US embassy cable - 04ABUJA1323

S E C R E T SECTION 01 OF 05 ABUJA 001323 
 
SIPDIS 
 
NOFORN 
 
STATE FOR AF/W DEPSTEIN, MARIETTI, SSYMINGTON 
LONDON AND PARIS FOR AFRICA WATCHER 
STATE PASS TO USTR, EXIM, OPIC 
STARE PLEASE PASS TO DEPT OF AGRICULTURE 
 
E.O. 12958: DECL: 07/27/2014 
TAGS: EFIN, ETRD, EINV, PGOV, PREL, NI 
SUBJECT: NIGERIA'S ECONOMIC TEAM: COMMITMENT TO REFORM BUT 
LITTLE CHANGE AS YET 
 
Classified By: Ambassador John Campbell for Reasons 1.5 (B) and (D). 
 
1.  (S/NF)  Summary:  President Olusegun Obasanjo's economic 
"Dream Team" is largely doing the right thing but operates 
mainly at the macroeconomic level, while the micro-economy 
continues to suffer.  Team members appear to enjoy shallow 
support at the level of the Presidency and Vice Presidency, 
where shady deals continue, and among the civil service. 
While team members enjoy good relationships with one another, 
exhaustion may be setting in.  Their inability to transform 
macro theory into practice beneficial to the real sector of 
the economy is wearing on the group.  Less than thirty 
percent of the population has improved its living standard 
during the last five years, while the lot of the remainder 
has worsened.  Given Obasanjo's questionable commitment to 
economic reform, the group could be on its way out the first 
time they fail to impress the international community with 
their credentials and accomplishments.  Meanwhile, the GON 
has made progress on budget transparency, but has regressed 
on trade policy, with capricious product bans and punitive 
tariffs.  We should continue to support the economic team 
while recognizing that the results of their policies may not 
live up to expectations-theirs or ours.  We should also 
encourage the GON to prioritize its economic goals and 
establish timelines for achieving them.  Any concessions made 
to Nigeria based on economic reforms should be tied to 
progress in education, health care, and poverty eradication. 
End summary. 
 
------------------------------ 
The Dream Team:  An Assessment 
------------------------------ 
 
2. (S/NF) Coming into his second term with a questionable 
mandate resulting from a flawed election process, Obasanjo 
encouraged the international community with the appointment 
of his all-star economic team.  His economic advisor, Dr. 
Charles Soludo, was at one time or another economics 
professor, Brookings Institution fellow, and consultant to 
the World Bank and USAID.  Obasanjo's Finance Minister Dr. 
Ngozi Okonjo-Iweala, a Harvard and MIT graduate, was a vice 
president and corporate secretary of the World Bank. 
Obasanjo's Special Assistant on Due Process, Dr. Oby 
Ezekwesili, a holdover from his previous administration, is a 
respected figure at the international level.  The members of 
the team can and do say exactly what their international 
interlocutors want to hear, thereby charming the Paris Club, 
the London Club, the USG, the IMF, etc.  Their duties, 
collectively, are to dazzle the international community, 
reform Nigeria's moribund economy, and express indignation 
over putatively biased international reports about Nigeria's 
economy and society.  As a group they have excellent 
theoretical understanding of developmental economics and 
monetary and fiscal policies.  The team continues to enjoy 
access to Obasanjo, a precious commodity since the President 
increasingly isolates himself from Nigeria's political 
players.  But Obasanjo's own commitment to what they are 
trying to do is an open question. 
 
3. (S/NF) As a group, the Dream Team are true believers. 
They believe they have a mandate from Obasanjo to carry out 
reforms, and consider themselves more effective than they 
really are.  Isolated from Nigerian reality, they sometimes 
issue directives without follow-through, leaving 
implementation to subordinates who have not bought into their 
vision.  Their decision-making can be characterized at times 
as amateurish, with policy prescriptions borrowed from 
whatever catches their attention at a given moment. 
 
4. (S/NF) The Dream Team is in a weak position and 
politically completely dependent on the President. There is 
no evidence the President intends to stick with them should 
circumstances change.  Indeed, there is no evidence the 
President actually believes in their policies.  Some 
observers argue that the President has a vision of a 
democratic Nigeria with greater prosperity and reduced 
poverty, and he believes in the Dream Team.  Others argue 
that were the Dream Team to cease serving the President's 
purpose by mollifying the international community, he would 
dump them abruptly.  Lacking support from the top levels of 
government, the civil service and state and local 
governments, the Dream Team thus finds itself isolated above 
and below.  Their main reference group is their own in-group, 
and, to Embassy observers, increasingly they appear to be 
"burned out." 
 
