NIGERIA The government's fiscal policy for the year is set out by the President in his annual budget speech, traditionally delivered on January 1 of each year. The budget speech is also the occasion at which major economic policy initiatives are announced, including trade policies. In recent years, budget deficits at the federal level have largely been financed by borrowing from the Central Bank of Nigeria (CBN), which held about 67 percent of the government's domestic debt at the end of 1990. Other financing sources include the domestic banking sector, domestic nonbank investors, foreign export credit agencies, and multilateral development banks. CBN. Monetary policy in Nigeria is the responsibility of the A decree issued in mid-1991 removed the CBN from the jurisdiction of the Minister of Finance. The Bank now reports directly to the President, who has final authority over monetary policy and who may issue binding directives to the Bank on such matters. Monetary policy is strongly influenced by fiscal policy, since the CBN must accommodate the government's financing needs. In 1990 and 1991, the CBN began using "stabilization securities" in an attempt to mop up excess liquidity caused by monetization of the government's fiscal deficits. Stabilization securities are non-negotiable CBN liabilities issued involuntarily to banks thought to be overly liquid; portions of such banks' working balances with the CBN are debited and replaced by these illiquid assets for periods of one to three months. Large issuances of stabilization securities have periodically tightened conditions in the money market; the resulting scramble for funds among banks has driven up interest rates and temporarily firmed the free-market value of the naira, but at the cost of crowding non-government borrowers out of the credit markets. The CBN also influences monetary conditions in Nigeria by means of the quantitative credit ceilings applied to each bank. Each year, the CBN's monetary and credit policy guidelines set out the allowable percentage increase in banks' total credit, which limits the scope for competition among banks for deposits and loans. Sectoral credit requirements also stipulate that fifty percent of banks' loans and advances go to the "priority sectors" of agriculture and manufacturing. The President in his 1992 budget message, has pledged to eliminate its quantitative credit ceilings and move to a system of indirect monetary control based on open market operations. Implementation of this major reform of Nigeria's system of monetary control is expected sometime in 1992. Interest rates in Nigeria were deregulated in 1987. However, the stubbornly high real interest rates that prevailed throughout 1990, when lending rates remained at 25 to 30 percent, although inflation declined to single digit levels, led the CBN to impose a cap of 21 percent on banks' lending rates in January 1991. Banks were also limited to a maximum four percentage point spread between their average deposit and lending rates. This reimposition of interest rate controls has been described by top CBN officials as a temporary departure from their policy of financial deregulation, to be removed as soon as conditions permit. Only Nigeria's official exchange rate is determined at the Foreign Exchange Market (FEM) administered by the CBN. licensed banks may participate in the FEM; approximately $3 billion was sold through this mechanism in 1991. The official exchange rate reflects both market demand and administrative guidance; concern over the pace of devaluation has led the authorities to intervene in the market through moral suasion and limits on each bank's allowable purchases to slow or reverse the naira's fall. Accordingly, there has typically been a gap between the official exchange rate and the parallel market rate, a spread that averaged 28 percent in the first six months of 1991. In 1989, Nigeria sought to bring the parallel market under administrative control by instituting a system of bureaux de change, which are licensed to deal in foreign currency notes and travellers' checks at a market-determined rate. Over 100 such bureaux had been licensed by June 1991, but the unlicensed or black market persists. Foreign investors may also purchase naira using Nigerian debt instruments obtained on the secondary market through the CBN's debt conversion program. This program provides investors with as much as a 50 percent premium over the official exchange rate; special restrictions apply to dividend remittances and capital repatriation, however. Even for normal remittances lengthy administrative delays are common. Nigeria maintains a comprehensive system of exchange controls; individual transactions must receive the approval of the Ministry of Finance before external remittance is allowed. Nigerian residents are authorized to maintain foreign currency domicillary accounts with banks in Nigeria; the disposition of such funds is subject to less scrutiny than is the case with foreign exchange purchased from the CBN. 3. Structural Policies Nigeria's