US embassy cable - 02ABUJA936

C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 000936 
 
SIPDIS 
 
 
DEPT FOR AF/W, AF/EPS, EB/OMA:ASNOW 
LONDON FOR AFRICA WATCHER GURNEY 
 
 
E.O. 12958: DECL: 03/22/2012 
TAGS: ECON, PREL, EFIN, NI 
SUBJECT: NIGERIA: VICE PRESIDENT ABUBAKAR ON ECONOMIC ISSUES 
 
Classified by Ambassador Howard F. Jeter; Reasons 1.5 (b) and 
(d). 
 
 
1. (C) Summary.  In a March 19 meeting with Ambassador Jeter, 
Vice President Atiku Abubakar was non-committal on rapid 
completion of the bilateral debt agreement, saying only that 
he would discuss the issue with the Director-General of the 
Debt Management Office.  The Vice President said Nigeria 
remains committed to economic reform and will not run a 
deficit this year.  He argued that the IMF and GON had not 
separated, but were on a temporary hiatus until Nigeria 
formulates an achievable macroeconomic program.  The Vice 
President also endorsed USG long-term support for 
agriculture, health and education.  EconOff (notetaker) was 
also present.  End Summary. 
 
 
2. (C) Emphasizing the need to conclude quickly the 
U.S.-Nigeria bilateral rescheduling agreement, Ambassador 
Jeter explained the USG could not amend the bilateral 
agreement as its terms are applied equally to all debtor 
countries.  Despite the Embassy's good working relations with 
the Debt Management Office (DMO), Director-General Arikawe 
has been insistent on renegotiating the agreement. 
Therefore, we have made very little headway on completing the 
negotiation, the Ambassador stated.  The Vice President made 
no comment, but agreed to discuss the issue with DMO's 
Arikawe.  (Comment: We know Arikawe's stubbornness is the 
result of a policy directive straight from the President to 
negotiate better terms with every creditor.  If we know the 
President has taken a keen interest, Abubakar knows it even 
better.  Thus, his statement that he will talk to Arikawe is 
a bit of a throw away.  It is Obasanjo, not Arikawe, who 
needs to be convinced.  End Comment.) 
 
 
3. (C) The Vice President stated that the absence of a formal 
IMF program would not cause the GON "to reverse or slowdown 
on economic reforms."  Abubakar maintained that the IMF has 
not "separated" from Nigeria, but will cooperate in 
developing Nigeria's Poverty Reduction Strategy Paper and 
supporting economic capacity-building.  After the GON 
develops its own macroeconomic program, the Vice President 
said, they would enlist the help of the IMF to monitor the 
homegrown program.  Vice President Abubakar stated the 
President would not severely limit government spending this 
year because "too many Nigerians face social and economic 
problems."  However, both he and the President were committed 
"to spending within our income and avoiding large deficits." 
When asked about the problem of state government spending, 
the Vice President responded that the Fiscal Responsibility 
Act, based on Brazil's model and now before the National 
Assembly, will provide a foundation for limiting states' 
fiscal expenditures.  The Central Bank's directive limiting 
commercial borrowing by state governments also has reduced 
the problem of fiscal irresponsibility. 
 
 
4. (U) Ambassador Jeter related the recent visit of USAID 
Africa Assistant Administrator Constance Newman to Nigeria. 
He explained that USAID is moving from a transitional 
strategy for the first two years of democracy in Nigeria to a 
long-term strategy focusing on fewer sectors, such as 
agriculture, health and education.  Vice President Abubakar 
welcomed this development, concurring that agriculture, in 
particular, is a high Administration priority.  The Vice 
President explained that agriculture has been the primary 
focus of the National Economic Council of State Governors, 
which he chairs.  State governments have primary 
responsibility for agricultural development with the federal 
government responsible for national policy and broad-based 
programs that encompass more than one state, he said. 
 
 
5. (U) The Vice President went on to explain that the GON and 
State Governors have subdivided the country into sectors to 
promote mass production of specific agricultural goods for 
export.  For example, Cross River State and the surrounding 
area will target pineapple and palm products while northern 
states will target gum arabic, groundnuts and tomato 
products.  Areas in the Middle Belt will focus on citrus 
fruits. 
 
 
6. (U) Ambassador Jeter encouraged the GON to focus on 
industrial development, particularly in Kano, as a means of 
providing employment in areas prone to social unrest.  He 
emphasized the importance of increasing domestic investment 
as a means of signaling to foreign investors that Nigerians 
themselves are serious about economic development.  The Vice 
President agreed, but lamented that high domestic interest 
rates prohibit Nigerians from investing in infrastructure and 
industry. To get around the high cost of borrowing, the GON 
has persuaded commercial banks to earmark ten percent of 
profits to support development of small- and medium-size 
enterprises.  However, this program has not yet taken-off. 
As a means of sourcing lower-cost funds, Ambassador Jeter 
described the U.S. Export-Import Bank programs available to 
Nigerian investors who want to use American goods and 
services for their projects. 
 
 
7. (C) Comment.  The Vice President's response on the 
bilateral debt agreement indicates that he may not be 
actively involved in this issue.  This supports the DMO's 
earlier assertion that each bilateral agreement must be 
approved directly by President Obasanjo.  Also, Nigeria may 
no longer feel the urgency of completing the bilateral 
agreements now that the IMF has withdrawn from a formal 
program.  Projected payments to the Paris Club, even under 
the December 2000 Agreed Minute, will exceed the GON's 2002 
budget for total external debt servicing.  The GON will most 
likely fall into arrears with the Paris Club notwithstanding 
completed bilateral agreements. 
 
 
8. (C) Comment Continued.  The Vice President's statement to 
continue progress on economic reform and to spend within the 
revenue stream this year is a prudent one; however, he could 
not reasonable be expected to say anything that strayed too 
far from fiscal orthodoxy.  However, other officials within 
the GON and National Assembly have previously stated that 
2002 spending may greatly exceed revenue; some observers, 
including World Bank staff, predict the deficit may reach as 
much as 20 percent of the eventual budget.  Any shortfall in 
revenue from the sale of NITEL will certainly have a 
significant impact on government spending this year; the 
auction price of USD 1.3 billion is nearly one-fourth of the 
GON's projected revenue for 2002.  Until the Executive and 
National Assembly engage each other in the battle over the 
2002 budget, it will be impossible to determine what course 
of action will win out.  End Comment. 
Jeter