and
unloading costs, erratic application of customs regulations, and
corruption. Customs exemptions granted to U.S. firms as a
concession for setting up operations in Nigeria have not always been

ABUJA 00002369 002 OF 004


honored. In December 2005, the government released import
guidelines for the implementation of a physical destination
inspection regime that commenced in January 2006. Under the
destination inspection scheme, all imports are inspected on arrival
into Nigeria. These guidelines are implemented by the Destination
Inspection Service Providers, which is a team comprised of NCS and
three firms that provide scanning services.

Standards, Testing, Labeling, and Certification
--------------------------------------------- --

8. Rules concerning sanitary and phytosanitary standards, testing,
and labeling are well defined, but bureaucratic hurdles slow the
import approval process. Regardless of origin, all food, drug,
cosmetic, and pesticide imports must be accompanied by certificates
of analysis from manufacturers and appropriate national authorities
and specified animal products, plants, seeds, and soils must be
accompanied by proper inspection certificates. U.S. exporters may
obtain these certificates from the U.S. Department of Agriculture
and other relevant federal or state agencies. By law, items
entering Nigeria must be labeled exclusively in the metric system.
The NCS is charged with preventing the entry of products with dual
or multiple markings, but such items are often found in Nigerian
markets.

9. High tariffs and uneven application of import and labeling
regulations make importing high-value perishable products into
Nigeria difficult. Disputes between Nigerian agencies over the
interpretation of regulations often cause delays and frequent
changes in customs guidelines slow the movement of goods through
Nigerian ports. These factors can contribute to product
deterioration and may translate into significant losses for
perishable goods importers.

10. The National Agency for Food and Drug Administration and Control
(NAFDAC) is charged with protecting Nigerian consumers from
fraudulent or unhealthy products. The agency continues to target
the illicit importation of counterfeit and expired pharmaceuticals
for special attention, particularly imports from East and South
Asia. NAFDAC's severely limited capacity for carrying out
inspections and testing contributes to what some have characterized
as an occasionally heavy-handed or arbitrary approach to regulatory
enforcement and the agency has occasionally challenged legitimate
food imports.

Government Procurement
----------------------

11. The GON has made modest progress on its pledge to operate an
open and competitive bidding process for government procurement.
The Public Procurement Act was signed into law in June 2007 by
President Yar'adua's administration. The Act established the Bureau
of Public Procurement (BPP) replacing the Budget Monitoring and
Price Intelligence Unit a.k.a "due-process" office. Public
procurement reforms are aimed at ensuring that the procurement
process for public projects adheres to international standards for
competitive bidding. The BPP acts as a clearing house for
government contracts and monitors the implementation of projects to
ensure compliance with contract terms and budgetary restrictions.
Procurement above 50 million naira ($419,000) is subject to the "due
process" review. The 36 state governments have also agreed to pass
the Public Procurement Act in their respective states.

12. Foreign companies incorporated in Nigeria receive national
treatment, and government tenders are published in local newspapers
and a tenders journal is sold at local newspaper outlets. U.S.
companies have won government contracts in several sectors.
Unfortunately, many companies that have won contracts have
subsequently had difficulty receiving funding, usually as a result
of delays in the national budget process. Some companies that won
contracts for which funds were allocated have had trouble getting
paid. Nigeria is not a signatory to the WTO Agreement on Government
Procurement.

Export Subsidies
----------------

13. The GON through its agencies administer 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. In
September 2007, the GON announced a freeze on new tax and duty
waivers, exemptions, and other incentives and ordered an
investigation on their implementation. Businesses that were granted
incentives before the freeze will continue to enjoy the incentives
granted until when the investigation is concluded and the GON acts
on the recommendations. The investigation is expected to be

ABUJA 00002369 003 OF 004


completed before the end of 2007.

14. The Nigerian Export Processing Zone Authority (NEPZA) is
responsible for attracting investment in export-oriented industries.
Of the five zones established under NEPZA, only the Calabar and
Bonny Island (Onne) export processing zones are operational, with
some difficulties reported. The Calabar export processing zone also
functions as a free trade zone. NEPZA rules dictate that at least
75 percent of production in the zones be exported, but lower export
levels are permitted. A third free zone, Tinapa Free Zone and
Tourist Resort, recently commenced operation in 2007. Tinapa is
owned by the Cross-River State Government.

Intellectual Property Rights (IPR) Protection
---------------------------------------------

15. Nigeria is a member of the World Intellectual Property
Organization (WIPO), a party to the Universal Copyright Convention
(UCC), the Berne Convention, and the Paris Convention for the
Protection of Industrial Property, and has signed the WIPO Copyright
Treaty and the WIPO Performances and Phonograms Treaty. Legislation
pending in the National Assembly is intended to establish a legal
framework for an IPR system that complies with WTO obligations.

16. The government's lack of institutional capacity to address IPR
issues is a major constraint to enforcement. Relevant Nigerian
institutions suffer from low morale, poor training, and limited
resources. Fraudulent alteration of IPR documentation is common.
Despite Nigeria's active participation in the conventions cited
above, its reasonably comprehensive IPR laws and growing interest
among Nigerians in seeing their intellectual property protected,
piracy is rampant. Counterfeit automotive parts, pharmaceuticals,
business and entertainment software, music and video recordings, and
other consumer goods are sold openly and intellectual property
infringers from other countries appear increasingly to be using
Nigeria as a base for the production of pirated goods. In 2004,
U.S. industry reported a growth of optical disc manufacturing
plants, some of which may be contributing to the production of
pirated optical disc products. Additionally, book piracy remains a
problem.

