Cablegate: Nigeria: 2007 National Trade Estimate
VZCZCXRO0822
PP RUEHMA RUEHPA
DE RUEHUJA #2803/01 2991436
ZNR UUUUU ZZH
P 261436Z OCT 06
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 7584
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 5378
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHZK/ECOWAS COLLECTIVE
UNCLAS SECTION 01 OF 05 ABUJA 002803
SIPDIS
SIPDIS
DEPARTMENT FOR AF/W (SILSKI) AND EB/TPP/BTA
DEPARTMENT PLEASE PASS TO USTR (GBLUE)
E.O. 12598: N/A
TAGS: ETRD ECON EFIN NI
SUBJECT: NIGERIA: 2007 NATIONAL TRADE ESTIMATE
1. (U) The following information is Nigeria's 2007 National Trade
Estimate.
Trade Summary
-------------
2. (U) The U.S. goods trade deficit with Nigeria was $22.6 billion
in 2005, an increase of $7.9 billion from $14.7 billion in 2004.
U.S. goods exports in 2005 were $1.6 billion, up 3.9 percent from
the previous year. Corresponding U.S. imports from Nigeria were
$24.2 billion, up 48.9 percent. Nigeria is currently the 53rd
largest export market for U.S. goods. The stock of U.S. foreign
direct investment (FDI) in Nigeria in 2004 was $955 million, down
from $1.1 billion in 2003. U.S. FDI in Nigeria is concentrated
largely in the mining, and wholesale sectors.
Import Policies
---------------
3. (U) Nigeria's high tariffs and numerous import bans have been a
concern to many U.S. businesses and were also raised in the context
of Nigeria's May 2005 Trade Policy Review in the World Trade
Organization.
Tariffs
-------
4. (U) Tariffs provide the Nigerian government with its
second-largest source of revenue after oil exports. In its last
major tariff revision, in October 2005, the government implemented
the Economic Community of West African States (ECOWAS) Common
External Tariff, reducing the number of tariff bands in Nigeria from
twenty to five. The five tariff bands are: zero duty on capital
goods, machinery, and essential drugs not produced locally; 5
percent duty on imported raw materials; 10 percent duty on
intermediate goods; 20 percent duty on finished goods; and 50
percent duty on goods in the industries that the government seeks to
protect. The 50-percent tariff covers many items currently subject
to import bans. Items deemed to be necessities such as
anti-retroviral drugs for the treatment of patients with HIV/AIDS
are imported duty free. This duty-free status will be reviewed
after one year to assess its impact on the Nigerian economy and its
stakeholders. The reforms are an effort to harmonize the trade
environment in the sub-region while at the same time improving
Nigeria's own trade and investment environment.
5. (U) Frequent policy changes and inconsistent duty collection make
importing difficult and expensive, and occasionally create severe
bottlenecks for commercial activities. This problem is aggravated
by Nigeria's dependence on imported raw materials and finished
goods, which affects both foreign and domestic manufacturers. Many
importers resort to under-valuing and smuggling to avoid paying full
tariffs.
Non-Tariff Trade Barriers
-------------------------
6. (U) The United States continues to have serious concerns about
the Nigerian government's use of non-tariff barriers to trade. Bans
on the importation of a variety of items - sorghum, millet, wheat
flour, cassava, frozen meat and poultry products, biscuits, bottled
water, fruit juice in retail packs, beer, mosquito repellent coils,
most textile and apparel products, used clothing, and cars more than
eight years old, maize, cocoa butter, disinfectants and germicides,
diaries, greeting cards, calendars, and facial tissues - continued
into 2006. Items removed from the list in 2005 include certain
textile products (such as nylon tire cord, conveyor belts, trimmings
and linings, gloves for industrial use, elastic bands, mosquito
nets, motifs), chocolates, white cement, linseed oils, castor oils,
hydrogenated vegetable fats used as industrial raw materials, all
raw materials for the manufacture of soap and detergents, safety
shoes used in the oil industry, sports shoes, stadium chairs and
fittings, accessories used in furniture making, and prefabricated
buildings. These items remained on the list of imports allowed in
2006. Overall, the government has reduced the number of items on
its import prohibition list and has stated its intention to rescind
all import bans by January 2007, but new import bans, such as an
announced ban on cement imports by the end of 2007, are inconsistent
with the government's stated intentions.
