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Cablegate: Nigeria: Submission for 2002 President's Report On

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 ABUJA 001214

SIPDIS


STATE PASS USTR FOR PCOLEMAN, WJACKSON
STATE ALSO PASS OPIC, EXIM


E.O. 12958: N/A
TAGS: ETRD ECON ELAB EINV PHUM PREL NI AGOA
SUBJECT: NIGERIA: SUBMISSION FOR 2002 PRESIDENT'S REPORT ON
AGOA


REF: A. A) STATE 64055
B. B) 01 ABUJA 2856


1. Overview: Nigeria is yet to generate any significant new
export activity under AGOA. Main reasons for this lack of
progress appear to be Nigeria's unfavorable exchange rate and
investment climate. Moreover, the Government of Nigeria and
USG have been unable to finalize the visa regime that would
allow exports under the textile and apparel provisions of
AGOA. This is a joint Lagos/Abuja message. End Overview.


2. Market Economy/Economic Reform/Elimination of Barriers
to U.S. Trade: The Government of Nigeria, under
democratically elected President Olusegun Obasanjo, has
repeatedly stated its commitment to the free market and
economic reform. With assistance from donors and the
International Monetary Fund (IMF), the GON initiated a
program of deregulation and privatization.


3. Notwithstanding the efforts toward privatization and
deregulation, the Government's overall economic policies have
often been inconsistent with the putative goals of reform and
opening its markets. In late 2001, the formal program with
the IMF was terminated because Nigeria did not meet key
macro-economic targets established under that program. In
early 2002, the Government suspended implementation of an
informal IMF program that sought more liberal exchange rate
policies and fiscal restraint. The Nigerian Government
continues to support a fixed and arguably overvalued exchange
rate and high protective tariffs that restrict export
competition. Policies that keep the Naira overvalued also
effectively subsidize imports, penalize non-oil exports, and
contribute to widespread currency arbitrage. Deficit fiscal
spending forces the Central Bank of Nigeria to employ harsh
monetary policy in an effort to mop up excess liquidity.
This activity contributes to extremely high real interest
rates and the unavailability of affordable credit for long
term investment. Nigeria's erratic tariff regime seeks to
protect domestic industry but discourages investment in
productive activity, depresses market competition, and leads
to the institutionalization of "tariff avoidance" behavior by
importers.


4. The country's telecom sector experienced dramatic
development resulting from the introduction of GSM service.
Other aspects of Nigeria's infrastructure witnessed only
modest improvement in 2001. Notwithstanding the recent
collapse of the effort to privatize NITEL, the Government
continues to move forward with privatization. But Nigeria's
investment promotion efforts are unable to overcome valid
perceptions of corruption, security problems, fraud, and
bureaucratic red tape. The development of capital markets,
including a vibrant stock exchange, and a renewed focus on
capitalizing and assisting small and medium-size enterprises,
may offer hope for catalyzing domestic investment. Nigeria's
financial institutions, however, remain almost exclusively
focused on foreign exchange transactions. The domestic banks
seem unable, at least in the short run, to provide sufficient
capital to rejuvenate the country's declining industrial and
agricultural sectors.


5. Nigeria is party to numerous conventions and agreements
regarding patent, trademark, and copyright protection; the
country's laws generally favor protection of intellectual
property owners and provides criminal penalties for violation
of their rights. Regarding licensed information technology
such as software, limited progress is being made, primarily
through the efforts of the private sector. However,
enforcement of existing IPR laws is weak because of limited
resources. Piracy (counterfeiting of protected intellectual
rights) remains commonplace, and the courts do not have the
expertise to enforce the anti-piracy laws.


