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Country Commercial Guides for FY 2000: Nigeria Report prepared by U.S. Embassy Abuja, released July 1999 Note*

CHAPTER I: EXECUTIVE SUMMARY

This Country Commercial Guide (CCG) presents a comprehensive look at Nigeria's commercial environment, using economic, political and market analysis. The CCGs were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. embassies through the combined efforts of several U.S. Government agencies.

Nigerian economic performance remained poor in 1998 and the first six months of 1999. GDP grew by about 4 percent in real terms in 1998, compared with a 3.8 percent rise in 1997. Official figures showed inflation up from 8.5 percent in 1997 to 10 percent for 1998 and an estimated 12-15 percent thru June 1999.

The new government of President Obasanjo has taken several steps to improve the economic performance and image of the country. Following his inauguration on May 29 he has set up panels to investigate the status of government contracts and corruption. He has promised accountability, rule of law and to fight against corruption. He has recognized the importance of parastatal privatization but, it would seem, only after further evaluation of the process and possible rehabilitation of these assets.

The GON abolished the dual exchange rate in the 1999 budget. Private companies and individuals now may obtain forex in the autonomous market. They are permitted to keep domiciliary accounts in private banks and account holders have unrestricted use of their funds.

Representing 40.4 percent of GDP, the agricultural sector experienced growth of 4.95 percent in 1998 compared to a 4.2 percent in 1997. The manufacturing sector recorded a 0.29 percent growth rate during 1998 after increasing 0.3 percent in 1997. Nigeria's manufacturing capacity utilization decreased to 32.4 percent in 1998 from 34 percent in 1997. This low utilization and the high cost of production due to failed infrastructure make imports not only attractive but almost a necessity.

The petroleum sector continued to dominate the Nigerian economy with a 11.6 percent share of GDP. The increase in the market price for oil was welcome relief to the GON which derives substantial revenues from production agreements. Problems continue, though, for the producers as a solution to the conflict in the Delta region remains elusive. The Obasanjo administration must also seek ways to utilize the nation's wasted gas resources which are currently being flared.

After fifteen years of unbroken military dictatorship the current return to democracy is seen an opportunity to reopen what could be our major market in subsaharan Africa. The efforts of the new administration to correct the nation's infrastructure degradation, diversify the economy and create a more business friendly environment will be difficult. But Nigeria is one of the few nations in the world blessed with major mineral wealth, an entrepreneurial population and a productive agrobase, all powered by the proceeds of the petroleum sector. If the new government is able to overcome the habit of years of mis-management and redirect its energies toward good governance the rewards will be impressive.

COMMERCIAL ENVIRONMENT

GDP growth for 1998 is estimated at about 4 percent resulting in no improvement in the nation's infrastructure and social services. Business performance is uneven, as some are prospering but many manufacturers are operating well below capacity, delaying investments and laying off workers. Unemployment is estimated at 25 percent with major underemployment. The new government of President Obasanjo has stated that it will take progressive steps toward economic reform and good governance but at this early stage of his administration there are no visible, positive effects of these intentions. When one considers the fact that Nigeria has suffered from years of mismanagement, it is doubtful even the good intentions of the new government will be obvious for some time. But this government is receiving major support, both moral and financial, from the world's democracies. This support is intended to ensure Nigeria has every opportunity to overcome its historical disadvantages.

Economic activity is still plagued by generally poor infrastructure, including roads, inferior public transportation, gasoline and water shortages, electricity outages, widespread fraud and corruption, and public health crises. Movement of goods through major ports is frustratingly slow.

Some foreign companies, particularly in the oil and gas sector, are looking at new or expanded investments in Nigeria, and it is indeed Nigeria's rich reserves that are keeping the economy afloat and are the key to the country's future potential. However, recent law and order problems in the Delta, the nation's major production area, have caused concern. If the government fails to address this issue the country could face yet another economic blow.

Against this backdrop, the Nigerian-American commercial relationship remains essentially strong. U.S. exports to Nigeria in 1998 amounted to $819 million. U.S. imports from Nigeria, mostly oil, totaled $4.1 billion. Prospects for U.S. business in Nigeria are especially promising in the following sectors: oil & gas equipment, computer hardware and software; telecommunications equipment automotive parts and accessories; construction and earth moving equipment and various agricultural and agribusiness products and equipment.

MAJOR BUSINESS OPPORTUNITIES

U.S. businesses should be aware that many genuine opportunities exist in Nigeria, even if the atmosphere does still seem inhospitable and certain extra screening steps must be taken. Nigerians are very positively disposed toward the United States and have a strong affinity for U.S. products. Nigeria has many honest businessmen and women who are eager to form partnerships with their American counterparts. Nigerian and U.S. authorities are working together to combat the fraud industry. Some U.S. companies are excluding Nigerian from their African commercial strategy based on alarmist, misleading and often incorrect information, and may miss out on good commercial opportunities as a consequence. If U.S. business travelers prepare prudently, a business trip to Nigeria can be an enjoyable and rewarding experience, more so now that the newly elected government of President Obasanjo attempts to improve the nation's commercial image.

EMBASSY ASSISTANCE

American Embassy Lagos's Commercial, Agriculture and Economic sections stand ready to provide assistance to American businesses in Nigeria. However, due to the problem of advance fee fraud (known as 419 scams) and other kinds of fraud, business persons contemplating business relationships in Nigeria may wish to first contact the nearest U.S. Department of Commerce Export Assistance Center before providing any information, making financial commitments or traveling to Nigeria.

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Country Commercial Guides are available for U.S. exporters from the National Trade Data Bank's CD-ROM or via the internet. Please contact STAT-USA at 1-800STAT-USA for more information. Country Commercial Guides can be accessed via the World Wide Web at HTTP:/WWW.STAT-USA.GOV and HTTP://WWW.STATE.GOV. They can also be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS. U.S. exporters seeking general export information/assistance and country-specific commercial information should contact the U.S. Department of Commerce, Trade Information Center by phone at 1-900-USA-TRAD(E) or by fax at (202) 482-4473.