US embassy cable - 05LAGOS46

UNCLAS SECTION 01 OF 02 LAGOS 000046 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/W 
STATE FOR INR/AA 
STATE PASS DOE FOR DAS JBRODMAN AND CGAY 
STATE PASS TREASURY FOR ASEVERENS AND SRENANDER 
STATE PASS DOC PHUEPER 
STATE PASS EX-IM FOR JRICHTER 
STATE PASS OPIC FOR CDUFFY 
STATE PASS TDA FOR BTERNET 
 
E.O. 12958: N/A 
TAGS: ECON, NI 
SUBJECT: NIGERIA ECONOMIC UPDATE, JANUARY 2005 
 
Reftel: Lagos 1611 
 
1. (U) This economic update includes: 
-- Banking Reform Effort Drives Industry Change 
-- Power Sector Reform Bill 
-- Recharge Card Import Ban Target Date Extended 
-- A Nigerian Success Story: Expanding Cassava 
Operations 
 
--------------------------------------------- 
Banking Reform Effort Drives Industry Change 
--------------------------------------------- 
 
2. (U) Since the July 6 Central Bank of Nigeria (CBN) 
announcement of banking sector reforms that require 
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 the ten 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 told us recently that 
most merger candidates are identifying prospective 
partners. She added one might expect banks to 
reorganize their operations soon, given that there is 
only one year left to comply with the CBN's 
requirements.  To ensure that safe, strong banks emerge 
from this process, management needs time to complete 
due diligence on potential partners.  Most banks are 
still engaged in 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, bank share prices 
are in decline.  Although industry observers are still 
positive about the CBN directive, believing the changes 
will lead to a stronger Nigerian banking sector, 
uncertainty remains the word of the day when it comes 
to the banking sector in Nigeria. 
 
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Power Sector Reform To Be Signed Soon? 
------------------------------- 
 
4. (U) President Obasanjo may soon sign a long-awaited 
power sector reform bill into law. Awaited as a major 
tool in rehabilitating Nigeria's ailing power sector, 
the bill had been pending in the National Assembly 
since President Obasanjo's first term. The power sector 
reform act will establish a power sector regulatory 
agency to foster and oversee an enabling environment 
for private sector participation in the sector. 
(Comment.  The power that will be given the new 
regulatory body will play a large role in determining 
whether private sector firms will invest in this now 
crippled sector. End comment.) 
 
5. (SBU) The law promises to break the monopoly enjoyed 
by the Nigerian Electric Power Authority (NEPA), the 
state-owned power company, which has utterly failed to 
deliver reliable electric power.  Nigerians hope the 
law will encourage private sector suppliers to deliver 
efficient and constant power to residences and business 
firms. (Comment: In 2004 NEPA generated 4,000 MW at 
peak capacity output.  President Obasanjo recently said 
10,000 MW is needed to meet average national demand. 
The need for private investment in the sector is thus 
enormous. End comment.) 
 
--------------------------------------------- 
Recharge Card Import Ban Target Date Extended 
--------------------------------------------- 
 
6. (SBU) The Nigerian Ministry of Communications (MOC) 
recently announced that rechargeable telephone calling 
cards may be imported into Nigeria until March 31, 
2005.  An import ban on the cards was set to take 
effect January 1, 2005, but MOC officials have not 
implemented the ban, as functioning local recharge card 
production facilities do not yet exist.  The MOC 
expects eight production facilities to be operational 
by the March 31 deadline.  (Comment:  We expect some 
recharge card production in Nigeria by March 31, but 
doubt that much high-quality production capability will 
be available by then.  Cards could once again be in 
short supply, as they were in June 2004 (reftel).  End 
comment.) 
 
--------------------------------------------- --------- 
A Nigerian Success Story: Expanding Cassava Operations 
--------------------------------------------- --------- 
 
7. (SBU) Chris Okeke, a partner in one of the largest 
private law firms in Nigeria, also cultivates 6000 
hectares of cassava in four Nigerian states including 
Delta and Kwara States.  Taking advantage of 150 
hectares of cassava under cultivation that his father 
had left him, Okeke built two processing plants before 
realizing that the supply of cassava was problematic. 
He has since been integrating vertically, buying land 
to ensure an uninterrupted supply of cassava to his 
factories.  He is now purchasing land in Oyo State, and 
expects to supply fully his processing facilities 
within the next two to three years. 
 
8. (SBU) Okeke considers his agricultural philosophy -- 
hard work, investment in the land, and self-reliance -- 
the underpinning of sustainable development in Nigeria. 
He views the numerous business problems as challenges 
to be resolved using logic.  A while back, for example, 
when "area boys" (unemployed thugs) demanded money, he 
trained and employed them on his farms.  He said he 
seeks to profit from his processing facilities, and 
then sell sixty percent of the farmland he cultivates 
to farmers he has trained over the last few years. 
Okeke said offering the farmers the prospect of a 
reliable income is the only way to revive Nigeria's 
agricultural sector.  (Comment: Okeke's initiative is 
notable, but not widely known.  We plan to report other 
success stories showing Nigerian entrepreneurs 
diversifying Nigeria's economy. End comment.) 
 
KRAMER