Customs Barriers
----------------
7. (U) Nigerian port practices continue to present major obstacles
to trade. Importers face long clearance procedures, high berthing
and unloading costs, erratic application of customs regulations, and
corruption. Customs exemptions granted to U.S. firms as a
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concession for setting up operations in Nigeria have not always been
honored. In December 2005, the government released import
guidelines for the implementation of a physical destination
inspection regime that commenced in January 2006. Under the
destination inspection scheme, all imports are inspected on arrival
into Nigeria. These guidelines are implemented by the Destination
Inspection Service Providers, which is a team comprised of the
Customs Service and three firms that provide scanning services.
Standards, Testing, Labeling, and Certification
--------------------------------------------- --
8. (U) Rules concerning sanitary and phytosanitary standards,
testing, and labeling are well defined, but bureaucratic hurdles
slow the import-approval process. Regardless of origin, all food,
drug, cosmetic, and pesticide imports must be accompanied by
certificates of analysis from manufacturers and appropriate national
authorities, and specified animal products, plants, seeds, and soils
must be accompanied by proper inspection certificates. U.S.
exporters may obtain these certificates from the U.S. Department of
Agriculture and other relevant federal or state agencies. By law,
items entering Nigeria must be labeled exclusively in the metric
system. The Nigerian Customs Service is charged with preventing the
entry of products with dual or multiple markings, but such items are
often found in Nigerian markets.
9. (U) High tariffs and uneven application of import and labeling
regulations make importing high-value perishable products into
Nigeria difficult. Disputes between Nigerian agencies over the
interpretation of regulations often cause delays, and frequent
changes in customs guidelines slow the movement of goods through
Nigerian ports. These factors can contribute to product
deterioration and may translate into significant losses for
perishable-goods importers.
10. (U) The National Agency for Food and Drug Administration and
Control (NAFDAC) is charged with protecting Nigerian consumers from
fraudulent or unhealthful products. The agency recently targeted
the illicit importation of counterfeit and expired pharmaceuticals
for special attention, particularly imports from East and South
Asia. NAFDAC's severely limited capacity for carrying out
inspections and testing contributes to what some have characterized
as an occasionally heavy-handed or arbitrary approach to regulatory
enforcement, and the agency has occasionally challenged legitimate
food imports. U.S. products do not appear to be subject to
extraordinary or discriminatory restrictions or regulations.
Government Procurement
----------------------
11. (U) The Obasanjo administration has made modest progress on its
pledge to practice open and competitive bidding and contracting for
government procurement. Procurement and contracting guidelines are
implemented by a "due-process" office in the Budget Monitoring and
Price Intelligence Unit. "Due process" certification aims at
ensuring that the procurement process for public projects adheres to
international standards for competitive bidding. The unit acts as a
clearing house for government contracts and procurement and monitors
the implementation of projects to ensure compliance with contract
terms and budgetary restrictions. Procurement above 50 million
naira (about $385,000) is subject to "due process" review.
12. (U) Foreign companies incorporated in Nigeria receive national
treatment, and government tenders are published in local newspapers
and in tenders journal sold at local newspaper outlets. U.S.
companies have won government contracts in several sectors.
Unfortunately, many companies that have won contracts have
subsequently had difficulty getting them funded, usually as a result
of delays in the national budget process, and some companies that
won contracts for which funds were allocated have had trouble
getting paid. Nigeria is not a signatory to the WTO Agreement on
Government Procurement.
Export Promotion
----------------
13. (U) In August 2006, the Government of Nigeria (GON) announced a
new export initiative christened "Commerce 44". The export
initiative aims to develop and promote duty free export of eleven
agricultural commodities; eleven manufactured products and services;
and eleven solid mineral products with high export potentials, in
eleven target markets. The GON's aim is to focus on eleven
countries/regions of the world while taking advantage of concessions
offered by the subsisting bilateral and multilateral agreements, as
well as Memorandum of Understanding (MOU), that will facilitate the
export of Nigerian products and services into such markets.
14. (U) The eleven agricultural products under the initiative
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include cocoa, cotton, cassava, ginger, sheanut, gum arabic, sesame
seed, poultry, cashew nuts, floriculture, fruits, and vegetables.
