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Cablegate: Nigeria - 2008 Agoa Eligibility Review

VZCZCXRO4278
PP RUEHMA RUEHPA
DE RUEHUJA #2108/01 2751250
ZNR UUUUU ZZH
P 021250Z OCT 07
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 1086
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 7996
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 05 ABUJA 002108

SIPDIS

SIPDIS

DEPARTMENT FOR AF/EPS (POTASH)
DEPARTMENT PASS TO USTR (HAMILTON)

E.O. 12598: N/A
TAGS: ETRD AGOA ECON NI
SUBJECT: NIGERIA - 2008 AGOA ELIGIBILITY REVIEW

REF: STATE 132189

1. (U) Country: Nigeria
Current AGOA Status: Eligible

2. (U) Country Background Summary: Estimated population of 140
million. 2005 GNI was $74.2 billion; 2005 GNI per capita was $560
(World Bank 2006 Data). Nigeria continues to struggle to
consolidate democracy during handover from civilian to civilian rule
in its national and state elections in April 2007 that were marred
by irregularities and fraud. The government is making slow progress
in developing an open economy, minimizing government interference,
and promoting free market principles.

Comments on Eligibility Requirements - Market-based Economy
----------------------------------------

3. (U) Major Strengths Identified: The government has committed to
transitioning from a state directed economy to one driven by market
forces. The economy has witnessed overall macroeconomic stability
in recent times characterized by stable foreign exchange rates,
single-digit inflation, and falling interest rates. The "Wholesale
Dutch Auction" system of foreign exchange trading was introduced in
early 2006, and has led to a sharp reduction in the spread between
the official and parallel market exchange rates. The government has
also restructured its domestic debt portfolio from 91-day Treasury
Bills to Bonds with one to ten years duration. Nigeria received
debt relief from the Paris Club during the fourth quarter of 2005
resulting in a debt write-off of $18 billion. The government paid
up its London Club debts during the first quarter of 2007.

4. (U) The government has a Policy Support Instrument (PSI) with the
IMF, which is a new approach to IMF monitoring. In August 2007, the
IMF conducted its fourth and final review under the PSI and the
outcome of the evaluation was positive. The IMF assessment team
considered the overall economic outlook as positive. The government
is in discussions with the IMF regarding another PSI covering
2008-2010.

5. (U) Power sector reforms are ongoing and the unbundling of the
National Electric Power Authority (NEPA) has been concluded. A
holding company made up of 18 companies, Power Holding Company
(PHCN), has taken over the assets and liabilities of NEPA, while an
electricity regulatory commission (NERC) has been established. The
Bureau of Public Enterprises (BPE) plans to privatize all the
companies and enable private investment in generation and
distribution. Port concessions are moving forward and an
international company was awarded the concession to manage the
country's largest port--Apapa Port in Lagos.

6. (U) The Fiscal Responsibility Act to ensure transparency in the
use of government revenue and a Public Procurement Act to ensure
transparency and value for money in government procurement have been
passed. There are plans to enact both laws in the 36 states of the
federation before the end of 2007. The Nigerian Communications
Commission (NCC) introduced a unified licensing regime in the first
quarter of 2006 to further deregulation and spur competition.
Nigeria Telecommunications Ltd (NITEL) privatization was concluded
in July 2006 and sold to Transcorp, a local conglomerate. Nigeria
is a WTO member. Civil Service reform is progressing with the
monetization of in-kind benefits implementation, and downsizing of
33,000 public servants completed.

7. (U) Nigeria launched National Economic Empowerment & Development
Strategy (NEEDS), a medium-term economic reform program (2003-2007)
focused on privatization, good governance, macroeconomic stability,
anti-corruption, and public service reforms. The NEEDS program is
due for review at the end of 2007. Savings from excess monies from
crude oil sales above the budget benchmark price have been put into
a special reserve account, rather than used to fuel fiscal
expansion. The government budget process is taking its rightful
position as an economic policy and management tool. The budget
deficit has been kept in check. All three tiers of government are
adhering to fiscal discipline which resulted in the creation of the
excess crude account. Prudent public expenditure management
resulted in an accumulated savings of $24.36 billion in 2006. The
savings comprised the $9.08 billion unspent from the 2005 excess
crude earnings and $15.28 billion accumulated in 2006.

