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Cablegate: Nigeria: Submission for 2003 President's

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

UNCLAS SECTION 01 OF 05 ABUJA 000680

SIPDIS


STATE FOR AF/W, AF/EPS AND EB/TPP
SATE PASS USTR PCOLEMAN AND WJACKSON
TASHKENT FOR BURKHALTER
COMMERCE FOR ITA/MAC


E.O. 12958: N/A
TAGS: ETRD ECON EINV ELAB PHUM PREL NI AGOA
SUBJECT: NIGERIA: SUBMISSION FOR 2003 PRESIDENT'S
REPORT ON AGOA


REF: STATE 53658


1. The following paragraphs provide information on
Nigeria for use in the President's 2003 report to
Congress on AGOA, as requested in Reftel, in the
following areas:
--AGOA Trade and Investment
--Progress Toward a Market-Based Economy
--Political Pluralism and The Rule of Law
--Poverty Reduction
--Labor/Child Labor/Human Rights
--AGOA Outreach, Technical Assistance, and Trade
Capacity Needs


AGOA Trade and Investment
-------------------------
2. Nigeria has not capitalized on Africa Growth and
Opportunity Act (AGOA) benefits to a discernible
degree. There has been negligible progress in
developing alternative exports to petroleum or, with
the exception of the telecommunications sector, to
attract significant U.S. interest in the non-oil
sectors of the economy.


Progress Toward a Market-Based Economy
--------------------------------------
3. Since its inauguration in 1999, the elected
government of Olusegun Obasanjo has made incremental
progress toward establishing a market-based economy
that protects private property rights, incorporates an
open rules-based trading system, and generally reduces
government interference in the economy. Government
controls over foreign investment were loosened. For
example, previous government decrees that inhibited
competition or conferred monopoly powers on public
enterprises in the petroleum, telecommunications,
power, and mineral sectors were repealed or amended.


4. Despite strong political resistance, the
administration moved forward with an ambitious
privatization program. However, in 2002 attempts to
privatize the national telecommunications monopoly
NITEL fell through when core investors were unable to
secure financing. Meanwhile, efforts are underway to
privatize hotels in Abuja and a ship-repair facility
in Lagos, as well as newsprint, sugar refining,
fertilizer production, tractor manufacturing, and
other companies throughout the country.


5. After the GON successfully auctioned three GSM
licenses in 2001, a second national telecommunications
carrier was designated in August 2002. Recently, a
U.S. firm won a $49 million contract to participate in
the expansion of NITEL's GSM network.


6. This contract award could signify a greater
transparency in government contract processes.
Previously, U.S. firms had encountered difficulties
obtaining government procurement contracts or taking
advantage of trade opportunities. Some U.S. bidders
alleged foreign competitors engaged in non-transparent
lobbying practices that undercut U.S. corporations.
U.S. firms also complained of foreign competitors
utilizing fraudulent import documentation schemes to
avoid payment of tariffs.


7. In 2002, President Obasanjo established an office
to review all capital projects exceeding the naira
equivalent of $100,000. This effort reduced the most
blatant forms of corruption in new capital projects,
but the procedure is time-consuming, implemented by a
small staff, not widely understood by contractors or
civil servants, and can be circumvented by innovative
contracting schemes. Nonetheless, it was this review
process that helped secure the NITEL contract for a
U.S. firm.


8. Throughout 2002, the National Assembly and the
Presidency battled over control of the budget process;
a justification by the legislature for initiating
impeachment proceedings against President Obasanjo in
August 2002 was that the Executive spent at lower
levels than the budget passed by the National
Assembly. The 2002 budget as passed by the National
Assembly was expansionary, almost 20 percent higher
than the Executive's proposal. In the end, the GON
restricted deficit spending to 12.5 percent of the
annual recurrent budget, creating a spend-as-you-
receive system of disbursements, paying salaries and
overhead expenses only when oil revenues arrived; this
process also delayed, even stopped work on most
capital projects.


9. The Central Bank of Nigeria reduced borrowing by
states and local government authorities by mandating
that banks set aside reserve requirements of 50
percent for government loans, and requiring that the
loans be paid in full by the spring 2003 end of tenure
date for elected governments. Disagreement over fiscal
policy was one factor that led the GON to announce the
end of its monitoring agreement with the International
Monetary Fund (IMF) in April 2002.


10. A rash of deficit spending in 2000 and 2001 led to
high inflation. More prudent government policies,
including the fiscal policy rule and reduced growth of
the money supply helped lower year-on-year inflation
from 16.5 in 2001 to 12.2 percent in 2002.


11. In July 2002, the Central Bank of Nigeria (CBN)
re-introduced a modified Dutch Auction System (DAS)
for foreign exchange that tied officially traded Naira
to a market mechanism, greatly reducing the discount
between the parallel market and officially traded
Naira. Prior to the DAS, the spread between the two
rates had risen to 17-20 percent, thus diverting a
significant amount of banking activities from
investment into non-productive arbitrage activities.