The eleven solid mineral products include kaolin, tin,
tantalite-colombite, wolframite, zinc, iron ore, coal, lead ore,
pyrite, zircon, and gem stones. The eleven manufactured products
and services include beverages, footwear, leather, shrimps,
pharmaceuticals, rubber products, textiles and garments, iron and
steel, films and music, and vegetable oil. The eleven target
markets include the EU, Japan, China, the United States, India,
ECOWAS, Turkey, Southern African region, Central African region,
South East Asia, and the Middle East.
15. (U) An implementation committee comprising the Nigerian Export
Promotion Council, Ministry of Finance, Ministry of Industries,
Ministry of Commerce, Nigeria Customs Services, Central Bank of
Nigeria, Special Adviser to the President on Manufacturing and the
Private Sector, and the Nigerian Export-Import Bank administer
export incentive programs that include tax concessions, export
development funds, capital assets depreciation allowances, and
foreign currency retention programs. Funding constraints limit the
effectiveness of these programs. In 2005, the GON rescinded all
export subsidies, because it claims that the Common External Tariff
(CET) it implemented in October 2005 automatically favors
manufacturers through its lower tariffs on capital goods and raw
materials. Some of the incentives such as the Export Expansion
Grant and the Manufacture-in-Bond Scheme have been modified and
reintroduced in 2006.
16. (U) The Nigerian Export Processing Zone Authority (NEPZA) is
responsible for attracting investment in export-oriented industries.
Of the five zones established under NEPZA, only the Calabar and
Bonny Island (Onne) export-processing zones are operational, with
some difficulties reported. The Calabar export-processing zone also
functions as a free trade zone. NEPZA rules dictate that at least
75 percent of production in the zones be exported, but lower export
levels are tolerated. A third free zone, Tinapa Free Zone and
Tourist Resort, is under construction and expected to commence
operation during the first quarter of 2007. Tinapa is owned by the
Cross-River State Government.
Intellectual Property Rights (IPR) Protection
---------------------------------------------
17. (U) Nigeria is a member of the World Intellectual Property
Organization (WIPO), a party to the Universal Copyright Convention
(UCC), the Berne Convention, and the Paris Convention for the
Protection of Industrial Property, and has signed the WIPO Copyright
Treaty and the WIPO Performances and Phonograms Treaty. Legislation
pending in the National Assembly is intended to establish a legal
framework for an IPR system compliant with WTO rules.
18. (U) The government's lack of institutional capacity to address
IPR issues is a major constraint to enforcement. Relevant Nigerian
institutions suffer from low morale, poor training, and limited
resources. Fraudulent alteration of IPR documentation is common.
Despite Nigeria's active participation in the conventions cited
above, its reasonably comprehensive IPR laws, and growing interest
among Nigerians in seeing their intellectual property protected,
piracy is rampant in Nigeria. Counterfeit auto parts,
pharmaceuticals, business and entertainment software, music and
video recordings, and other consumer goods are sold openly
throughout the country, and intellectual property infringers from
other countries appear increasingly to be using Nigeria as a base
for the production of pirated goods. In 2004, U.S. industry
reported a growth of optical disk manufacturing plants, some of
which may be contributing to the production of pirated optical disk
products. Additionally, book piracy remains a problem.
19. (U) Patent and trademark enforcement remains weak, and judicial
procedures are slow and subject to corruption. Nonetheless, recent
government efforts to curtail IPR abuse have yielded results. The
Federal High Court of Enugu, Nigeria, issued an interim injunction
on November 23, 2004 against several firms infringing a Honeywell
International trademark for spark plugs. The court warned all
distributors, dealers, and retailers in Nigeria that the
unauthorized use of Honeywell's "Autolite" trademark is illegal and
constitutes an offense punishable by fine or imprisonment.
20. (U) Nigeria's broadcast regulations do not permit rebroadcast or
excerpting of foreign programs unless the station has an affiliate
relationship with a foreign broadcaster. This regulation is
generally respected, but some cable providers illegally transmit
foreign programs. The National Broadcasting Commission monitors the
industry and is responsible for punishing infractions.
21. (U) Almost no foreign feature films have been legally
distributed in the country in the last two decades. Widespread
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pirating of foreign and domestic videotapes discourages the entry of
licensed distributors. In 2004, the Nigerian Copyright Commission
launched an anti-piracy initiative named "Strategy Against Piracy"
(STRAP). The Nigerian police force, working closely with the
Nigerian Copyright Commission, has raided enterprises producing and
selling pirated software and videos, and a number of high-profile
charges have been filed against IPR violators. Unfortunately, most
raids appear to target small rather than large and well-connected
pirates, and very few cases involving copyright, patent, or
trademark infringement have been successfully prosecuted.