8. (U) Financial sector reforms are ongoing. The Central Bank of
Nigeria's directive that banks recapitalize from the 2 billion naira
($16 million) to 25 billion naira ($197 million) by December 31,
2005 was successfully completed, leading to a reduction in the
number of banks from 89 to 25 banking groups. Pension and insurance
reform are moving forward. A Trade and Investment Framework
Agreement (TIFA) with the U.S. provides a mechanism to address trade
and investment issues. Nigeria is a top destination of U.S.
investment in Africa, due to investment in the petroleum sector.
U.S. exports to Nigeria rose 4% in 2005 over 2004. In 2006, U.S.

ABUJA 00002108 002 OF 005


exports to Nigeria increased 37.6% from 2005.

9. (U) Major Issues/Problems Identified: The government has been
challenged regarding the constitutionality of setting aside oil
revenues above the budget benchmark price in the Excess Crude
Account (ECA). The constitution requires that all oil revenue be
deposited into the Federation Account and then shared among the
federal, states and local governments. The ECA was established
without an enabling law, yet was implemented. The federal
government plans to introduce legislation that would make an oil
reserve account legal. To achieve this, a constitutional amendment
may be required because the constitution stipulates that all the
revenues accruing to the federation account must be shared by the
federal, states, and local governments. The challenge of fiscal
dominance and continuing structural reforms exists.

10. (U) A huge and inefficient public sector dominates and inhibits
faster development of the formal sector. Much of the nation's
wealth is concentrated in the hands of tiny military, political, and
commercial elites through corruption and non-transparent government
contracting practices. The banking system is poorly performing
intermediation, therefore impeding small and medium investors.
Regulatory and tax regimes are arbitrarily enforced. Regulatory
bodies are weak and ineffective. Oil and gas receipts account for
80% of government revenues and over 95% of exports. Fuel subsidies
are not budgeted or nontransparent and fuel prices continue to be
regulated and subsidized. The Nigerian National Petroleum
Corporation (NNPC) directly accesses the national treasury; and the
potential for corruption and abuse are enormous. Economic data and
statistics are of unreliable quality and availability. Inadequate
and unreliable infrastructure is a major barrier to private sector
activity. Nigeria faces growing pressure for looser fiscal and
monetary policy.

11. (U) The establishment of the Nigerian Intellectual Property
Commission (NIPCOM) that was announced early 2007 is yet to be
backed by enabling legislation. The 1978 Land Use Act mandates
state ownership of land; private use of land is restricted to a
99-year lease, and subject to government confiscation without a
Certificate of Occupancy or Governor's consent. Conveyance of land
requires high level government approval, promoting corruption and
inhibiting property transactions.

12. (U) Multiple bans in violation of WTO rules in the last three
years have affected imports of many agricultural products and
others. These arbitrary bans encourage smuggling. Import bans
accompanied by sole source importation rights to favorite partners
have impeded competition. Comprehensive trade reform by adoption of
the ECOWAS Common External Tariff was implemented in the last
quarter of 2005; however, trade and investment policies are
frequently changed, suspended, cancelled or implemented
inconsistently. Some U.S. firms with contracts with the government
face consistent problems receiving timely payments. Little if any
progress has been made as the result of TIFA negotiations.
Negotiators reported that the former President ultimately made
decisions on trade and investment issues.

13. (U) The Nigerian government procurement process lacks
transparency. Nigeria's Cabotage Law is a barrier to trade and
investment and has compelled U.S. firms to exit Nigeria. In the oil
and gas sector, Nigeria is imposing or threatening to impose
requirements to invest in power production or refining, in an
attempt to force investment in unprofitable sectors. The
availability of fuel import subsidies are limited to NNPC, forcing
out potential competitors in the downstream fuel market. Local
content requirements impose additional costs on investments. Across
several sectors, the government employs predatory negotiating
tactics, including threats to access to inputs, customs and other
legal approval processes, and transferring contracts to entities
that cannot uphold contract terms. Foreign Exchange repatriation
regulations are enforced arbitrarily. Access to imported inputs
under the Manufacturers-in-Bond Scheme is suspended, highly
politicized and is available only by Presidential directive.