adjustment program has meant a reduced role for the state in economic decision-making. Nonetheless, as restated in the December 1989 "Industrial Policy of Nigeria," the government retains a system of tax incentives to foster the development of particular industries, to encourage firms to locate in economically disadvantaged areas, to promote research and development in Nigeria, and to favor the use of domestic labor and raw materials. The Industrial Development (Income Tax Relief) Act of 1971 provides incentives to "pioneer" industries, that is, industries deemed beneficial to Nigeria's economic development. Companies given "pioneer" status may enjoy a non-renewable tax holiday of five years, or seven years if the pioneer industry is located in an economically disadvantaged area. Nigeria has set itself the goal of increasing its proven oil reserves from 16 to 20 billion barrels and its maximum oil production capacity from 1.9 to 2.5 million barrels per day. To encourage increased exploration, the government revised its agreements in mid-1991 with the foreign oil companies that operate in partnership with the Nigerian National Petroleum NIGERIA Corporation (NNPC). The new agreements widen the companies' profit margins and provide new incentives for additions to reserves. Since U.S.-based companies are strongly represented in all aspects of Nigeria's oil sector, the increased pace of exploration resulting from the revised tax regime is likely to result in increased sales of petroleum-related goods and services from the United States. 4. Debt Management Policies Nigeria is one of the developing nations whose development has received extensive international attention in recent years. Its gross external debt of $34 billion at the end of 1990 amounted to 107 percent of GDP, while actual debt service paid in 1990 was 36 percent of Nigeria's exports of goods and services. About 52 percent of the debt ($17.1 billion) is owed to the creditor governments of the Paris Club. Another $5.8 billion is owed to the commercial banks, while $4.6 billion in promissory notes issued to refinance uninsured trade credits from the early 1980s remain outstanding. Since 1986, Nigeria has had three stand-by arrangements with the International Monetary Fund (IMF), the most recent of which was approved in January 1991. In 1986 and 1988, the World Bank also supported Nigeria's reform program with two $500 million quick-disbursing adjustment loans. Nigeria rescheduled its bilateral official debt at the Paris Club in October 1986, March 1989, and January 1991. Two reschedulings with the London Club of commercial banks have been concluded; a third, a debt and debt-service reduction deal in the framework of the Brady Plan, was due to be concluded January 20, 1992. Despite the debt relief secured thus far, Nigeria's external debt service requirements remain heavy and are likely to limit its ability to purchase goods and services from abroad for the immediate future. Nigeria abolished all import licensing requirements and cut its list of banned imports from 74 to 17 categories in 1986. Today the importation of 27 different items is banned, principally agricultural items and textiles. These acrossthe-board bans were initially implemented to restore Nigeria's agricultural sector and to conserve foreign exchange. Although the bans have been compromised by widespread smuggling, U.S. exporters have lost an important market for wheat, rice, and corn. The wheat import ban alone eliminated the largest single U.S. market in Nigeria, worth $226 million in 1985. The reduced availability of grains has raised prices for both banned commodities and locally produced substitutes. The higher prices have helped to expand local production, but other factors, such as weather, disease, lack of credit, poor distribution of such inputs as fertilizer, fungicides, and pesticides, and marketing constraints, continue to hold back Nigerian agriculture. The import bans have also adversely affected various agro-allied industries, as well as contributing to instability in food supplies and prices. NIGERIA Nigeria's textile industry has grown in recent years, stimulated by Nigeria's competitive exchange rate and the ban on imports. Nigerian exports of cotton print cloth to the United States increased by 93 percent from 1988 to 1989, as Nigeria became the ninth largest supplier to the U.S. market, triggering the application of Section 204 of the U.S. Agriculture Act of 1956. As a result, a ceiling instituting managed growth of Nigerian textile exports to the United States was agreed to by both governments in February 1991. In some cases, Nigeria is using tariffs as a substitute for administrative controls on imports. For example, the 200 percent duty on legally imported cigarettes, which replaced a ban on cigarette imports in January 1990, amounts to a virtual ban. The total amount of U.S. cigarette and tobacco exports lost is estimated at over $50 million annually. The Standards Organization of Nigeria (SON), created in 1971, has enacted standards for a wide