6. Nigeria does not discriminate against U.S. goods or
services and allows for the free movement of foreign exchange
into and out of the country. However, U.S. firms have
sometimes encountered difficulties obtaining government
procurement contracts or taking advantage of trade
opportunities. Some U.S. bidders allege foreign competitors
are engaged in non-transparent lobbying practices that
undercut U.S. corporations, even when the U.S. firm enjoys a
financial or technical advantage. U.S. firms also complain
of foreign competitors utilizing fraudulent import
documentation schemes to avoid payment of tariffs.
Sensitive to these allegations, the Nigerian Government has
issued concise procurement guidelines and has begun a due
diligence process for capital expenditures over 5 million
Naira (about USD 45,000) and 100 percent customs inspection
of goods entering the country.
7. Rule of Law/Political Pluralism/Anti-Corruption: The May
1999 inauguration of a democratically-elected president ended
nearly sixteen consecutive years of military rule. During
these years of military rule, the institutions of government
were mismanaged and allowed to atrophy. Since the return of
democracy, these institutions have begun to rebound.
National and state assemblies are functioning. There are
three recognized political parties and several others that
are seeking to register with the Electoral Commission.
Opposition politicians and the media openly criticize the
Government and are free to express differing points of view.
In 2003, democratization in Nigeria will pass another
milestone with the holding of national and state elections.
Free and fair elections will help consolidate democracy,
opening the door to more political and economic reform.
8. Respect for the rule of law has improved since the 1999
return of democratic government. For example, the Supreme
Court recently made landmark decisions that affirm its role
as the final arbiter of the national constitution and help
define the contours of Nigerian federalism. However, the
judicial system overall faces a lack of resources and
inadequate administration that delay resolution of cases.
There is a widespread perception that many lower level judges
and magistrates are susceptible to inducements. This
perception affects investor confidence in the court system's
ability to safeguard intellectual and other property rights
and the courts' ability to provide equal protection under the
law. Efforts to reform the judiciary are underway, but
comprehensive reform will be a long process.


9. Corruption is a problem not only in the courts, but
throughout government and society. President Obasanjo has
publicly committed to fight corruption, calling this one of
his top priorities. Pursuant to this commitment, the
Independent Corrupt Practices and Other Related Offences
Commission (ICPC) was founded to investigate official
corruption. The ICPC receives some training assistance from
the U.S. Department of Justice. Despite ICPC and other
initiatives to eliminate corruption in the federal
government's contracting processes, corruption remains a
persistent problem.


10. Poverty Reduction: Poverty reduction is the stated
lodestar of the Government,s economic agenda, but progress
has been minimal. While greater attention has been placed on
provision of basic services such as education and health,
there has been little effective reform in these areas.
Efforts in poverty reduction, including education and health
care, have lacked cohesion and direction with many programs
competing for limited international donor and GON resources.
Government is engaged with the World Bank and International
Monetary Fund, supported by USAID and other donors, to
develop a Poverty Reduction Strategy Paper. The most
effective poverty reduction approach might be to focus on
per-capita economic growth, industrial capacity utilization,
gainful employment and support for a heretofore shrinking
Nigerian middle class. For poverty reduction to take root,
government policies must be revised as the overall effect of
its macroeconomic and investment policies appear to retard
the economic growth and investment needed to spur poverty
reduction.


11. Labor/Child Labor/Human Rights: Nigeria has a small but
influential organized labor movement. Except for members of
the armed forces and certain essential government security
personnel, Nigerian workers may join trade unions and strike.
The Government of Nigeria is engaged in addressing the
problems of child labor and is a participant in efforts to
eliminate trafficking in women and children. Worker rights
and child labor laws are on the books but law enforcement is
weak. Although its position on human rights is a vast
improvement over the former military regimes, the
Government's record on human rights is mixed. While civil
liberties and political rights are well respected, security
forces have often employed excessive force to quell civil
unrest. Extra-judicial killings have been committed by
security forces in their attempt to control outbreaks of
communal tensions which escalated during 2001. Although they
do so less frequently than they did during military rule,
security officials still beat detainees, and arbitrarily
arrest and detain suspects.


