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Cablegate: July 2004 Interim Update of 2003 Nigeria Investment

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

UNCLAS SECTION 01 OF 03 LAGOS 001410

SIPDIS

ALSO FOR USTR, EXIM, OPIC

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ECON ELAB KTDB NI OPIC
SUBJECT: JULY 2004 INTERIM UPDATE OF 2003 NIGERIA INVESTMENT
CLIMATE STATEMENT

REF: STATE 141379

This appendix updates the 2003 Nigeria Investment Climate
Statement. It is intended for investors, pending re-
publication of the Country Commercial Guide (CCG) (of which
the Investment Climate Statement is a chapter). The CCG
will henceforth be released on a calendar year basis (i.e.,
in January rather than in August, as had been the practice).

The text below reflects the significant changes in the
investment climate that have occurred in Nigeria in the last
year (July 2003 - July 2004). Those parts of the 2003
Investment Climate Statement that remain valid have not been
modified by this appendix since the U.S. Embassy in Nigeria
is satisfied that they continue to reflect the state of
affairs as of July 2004.

Openness to Foreign Investment
------------------------------

Replace paragraph 4 of this section by the following text:

The GON has substantially opened Nigeria's
telecommunications sector. The Telecommunications Act of
2001 abolished requirements for standard mobile technologies
and authorized the Nigerian Communications Commission (NCC)
to issue licenses to existing and prospective service
providers, effectively ending NITEL's monopoly over
telecommunications services. In early 2001, the NCC
auctioned off licenses for global systems for mobile
communications (GSM), an effort commended in both local and
international circles for its transparency. Four
enterprises, including NITEL, won licenses. Globacom won
mobile, fixed, and international gateway licenses as
Nigeria's second national operator in mid-2002. By mid
2004, Nigeria's leading mobile service providers supported
slightly more than three million subscribers.

Delete paragraph 6 of this section.

Conversion and Transfer Policies
--------------------------------

No significant change since 2003.

Expropriation and Compensation
------------------------------

No significant change since 2003.

Dispute Settlement
------------------

No significant change since 2003.

Performance Requirements and Incentives
---------------------------------------

Replace paragraph 1 by the following text:

Import Policies1: Tariffs provide the Government of Nigeria
(GON) its second largest source of revenue after oil
exports. But 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 its last major tariff revision in March 2003, the GON cut
duties on 230 line items (mostly raw materials, base metals,
and capital equipment), but raised tariffs on 30 others
(largely plastic, rubber, and aluminum articles). Most
increases were relatively small. The GON had announced
similar cuts and increases in 2001 and 2002.

Bans prohibit about 60 line-item goods imports including
meat, fresh fruit, cassava, pasta, fruit juice in retail
packs, toothpicks, soaps and detergents, textiles, plastics,
and barite (used in well drilling). The GON banned 41 items
in January 2004.

Under Import Policies, replace paragraph 5 by the following
text:

In 2002 and again in 2003, the GON announced plans to
replace its pre-shipment inspection regime by one mandating
100 percent destination inspections at Nigerian ports of
entry. The proposed change was twice deferred, however,
amid doubts about officials' ability to implement it.
Importers feared corruption would increase if the Nigerian
Customs Service had sole purview over goods' classification
and valuation. Many major shippers prefer pre-shipment
inspection because it provides them with official
documentation to refute charges of overvaluation or
inappropriately classified goods, if necessary.

Under Government Procurement, replace paragraph 1 by the
following text:


The GON awards contracts under an open tender system,
advertising tenders in Nigerian newspapers and opening them
to domestic and foreign companies. Procurement has
gradually become more transparent, but corruption persists.

Under Government Procurement, replace paragraph 3 by the
following text:

In January 2001, the GON issued procurement and contracting
guidelines clarifying competitive tendering and decision-
making procedures, defining bid security and mobilization
fee rules, and providing for audits of capital projects.
The GON then established the Budget Monitoring and Price
Intelligence Unit to act as a clearinghouse for government
contracts and procurement, and to monitor the implementation
of projects to ensure compliance with contract terms and
budgetary restrictions. Procurements above N50 million
(about $380,000) are subject to due diligence review through
this Unit.