5. (S/NF) Finance Minister Okonjo-Iweala had, it may be 
recalled, tendered her resignation the first day on the job, 
and Soludo has reportedly made disparaging remarks about the 
President's commitment to economic reform.  Now firmly 
ensconced at the Central Bank, where he enjoys the job 
security of a seven-year term, Soludo appears to have settled 
in.  Another technocrat associated with the group, Minister 
of the Federal Capital Territory and former director of the 
Nigeria's privatization efforts, Nasir el-Rufai, had become 
so discouraged before the 2003 elections that he had then 
told Emboffs that he would leave government after the 
election.  Instead, he was given one of the more coveted 
ministerial portfolios in Obasanjo's second administration. 
While the team have accepted their plum positions and remain 
in place, they still have no guarantee from the President 
that they will continue in office if the international 
community begins focusing on the concrete results of their 
performance. 
 
6. (S/NF) Professor Charles Soludo, who is credited with the 
authorship of the NEEDS (Nigerian Economic Empowerment and 
Development Strategy), has had his role changed.  He is the 
one member of the team who has spent relatively little time 
abroad.  Finance Minister Okonjo-Iweala formerly viewed him 
as her protg and reportedly pushed for his appointment to 
the governorship of the Central Bank of Nigeria.  The 
appointment has resulted in Soludo's gaining his own 
independent power base.  The Governor enjoys a seven-year 
term and, increasingly, Soludo has the President's ear.  Of 
late, requests to see him have frequently been answered with 
"He's at the (Presidential) Villa." This apparent enhancement 
of Soludo's role could provoke a rift in the Dream Team and 
might ultimately result in economic policies at 
cross-purposes with one another.  Soludo's recent autocratic 
decision raising the bank capitalization requirement to 25 
billion naira, which has been decried by many proponents of 
the status quo, may focus dissension within the Dream Team, 
even if the President backs Saludo's initiative.  (With a 
quarter of Nigeria's 89 banks on a marginal or unsatisfactory 
footing as of the end of last year, reasoned argument can be 
made in favor of broader capitalization of the banks. 
Whether the increase should be phased from 2 to 25 billion 
naira and restricted to full service banks that serve as 
clearinghouses are other issues.) 
 
7 (S/NF) Meanwhile, the real economy remains in the hands of 
a different team of operators close to the President and the 
Vice President.  Among these people are Stella and Gbenga 
Obasanjo (the President's wife and son), Tony Anenih (former 
public works minister), Aliku Dangote (industrialist), 
Mohamed Aliyu Gusau (national security advisor), and Dr. Dere 
Awosika (director of the National Program for Immunization). 
The vision of the President's and Vice President's group, 
while clear, is short sighted, the result being that its 
members line their own pockets rather than help expand the 
broader public's general well-being. 
 
--------------------------------- 
Liberal Economics vs. Import Bans 
--------------------------------- 
 
8. (C) The GON's general economic policy has been 
inconsistent and erratic, especially trade policy.  The GON 
has taken steps to reduce tariff rates and to rationalize 
customs enforcement, but at the same time it has slapped 
import bans and punitive tariffs on a growing list of goods. 
 
9. (C) Nigeria's bans on food product imports in particular 
have been inflationary, regressive, and inconsistent with the 
Dream Team's stated economic policies as a whole.  These bans 
have reversed a trend of ten years of progressive 
liberalization of food imports.  Previously, when the GON 
instituted bans, such as those on wheat and corn, it later 
reversed the bans and imposed tariffs in their place. 
Currently, the bans appear to have no end in sight, and the 
list of banned food items has expanded.  Although the poorest 
segment of the population consumes few imported food items, 
they do spend the largest proportion of their household 
budget on food.  Higher food prices therefore tend to affect 
them most.  The ban on imported poultry has raised poultry 
prices by 50 percent and rice, a major component of the 
Nigerian diet, while not banned, is subject to an import duty 
of 100 percent.  Fruit juice prices have also gone up 
significantly since the ban on fruit juice. 
 
