US embassy cable - 03ABUJA2216

UNCLAS SECTION 01 OF 03 ABUJA 002216 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EAIR, ETRD, KISL, PTER, NI 
SUBJECT: NIGERIA: CHRISTMAS EVE ECONOMIC ROUND-UP 
 
SENSITIVE BUT UNCLASSIFIED, NOT FOR PUBLICATION ON THE 
INTERNET OR INTRANET. 
 
1. (SBU) Summary: We report another telecommunications 
victory for a United States company and another GON milestone 
in transparency as CODEM systems won a USD 28 million 
telecommunications contract after months of wrangling over 
alleged corruption by GON officials and European companies. 
U.S. air carrier World Airways, however, is likely to cease 
operations to and from Nigeria and the United States on 
December 26 as a response to USD 1.8 million in arrears owed 
the airline by its Nigerian booking agent Ritetime Aviation. 
GON officials' solicitations for holiday cash payoffs are 
reportedly making the holiday season expensive for 
businessmen and industrialists in the economically depressed 
northern city of Kano, making unemployment worse for restless 
young Muslims, and a main direct road link between the North 
and South, Kogi State's 27-year-old poorly maintained Murtala 
Mohammed Bridge has been reduced from four to two lanes of 
traffic.  End summary. 
 
CODEM Wins USD 28 Million Telecommunications Deal 
--------------------------------------------- ---- 
 
2. (SBU) On December 15 the GON awarded U.S.-based CODEM 
Systems, and its Nigerian partner Kabtel, a USD 28 million 
contract to provide communications equipment to the Ministry 
of Communications (MOC).  According to Embassy sources, the 
MOC originally awarded the contract to the German company 
Ferrostaal early this year due mainly to Ferrostaal's several 
hundred thousand USD payoffs to MOC officials.  After 
protests from CODEM and several Embassy advocacy letters on 
CODEM's behalf to President Obasanjo, the Office of the 
President assigned Oby Ezekwesili, the Senior Special 
Assistant to the President on Budget Monitoring and Price 
Intelligence Unit, to review the case and conduct a second 
bidding round. 
 
3. (SBU) During the December 15 second bidding round at the 
Presidency, Ezekwesili chided MOC officials for again 
conducting an "unethical and non transparent" bidding 
process.  Post had a similar experience with the MOC while 
advocating for a multi-million dollar Motorola contract 
earlier this years. Three bidders, Ferrostaal (German), 
Thalys (French) and CODEM, presented bids.  The French 
company was subsequently eliminated from the process because 
it had not secured financing, while Ferrostaal's bid was 
nearly USD 4 million more than CODEM's.  Ezekwesili, who 
prequalified the three bidders on technical grounds, awarded 
CODEM the contract based on its low bid price and financial 
package. 
 
4. (SBU) Ezekwesili applauded the Embassy for sending Econoff 
to the bidding process, quipping that the German and French 
Embassies did not seem interested in a transparent bidding 
process.  Ezekwesili stated several times that Nigerian 
business and government have a lot to learn from the United 
States.  She also said European companies played a major role 
in cheating Nigerians out of money in less than transparent 
contracts over the years, due mainly to bribes and the GON's 
lack of technical and computer expertise.  Nonetheless, she 
invited all three companies to stay engaged in Nigeria's 
telecommunications industry.  She advised CODEM and Econoff 
that Nigeria will be watching to see if the United States 
firm can "deliver" on this contract. 
 
World Airways Likely to Halt Air Service to Nigeria 
--------------------------------------------- ------ 
 
5. (SBU) World Airways Vice-President of Operations Robert 
DuBois informed Econoff that the airline will likely announce 
December 26 that it will at least temporarily cease flight 
operations to and from Nigeria and the United States due to 
USD 1.8 million in arrears owed the carrier by its Nigerian 
booking agent, Ritetime Aviation.  World Airways, which began 
operating round-trip flights from Lagos to New York, Atlanta 
and Houston in mid-2003, reported increasing passenger 
numbers and profit potential, but DuBois commented that 
Ritetime's arrears "represent a significant financial 
exposure, and we (World Airways) must adhere to prudent 
financial procedures and practices."  Dubois stated that 
World Airways is committed to keeping its Nigeria-United 
States routes, but he doubts that World Airways can get 
another booking agent within 4 to 6 months.  World Airways, 
which operates USG charter flights and lucrative oil-business 
routes into Africa, says it does not have the infrastructure 
to ticket in Nigeria and therefore must work through a 
booking agent. 
6. (SBU) Ritetime's Chairman Peter Obafemi has a checkered 
past in Nigerian aviation.  For example in 2000, an 
Obafemi-led consortium won a GON contract to construct the 
National Aircraft Maintenance Center (NAMC) in Lagos. 
Embassy sources said Obafemi paid cash up front to former 
Minister of Aviation Kema Chikwe and Vice President Atiku in 
order to win the bid.  The U.S.-based Obafemi then tried to 
sell his rights to construct and operate NAMC to several 
aircraft maintenance companies, but without luck.  Obafemi 
had neither the financial nor technical partners to 
constructed the estimated USD 500 million NAMC project. 
4. (SBU) Comment: Ritetime's failure to pay World Airways is 
unfortunate, but European carriers (British Airways, KLM, 
Virgin) -- which have recently dropped prices to compete with 
World Airways' lower fares -- will welcome the carrier's exit 
from the Nigerian market.  World Airways officials stated 
that its U.S.-Nigeria route was potentially one of the 
airline's most profitable. Hopefully a short-term deal can be 
reached between World and Ritetime to continue service, but 
that seems unlikely for now.  With the demise of World 
Airways, Air Afrique and Ghana Airways services, the Nigerian 
and West African market is under-served and ripe for U.S. 
carriers to consider operating direct service from Nigeria to 
the United States.  End comment. 
 
