US embassy cable - 03ABUJA221

UNCLAS SECTION 01 OF 03 ABUJA 000221 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR AF/W 
STATE PASS OPIC, TDA AND EX-IM 
STATE PASS USTR AND DOT 
COMMERCE FOR ITA/MAC 
 
 
E.O. 12958: N/A 
TAGS: ECON, EAIR, ECPS, EFIN, NI 
SUBJECT: NIGERIA: ECONOMIC ROUNDUP JANUARY 31 
 
REF: 02 ABUJA 3345 
 
 
 1. (U) This periodic economic report from Abuja and Lagos 
includes: 
--Dutch Firm Wins BPE Management Contract for NITEL 
--Think Tank Offers Economic Rebuilding Plan 
--Nigeria Airways in Trouble Again 
--Political Conventions Delay 2003 Budget 
 
 
Dutch Firm Wins BPE Management Contract for NITEL 
--------------------------------------------- ---- 
2. (U) The Bureau of Public Enterprises (BPE) announced 
January 20 that Pentascope, a Dutch firm, won a three-year 
management contract with Nigeria 
Telecommunications Limited (NITEL). The firm will undertake 
day-to-day operation of NITEL. Fourteen companies submitted 
expressions of interest in June 2002. Five firms--including 
Africa Consortium, a group that included Lucent Technologies 
and BT Teleconsult--were eventually invited to 
submit proposals (reftel). 
 
 
3. (U) The management contract comes in the wake of a 2002 
privatization effort that failed after the preferred bidder 
missed two payment deadlines. While another buyer is 
identified, the government plans to offer shares in NITEL to 
the public through the Nigerian Stock Exchange. 
 
 
4. (U) Comment: Reviving NITEL, known for its corruption, 
poor service, and crumbling infrastructure, will be no easy 
task. Out of an installed capacity of 700,000 land lines, 
only around 450,000 are operational. Once a monopoly, the 
public telecom now faces stiff competition from private 
telecom operator Globacom, the recent winner of the second 
national carrier license, and Econet and MTN, two 
cellular-only companies. However, teledensity is still very 
low. If Pentascope can turn things around, NITEL can benefit 
from the huge untapped demand for quality and affordable 
communications. 
 
 
5. (SBU) Throughout the bidding process, Post has provided 
advocacy assistance to Africa Consortium, a group that 
included Lucent Technologies (reftel). Unlike 
their competition, the Africa Consortium did not invest in 
on-the-ground lobbyists or Nigeria-savvy handlers to guide 
them through the intricate and often less than transparent 
bidding process. Since December 2002, however, the New Jersey 
Commerce and Economic Growth Commission sent two missions to 
Nigeria, led by Nigerian-born International Account Executive 
Isaac Inyang, to lobby the GON on the Consortium's and New 
Jersey-based Lucent Technologies' behalf. During a December 
meeting, Inyang informed Post that if the Consortium lost the 
bid, the State of New Jersey would likely not send trade 
missions to Nigeria for at least five years and instead focus 
on more commercially friendly countries such as Ghana and 
South Africa. 
 
 
6. (SBU) Follow-up conversations with BPE Director General 
Nasir El-Rufai and Africa Consortium Managing Director Chris 
Vaios reveal one reason the Africa Consortium bid lost: the 
GON thought the group, in particular Lucent, lacked 
commitment to the project, in addition to being more 
expensive than its competitors. Nevertheless, Vaios and 
El-Rufai both appear interested in following up with Lucent 
for system design and with Vaios and his contacts for 
financing. BT Teleconsult is, per Vaios, now no longer part 
of the Consortium's effort. End Comment. 
 
 
Think Tank Offers Economic Rebuilding Plan 
------------------------------------------ 
7. (U) The Nigerian Economic Summit Group (NESG) recently 
held a press luncheon  in Lagos where it proposed structural 
and policy reforms it considers crucial to improve the 
Nigerian economy. The private sector group hopes that 
political candidates, government leaders, and civil society 
will address critical economic issues with sound, long-term 
policy options. 
 
 
8. (U) The presentation by NESG chairman Bunmi Oni, CEO of 
Cadbury, Nigeria, focused on the Nigerian economy's overall 
stagnant growth rate since oil became the dominant economic 
driver. Oni noted that in 1960, Nigeria's per capita GDP was 
comparable to Indonesia's at approximately $250. However, in 
the last 40 years, Indonesia's per capita GDP has risen to 
nearly $1000, while Nigeria's has stagnated at around $300. 
To counter what he called the myth that oil revenue alone can 
sustain the Nigerian economy, Oni stated that at an export 
price of $25 per barrel and a production level of 2 million 
barrels per day, the net annual per capita revenue from oil 
amounts to less than $100. 
 
