US embassy cable - 05LAGOS167

C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 000167 
 
SIPDIS 
 
STATE FOR AF/W 
STATE PASS TREASURY FOR ASEVERENS AND SRENANDER 
STATE PASS DOC PHUEPER 
 
E.O. 12958: DECL: 10 YEARS 
TAGS: ECON, NI 
SUBJECT: NIGERIA ECONOMIC UPDATE, FEBRUARY 2005 
 
Classified By: Acting Consul General Ronald Kramer per 1.4 (b) and (d) 
 
 1. (U) This economic update includes: 
-- MTS First Wireless Management Crisis Sends US Citizen 
Packing 
-- Nigerian Stock Exchange Woos Real Estate Investors 
-- Virgin Atlantic Positions Itself for Vmobile Stake 
-- Banking Update - Mergers Continue Amidst Sector 
Uncertainty 
 
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MTS First Wireless Management Crisis Sends US Citizen Packing 
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2. (SBU) MTS First Wireless (MTS), a local telecommunications 
company which is 44 percent owned by Atlanta-based MTS Inc., 
last week experienced a hostile management take over 
resulting in a near arrest of a US citizen in Nigeria, an 
Economic and Financial Crimes Committee (EFCC) investigation, 
and uncertainty for the company's future.  According to a 
deputy manager associated with the previous management 
structure, three former company directors became disgruntled 
at the prospects of losing their jobs and of their share 
holdings being diluted by new investors. 
 
3. (C) The three went to the EFCC with claims of (fraudulent 
allocation of shares) and corruption against MTS First 
Wireless.  However, before the EFCC could get an 
investigation underway, one of the takeover managers hired 
local police to lock former MTS management out of the 
company's Lagos headquarters, arrest MTS board members, and 
impound MTS property such as automobiles.  One of the board 
members was in police custody from January 19 through 24. 
Another, an American citizen, told Econoff he averted arrest 
by calling the EFCC and alerting them to the local police 
interference in the incident.  The amcit left Nigeria for the 
US indefinitely on January 26. 
 
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Nigerian Capital Market As Real Estate Financing Option 
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4. (SBU) Former Nigerian Stock Exchange (NSE) Director 
General, Hayford Alile, on January 31 affirmed the NSE 
planned strategy to woo real estate developers to the capital 
market.  Alile told the Nigerian Institute of Estate 
Surveyors and Valuers (NIESV) they should turn to the capital 
market for long-term debt and equity financing options in 
return for shared investment income. 
 
5. (SBU) Interest rates between 20 and 30 percent make 
long-term financing for real estate impractical.  Real estate 
purchases are often paid in their entirety, in cash, at date 
of purchase.  The average Nigerian is unable to save long 
enough to acquire the large sums of cash needed for real 
estate purchases.  Nicholas Okoye, NSE Head of Strategy and 
Derivative Markets, told Econoff the NSE is developing a real 
estate (securitization) program to be marketed in late 
2005, which will result in more affordable financing for real 
estate and potentially bring the NSE a large infusion of 
investors and investor options. 
 
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Virgin Atlantic Positions Itself for Vmobile Stake 
--------------------------------------------- ----- 
 
6. (U) Press reports that Vmobile, Nigeria's second largest 
GSM company has been having talks with Virgin Group, UK, 
owners of Virgin Mobile.  This follows the breakdown of talks 
between Vmobile and Vodacom of South Africa in May 2004. 
Vmobile, which has over 1.5 million subscribers, has been 
bedeviled by a string of controversies since its management 
changeover from former owners, Econet Wireless International, 
of Zimbabwe. 
 
7. (SBU) A contact at Vmobile confirmed Virgin Group's 
interest in the company, but expressed doubts of a positive 
outcome to investment talks between the two companies. 
According to them, "talks were held, but we are not too 
optimistic",. Contrastly, some industry watchers believe a 
Vmobile-Virgin Mobile deal might be brokered by second 
quarter 2005, especially since the Virgin Group recently 
clinched the deal to operate Nigeria's flag carrier, Virgin 
Nigeria. 
 
--------------------------------------------- -- 
Banking Update - Mergers Continue Amidst Sector Uncertainty 
--------------------------------------------- -- 
 
8. (U) Access Bank and Ecobank are confident they will meet 
the Central Bank of Nigeria (CBN) recapitalization 
requirement of 25 billion naira by December 2005.  Access 
Bank and Ecobank both hope to meet the 25 billion naira mark 
by building a base of 10 - 15 billion naira, then to 
identify one (similarly-minded) bank with which to merge. 
Bismarck Rewane, MD, Financial Derivatives, warns, however, 
the (10 plus 15) equation oversimplifies the challenges of 
merging banking operations. 
 
9. (SBU) According to Fred Udoaka, Regional Manager, IBM West 
Africa, technology integration is the first shoal over which 
many merging companies stumble; yet if navigated 
successfully, it can be the area where merging banks will 
save the most money in the long run.  Udoaka expressed 
concern that the CBN deadline may not give banks ample time 
for integration planning in technology and other operational 
areas. 
 
10. (SBU) In separate news, the CBN in December announced 
that it is launching a series of investigations into several 
banks.  The CBN is looking into allegations that banks have 
been financing their IPOs by loaning the investment capital 
needed to their customers, who later sell the shares back to 
repay the loans. 
 
KRAMER