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Cablegate: Nigeria: 2008 Investment Climate Statement

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PP RUEHMA RUEHPA
DE RUEHUJA #0107/01 0170639
ZNR UUUUU ZZH
P 170639Z JAN 08 ZDK
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 1858
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 8572
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UNCLAS SECTION 01 OF 10 ABUJA 000107

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TAGS: EINV ETRD EFIN OPIC KTDB USTR NI
SUBJECT: NIGERIA: 2008 INVESTMENT CLIMATE STATEMENT

REF: STATE 158802

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1. The following information is Nigeria's 2008 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 and
attacks on oil installations 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 inauguration of a civilian
administration in May 1999. Nigeria conducted its third general
elections in April 2007 resulting in a civilian to civilian hand
over of power from former President Olusegun Obasanjo to President
Umar Musa Yar'adua. The elections were however, characterized by
gross irregularities. A large number of the electoral victories in
the April general elections are currently being challenged in
various electoral tribunals in the country, including the
presidential election results. The courts have upturned some of the
results, including some governorship results. The affected
governors have appealed the electoral tribunal decisions.

The government of Nigeria (GON) embarked on a reform program in late
2003 christened the National Economic Empowerment and Development
Strategy (NEEDS). The present administration of President Yar'adua
has assured that the economic reforms will be sustained. 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

The Government of Nigeria (GON) continues to solicit for foreign
investment and has implemented various reforms towards attracting
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 $4 billion by

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privatizing and concessioning more than 140 enterprises, including
cement manufacturing firms, 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 twenty two
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 September 2007
was 46.23 million and teledensity of 27.42. This is an improvement
from the December 2006 figure of 34.01 million lines and teledensity
of 24.29. In July 2007, three carriers in the 800MHz spectrum band
were awarded to Visafone communications in a competitive auction
process that included three other companies namely GiCell Wireless
Limited, Multilinks Telecommunication Limited, and TC Africa
Telecoms Network Limited. Also in March 2007, four licenses for a
10MHz lot in the 2GHz spectrum were issued to Alheri Engineering Co.
Limited, Celtel Nigeria Limited, Globacom Limited, and MTN Nigeria
Communications Limited.

The NCC commenced 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.

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
still 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 less 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

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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 2008, which surveyed 178
countries including Nigeria, concluded GON efforts have led to
improvements in the way business is conducted, but was not among the
top ten reformers, a position it occupied in the last publication.
Regarding the enforcement of contracts Nigeria was ranked 93 out of
178 countries surveyed. Though it was ranked 66 out of 175
countries surveyed in 2006 it 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 39 procedures and
457 days, the cost of which averaged 32 percent of the value of the
contract. A substantial 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 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.

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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 will place 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, biscuits, corn, pork products, vegetable oil,
sorghum, millet, beer and non-alcoholic beverages and sugar
confectionaries, textiles, plastics, and barite. In 2006, the GON
removed some textiles from its list of prohibited imports. The GON
had announced in late 2004 that it will phase out the bans by
January 2008 in line with the conclusion of negotiations with its
West African neighbors under the ECOWAS CET. Unfortunately, the
expected CET negotiations are unlikely to conclude by January 2008.
In fact, the Minister of Finance announced on December 14, 2007 that
Nigeria had suspended implementation of the CET system it had been
experimenting with over the past two years. The Minister attributed
the suspension to a deadlock between Nigeria and other ECOWAS member
countries over the Type B exception list as well as the 50 percent
list. The exception list, consisting of items whose duty rates are
at variance with the ECOWAS CET, typically includes basic items like
steel, petroleum, pharmaceuticals, rice, and tobacco, while the 50
percent list covers luxury goods. In December 2007 there were
reportedly 308 tariff lines on Nigeria's Type B exception list. As
of early January 2008, the GON was reviewing its tariffs and bans.
The President cancelled the ban on import of cement on January 14.

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,

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SGS, and Global Scan. The exclusive contract will expire by 2012,
if Nigerian Customs 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. There are ongoing reforms to
further reduce the time for clearing goods from the current 2 weeks
to 48 hours.

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 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 Bureau of Public Procurement, the successor agency to the Budget
Monitoring and Price Intelligence Unit (BMPIU) after the enactment
of the public procurement legislation in May 2007 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. It is expected that the public procurement legislation
would also be passed at the lower tiers of government.

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 2008, Nigeria was
ranked 51 of the 178 countries surveyed for registering property,
requiring 14 procedures and 82 days at a cost of 22.2 percent of the
property value. In the Doing Business 2007 publication Nigeria was
ranked as having the sixth least efficient system for registering
property of the 175 countries surveyed, 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.

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Transfers are complex and must usually go through state governor's
offices. In the capital; of 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 in conjunction with the Economic and
Financial Crimes Commission have raided compact disc replicating
plants, enterprises producing and selling pirated software and
videos, and a number of businesses have filed high-profile charges
against IPR violators.

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.

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.

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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, 210 equities are
listed on the exchange.

Government debt instruments are available. Since the inception of
the civilian government in 1999, the federal government has issued
bonds of various maturities ranging from 2 to 10 years aimed at
restructuring its domestic debt portfolio from short-term to medium
and long-term instruments. State governments have also availed
themselves of opportunities on the Nigerian capital market. About
five state governments 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.

Banking System: As of December 2007, twenty-four commercial banks
were operating in Nigeria. In 2007, Standard Bank of South Africa,
through its Nigerian subsidiary, Stanbic Bank, acquired majority
interest in IBTC Chartered Bank. This led to the merger of both
Stanbic Bank and IBTC Chartered Bank.

Health of the Banking System: A recent assessment of the banking
sector by the Central Bank of Nigeria revealed that as at end-June
2007, six banks were rated sound, sixteen were satisfactory, and
three banks were rated marginal.

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
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.

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.

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Corruption

Domestic and foreign observers recognize corruption as a serious
obstacle to economic growth and poverty reduction. Nigeria was
eighteenth in Transparency International's 2007 Corruption
Perceptions Index, an improvement from its fifth position in the
2006 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
governor of Bayelsa State, the former Inspector General of Police,
and it is presently pursuing a case against six former governors in
the law courts. In May 2007, Nigeria was admitted into the Egmont
Group of Financial Intelligence Units (FIUs). 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 (BIT) is not in place. The President of Nigeria,
however, has recently expressed interest in negotiating a BIT with
the U.S. 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.

OPIC and Other 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.

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

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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. 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 Trade Zones

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

ABUJA 00000107 010.2 OF 010


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 was commissioned during the first
quarter of 2007, but has not experienced any activity as yet. 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. Recently, the Government has encouraged private sector
participation and partnership with the Federal Government and state
and local governments under the Free Zones scheme. This has
resulted in the establishment of specialized Zones like Lekki and
Olokola which are not yet operational.

Foreign Direct Investment

According to data from the United Nations World Investment Report of
2007, in 2006 the stock of foreign direct investment (FDI) in
Nigeria was estimated at $40.25 billion, which accounted for about
35 percent of GDP. Total FDI Inflow was $5.4 billion in 2006 and
accounted for 75 percent of gross fixed capital formation. The $5.4
billion FDI inflow is mostly concentrated in the oil industry and
mostly from China. This figure represents 80 percent of total FDI
in West Africa and places Nigeria in second position after Egypt as
one of the top recipients of FDI in Africa. Some FDI is channeled
into telecommunications and manufacturing, but the total remains
small relative to oil sector investment.

PIASCIK

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