12. 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 to
provide sufficient capital to rejuvenate the country's
declining industrial and agricultural sectors.
Meanwhile, the GON-imposed interest rate caps on
commercial sector lending in December 2002.
Predictably, most banks now lend to only the most
creditworthy customers at the GON-imposed rates and
charge others informal fees in addition to interest in
order to approximate the market rate.


13. Tariff policy during 2002 took a step backward.
Tariffs were raised on a number of finished products
as well as raw and processed material inputs. Critical
consumer items and foodstuffs such as printed
textiles, wheat flour and frozen chicken were banned,
while the tariffs on rice and detergent were raised to
100 percent. The government seeks to enforce its
tariff policy through 100 percent inspection of all
goods entering the country, further hampering already
poorly functioning ports. Tariff policy is
inconsistent and subject to unexpected changes. An
example: For much of 2002, the GON imposed a 100
percent tariff on mosquito netting, reneging on
Obasanjo's 2001 pledge to eliminate tariffs on goods
vital to the control of malaria. That tariff is now 40
percent.


14. The GON continues to work toward restructuring the
intellectual property rights regime. However, piracy
of optical media remains a major issue. Lack of
enforcement resources and trained enforcement staff,
coupled with inadequate public and government
understanding and appreciation of the benefits of IPR
protection, make reversing this situation a difficult,
long-term effort. The GON--by far the largest user of
computers in the country--is making a serious effort
to see that all government agencies use only licensed
software, but it still remains the largest user of
pirated software in the country. Meanwhile, the GON
appears stalled in its efforts to bring its IPR
legislation into full compliance with WTO TRIPS.


Political Pluralism and the Rule of Law
---------------------------------------
15. The elected civilian government is now in its
fourth year, and the GON has repeated its commitment
to the rule of law. Despite an executive-legislature
impasse over budget and spending processes, and the
threatened impeachment proceedings against President
Obasanjo in fall 2002, the vast majority of Nigerians
steadfastly support the democratic process. In late
2002, the Independent National Election Commission
(INEC) registered 27 new political parties, bringing
the number of parties in the country to 30. A voter
registration program was conducted in September 2002,
albeit with widespread complaints that many Nigerians
were unable to register due to a lack of materials and
other irregularities. National elections, including
presidential, state, and local elections, are
scheduled for April 2003.


16. Ethnic and religious tensions continued in parts
of the country, including the Niger Delta. Communal
clashes in the city of Warri and its environs left
many dead. Oil fields in the region were shut down due
to clashes between armed ethnic groups. Unrest
continues to be a recurrent problem in Plateau State.
More than two hundred persons died in rioting in
Kaduna sparked by attempts to host the Miss World
beauty pageant in Abuja. The GON continues to support
peaceful ways of ending ethnic violence. Politically
motivated assassinations increased in the last few
months and the inability of the security forces to
arrest the perpetrators of these crimes remains a big
test for the rule of law.


17. The Supreme Court made landmark decisions in early
2002 that affirmed its role as the final arbiter of
the national constitution in the ongoing process of
the evolution of Nigeria's democratic federalist
system. While the Supreme Court and Appellate Courts
have distinguished themselves, overall the judicial
system lacks the resources and administrative
capability to function effectively. This results in
long delays in resolving civil and criminal cases.


18. In several instances in 2002, local Sharia courts
imposed stoning sentences against women for adultery,
which is a crime under the new Sharia code in many
States in Nigeria. Several of the cases have been
dismissed. In the highly publicized case of Safiya
Husseini, the stoning sentence was overturned by a
State Appellate Court in March. Another well-
publicized stoning case is in the appellate process.
The Federal Government has stated its opposition to
these sentences, but says that, under the Nigerian
constitution, the judicial process must resolve these
matters.


19. Corruption remains endemic throughout Nigerian
institutions. Although an Independent Corrupt
Practices and other Related Offences Commission (ICPC)
is in place, the act establishing the commission is
being challenged under a new "Anti-Corruption
Commission Bill" passed by the National Assembly.
President Obasanjo has refused to sign the new bill.
Observers believe that the new corruption bill was
passed in bad faith. The new bill focuses more on the
structure and appointment of members of the Commission
than punishment to be meted out to offenders. The new
bill also gives immunity to the sitting members of the
Nigerian Senate who were being probed by the ICPC. It
was also these same senators who authored the new
anti-corruption legislation. Under the new bill the
Senate must ratify the appointment of the chairman of
the commission who must be a retired judge of the
court of appeals and will be appointed by a majority
of the members of the commission itself. The president
would no longer have any role in the appointment of
the commission. Meanwhile, the current act has been
criticized as a political tool of the Presidency that
limits independent inquiries into allegations of
corruption.


Poverty Reduction
-----------------
20. Poverty reduction is the stated objective of the
GON's economic agenda--nearly 70 percent of Nigerian
live below the poverty line. Despite some improvement
in the provision of basic services such as education
and health, poverty reduction efforts have been
stymied by a lack of policy cohesion and direction. As
a result, many programs compete for limited
international donor and GON resources.