Political Reforms/Rule of Law/Anti-Corruption
---------------------------------------------

14. (U) Major Strengths Identified: Elections were held in April
2007 for state governors and assemblies, national legislators and
the President, and despite being significantly flawed, represented
the first transition from one civilian elected government to another
since Nigeria's independence in 1960. The Nigerian judiciary has
made several landmark decisions in 2007, affirming its role as an
independent arbiter of the national constitution. The results of
the elections tribunals will, however, be closely watched as a
measure of judicial fairness and independence.

15. (U) Nigeria signed a transparency and anti-corruption agreement
with the United States and other G-8 members at the Sea Island

ABUJA 00002108 003 OF 005


Summit in 2004. Nigeria has established programs to combat
corruption, many of which receive support from the United States and
other donors. Since its establishmen{bwzQSFogtT
jQrndering and
misappropriation of funds and had been on trial, was recently
released through a plea bargain that resulted in the forfeiture of
several of his properties and bank accounts both locally and
internationally. Five former state governors are currently facing
trial. The EFCC is investigating ongoing corruption charges against
some former state governors and their associates. The top levels at
the Customs Administration were replaced following corruption
charges. In 2005, the Inspector-General of Police and the Minister
of Education were fired for corruption. The Senate President was
removed from his post for corruption, though he retained his Senate
seat.

16. (U) Major Issues/Problems Identified: The elections of 2007
were marred by serious irregularities and fraud, with violence in
some areas. International and domestic observers pointed to
widespread corruption of the electoral process, including ballot
stuffing, intimidation and violence, deliberate miscounting, results
tampering, and exclusion of opposition candidates. More than 600
petitions were filed with the electoral tribunals, contesting QIUC!~+{Qentified: The government poverty
strategy does not clearly link goals and methods; serious concerns
remain about fiscal transparency; and human capacity for project
implementation is weak. The government is implementing the poverty
program slowly.

Workers' Rights/Child Labor/Human Rights
----------------------------------------

20. (U) Major Strengths Identified: The Nigerian constitution
protects the right of association and the right to organize and
bargain collectively, but statutory restrictions remain.
Improvements are in place. Most workers, except for members of the
armed forces, police, employees designated essential by government,
and employees in export processing zones, may join trade unions and
strike, but reasons for striking are limited. In June 2005, a court
struck down legislation that required a police permit for all public
rallies and processions.

21. (U) In 2002, President Obasanjo signed the International Labor
Organization (ILO) Conventions 182 on the Worst Forms of Child
Labor, 138 on Minimum Age for Employment, and111 on Equality of

ABUJA 00002108 004 OF 005


Occupation. The GON ratified ILO Conventions 87 on Freedom of
Association and 98 on the Right to Organize and Collective
Bargaining. The government has also ratified ILO conventions on
forced labor. Worker rights and child labor laws have been enacted,
but to date the Child Rights Act has only been ratified by six
states. Nigerian law prohibits forced or bonded labor, forbids the
employment of children younger than age 15 in commerce and industry,
and restricts other child labor to home-based agricultural or
domestic work for a maximum of eight hours a day. New legislation
was passed in 2003 outlawing human trafficking, and the National
Agency for the Prohibition of Trafficking in Persons (NAPTIP) was
established. The country made some progress in the area of human
rights, including the arrests of several traffickers of persons; yet
serious problems remain, such as continued lack of accountability
for past abuses. The constitution provides for freedom of religion,
and the government generally respects that right, although some
state governments place restrictions.

22. (U) The relationship between the government and the two union
federations (the Nigerian Labor Congress and Trade Union Congress)
has improved with the swearing in of the Yar'Adua administration. A
national labor strike in June 2007 was peaceful, with security
forces and labor members showing considerable restraint. The
Yar'Adua administration reversed several policies of the Obasanjo
government opposed by labor, including: a partial reduction of the
fuel price increase and a guarantee not to raise the price further
for one year, a reversal of the VAT increase, a review of the Port
Harcourt and Kaduna refinery sales, and an agreement to pay an owed
civil servant salary increase.