 
9. (U) Oni suggested that Nigerians have become obsessed with 
the notion of resource allocation and revenue sharing, to the 
exclusion of sound and consistent policies for economic 
rebuilding. He also stated that too much emphasis is placed 
on geopolitical zones and called for the establishment of 
economic clusters based on industry sectors with high-growth 
potential and supported by relevant infrastructure 
improvements. 
 
 
10. (U) The NESG proposes bold steps to curtail government 
spending, including downsizing the government bureaucracy by 
30 percent, selling off prime real estate in Lagos and other 
cities, continued privatization, and a dramatic cut in the 
perks offered to executive and legislative officials. It also 
calls for greater government accountability through quarterly 
State of the Union reports, performance standards for 
Ministers, and economic impact assessments for all major 
projects. 
 
 
11. (U) The NESG also proposes that 25 percent of the federal 
budget should be spent on education, and 10 percent on health 
care. It advocates an overhaul of the pension system and the 
creation of a social security system. 
 
 
Nigeria Airways in Trouble Again 
-------------------------------- 
12. (U)  Nigeria Airways Limited (NAL), the country's 
problem-ridden national airline, temporarily halted flights 
to New York on December 27, leaving hundreds of passengers 
stranded in Lagos. NAL grounded flights after Air Atlantic 
Icelandic (AAI), the company that leases and operates the 
Boeing 747 that flies to New York, refused to fly the route 
until NAL paid a past-due $10 million bill, according to NAL 
Legal Advisor Arobo Kalango. Sources report that the Minister 
of Aviation suspended payments on the AAI lease. Separately, 
Chief I.E. Awodu, Technical Assistant to the Minister of 
Aviation, and Dr. O.B. Aliu, Director of Air Transport 
Regulation, Nigerian Civil Aviation Authority (NCAA), said 
the NAL Lagos to New York flight will likely be grounded 
after their airplane leasing contract with Air Atlanta 
Icelandic ends on January 19. Virgin Atlantic Airlines has 
agreed to honor stranded passengers' tickets. 
 
 
13. (U) NAL's soon to expire contract with AAI began after 
South African Airways (SAA) pulled out of a joint-venture 
agreement in March 2002, citing lack of profitability. NAL 
officials recently went to South Africa to discuss the 
possibility of renewing cooperation with SAA instead of 
continuing the current AAI lease. Nigeria cannot fly its own 
planes to the United States because Nigeria lacks Category I 
status, the top safety ranking given by the U.S. Federal 
Aviation Administration. 
 
 
14. (U) The grounding of NAL flights to New York is only one 
of many problems plaguing the airline. At the end of 
December, four top officials resigned, including the Managing 
Director, who reportedly had fallen out of favor with the 
Minister. In December 2002, the government announced a probe 
into how $400 million disappeared from NAL coffers between 
1983 and 1999, following allegations made against senior 
officials. In September, the Ministry temporarily shelved its 
plans to sell a 49 percent share of the airline to an English 
leasing firm, Airwing Aerospace, after National Assembly 
members and other government officials complained that the 
sale was not transparent. 
 
 
15. (SBU) Comment: Nigeria Airways suffers from years of 
mismanagement and corruption that have left large outstanding 
debts. The company owns only two operational aircraft, down 
from about thirty, twenty years ago. The airline's future is 
reportedly wrapped up in a political battle between the 
Minister of Aviation and a group of northern businessmen who 
support selling NAL to a South African group through a Bureau 
of Public Enterprise auction. A Ministry of Aviation official 
recently told Emboffs that the Airwing deal would move 
forward. Considering the controversy surrounding the deal, 
NAL's problems will most likely be resolved only after the 
April general elections. End Comment. 
 
 
Political Conventions Delay 2003 Budget 
--------------------------------------- 
16. (U) Expectations that the House of Representatives would 
pass the 2003 Budget by January 23 suffered a set back last 
week as the Chairman of the House Committee on Appropriations 
Barau Jibrin announced it would not be possible for the 
committee to work on the budget due to on-going political 
conventions. 
JETER