US embassy cable - 04LAGOS2195

UNCLAS SECTION 01 OF 02 LAGOS 002195 
 
SIPDIS 
 
C O R R E C T E D  C O P Y - PARAGRAPHS NUMBERED WRONG 
 
PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ECON, EAIR, EPET, ELAB, EFIN, NI 
SUBJECT: NIGERIA ECONOMIC UPDATE OCTOBER 2004 
 
1. (U) Summary: Nigerian manufacturers estimate they 
lost roughly USD 150 million due to the October 11-14 
nationwide fuel price strike.  The strike may resume as 
early as November 1.  Several local airlines have 
increased fares on domestic routes, primarily in 
response to the increase in aviation fuel costs.  Fuel 
supply has also been a problem for the airlines.  Banks 
continue to consolidate in order to meet the 
capitalization requirement set by the Central Bank of 
Nigeria (CBN).  US bank, Citigroup (NIB), underscoring 
its long-term to the Nigerian market, broke ground on a 
N3.2 billion (USD 25 million) new head office complex 
in Lagos. End summary. 
 
2. (U) This update includes: 
 
-- Strike: Businesses Count Losses 
-- Domestic Fare Increases; Shortages of Aviation Fuel 
-- More banks Mergers 
-- Citibank Nigeria Builds New Head Office Complex 
 
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Strike: Businesses Count Losses And 
Brace for Possible Phase II 
----------------------------------- 
 
3. (U) Since the October 11-14 national strike against 
the government-mandated September 23 fuel price 
increase, businesses have been counting their losses. 
The Manufacturers Association of Nigeria (MAN) 
estimated the strike took approximately N20 billion 
(USD 150 million) out of its members' pockets. 
 
4. (U) The Nigerian press has been rife with reports of 
further price hikes in the offing, triggered by the 
escalating world crude-oil prices.  However, the 
Petroleum Product Pricing Regulatory Agency (PPRA) has 
stated that it did not expect further price increases 
yet, since products now being sold were imported 
previously, when world market prices were lower. 
(Note: Gasoline sold at N43 per liter before the 
September 23 increase. Currently it sells for between 
N52 and N55 across the country.  Diesel increased from 
N52 to N60 and kerosene from N50 to N62 per liter. End 
Note.) 
 
5. (U) The two-week respite given at the end of the 
October 11-14 strike by the NLC and other strike 
organizers expires November 1.  The NLC has ordered its 
affiliate unions and state councils to "mobilize" for 
phase II of the strike, but it has not yet announced 
the strike's official resumption.  Talks between labor 
leaders and the GON continue. 
 
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Domestic Airfares Increase; Aviation Fuel Shortages 
--------------------------------------------- ------ 
 
6. (U) Effective October 11, Nigerian domestic air 
carriers increased fares between N1500 and N4500, which 
represented about a 20 percent mark-up.  The managing 
director (MD) of one airline told us the fare increases 
result from the rise in aviation fuel prices and from 
fuel supply concerns.  (Note: Domestic retailers 
increased aviation fuel prices by 28 percent on 
September 9.)  The MD stated that airlines in the 
competition-fierce domestic industry have been 
reluctant to raise fares in response to previous fuel 
price hikes for fear of losing customers.  However, the 
latest increase was too large for the carriers to 
absorb.  The other part of the equation, the MD said, 
was fuel supply, which he characterized as "haphazard." 
The MD said the supply problem was especially acute in 
Abuja. Routes between Abuja and smaller airports such 
as Ibadan and Ilorin were becoming unreliable. Some 
airlines have chosen not to raise the nominal price of 
their flights but have added a hefty "fuel surcharge." 
 
 
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More banks Mergers 
------------------ 
 
7. (U) Banks continue to consolidate in order to comply 
with the CBN's July 6 directive requiring all banks to 
recapitalize to N25 billion ($188m) by December 2005. 
Two mergers occurred in October. The new banks are 
Astrabank (made up of Manny, Guardian Express, First 
Atlantic and Assurance banks) and Sterling Bank 
(Prudent, Magnum Trust, EIB International, NBM Bank and 
Trust Bank of Africa). 
 
8. (U) Astrabank has a combined network of over 120 
branches, total asset N71 billion ($533m), total 
deposit N48 billion ($361m) and total shareholders 
funds N11 billion ($82m). While Sterling bank also with 
about 120 branches, has total asset base N100 billion 
($751m), a total deposit base about N66 billion ($496m) 
and total shareholders fund N15 billion ($112m). 
 
9. (U) The banking recapitalization initiative yielded 
its first acquisition in October as Guaranty Trust Bank 
(GTB) acquired Inland Bank.  Stating a need for country- 
wide strength, GTB which had strong operations in 
southern Nigeria acquired Inland bank, whose 44 
branches were primarily located in the north.  This 
acquisition will raise GTB's capital base from its 
current N34 billion ($255m) to an estimated N40 billion 
($300m) by end-2004. 
 
10. (U) Meanwhile, some banks continue to try to meet 
the CBN requirement by raising funds from the stock 
market. Notable among such banks are Oceanic bank, 
Access bank and Afribank. Oceanic bank floated its 
initial public offer (IPO) to raise N16 billion or 
$120m, while Access bank is attempting to raise N8.7 
billion or $65.4m. Afribank, which is partly state- 
owned, also went to the market to raise about N9 
billion or $67.7m. (Comment: Some analysts are 
skeptical the market can accommodate all the IPOs in 
the offing. End comment.) 
 
--------------------------------------------- -- 
Citibank Nigeria Builds New Head Office Complex 
--------------------------------------------- -- 
 
11. (U) On October 22, Citigroup (Nigeria International 
Bank) held a ground-breaking ceremony for its new N3.2 
billion ($24m) head office complex in Lagos.  The 
building is expected to be completed by December 2006. 
With over $87 million (N11.6bn) in investments, 
Citigroup (NIB) represents the largest US investment in 
Nigeria outside the energy sector, providing some 400 
jobs in Nigeria. 
 
Browne