US embassy cable - 05LAGOS749

UNCLAS SECTION 01 OF 03 LAGOS 000749 
 
SIPDIS 
 
PASS TO USTR 
 
SENSITIVE BUT UNCLASSIFIED 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, EINV, ETRD, KIPR, PGOV, NI 
SUBJECT: NIGERIA ECONOMIC UPDATE, MAY 2005 
 
 
1. (U) This economic update includes: 
 
-- American Business Leaders Discuss Local AmCham 
-- Stock Market Affected by Banking Reform 
-- Shipping Dinner Reveals Hands Behind Cabotage Act 
-- GON Introduces Presidential IPR Initiative: STRAP 
-- Nigeria Census 2005, Plan for the Worst and Hope for 
the Best 
 
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American Business Leaders Discuss Start-Up of Local 
AmCham 
--------------------------------------------- --------- 
 
2. (SBU) American businesses in Nigeria decided to form 
an official American Chamber of Commerce (AmCham) to 
represent their interests in Nigeria.  On May 10, 
Ambassador John Campbell and Dick Kramer, Head of 
Strategic Research and Investments, convened about 30 
US business executives -- nearly all of them at the 
Managing Director-level -- to discuss establishing an 
AmCham.  The group expressed unanimous support for an 
AmCham. The businesses, including oil companies, felt 
an AmCham could be a strong advocate of their interests 
and that, in many instances, have the AmCham, as an 
organization representing a wide range of business 
interests, weigh in on certain issues would be more 
effective than single businesses advocating solely on 
their own behalf -- it is harder to accuse an AmCham of 
self-interest than it is a single company. 
 
3. (SBU) The prospective AmCham's relationship with the 
pre-existing Nigerian-American Chamber of Commerce 
(NACC) will be a sensitive issue that must be 
addressed.  NACC has seen itself as the organizational 
link between American businesses and Nigeria, when in 
reality NACC has been more of a venue for small to 
medium size Nigerian businesses seeking products from 
America.  Consequently, NACC has not been involved in 
advocacy for the US business community in Nigeria.  In 
fact NACC has taken positions like endorsing GON trade 
bans and tariffs that are inimical to American business 
interests.  Attendees at the May 10 meeting agreed they 
will have to deal with NACC sensitively in the move to 
develop a separate organization to represent US 
business interests.  The Ambassador and the Foreign 
Commercial Service in Lagos have already laid the 
groundwork for that sensitive approach through recent 
interactions, including a keynote speech the Ambassador 
gave at the NACC Business Day in March.  Sustained 
attention to the matter will be vital. 
 
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Stock Market Affected by Banking Reform 
--------------------------------------- 
 
4.  After a bumpy second half in 2004, Nigerian Stock 
Exchange (NSE) growth indices remained stable in early 
2005, with the market gaining 6.6 percent in the second 
quarter.  The primary market segment has retained 
buoyancy through various bank initial public offers 
(IPOs) as banks seek to meet a Central Bank of Nigeria 
(CBN) naira 25 billion (USD 192 million) capitalization 
requirement by December 2005. 
 
5. (U) Banking sector changes initially caused 
uncertainty and lack of confidence.  Market 
capitalization, over naira 2 trillion (USD 15 billion) 
in June 2004, fell nearly five percent to naira 1.898 
trillion (USD 14.3 billion) in July when the 
recapitalization policy was announced.  Though 
uncertainty remained, banks in many cases had no 
alternative but to look to the stock market to meet the 
recapitalization requirement.  Since July 2004, more 
than a dozen banks have issued IPOs.  Surprisingly, 
even to industry experts and the CBN, the NSE reports 
17 companies, mostly banks, raised over naira 217.1 
billion (USD 1.63 billion) from the market in the first 
quarter of 2005 in contrast to 32 companies raising 
naira 227.4 billion (USD 1.71 billion) in 2004.  This 
shows there may be more Nigerians with capital who are 
willing to invest domestically than most observers 
predicted. 
 
6. (U) Today the banking sector remains active though 
experts say the large number of bank IPO issues have 
flooded the market, depressed prices, and adversely 
affected secondary market activities.  As more IPOs 
arise, investors have been selling off a lot of 
secondary stocks to buy new issues.  Also, the recent 
declarations of lower profits by blue chip companies 
like Nigerian Breweries, Nigerian Bottling Company and 
Guinness, have significantly cooled activities in the 
secondary market. 
 
6. Comment: Investors may be becoming inured with each 
subsequent bank issue.  Banking share prices have 
decreased by as much as 50 percent.  Better results are 
expected in the medium term as investors take advantage 
of current low stock prices.  However, local experts 
believe positive correction in the market will follow 
the banking sector December deadline.  This is not 
certain, however, as there is no guarantee the banking 
sector changes will quickly result in stronger banks 
that perform better.  End comment. 
 