10. (S/NF) The rationale for the bans is frequently unclear. 
Are they a means of infant industry protection, or simply an 
outgrowth of corruption and pandering to special interests? 
Nigerian nationalism and the desire to fill the void with a 
Nigerian solution are causes of protectionist measures 
against imports and foreign investment.  Some bans or tariffs 
appear to be sweetheart deals, pure and simple.  For example, 
after sugar-milling industrialist Aliko Dangote gave a 
multi-million naira campaign contribution to the President's 
party in the run-up to the 2003 elections, the government 
instituted a 100 percent import duty on refined sugar.  For 
the poultry industry, the benefit recipients are less clear. 
The president of the Nigerian poultry association lobbied 
long and hard for a ban on imported poultry.  While he 
personally has profited, the GON has done little to aid the 
industry.  Although the USG funds training for Nigerian 
poultry farmers in the hope that such training will lead to 
more exports of U.S. feed grains, the GON has expanded its 
poultry ban to include breeding stock, virtually ensuring 
slower growth of Nigeria's poultry industry. 
 
11. (S/NF) Finance Minister Okonjo-Iweala has stated that 
Nigeria's long-term trend is toward trade liberalization, 
that these bans are temporary aberrations imposed by the 
President in the face of special circumstances.  If so, it 
appears the President is willing to undercut his economic 
team whenever it benefits loyal political supporters. 
 
-------------------------------------------- 
Poverty Alleviation vs. Selective Enrichment 
-------------------------------------------- 
 
12. (S/NF) The Dream Team has yet to initiate action to 
improve the roads and agriculture.  While NEEDS does address 
these sectors, it specifies no specific programs and 
timelines for implementation.  NEEDS, it appears, as 
generally articulated, reflects economic and social theories 
not connected to an existing delivery system; NEEDS may thus 
call for large expenditures on buildings and vehicles 
necessary to sustain the bureaucracy to run the program for 
which no budgetary or other provision has been made. 
Obasanjo's two previous poverty alleviation programs arguably 
enriched mostly the cronies he had put in charge of the 
programs.  Whether NEEDS will be more of the same depends on 
Obasanjo's sincerity in his stated goals of alleviating the 
suffering of the 90 percent of Nigerians living on less than 
two dollars a day (source: UNDP 2004 Human Development Report 
(HDR)). 
 
13. (S/NF) Many of Nigeria's policies benefit a select group 
of the political and economic elite or reward political 
operatives for loyalty.  One prime example is maldistribution 
of chemical fertilizer.  Only 20 to 30 percent of Nigerian 
farmers have access to chemical fertilizer.  There is no 
domestic production, so the GON imports fertilizer and sells 
it at a subsidized price.  Most of it is distributed to few 
landowners who are well off and who tolerate middlemen lining 
their pockets along the way.  The Ministry of Agriculture and 
Nigeria's private sector fertilizer association have asked 
USAID's help in analyzing the GON fertilizer policy, and with 
assistance will likely announce a "new" fertilizer action 
plan, the successful implementation of which will be an open 
question. 
 
14. (S/NF) Special interests seem to order the GON's economic 
policy priorities.  Having a transparent, orderly budget is a 
step in the right direction, but the reality of financial 
flows is a reality different from the stated process.  And 
the federal government policy of publishing the budgeted 
amounts for state and local governments does not foreclose 
continued manipulation of the political and budgetary 
process.  Budgeted amounts have historically had little 
relation to disbursements.  For example, former Minister for 
Housing and Public Works Tony Anenih was often roundly 
criticized for the huge sums budgeted for road repairs with 
little result.  Anenih claims the funds were never released 
to his ministry, so he cannot be accountable.  Another 
example is "special grants":  regardless of what is budgeted 
for the military, if a favored program, project, or activity 
requires funding in excess of that budgeted for, funds are 
often found and disbursed.  Lastly, early this year, the 
American company AES was owed $25 million by NEPA, Nigeria's 
electric power authority, a debt guaranteed by the GON.  When 
it became evident that Citibank was going to call in its OPIC 
guarantee, and following Embassy intervention with Finance 
Minister Okonjo-Iweala, who in turn interceded with the 
President, the GON came up with the $25 million, although 
there was no budgetary allocation for this purpose. 
 
15. (C) The problems with the budget do not lie in the 
process itself, but rather in the accounting.  To date there 
is still no exact figure of how much crude oil is being 
pumped and sold or how much revenue these sales bring to 
Nigeria, although the Finance Ministry has an official on 
leave from the IMF, Dr. Bright Okogu, working on this matter 
full-time.  Another gap is between amounts budgeted and funds 
actually released.  Without precise accounting of these two 
elements of Nigeria's cash flow, it is impossible to ensure 
transparency. 
 
