US embassy cable - 04LAGOS2077

UNCLAS SECTION 01 OF 02 LAGOS 002077 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED 
 
DAKAR PLEASE PASS TO FAA ED JONES; BRUSSELS TO TSA JESS 
PRESAS; DOT TO KEVIN SAMPLE AND FAA FOREST RAWLS III 
 
E.O. 12958: N/A 
TAGS: EAIR, EINV, ECON, NI 
SUBJECT: NIGERIA ECONOMIC UPDATE, OCTOBER 12 
 
REF: LAGOS 1920 
 
1. (U) This update includes: 
 
-- Airfare Increase of 40% Expected for Domestic 
Flights 
-- Runway to Shut Down for 8 Months at Lagos 
International Airport for Safety Upgrades 
-- Textile Leaders in the Lagos Area Want to Take 
Advantage of AGOA 
-- Cadbury Nigeria Thrives Despite High Production 
Costs 
 
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Airfare Increase of 40% Expected for Domestic Flights 
--------------------------------------------- --------- 
 
2. (U) While the nation braced for the nationwide stay- 
at-home October 11 in protest over announced fuel price 
hikes, domestic airline operators saw this as the 
opportune moment to decide increased fares.  The press 
reported that fares for domestic travel might increase 
as much as 40 percent due to the expected cost increase 
for jet fuel. (Note:  Most domestic tickets currently 
cost about 10,000 naira (around $75). End Note.) 
However, an official from a domestic airline, Overland 
Airways, told econoff each airline will decide their 
fare increases.  While some companies may seek a forty 
percent hike, others may not. 
 
3. (U) Federal Airports Authority of Nigeria (FAAN) 
Chief Passages Officer, Victor Arisa, told Econoff past 
fuel increases negatively affected domestic airlines. 
People opt for alternative means of travel than pay 
higher fares.  For now, Arisa said, the airfare hike is 
simply being discussed as a possibility.  Comment: Some 
rate of increased fares is expected as carriers pass on 
their increased fuel cost to the consumer. However, 
most observers believe an across-the-board 40 percent 
hike is unlikely.  End comment. 
 
--------------------------------------------- ---- 
Runway to Shut Down for 8 Months at Lagos International 
Airport for Safety Upgrades 
--------------------------------------------- ---- 
 
4. (U) Meanwhile, the Murtala Muhammed International 
Airport has closed one of its two runways for re- 
surfacing and rehabilitation.  Domestic and 
international flights will therefore share a single 
runway for up to eight months.  Federal Airports 
Authority of Nigeria (FAAN) General Manager of 
Security, Mrs. A.A. Faworaja, told Econoff the closure 
will not affect flight schedules due to the mutual 
exclusivity of most international and domestic takeoff 
and landing flight times.  The runway's rehabilitation 
is expected to cost more than 2 billion naira (about 
$15 million). 
 
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Textile Leaders in the Lagos Area Want to Take 
Advantage of AGOA 
--------------------------------------------- --------- 
 
5. (SBU) Econoff and Econspec recently met with J.P. 
Olarewaju, Executive Director of Nigerian Textile 
Manufacturer's Association and Nigerian Textile Mills 
management.  Olarewaju said Nigerian textile 
manufacturers were in bad shape.  In the past seven 
years, nearly 50 mills have closed around the country 
and eleven are currently in danger of the same.  The 
GON banned textile imports in January 2004 to help 
ailing manufacturers; but cheap smuggled imports still 
make their way into Nigeria, crowding out locally-made 
products.  Nigerian textile manufacturers want to take 
advantage of AGOA to boost sales but few have the 
capability to produce textiles for the US market, 
Olarewaju said. 
 
6.  (SBU) Dangote-owned Nigerian Textile Mills told 
Econoff and Econspec it is one of only two or three 
Nigerian textile producers preparing to export to the 
US today.  Dangote Group companies are part of the 
privileged few enterprises in Nigeria with the capital 
base to invest in new equipment and training to meet US 
production and quality standards.  During the meeting, 
Nigerian Textile Mills management pleaded for US market 
information (Note: Econoff referred them to the Lagos 
AGOA Resource Center (reftel) End Note.) 
 
7. (SBU) Comment: President Obasanjo's appointed 
Special Advisor on AGOA has been actively prmotoing 
AGOA opportunities to Nigeria's textile manufacturers 
through meetings and symposiums.  However this cajolery 
will be largely ineffective until Nigerian 
manufacturers gain the capacity to manufacture 
competitively priced, quality goods.  End Comment. 
 
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Cadbury Nigeria Thrives Despite High Production Costs 
--------------------------------------------- --------- 
 
8. (SBU) During a September 24 visit to the Cadbury 
Nigeria processing facility, Managing Director, Bunmi 
Oni, told CG and Econoff that Cadbury is successfully 
navigating the challenges of the Nigerian business 
environment -- uneven power supply, import bans and 
high tariffs on product inputs, and high corporate 
taxes.  Despite high production and ancillary costs, 
Cadbury is doing well.  The company's profits have 
increased for each of the last four years and Oni 
predicted that current production would triple or 
quadruple over the next four years. 
 
9. (SBU) To cope with a nationwide power supply 
problem, the energy-intensive Cadbury factory has its 
own eight megawatt power transformer on site.  Cadbury 
also has its own water supply and purification system. 
To cope with the erratic quality and output of Nigerian 
sugar and cocoa crops, Cadbury Nigeria takes measures 
such as providing local cocoa farmers with higher- 
quality plants, or importing products at a higher cost. 
To minimize the impact of Nigeria's poor infrastructure 
and the vagaries of its overall agricultural system, 
Cadbury has decided to become as self-contained an 
operation as possible. 
 
10.  (U) Comment: Cadbury Nigeria is proof that 
companies can be successful in Nigeria despite the 
challenging production environment.  However, companies 
have to be innovative and also have access to 
sufficient capital to help them invest in ways that 
overcome Nigeria's infrastructural inefficiencies.  For 
companies willing to take on the vast Nigerian market 
opportunities and risks, Cadbury is a successful model 
of ingenuity, resourcefulness and good management. 
BROWNE