Right to Private Ownership and Establishment
--------------------------------------------

No significant change since 2003.

Protection of Property Rights
-----------------------------

Delete paragraph 2. Replace paragraphs 9 and 10 by the
following text:

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
(IPR) law. Lower court judges, as well as most legal
practitioners, are often unfamiliar with IPR, so
misapplication of the law is common.

Transparency of the Regulatory System
-------------------------------------

No significant change since 2003.

Efficient Capital Markets and Portfolio Investment
--------------------------------------------- -----

Replace paragraphs 3 and 4 by the following text:

The Nigerian Stock Exchange (NSE) was buoyant in 2003 and
remained so as of July 2004. The NSE operates six branches
nationwide. The volume of shares traded and market
capitalization continue to rise. The NSE continues to
expand its membership and investor pool, and some 200
enterprises are listed on the exchange.

Government debt instruments are available. Except for
federal government instruments of short and medium maturity,
other instruments of state governments and parastatal
companies are often considered high risk because of the
historically poor performance of Nigeria's public
enterprises.

Eighty-nine full-service commercial banks operate in
Nigeria, a number reflecting the rarity of bank mergers and
acquisitions. Capital concentration is nonetheless
significant, as Nigeria's 10 largest commercial banks held
55.3 percent of total bank assets and 56.2 percent of total
deposit liabilities as of the end of 2003, and accounted for
44.3 percent of total credit extended that year. Central
Bank guidelines stipulate a 2 billion naira ($15 million)
minimum capital requirement for new banks; existing banks
must maintain 1 billion naira ($7.5 million) in capital.

In July 2004, the new Governor of the Central Bank of
Nigeria Charles Soludo announced a new capital requirement
of 25 billion naira ($187 million) for all banks in the
country. The Central Bank has set a December 2005 deadline
for compliance with this directive. Governor Saludo has
stated that the new capitalization requirement will
encourage bank mergers and acquisitions, and will thus
strengthen the banking industry, as well as the Central
Bank's regulatory and supervisory capabilities.

The implementation of tight monetary policies by the Central
Bank to stabilize the naira and curb imprudent lending has
led to liquidity problems at some banks in the last year.
The Nigeria Deposit Insurance Corporation (NDIC) had
reported that unsound loans and advances increased from 4.6
to 12 percent of the industry total during 2002, reaching
105 billion naira ($783 million). In 2003, the NDIC
committed itself to scrutinizing and closing unsound
financial institutions. High reserve requirements for
public sector lending have dramatically reduced lending to
government and parastatal entities.
Political Violence
------------------

Replace paragraph 3 by the following text:

Nigeria continues to experience communal violence. .
Violence in the Delta region, the middle-belt states, and
Kano resulted in hundreds of deaths in 2003, and sporadic
ethno-religious violence in Plateau State resulted in
several hundred deaths and the declaration of a state of
emergency in early 2004. The advent of vigilante groups in
various parts of the country, particularly the Delta region
and Eastern Benue State, has exacerbated communal violence.

Corruption
----------

No significant change since 2003.

Bilateral Investment Agreements
-------------------------------

No significant change since 2003.

OPIC and Other Investment Insurance Programs
--------------------------------------------

No significant change since 2003.

Labor
-----

Insert the following new paragraph after paragraph 4
(paragraph entitled "Collective Bargaining"):

Collective bargaining in the petroleum industry is
relatively efficient compared to that in 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 other working
conditions tend generally to be resolved quickly through
negotiation. Organized labor's efforts to address broad
political issues, however, have resulted in industrial
actions that continue to affect industry productivity.

Foreign Trade Zones/Free Ports
------------------------------

No significant change since 2003.

Foreign Direct Investment Statistics
------------------------------------

These statistics will be updated in the next Investment
Climate Statement, which will be published in January 2005.

KRAMER

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