12. AGOA Trade and Investment: Interest in the tariff
benefits offered by AGOA remains high among Nigeria's
business community, but the GON and the Nigerian private
sector have been unable to develop an AGOA-related export
sector to date. Nigerians are increasingly aware they are
unprepared to exploit AGOA. To our knowledge, Nigeria has
been unable to generate any new AGOA-related
investment/exports. Growth in foreign direct investment in
Nigeria's non-oil sector, while positive, is disappointing
and well below the GON's stated goals.


13. AGOA Outreach/Technical Assistance: The U.S, Mission
in Nigeria is highly engaged in promoting AGOA throughout the
country.
-- In 2001, the Economic and Commercial Counselors
participated in AGOA workshops sponsored by the Nigerian
Economic Summit Group and the Nigerian Association of
Chambers of Commerce of Industry, Mining, and Agriculture.
-- The Public Diplomacy office is enlisting a speaker to
address processing exports and will send two AF/PD-sponsored
AGOA Interns to the U.S. for training.
-- The Foreign Commercial Service is working closely with the
Nigerian-American Chamber of Commerce, the Nigerian Stock
Exchange, and other Nigerian entities to facilitate business
outreach and the development of strategic commercial
partnerships.
-- The U.S. Agency for International Development is promoting
agricultural exports, specifically working on gum Arabic,
sesame seeds, cashews, and other products. In addition, all
USAID efforts to influence economic policy take into the
account the importance of AGOA and other export
opportunities. Examples of 2001/2002 USAID reports and
studies that include AGOA are:
"Comparative Evaluation of Draft Trade and Industrial
Policies".
"Constraints to Investment and Exporting in Nigeria:
Towards An Agenda for Donor Intervention".
"Implementing Nigeria's Export Promotion Policy".
"Comments on Draft Trade Policy".
"WTO Membership Obligations: Nigeria in Comparison to a
New Member".
"Implementing Trade Policy in Nigeria: Findings and
Recommendations".
"Nigerian Tariff Liberalization and Nigerian Exports:
Analysis and Comparative Performance".
"Issues in Harmonizing the Structure of Protection in
ECOWAS: The Case of Nigeria".
"Proposed National Framework: Trade and Commercial
Policy".
"Cassava Export Potential".


14. Led by the Ministry of Commerce, Nigeria has
established an inter-agency AGOA committee that has received
USAID assistance. USAID is also working to strengthen
individual textile firms that could benefit from AGOA when
the textile visa system is operative. Both the Ministry and
the Nigerian Investment Promotion Commission have AGOA
offices. Legislation to allow a needed increase in the
penalty for transshipment is caught in the political
stalemate that has affected almost all legislation in the
National Assembly, and the GON has been responsive to
numerous suggestions from the USTR on its AGOA-related
regulations.


15. Host Country Trade Capacity Building Needs: Due to the
country's constrained infrastructure capacity, particularly
an erratic power supply, Nigerian businessmen claim they face
a cost disadvantage of at least 25 percent compared with
foreign competition. In some less serviced parts of Nigeria,
they assert this figure climbs to 50 percent. Although
infrastructure difficulties are real, a more important
obstacle is probably macro-economic mismanagement that has
led to high inflation and a non-competitive exchange rate.
With the loss of cash crop production during the last 30
years, the agriculture sector currently is unable to exploit
AGOA on large scale. A few products such as ginger, gum
Arabic, and frozen prawns have possibilities for establishing
niche markets in the U.S. under AGOA, and USAID is working
with potential exporters. Nigeria's reputation for
corruption, criminal activity, and financial fraud serves as
a disincentive for many potential U.S. importers and keeps
them from engaging local entrepreneurs directly.


16. Misguided macro-economic policies and a deficient
infrastructure prevent Nigeria from taking advantage of AGOA.
Government completion of agreements on textile and apparel
provisions will allow these items to benefit from AGOA
tariff-free treatment, but without improved macroeconomic
conditions Nigeria may not be competitive with its African
neighbors who started much earlier. Another question is
whether Nigeria can jumpstart its Free Trade Zones where red
tape and other negatives are minimized. These, too, however,
are subject to infrastructure deficiencies and exchange rate
difficulties and so far have not met expectations.


Andrews

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