--------------------------------------------- ---- 
Shipping Dinner Reveals Hands Behind Cabotage Act 
--------------------------------------------- ---- 
 
5. (U) During the Nigerian Chamber of Shipping (NCS) 
annual dinner, outgoing president Olisa Agbakoba, told 
the audience about the influential roles of several NCS 
members in the recently enacted Nigerian Cabotage Act. 
The Act states that shipping companies operating in 
Nigeria must be at least ten percent owned by 
Nigerians.  Agbakoba said he, Aliko Dangote, and 
Senator Musa Adede worked closely with the drafters of 
the Act to ensure that Nigerian interests were 
promoted.  He repeated in his speech several times that 
the Act is not meant to keep out foreign firms but to 
ensure Nigerians profit sufficiently as well. 
 
6. (SBU) The dinner was officially a hand-over ceremony 
of the NCS presidency from Agbakoba to Nigerian diesel 
baron, Femi Otedola.  Evoking Agbakoba's belief that 
Nigerians can participate in the shipping industry, 
Otedola has told Econoffs separately that foreign firms 
simply repatriate funds out of Nigeria and contribute 
little to the country. 
 
7. (SBU) Comment. Nigeria does not have the capacity to 
meet the new cabotage requirements.  Consequently, many 
foreign companies have received waivers to operate 
without a Nigerian ownership contingent.  The Act's 
effects will grow as Nigerian shipping firms actively 
pursue their ten percent shares.  Some industry 
watchers believe the Act will only lead to more 
Nigerian front companies to give shippers the 
appearance of complying with the Act.  In the end, the 
Act reflects the GON's nationalist economic philosophy. 
Whether it will produce the intended benefit or 
backfire is another question. End comment. 
 
--------------------------------------------- -- 
GON Launches Presidential IPR Initiative: STRAP 
--------------------------------------------- -- 
 
8. (U) On May 3, the Nigerian Copyright Commission 
(NCC) launched a new presidentially-led Intellectual 
Property Rights (IPR) initiative called STRAP: 
Strategic Action Against Piracy.  STRAP has four "core 
principles": 1) "combat" piracy and copyright abuse, 2) 
create an environment where a legitimate copyright 
system can work, 3) lure investors through a copyright- 
friendly environment, and 4) help restore a good image 
of Nigeria.  The NCC noted three vehicles for STRAP's 
implementation: a) public outreach for IPR awareness, 
b) enforcement of the Nigerian Copyright Act including 
raids, destruction of pirated goods, and arrests and 
prosecution of offenders, and c) new administrative 
measures including regulation of optical disc 
manufacturing plants, hologram registration, a "video 
rental scheme", and a database of copyrighted works. 
9. (SBU) Comment.  Neither during the three-hour long 
STRAP launch nor in STRAP program materials does the 
NCC provide a plan to execute the core principles and 
three implementation components.  Lack of IPR program 
funding is a key hurdle in Nigeria's enforcement of its 
copyright legislation.  During the STRAP launch no 
mention was made of how much funding is being dedicated 
to the program.  Unless provided more funding, this 
initiative will be cash-strapped and ineffective in 
fighting Nigeria's active pirating industry. 
 
--------------------------------------------- --------- 
Nigeria Census 2005, Plan for the Worst and Hope for 
the Best 
--------------------------------------------- --------- 
11. (SBU) Nigeria's planned December 2005 national 
census count will be the first since 1991.  Adebayo 
Ajagunna, Trade Development Manager at the British High 
Commission, predicts it will be the most accurate in 
Nigeria's history.  Ajagunna tracks census progress in 
stewarding the British Department for International 
Development (DFID) funding for satellite imagery used 
in determining where communities and residences exist. 
In places where a head count cannot be conducted, due 
to remoteness or reluctance of local population to be 
counted, for example, satellite imagery will help 
estimate population. 
 
12. (SBU) Though census preparation was set back three 
to four months by a lag in GON funding for the Nigerian 
Population Commission (NPC), Ajagunna said EU funding 
of USD 120 million (60 percent of total census funding) 
and DFID satellite imagery contributions to the project 
helped get the project back on track.  Preparations, he 
said, have accelerated.  Planners have made up for lost 
time in procuring vehicles, computers, cartography and 
other equipment, as well as a "good portion" of the 
required 800,000 personnel. 
 
13. (SBU) Each of Nigeria's three censuses since 
independence have been hotly disputed because the 
census materials affect important regional political 
interests. States, localities, and geopolitical zones 
consider census data as key to gaining power and 
resources.  The census is also looked at as an 
indicator of voting strength -- and thus political 
power.  The census is a zero sum political game where 
both the South and North have adamantly claimed to have 
been undercounted in the past.  This exercise, coming 
with elections on the 2007 horizon, promise to be 
little different.  However, attempting to make this 
census less controversial, the NPC will not gather 
information on ethnicity and religion as has been done 
previously.  EU and NPC officials will monitor census 
activity.  This may indeed be the most accurate 
Nigerian census to date, but it waits to be seen if 
this will give credibility to the results. 
 
Browne