variety of products, but enforcement of these standards is virtually non-existent. The SON focuses on consumer education. The In December 1989 the government liberalized the Nigerian Enterprises Promotion Decree to allow 100 percent foreign equity ownership of Nigerian businesses in certain cases. rule applies to new investments only and is not retroactive. The government also allowed foreign firms to invest in the 40 lines of business normally reserved for 100 percent Nigerian ownership if they invest a minimum of N20 million (about $2 million at the current official exchange rate). Reserved sectors include: advertising and public relations, commercial transportation, travel services, and most of the wholesale and retail trade. Banking, insurance, petroleum prospecting, and mining continue to require 60 percent Nigerian ownership. Despite the existence of incentive programs, Nigeria is not considered to impose performance requirements. An expatriate quota system is place, and government approval is required for residency permits for expatriates Occupying positions in local companies. The number of expatriate positions approved is dependent on the level of capital investment, with additional expatriate positions considered on a case by case basis. In the past, this system has caused relatively few problems for U.S. firms. Nigeria requires that an international inspection service certify price, quantity, and quality before shipment for all private sector imports. The United States has objected to this requirement, citing its lack of transparency, interference with the free flow of international trade, additional costs to importers and exporters, and violation of the confidential rights of the exporter. Until April 1991 only shipments valued at $5,000 or more were subject to this requirement. As of April 1, 1991, all containerized shipments irrespective of value and all goods exported to Nigeria with a CIF value greater than $1,000 are subject to preshipment inspection. Nigeria's government is attempting to stop the practice of under-invoicing to circumvent the preshipment inspection requirement. Nigeria generally uses an open tender system for awarding NIGERIA government contacts, and foreign companies incorporated in Nigeria receive national treatment. Approximately five percent of all government procurement contracts are awarded to U.S. companies, due to the absence of U.S. business representatives in Nigeria, ethical concerns, and a general lack of familiarity with business practices in Africa. Nigeria is not a signatory to the General Agreement on Trade and Tariffs Government Procurement Code. The Nigerian government imposed import restrictions which apply to aircraft and ocean going vessels, the third and fourth largest U.S. exports to Nigeria respectively, in January 1991. In an effort to check acquisition abuse, guidelines mandate that all imported aircraft and ocean going vessels shall be inspected by a government authorized inspection agent. In addition, performance bonds and offshore guarantees must be arranged before either down payment or subsequent installment payments are authorized by the Ministry of Finance. Nigeria's maritime policy implements provisions of the United Nations Conference on Trade and Development (UNCTAD) Code of Conduct for Liner Conferences, most notably the allocation of incoming and outgoing cargo among shipping lines. Following the UNCTAD Code, 40 percent of all cargo is allocated to Nigerian lines, while 40 percent is allocated to lines of the countries of origin and destination of Nigeria's trade. The remaining 20 percent is distributed among "crosstraders" which may be flagged under any nationality. The breakdown stipulated in the UNCTAD Code is honored only in principle, however; Nigeria's merchant fleet is not yet capable of carrying 40 percent of its imports and exports. 6. Export Subsidies Policies A series of measures and government programs are designed to encourage non-oil exports under the auspices of the Nigerian Export Promotion Council. Non-oil exporters may now retain 100 percent of their foreign exchange earnings in domiliciary accounts. Other measures include a reduction in the number of banned exports and more lenient export licensing requirements. Government programs include a duty drawback program and a revolving N500 million refinancing and discounting facility. To date, these programs have been largely ineffectual due to cumbersome requirements and the length of time required to receive refunds. Nigeria also plans to introduce a manufacturing in-bond program this year. This program permits the duty free importation of raw materials, regardless of whether their importation is prohibited or not, to produce goods for export, contingent on the issuance of a bank guaranteed bond ensuring that all products manufactured will be exported. The performance bond will be discharged upon evidence of exportation and repatriation of foreign exchange. 7. Protection of U.S. Intellectual Property Nigeria, as a signatory to the Universal Copyright |