--------------------------------------- 
State of the "Real" Economy: 
     Deceptive Nature of Available Data 
--------------------------------------- 
 
16. (U) American businessmen in Nigeria note the economy is 
faring better than official statistics would indicate, 
because the informal economy is so large. The IMF estimates 
Nigeria's informal economy at half the country's economic 
output.  There is a visible increase in what might be called 
conspicuous consumption, such as mobile phones, motorcycles, 
and automobiles.  Although cellular phones are not a 
necessary good, an increasingly large proportion of the lower 
middle class apparently cannot do without them. 
 
17. (SBU) While the rising number of cars, motor bikes, and 
cell phones suggests that more people are enjoying higher 
living standards, Nigeria has regressed relative to its 
neighbors and relative to itself in the past few years as 
measured by vaccinations, infant mortality and access to 
health care (source: Nigeria's 2003 Demographic and Health 
Survey (NDHS)).  Survey findings indicate that less than 
thirty percent of the population improved its living standard 
during the last five years while the lot of the remainder has 
worsened.  Moreover, about 40 percent of children under five 
remain under height or under weight for their age (source: 
2004 HDR).  That figure was 35 percent in 1990.  Agriculture, 
the sector of the economy in which most people are employed, 
is generally in decline, an ongoing trend for the past two 
decades.  Hydrocarbons is the only sector with any depth or 
stability, but only because the Government of Nigeria cannot 
afford to alienate the major oil companies. 
 
18. (SBU) Nigeria's current economic policies do not seem to 
be having any effect in reversing the generally negative 
trend mentioned above, and some even make it worse. As 
mentioned in paragraph three above, many of Nigeria's policy 
decisions seem to be modeled on other countries' very 
different experiences.  Central Bank Governor Charles Soludo 
apparently got the idea of increasing the capitalization 
requirement for banks to 25 billion naira (about USD 190 
million) while attending a seminar in Southeast Asia on the 
experiences of Indonesia and Malaysia.  But in both 
countries, the banking sector may have been more robust prior 
to recapitalization than it is in Nigeria.  Likewise, GON 
officials say their newly enacted cabotage law is based on 
that of the United States, ignoring the fact that it has a 
domestic shipping industry whereas Nigeria has virtually 
none.  Such policies, adopted from various countries and 
hailed as "best practices", have been adopted piecemeal and 
often fit Nigeria's economic circumst 
ances poorly. 
 
--------------------------- 
Comment and Recommendations 
--------------------------- 
 
19. (S/NF) The economic Dream Team's macroeconomic reforms 
are conceptually on the right track, so we should support 
them.  At the same time, because of Nigeria's historically 
weak implementation of reform measures and the relatively 
little attention to issues at the micro level, we should 
harbor few illusions about their likely effectiveness.  We 
must recognize that the members of the President's economic 
team serve at his pleasure, have little support from above or 
below, and are subject to being dismissed summarily if they 
do not obtain for the President the international credibility 
he desires.  In sum, we should support the Dream Team while 
moderating our expectations. 
 
20. (S/NF) Eventually rewarding Nigeria's economic reform 
efforts with debt relief might be a fitting tribute to the 
Dream Team's efforts, but were debt relief attained, the 
President might then conclude that he no longer need support 
his talented economic team.  Yet despite all their efforts, 
the team has few accomplishments to show.  Without success, 
what would be the rationale for debt relief?  From the 
Mission's perspective, we therefore recommend that whatever 
benefit or concession we might give to Nigeria in recognition 
of its reform efforts should be tied to implementation of 
economic policies that clearly improve education and health 
care, and that mitigate poverty. 
 
21. (S/NF) In large part because of rising demographic 
growth, the lackluster performance of the Nigerian economy 
over the last five years has been impoverishing more and more 
people, which promotes instability.  We should therefore 
engage Nigeria on matters of policy implementation, just as 
we should encourage the GON to prioritize its goals and set 
time lines for their achievement.  While we should support 
the best policies of the Dream Team, we should also exhibit 
"tough love" by holding out for positive results. 
Ultimately, improving the welfare of the 90 percent of 
Nigeria's population most in need is key to achieving our 
overarching USG goal in the country:  peace and stability in 
Nigeria. 
CAMPBELL