Services Barriers
-----------------
22. (U) Foreign participation in the services sector is generally
not restricted. Regulations provide for 100 percent foreign access
in many service sectors, including banking, insurance,
telecommunications, and securities. Central Bank of Nigeria
directives stipulates minimum levels of paid-up capital. At least
three foreign banks operate in Nigeria, and several Nigerian banks
have foreign shareholders.
23. (U) Professional societies in engineering, accounting, medicine,
and law define minimum professional requirements. Nigeria imposes
quotas on expatriate employment based on the issued capital of
firms. Quotas are especially strict in the oil and gas sector and
may apply to both production and service companies. Oil and gas
companies must hire Nigerian workers unless they can demonstrate
that particular positions require expertise not found in the local
workforce. Positions in finance and human resources are almost
exclusively reserved for Nigerians; certain geoscience and
management positions may be filled by expatriates with the approval
of the National Petroleum Investment and Management Services
(NAPIMS) agency. Each oil company must negotiate its expatriate
worker allotment with NAPIMS. Significant delays in the approval of
this allotment, and in subsequent approval of visas for expatriate
personnel, present serious management challenges to the energy
industry's efforts to acquire the necessary personnel and maintain
their legal immigration status in Nigeria. NAPIM's approval is
required for all procurement in the energy sector above $500,000.
Approval processes are slow and can significantly escalate the time
and cost required for a given project, as well as providing
opportunities for corruption and favoritism.
Investment Barriers
-------------------
24. (U) Under the Nigerian Investment Promotion Commission (NIPC)
Decree of 1995, Nigeria allows 100-percent foreign ownership of
firms outside the petroleum sector. Investment in the petroleum
sector is limited to existing joint ventures or production-sharing
agreements. Foreign investors may buy shares of any Nigerian firm
except firms on a "negative list" (such as manufacturers of
firearms, ammunition, and military and paramilitary apparel).
Foreign investors must register with the NIPC after incorporation
under the Companies and Allied Matters Decree of 1990. The decree
prohibits nationalization or expropriation of a foreign enterprise,
except when necessary to protect the national interest.
25. (U) Despite efforts to improve the country's investment climate,
disincentives to investing in Nigeria continue to plague foreign
entrepreneurs. Potential investors must contend with poor
infrastructure, complex tax administration procedures, confusing
land ownership laws, arbitrary application of regulations,
corruption, and extensive crime. The sanctity of contracts is often
violated, and Nigeria's court system for settling commercial
disputes is weak and sometimes biased.
26. (U) Foreign oil companies are under significant pressure to
increase procurement from indigenous firms. The GON through the
Nigerian Content Division (NCD) of the Nigerian National Petroleum
Corporation (NNPC) set a target of 45 percent local content for
oil-related projects by 2006 and 70 percent by 2010. Oil companies
and NNPC appear to be working together cooperatively to meet these
goals, but the extent of and mechanisms for enforcement of local
content regulations remain unclear. In many cases, sufficiently
trained personnel and physical infrastructure do not currently exist
to meet the government's local content targets. The NCD of the NNPC
is working toward identifying and certifying indigenous firms with
specific skill sets through the Joint Qualification System (JQS).
Although many indigenous firms possess adequate technical expertise,
managerial and financial capabilities are often lacking.
Other Barriers
--------------
27. (U) The Nigerian government has increased its efforts to
eliminate financial crimes such as money laundering and advance-fee
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fraud (or "419 fraud," named after the relevant section of the
Nigerian Criminal Code). With the encouragement and cooperation of
U.S. law enforcement agencies, the Nigerian government is now
prosecuting more "419" perpetrators. In June 2006, the Financial
Action Task Force removed Nigeria's name from the list of
non-cooperating countries and territories in the fight against money
laundering and other financial crimes.
28. (U) International monitoring groups routinely rank Nigeria among
the most corrupt countries in the world. While sales of U.S. goods
and services to public- and private-sector enterprises are not
restricted, some U.S. suppliers believe they lose sales when they
refuse to engage in illicit or corrupt behavior. Other U.S.
exporters say Nigerian businessmen and officials understand that
U.S. firms must adhere to the U.S. Foreign Corrupt Practices Act,
and they believe that the law's restrictions help minimize their
exposure to corruption.
CAMPBELL