US embassy cable - 05LAGOS542

UNCLAS SECTION 01 OF 02 LAGOS 000542 
 
SIPDIS 
 
STATE PASS TO EXIM AND OPIC 
 
E.O. 12958: N/A 
TAGS: EINV, EFIN, ETRD, ELAB, KTDB, PGOV 
SUBJECT: IMF HEARS OUT NIGERIAN PRIVATE SECTOR 
 
Ref: (A) Abuja 497, (B) Abuja 392 
 
1. (U) Summary. During the IMF Mission Team's Article 
IV consultations in Nigeria (ref A), U.S. private 
sector firm representatives told the IMF team the 
operating environment in Nigeria remains challenging. 
Port delays and improprieties, arbitrary political 
decisions, and currency payment issues continue to 
hinder business.  Some Nigerian businesspeople gave the 
IMF team anecdotal evidence the GON's 2004 economic 
performance measures which suggest a real GDP increase 
of 6 percent, may not accurately reflect the real 
decline of output in many sectors of the economy.  End 
summary. 
 
2. (SBU) The IMF team that visited Abuja and Lagos in 
March met U.S. businessmen on March 14 and Nigerian 
entrepreneurs the following day.  The meetings 
highlighted factors leading to the high cost of doing 
business in Nigeria.  During their meeting with US 
businesspeople, three prominent challenges surfaced: 1) 
bureaucratic hold-ups and improprieties at the ports, 
2) unpredictable political decision-making causing 
uncertainty that complicates long-term strategic 
planning and investment; for example, import bans and 
local content laws, and 3) currency and payment issues. 
 
3. (SBU) Port problems and sudden changes in the 
playing field due to policy shifts did not surprise the 
IMF visitors, who seemed to understand the quirkiness 
of the Nigerian business environment.  The currency and 
payment issues were news to the IMF team.  Cargill 
representative said the dual exchange rate system is 
affecting Cargill's cocoa exports earnings, making his 
company less profitable than other ventures that resort 
to the parallel market.  While the naira has been 
trading at between naira 130 to 133 to the dollar at 
the official Dutch auctions, the parallel market rate 
is usually five percent higher.  The result that the 
Nigerian exporters who play both markets repatriate 
their dollar proceeds at the higher unofficial rate. 
Harris Corporation (Harris) said its currency problems 
stem partly from an increasingly competitive telecom 
equipment market.  As equipment suppliers compete for 
the growing yet limited numbers of contracts, the 
prospective customers force the competing suppliers 
into bidding wars and ask for increasingly better terms 
including stipulations that payments be in naira 
instead of US dollars.  Harris sees itself accumulating 
millions of dollars worth of naira useable only in 
Nigeria.  Also, because of the state of the banking 
sector, buyers are looking to Harris to self-finance 
contracts. 
 
4. (SBU) Continental Airlines' local company 
representative, Chris Amenechi, explained how political 
issues burdened Continental's market entry.  He said 
the company's continuing presence in Nigeria was not a 
matter of normal market forces, but rather rested in 
the hands of one person, Obasanjo.  Despite the US- 
Nigeria Open Skies Agreement, Continental might not be 
able to continue much longer the long, expensive, 
uncertain process in which it is engaged (Ref B). 
 
5. (SBU) On March 15 thirty Nigerian business leaders 
discussed with the IMF Mission team Nigeria's reported 
2004 macroeconomic indicators and the outlook for 2005. 
The IMF team said the country's macroeconomic 
performance in 2004 had been stable, in part because of 
a good budget and a consistent monetary policy that led 
to increased foreign exchange reserves and decreased 
inflation.  The team estimated Nigeria's real gross 
domestic product rose six percent in 2004, sustained by 
growth in the oil and gas sector, the capital market, 
and telecommunications. However, some of the Nigerian 
participants blackened this picture, noting the 
sluggish real growth in sectors or in some instances 
real decline in production, as well as the high cost of 
commodities, and no growth in personal consumption. 
These participants expressed disappointment about the 
low growth in income per capita, the highly skewed 
income distribution, and the insignificant decline of 
poverty despite the 2004 excess crude revenue windfall. 
These Nigerians further asserted that non-oil sectors 
of the economy -- manufacturing, education, and 
agriculture -- experienced only minimal growth despite 
these sectors being of critical importance to the 
economy.  In short, the positive growth in the energy 
capital and telecom sector did not filter through the 
rest of the economy. 
 
6. (SBU) The private sector participants in the talks 
with the IMF team projected three to four percent 
growth in 2005 and greater volatility of the economy 
than in the previous year.  Among the developments they 
would like to see are increased government capital 
expenditures rather than the continuing accumulation of 
government savings, policies to halt the decline of 
value-added production, federal and sub-national fiscal 
policy harmonization, reduction in GON financial 
leakages (e.g., corruption), implementation of the 
fiscal responsibility bill, and bank implementation of 
the Small and Medium Industries Equity Scheme. 
 
7. (U) The IMF team was led by Menachem Katz.  U.S. 
business participants included Fuad Abdullah, Head of 
Direct Product Supply for Sub-Saharan Africa, Procter & 
Gamble; Aedo Van der Weij, Managing Director, Cargill; 
Jules Harvey, MD/CEO, Texaco Nigeria; Chris Amenechi, 
Continental Airlines Representative in Nigeria; Peter 
Yap, Managing Director, Harris Communications Nigeria; 
and Katie Christie, Vice-President Sales Finance, 
Credit & Collections and Contracts, Harris 
Communications Nigeria.  Among the participants 
representing the Nigerian private sector were Sola 
Oyinlolo, CEO, Schlumberger; Mohammed Hayatu-Deen, 
Chairperson, Nigerian Economic Summit Group; Mansur 
Ahmed, Director General, Nigerian Economic Summit 
Group; Bismarck Rewane, CEO, Financial Derivatives; 
Thierry Dumont, CEO, Nigerite; Albert Alos, Vice 
Chancellor, Pan-African University; Ayo Teriba, CEO, 
Economic Associates; and Tanko Osamwanyi, Nigerian 
Stock Exchange. 
 
BROWNE