Kano Atmospherics: Little Cheer During the Holiday Season 
--------------------------------------------- ------------- 
 
8. (U) With roughly 20 major industries operating, down from 
a high of 130 industries in the early 1980s, Kano's 
industrial sector decline is stoking unemployment, economic 
decay and leech-like corruption.  During visits to Kano with 
a major Kano-based textile manufacturer and a shoe factory 
operator during the Muslim holiday Eid-El-Fitr in November 
and in the weeks before Christmas, Econoff visited Kano's 
three industrial parks and met with business leaders. 
Several business leaders stated that high transportation and 
operating costs -- plants must run on generators because the 
national power grid constantly cuts out and GON redundant 
state and federal bureaucrats needs to be paid off or they 
will hinder plant operations -- were their main impediments. 
Nigerian products thus cannot compete in quality and price 
with imported goods, especially goods brought in illegally, 
said one businessman.  The Abacha regime decimated industry 
in Kano by commandeering plants or simply deporting Kano's 
mainly Lebanese/Syrian industrialists, stated a Lebanese 
businessman.  Since Obasanjo took power in 1999, little has 
been done to improve or develop business in Kano, added a 
Chinese shoe manufacturer. 
 
9. (SBU) When asked what businessmen do during the holiday 
season, a Lebanese businessman said, "hide."  The businessman 
added that whether it is a Christian or Muslim holiday, all 
levels of Kano's mainly Muslim local, state and federal 
government officials need to be paid off.  A Lebanese 
businessman said that this was corruption, but that it is how 
business is done in Nigeria.  A Lebanese in Nigeria supplying 
the Ministry of Education stated that he usually gives a 
Minister or Governor USD 5,000 to USD 10,000 around the 
Christmas holidays, depending on how important he or she was 
to his operation, while other junior officers received about 
USD 1,000.  Any major business firm has a person dedicated 
solely to paying often hundreds of thousands of dollars a 
year, he thought, to clear inputs through customs, to ensure 
that the police do not seize products to or from the plant, 
and to gain security cooperation from restive religious or 
traditional leaders in the area who need a new car or 
spending money.  With Kano sliding into economic decay, the 
remaining, mainly foreign, businessmen Econoff met in Kano 
said requests for payoffs during the holidays and other 
payoffs are causing them to add 25 to 40 percent in their 
operating costs for kickbacks.  A Lebanese borehole drilling 
contractor said she mainly deals with Nigerian brokers who 
kick back 50 percent of the contract to state or federal 
officials (depending on the project), take a 25 percent cut 
for themselves, and employ the Lebanese to do the actual work 
for the remaining 25 percent. Everyone makes money, she 
stated. 
 
10. (U) The mood among all Kano businessmen Econoff spoke 
with was pessimistic.  While admitting there is still a lot 
of money to be made in Nigeria, the businessmen pointed out 
that foreigners operate almost all major industries in Kano. 
Nigerian-owned businesses such as the Dangote group are all 
well connected to the ruling PDP party through cash 
contributions for which they benefit from import bans on 
foreign products, i.e., cement.  Kano's decline, in part, can 
be attributed to payoffs and business leaders being too close 
to members of the ruling elite who fall from power, concluded 
a Lebanese businessman.  But Nigeria needs Lebanese 
industrialists just like the rest of West Africa, a 
businessman said, withot whom Nigeria would not produce 
anything except oil.  A Lebanese merchant, born in Nigeria 
with a Nigerian passport, concluded that the GON's biggest 
mistake was not allowing all its citizens to participate in 
politics and government.  "Nigerians will never accept me as 
a citizen", he said, "so we (Lebanese, Indians, Chinese) are 
here to make money and work within this system". 
 
11. (SBU) Comment: The North's economic decline bodes ill for 
the thousands of young men and women graduating from 
universities and secondary schools yearly only to be 
unemployed or underemployed.  Urban unemployed youth have 
sparked major outbreaks of religious violence in both Kano 
and Kaduna since 1999.  Further economic decay in Kaduna, 
Zaria and Kano seems unavoidable in the near term.  End 
comment. 
 
Main North-South Link Threatened 
-------------------------------- 
 
11. (U) One of the most important bridges connecting northern 
Nigeria to the South and East, Kogi State's 27-year-old 
Murtala Mohammed Bridge is in such poor structural condition 
that it is disrupting transportation and commercial links. 
The bridge near Lakoja, the only way across the river for 
traffic from Lagos to the north, has been reduced from four 
lanes to two because of numerous missing steel expansion 
joints and car-sized pot holes that have weakened the 
structural integrity of the span.  GON officials stated that 
the Ministry of Works plans to reinstall lights to make the 
bridge safer at night.  However, a Ministry of Work officials 
stated that a new bridge will likely be constructed in the 
"near future" under a Build, Operate and Transfer (BOT) 
arrangement.  In the meantime, the Ministry will use money 
collected from bridge tolls to repair the existing structure. 
 
12. (SBU) Comment: The poor condition of the road south from 
Abuja coupled with the bridge's reduced capacity have caused 
over 200 accidents in the month of November alone.  With 
Nigeria's rail system in disrepair, almost all trade from 
South to North goes by this dangerous road and bridge, adding 
further costs to Northern consumers and travelers.  It is 
unlikely that the Ministry of Works can do the necessary 
repairs on the bridge using meager toll collections.  The GON 
has proposed a 1.5 Naira per liter tax on gasoline for road 
improvments, but perhaps only a collapse of the bridge will 
spark the necessary GON funding for bridge repairs.  End 
comment. 
Roberts