21. The GON is working 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 pace of economic growth and investment needed to
spur poverty reduction. More emphasis must be placed
on reviving Nigeria's now moribund agricultural
sector.
Labor/Child Labor/Human Rights
------------------------------
22. All citizens have the right to form or belong to
any trade union or other association for the
protection of their interests. However, law permits
only a single central labor federation, the Nigerian
Labor Congress (NLC), and the GON recognizes only 29
trade unions. According to figures provided by the
NLC, total union membership was approximately 4
million; less than 10 percent of the total work force
was organized. The informal sector, and small and
medium enterprises, largely remained unorganized. The
labor laws provide for both the right to organize and
the right to bargain collectively between management
and trade unions. Collective bargaining occurred
throughout the public sector and the organized private
sector. Workers had the right to strike; however,
certain essential workers were required to provide
advance notice of a strike. The GON retained broad
legal authority over labor matters and often
intervened in disputes seen to challenge key political
or economic objectives. However, the labor movement
increasingly was active on issues affecting workers.
The law prohibits forced or bonded labor; however,
there were reports that it occurred and enforcement of
the law was not effective.


23. Children less than 15 years of age may not be
employed in commerce and industry and children may not
be employed in agricultural or domestic work for more
than 8 hours per day. However, economic hardship has
driven children to engage in commercial activities
aimed at enhancing meager family income. The
International Labor Organization (ILO) estimates that
in 2002 approximately 12 million children between the
ages of 10 and 14 (25 percent of all children) were
employed in some capacity. Children frequently were
employed as beggars, hawkers, and bus conductors in
urban areas, and the use of children as domestic
servants was common. Sadly, private and government
initiatives to stem the growing incidence of child
employment continued but were ineffective. President
Obasanjo has taken an increased interest in this
issue, particularly trafficking in children, and we
expect more progress in this area in the future.


24. Although there were improvements in several areas,
the GON's human rights record remains mixed. The
national police, military, and security forces have on
occasion committed extrajudicial killings. The
security forces have also been accused of using
excessive force to apprehend criminal suspects and to
quell incidents of ethno-religious violence. The GON
continues to take steps to curb torture and beatings
of detainees and prisoners. Sharia courts have
sentenced persons to harsh punishments including
amputations and death by stoning; however, no
amputation or stoning sentences were carried out in
2002. Prison conditions are harsh and life
threatening, and the lack of sufficient food and
adequate medical treatment contributed to the death of
some inmates. Police and security forces use arbitrary
arrest and detention, and prolonged pretrial detention
remained a serious problem. The judicial system often
was incapable of providing criminal suspects with
speedy and fair trials. The GON generally respected
freedom of speech and of the press; however, it placed
some limits on freedom of assembly and association--
including religious proselytization--citing security
concerns in areas that have experienced communal
unrest. The GON occasionally restricted freedom of
movement for security reasons in areas of unrest and
used lethal force at checkpoints.


AGOA Outreach, Technical Assistance, and Trade
Capacity Needs
--------------------------------------------- -
25. The U.S. Mission in Nigeria is fully engaged in
promoting AGOA throughout the country. In 2002,
Mission economic, commercial, and public diplomacy
officers worked closely with the Nigerian-American
Chamber of Commerce, the Nigerian Stock Exchange, the
Nigerian Economic Summit Group, and other Nigerian
entities to facilitate business outreach and the
development of strategic commercial partnerships to
support AGOA. The U.S. Agency for International
Development worked to promote agricultural exports,
specifically working on gum arabic, sesame seeds,
cashews, and other products. In particular, USAID
supported the development of a laboratory to assist in
export processing of gum arabic. In 2002, USAID also
worked with two world-class textile and garment
experts who demonstrated the large benefits in that
sector that could accrue to Nigeria under AGOA.


26. 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.


27. 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 relative to
foreign competition. In some less-serviced parts of
Nigeria, they assert this figure climbs to 50 percent.
Although infrastructure difficulties are real, an
equally important obstacle is 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 cannot exploit AGOA on a large
scale. A few products such as ginger, gum Arabic, and
frozen prawns could possibly be exported to niche
markets in the United States under AGOA, and USAID is
working with potential exporters. Nigeria's reputation
for corruption, criminal activity, and financial fraud
serves as a disincentive to many potential U.S.
importers and prevents them from engaging local
entrepreneurs directly.


28. Nigeria's business community is interested in the
tariff benefits offered by AGOA, but in one key sector
that could benefit from AGOA, textiles, the Nigerian
National Assembly has yet to approve a visa regime
that would allow such exports under AGOA. Even if this
legislative hurdle is cleared, a poor investment
climate, misguided macroeconomic policies, and a
deficient infrastructure may prevent Nigeria from
taking full advantage of AGOA within the textile
industry.
JETER

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