17. Patent and trademark enforcement remains weak, and judicial
procedures are slow and subject to corruption. Nonetheless,
government efforts to curtail IPR abuse have yielded limited
results. Nigeria's broadcast regulations do not permit rebroadcast
or excerpting of foreign programs unless the station has an
affiliate relationship with a foreign broadcaster. This regulation
is generally respected but some cable providers illegally transmit
foreign programs. The National Broadcasting Commission monitors the
industry and is responsible for punishing infractions.

18. Almost no foreign feature films have been legally distributed in
the country in the last two decades. Widespread pirating of foreign
and domestic videotapes discourages the entry of licensed
distributors. In 2004, the Nigerian Copyright Commission launched
an anti-piracy initiative named "Strategy Against Piracy" (STRAP).
The Nigerian police force, working closely with the Nigerian
Copyright Commission, has raided enterprises producing and selling
pirated software and videos and a number of high-profile charges
have been filed against IPR violators. Unfortunately, most raids
appear to target small rather than large and well-connected pirates,
and very few cases involving copyright, patent, or trademark
infringement have been successfully prosecuted.

Services Barriers
-----------------

19. Foreign participation in the services sector is generally not
restricted. Regulations provide for 100 percent foreign ownership
in many service sectors, including banking, insurance,
telecommunications, and securities. The Central Bank of Nigeria's
directives stipulates minimum levels of paid-up capital. At least
three foreign banks operate in Nigeria and several Nigerian banks
have foreign shareholders.

20. Professional societies in engineering, accounting, medicine, and
law define minimum professional requirements. Nigeria imposes
quotas on foreign employment based on the issued capital of firms.
Quotas on foreign workers are especially strict in the oil and gas
sector and may apply to both production and service companies. Oil
and gas companies must hire Nigerian workers unless they can
demonstrate that particular positions require expertise not found in
the local workforce. Positions in finance and human resources are
almost exclusively reserved for Nigerians.

21. Certain geoscience and management positions may be filled by
foreign workers with the approval of the National Petroleum

ABUJA 00002369 004 OF 004


Investment and Management Services (NAPIMS) agency. Each oil
company must negotiate its foreign worker allotment with NAPIMS.
Significant delays in the approval of this allotment and in
subsequent approval of visas for foreign personnel present serious
management challenges to the energy industry's efforts to acquire
the necessary personnel and maintain their legal immigration status
in Nigeria. NAPIM's approval is required for all procurement in the
energy sector above $500,000. Approval processes are slow and can
significantly escalate the time and cost required for a given
project, as well as provide opportunities for corruption and
favoritism.

Investment Barriers
-------------------

22. Under the Nigerian Investment Promotion Commission (NIPC) Decree
of 1995, Nigeria allows 100 percent foreign ownership of firms
outside the petroleum sector. Investment in the petroleum sector is
limited to existing joint ventures or production-sharing agreements.
Foreign investors may buy shares of any Nigerian firm except firms
on a "negative list" (such as manufacturers of firearms, ammunition,
and military and paramilitary apparel). Foreign investors must
register with the NIPC after incorporation under the Companies and
Allied Matters Decree of 1990. The decree prohibits nationalization
or expropriation of a foreign enterprise, except when necessary to
protect the national interest.

23. Despite efforts to improve the country's investment climate,
disincentives to investing in Nigeria continue to plague foreign
entrepreneurs. Potential investors must contend with poor
infrastructure, complex tax administration procedures, confusing
land ownership laws, arbitrary application of regulations,
corruption, and extensive crime. The sanctity of contracts is often
violated, and Nigeria's court system for settling commercial
disputes is weak and sometimes biased.

24. Foreign oil companies are under significant pressure to increase
procurement from domestic firms. The GON, through the Nigerian
Content Division (NCD) of the Nigerian National Petroleum
Corporation (NNPC), set a target of 45 percent local content for
oil-related projects by 2006 and 70 percent by 2010. In many cases,
sufficiently trained personnel and physical infrastructure do not
currently exist to meet the government's local content targets. The
NCD of the NNPC is working toward identifying and certifying
domestic firms with specific skill sets through the Joint
Qualification System (JQS). Although some domestic firms possess
adequate technical expertise, managerial and financial capabilities
are often lacking. Legislation to codify various levels of Nigerian
content in specific petroleum activities failed to pass the National
Assembly last term. The bill's sponsors plan to reintroduce it this
year.

Other Barriers
--------------

25. The GON has increased its efforts to eliminate financial crimes
such as money laundering and advance-fee fraud (or "419" fraud named
after the relevant section of the Nigerian Criminal Code). With the
encouragement and cooperation of U.S. law enforcement agencies, the
GON is now prosecuting more "419" perpetrators. In May 2007,
Nigeria was admitted into the Egmont Group of Financial Intelligence
Units (FIUs). In June 2006, the Financial Action Task Force removed
Nigeria's name from the list of non-cooperating countries and
territories in the fight against money laundering and other
financial crimes.

26. International monitoring groups routinely rank Nigeria among the
most corrupt countries in the world. While sales of U.S. goods and
services to public- and private-sector enterprises are not
restricted, some U.S. suppliers believe they lose sales when they
refuse to engage in illicit or corrupt behavior. Other U.S.
exporters say Nigerian businessmen and officials understand that
U.S. firms must adhere to the U.S. Foreign Corrupt Practices Act,
and they believe that the law's restrictions help minimize their
exposure to corruption.

PIASCIK

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