US embassy cable - 05LAGOS30

UNCLAS SECTION 01 OF 02 LAGOS 000030 
 
SIPDIS 
 
PASS TO USTR 
 
SENSITIVE BUT UNCLASSIFIED 
 
E.O. 12958: N/A 
TAGS: ECON, NI 
SUBJECT: NIGERIA ECONOMIC TIDBITS, JANUARY 2005 
 
Reftel: Lagos 1611 
 
1. (U) This economic update includes: 
-- Banking Reform Effort Drives Industry Change 
-- Power Sector Reform Bill Signed 
-- Recharge Card Import Ban Target Date Extended 
-- A Nigerian Success Story: Expanding Cassava 
Operations 
 
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Banking Reform Effort Drives Industry Change 
--------------------------------------------- 
 
2. (U) Since the July 6 Central Bank of Nigeria (CBN) 
announcement of banking sector reforms requiring banks 
to have a 25 billion naira minimum capital base by 
December 2005, banks have been busy formulating 
strategies to meet this goal.  With the exception of 
approximately ten of the largest banks, most banks will 
have to merge with others to meet the CBN requirement. 
Investment Bank and Trade Corporation (IBTC) Head of 
Trade Finance, Oluwande Muoyo, stated that most merger 
candidates are in the partner identification phase. She 
added, given that there is only one year left to comply 
with CBN requirements, one might expect banks to be 
moving into the operational reorganization phase. 
However, to ensure safe, strong banks emerge from this 
process, management needs time for thorough due 
diligence on potential partners.  Most banks are still 
in the throes of this process. 
 
3. (U) Soon after the CBN announcement, a handful of 
banks quickly identified merger partners, and publicly 
announced their plans.  Yet rumors are beginning to 
emerge that at least one of these agreements will fall 
through in the coming months.  While banking stocks 
listed on the Nigerian Stock Exchange have been heavily 
traded during the last few months, the banks' overall 
stock prices are in decline.  Industry observers are 
still positive about the CBN directive, believing the 
changes will lead to a stronger Nigerian banking 
sector.  Yet uncertainty continues to be the word of 
the day when it comes to the banking sector in Nigeria. 
Banks formal consolidation plans were due to the CBN on 
Friday, January 7.  Post will report on the continued 
banking reform process as those plans are made publicly 
available. 
 
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Power Sector Reform Bill Signed 
------------------------------- 
 
4. (U) On December 20, President Obasanjo signed into 
law a long-awaited power sector reform bill.  The bill, 
heralded as a major tool in rehabilitating Nigeria's 
ailing power sector, had been pending in the National 
Assembly since President Obasanjo's first term. The 
power sector reform bill is expected to create a power 
sector regulatory agency to foster and oversee an 
enabling environment for private sector participation 
in the sector. 
 
5. (U) Media reaction to the signing of the bill was 
mostly positive.  The law promises to break the 
monopoly currently enjoyed by the Nigerian Electric 
Power Authority (NEPA), the state-owned power company, 
which has utterly failed to deliver reliable 
electricity supplies.  Nigerians hope the law will pave 
the way for the entrance of experienced private sector 
power providers to deliver efficient and constant 
electricity to residencies and industries. However, it 
is not clear if Nigerians are able or willing to pay 
the higher tariffs such private sector operators are 
likely to charge. (Comment: In 2004, NEPA generated 
4,000 MW, though President Obasanjo recently said 
10,000 MW was needed to meet average national demand. 
The need for private investment in the sector to meet 
bourgeoning demand is enormous.  Details that emerge 
over the next few months regarding the new power sector 
regulatory body will play a large role in determining 
the private sector's willingness to invest in this now 
crippled sector.  End comment.) 
 
--------------------------------------------- 
Recharge Card Import Ban Target Date Extended 
--------------------------------------------- 
 
6. (U) Telecom recharge cards can be imported into 
Nigeria until March 31, 2005, the Nigerian Ministry of 
Communications (MOC) recently announced.  An import ban 
on the cards was set to take effect January 1, 2005, 
but MOC officials moved the date back, as functioning 
local recharge card production facilities do not yet 
exist.  The MOC expects eight total production 
facilities to be operational by the March 31 deadline. 
(Comment:  We expect some recharge card production in 
Nigeria will be possible by March 31, but it is 
doubtful that sufficient high-quality production 
capability will be functional by then.  A card scarcity 
situation may arise, as it did June 2004 (reftel).  End 
comment.) 
--------------------------------------------- --------- 
A Nigerian Success Story: Expanding Cassava Operations 
--------------------------------------------- --------- 
 
7. (SBU) Chris Okeke is a partner in one of the largest 
private law firms in Nigeria; he is also the proud 
owner of 6000 hectares of cassava farms in four 
Nigerian states, including Delta and Kwara States. 
Okeke sees his agricultural philosophy as the true path 
to sustainable development in Nigeria -- based on hard 
work, investment in the land, and self-reliance.  Okeke 
has never received assistance from sources such as 
USAID or other aid agencies.  Starting with 150 
hectares of land left to him by his father, Okeke built 
two cassava processing plants.  He soon realized 
cassava supply was problematic, and has since focused 
on vertical integration, buying the land needed to 
guarantee an uninterrupted supply of cassava to his 
factories.  He is now purchasing land in Oyo State, and 
expects to fully supply his processing facilities 
within the next two to three years. 
 
8. (SBU) Okeke views numerous business problems endemic 
to Nigeria as challenges to resolve using logic.  When 
faced with numerous "area boys" demanding money, he has 
trained and employed them on his farms.  His goal is to 
reach profitability in the processing facilities, and 
then sell off sixty percent of farmland from which he 
sources his cassava to farmers he has trained over the 
last few years.  Okeke believes offering the farmers a 
reliable income will allow his plans to succeed, and 
this type of investment is the only way for the 
Nigerian agricultural sector to get back on its feet. 
(Comment: Okeke's initiative is notable, but not widely 
known.  We will periodically report on other similar 
success stories, which demonstrate Nigerian 
entrepreneurs working towards reviving the country's 
economy, and diversifying its revenues beyond petroleum- 
based sources. End comment.) 
 
Kramer