23. (U) Major Issues/Problems Identified: The Trade Unions Act does
not ensure workers' right to form and join unions of their own
choosing, deems all registered trade unions to be affiliated with a
central labor organization, and violates the ILO convention on the
Right of Association. The Trade Unions (Amendment) Decree of 1996
makes check-off payment of dues conditional on a "no-strike" clause
during the lifetime of the collective agreement. The Trade Unions
Amendment Act of March 2005 criminalizes meetings between labor and
civil society organizations and bans nation-wide strikes on any
issue but service conditions; however, these sections of the law
have not been enforced in practice. The Act ended the Nigerian
Labor Congress' status as the sole, central labor organization, and
shortly there after, the Trade Union Congress received official
federal government recognition. While decentralization may seem
better for the right to form and join unions, it has weakened the
labor movement in Nigeria. Labor rights have been limited by
targeted layoffs and terminations of labor activists, by
intimidation to press workers to leave unions, and by the increased
use of casual labor, especially in the oil industry.

24. (U) The law provides all citizens with the right to form or
belong to any trade union or other association for the protection of
their interests, and while workers exercised this right in practice,
several statutory restrictions on the right of association and on
trade unions restricted this right. The informal sector, and small
and medium enterprises, remained largely unorganized. The law
prohibits national strikes and strikes on many issues, although this
was not enforced. There are no laws to prohibit retribution against
strikers, but strikers who believed they were victims of unfair
retribution could submit their cases to Industrial Arbitration Panel
(IAP). Decisions of these bodies infrequently carried the force of
law. The labor laws apply to legal foreign workers, but not all
companies respected these laws in practice. Payments of salaries to
federal, state and local government workers are often several months
in arrears; workers who protest or strike over arrearages face
dismissals, threats of layoffs, and pressure to agree to lowered
minimum wages.

25. (U) The government places limits on freedom of assembly and
association, citing security concerns. Trafficking in persons for
purposes of sexual exploitation and forced labor is a problem,
allegedly with the collusion of government officials. Some persons,
including children, are subjected to forced labor and sexual
exploitation. The rate of child labor is rising. Young boys were
trafficked primarily to work as forced bondage laborers, street
peddlers, and beggars; while girls were trafficked for domestic
service and commercial sexual exploitation. Domestic violence and
discrimination against women remain widespread, underreported, and
considered socially acceptable. Police rarely intervene in cases of
domestic abuse. Rape and sexual harassment are common, to the point
that rape is considered epidemic at universities. Women and girls
in all parts of the country are subjected to female genital
mutilation (FGM), which the government publicly opposes. Laws
protecting the rights of the child are inadequate and seldom
enforced. Child abuse, abandonment, and exploitation for labor or
sex remain serious problems. Outbreaks of violence and community
unrest in the oil-producing Niger Delta caused disruption in
Nigeria's oil production and proceeds. The law prohibits
homosexuality; homosexual practices are punishable by prison

ABUJA 00002108 005 OF 005


sentences of up to 14 years. In the 12 northern states that have
adopted Shari'a law, adults convicted of having engaged in
homosexual intercourse are subject to execution by stoning; however,
this sentence has not yet been handed down in practice. Persons
living with HIV/AIDS experienced widespread discrimination in
seeking employment and health care services.

International Terrorism/U.S. National Security
--------------------------------------------- -

26. (U) Major Strengths Identified: President Obasanjo took
personal action in building West African support for anti-terrorism
coalition activities. In June 2007, the Nigerian Financial
Intelligence Unit (NFIU) was admitted as a member of the Egmont
Group of FIUs. In June 2006, Nigeria was de-listed from the
Financial Action Task Force list of Non-Cooperative Countries and
Entities. The Nigerian Financial Intelligence Unit, Economic and
Financial Crimes Commission, Securities and Exchange Commission,
Central Bank and other regulators in the financial services industry
are collaborating to identify and freeze terrorist assets in
Nigeria.

27. (U) Major Issues/Problems Identified: Although the Yar'Adua
government has agreed to fulfill all existing commitments to provide
peacekeepers, the new administration has been slow in implementing
commitments in Darfur and Somalia.

PIASCIK

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