US embassy cable - 04LAGOS1611

UNCLAS SECTION 01 OF 02 LAGOS 001611 
 
SIPDIS 
 
STATE PASS FCC, EX-IM, AND OPIC 
 
E.O. 12958: N/A 
TAGS: ECPS, ECON, EINV, NI 
SUBJECT: MORE SCRATCH CARD FEVER: THE PLANNED JANUARY 
2005 BAN ON CARD IMPORTS 
 
REF: (A) 04 LAGOS 1562, (B) 04 LAGOS 1364, (C) 04 ABUJA 
 
1323 
 
1. (SBU) Summary: As the GON's January 1, 2005 import 
ban on recharge cards draws near, the Nigerian 
Communications Commission is beginning to license 
companies to produce the cards locally. Wary of the 
reliability of most local card producers, major 
Nigerian telecom companies are exploring alternatives 
to recharge cards. Virtual-top-up and electronic 
vouchering seem to be the favored options.  End 
summary. 
 
2. (U) Readily available "scratch cards" or recharge 
cards account for much of the success of the Nigerian 
GSM (Ref A), fixed wireless, and international call 
markets.  The cards allow customers to pay for calls up- 
front - a practical means of communication and payment 
in Nigeria's largely cash-based economy. 
 
3. (SBU) In May, the Communications Minister announced 
an import ban on scratch cards effective January 1, 
2005.  In a recent conversation with Econoff, 
government-owned Nigerian Security Printing and Minting 
Company (the Mint) official Don Etim welcomed the ban 
and confirmed the Mint's interest in getting into 
scratch card production.  The Mint sees itself as well- 
positioned to enter the market since it already prints 
secure paper products such as currencies and entry 
visas (Ref B).  Etim said the NCC will license four 
companies to manufacture scratch cards in Nigeria. 
 
4. (U) The NCC, however, apparently has not yet decided 
to limit the number of licenses.  MTN Chief Corporate 
Affairs Executive, Joke Giwa, and Odu'a Telecoms Ltd. 
(Oduatel) General Manager, Olusegun Owolabi, told 
Econoff in separate meetings that they had not heard 
about such a limitation.  Owolabi asserted the NCC is 
likely to consider all applications for production 
before announcing the number of licensees. 
 
5. (U) Recently, the NCC announced 27 recharge card 
manufacturers or distributors met the criteria to pre- 
qualify for production licenses.  These companies have 
until August 9, 2004 to submit applications for the 
next and final stage of "processing the applications". 
 
6. (U) While telecom company officials we talked to do 
not trust Nigerian local producers of scratch cards, 
they also do not seem concerned about the ban.  They 
are confident about identifying alternatives to scratch 
cards.  Industry sources have reported possible 
substitutes like MTN's "Virtual Top-Up" (VTU) 
technology, and electronic vouchering systems.  A pilot 
VTU scheme is now available to selected MTN customers. 
VTU users are expected to hold bank accounts through 
which electronic funds are drawn to replenish 
customers' calling cards. 
 
7. (SBU) Telecom contacts, however, recognize the 
limitation of the VTU in a cash economy like Nigeria, 
and that electronic vouchering may be more appealing to 
most subscribers.  MTS First Wireless (MTS) plans to 
use such a system.  Customers will buy calling time 
from a company-licensed dealer.  They will be given 
vouchers with code numbers that customers will key into 
a phone to recharge minutes.  French company Ingenico 
is reportedly partnering with Chams Nigeria Ltd. for a 
similar system. 
 
8. (SBU) In the meantime, most operators seem to have 
stockpiled cards in anticipation of the ban.  (Comment: 
The recent shortage of MTN scratch cards (Ref A) is 
unrelated to this stockpiling.  MTN is one of the few 
companies we spoke with not stockpiling cards.) 
Oduatel has a one-year supply of recharge cards in 
country, while MTS technical engineers said the company 
has enough recharge cards in stock to tide them over 
until it adopts an alternative means of payment. 
 
9. (SBU) MTN's Giwa said the company will consider 
investing in its own production facility in Nigeria if 
no credible manufacturer or supplier of secure recharge 
cards emerges by November of this year.  Giwa welcomed 
interest by U.S. companies.  (Comment: MTN's 
traditional scratch card provider, Nitecrest, is one of 
the 27 applicants for a production license in Nigeria.) 
Giwa said she questions the product quality of any 
company already operating in the secure printing 
business in Nigeria.  MTN's main concern is ensuring a 
secure product, a factor of importance to MTN's 
credibility. 
 
10. (U) Nigeria's four licensed GSM operators import an 
estimated 10-20 million scratch cards per month that 
generate naira 10-20 billion ($76 million to $152 
million) in monthly revenues.  In addition, millions of 
long distance, international, and fixed wireless 
recharge cards are imported for use in the local 
market.  The recharge card ban could disrupt the flow 
of billions of dollars in revenue and the life style of 
millions of telecoms customers across Nigeria if 
Nigerian producers cannot supply the market and 
alternative means of payment do not take hold soon. 
 
11. (SBU) Comment:  The telecoms sector is Nigeria's 
most profitable one after the oil sector.  Its growth 
potential is evident.  (MTN alone projects a subscriber 
base of 14 million for itself.  It now serves 2.3 
million in the country.) The sector is fast-paced and 
ever changing; innovation may obviate need for recharge 
cards in the not-too-distant future.  Whether the 
recharge card ban will foster local production or the 
use of substitutes will be another Nigerian test of the 
infant industry argument that underpins the numerous 
bans instituted by the Obasanjo administration (Ref C). 
If this ban follows suit with the others, local 
producers by themselves will not be able to take up the 
slack.  Unless substitutes to scratch cards also become 
available, this ban will likely have a negative effect. 
End comment. 
 
BROWNE