US embassy cable - 03ABUJA495

UNCLAS SECTION 01 OF 02 ABUJA 000495 
 
SIPDIS 
 
 
STATE FOR AF/W 
STATE PASS OPIC, TDA, AND EXIM 
STATE PASS USTR AND DOT 
COMMERCE FOR ITA/MAC 
STATE PASS USTR 
 
 
E.O. 12958: N/A 
TAGS: PGOV, KCRM, EINV, BEXP, EFIN, ETRD, KPRV, ECON, NI 
SUBJECT: NIGERIA: ECONOMIC ROUNDUP MARCH 13 
 
 
REF: ABUJA 257 
 
 
1. This periodic economic report from Abuja and Lagos 
includes: 
--GON Bans Import of Toothpicks, Water, Biscuits, Spaghetti, 
and Noodles 
--Obasanjo Sacks Author of Controversial Audit Report 
--Central Bank Warns of Excess Liquidity 
--Nigerian Customs Posts Banner Year 
--GON to Sell Steel Rolling, Palm Oil, and Brick Firms 
 
 
GON Bans Import of Toothpicks, Water, Biscuits, Spaghetti, 
and Noodles 
--------------------------------------------- ------------- 
2. With the elections approximately six weeks away, bad 
economic policy has become a good way to garner votes. As a 
consequence, protectionism seems to be governing the GON's 
course for now. At a recent campaign stop, President Obasanjo 
stated, "For a start, we are going to ban the importation of 
tooth-picks, bottled water, biscuits, spaghetti and noodles 
and every six months, we will meet to look at other things we 
can ban to encourage local production. It is unacceptable 
that we spend up to $13 million to import toothpicks and up 
to $30 million to import bottled water." 
 
 
3. Chief Economic Advisor Magnus Kpakol confirmed the press 
report, but declined to offer immediate comment. Meanwhile, 
Econoff in Lagos obtained a copy of a customs circular dated 
March 3 banning, with immediate effect, the import of 
"toothpicks in any form, table drinking water (spring or 
sparkling), all types of biscuits, and spaghetti and 
noodles." Post will report further on these bans Septel, 
including an assessment of their impact on U.S. exports to 
Nigeria. 
 
 
Obasanjo Sacks Author of Controversial Audit Report 
--------------------------------------------- ------ 
4. The GON announced February 12 it would not extend Vincent 
Azie's tenure as Acting Auditor General of the Federation. In 
January, Azie had authorized the release of the 2001 Audit 
Report that contained a list of allegations of billions of 
naira of financial impropriety and other malfeasance in the 
management of public accounts by the three arms of government 
(Reftel). President Obasanjo had directed all Ministries to 
explain to the National Assembly the anomalies identified in 
the document. However, many Ministers publicly and privately 
condemned Azie for grandstanding and seeking to embarrass 
them. Apparently, the angry voices of these red-faced 
officials were heard when it came time to decide on Azie's 
extension. 
 
 
5. Joe Ajiboye, bypassed for the job six months ago, was 
named Azie's replacement. Ajiboye is a Yoruba, like Obasanjo, 
and the Senate refused to confirm him over concerns that 
there were already too many Yoruba in senior GON financial 
positions. (Note: The Central Bank Governor and Accountant 
General are also Yoruba. End Note.) Minister of Finance Adamu 
Ciroma claims the GON is putting Ajiboye forward again based 
on the recommendation of the Civil Service Commission, which 
gives Ajiboye an edge over Azie because Azie faces mandatory 
retirement in October. However, Ciroma also said "What the 
former Auditor-General did was gross insubordination and 
incompetence," hinting that there may have been more to the 
decision than retirement plans. 
 
 
6. Comment: Over the past two weeks, there has been some 
public unhappiness over Azie's removal, with many newspapers 
criticizing the move, saying it will deter whistle blowers 
from stepping forward. Many Embassy contacts say that the 
charges of incompetence are unfounded. Meanwhile, the 
National Assembly has kept quiet about the report, and is 
unlikely to look at it seriously until after elections, if at 
all. Unless the GON produces evidence to support the 
assertion of insubordination, public confidence in the 
probity of public officials will not be enhanced by Azie's 
dismissal. End Comment. 
 
 
Central Bank Warns of Excess Liquidity 
-------------------------------------- 
7. The Central Bank of Nigeria (CBN) recently warned that 
inflation might increase in 2003 because of higher government 
spending. CBN Governor Joseph Sanusi said in a speech before 
the Bankers' Committee that while the naira remained 
relatively stable at 126 to 128 to the dollar and the CBN 
hard-curreny reserves had rebounded by the end of 2002, 
excess liquidity would be a problem in 2003. He predicted 
that, based on past election-year experience and the 
government's current fiscal policy, the CBN would find it 
difficult to manage liquidity and maintain macroeconomic 
stability in 2003. 
 
 
8. Sanusi also noted that in 2002, private sector lending 
rose by 22.6 percent, compared to 43.5 percent the previous 
year. The smaller increase in lending, he said, contributed 
to the slowdown in economic growth for 2002. The CBN reported 
real GDP growth of 3.3 percent for the year, compared to 3.9 
for 2001. At the same time, the CBN reported that inflation 
moderated to approximately 13.2 percent for 2002, down from 
18.9 the previous year. (Note: The IMF reported there was a 
real GDP contraction of 0.9 percent over 2002. The IMF figure 
seems more realistic. End Note.) 
 
 
Nigerian Customs Posts Banner Year 
---------------------------------- 
9. The Nigerian Customs Service (NCS) posted record revenues 
for 2002, according to Customs Comptroller-General Alhaji 
A.A. Mustapha. NCS collected N184.39 billion for the year, 
slightly surpassing the target of N180 billion. Mustapha 
credits the surplus to enforcement of the 100 percent 
examination regime and greater and more effective 
anti-smuggling efforts. 
 
 
10. Comment: In addition to mandatory examinations and 
contraband raids, Customs' revenue collection benefited from 
protectionist GON trade policies enacted over the last year. 
High tariffs, value added taxes, and additional levies on 
certain imports such as sugar all add to the government 
coffers, at the expense of importers and consumers. Arguments 
in favor free trade and AGOA benefits are easily drowned out 
by some GON officials and economic advisors who view higher 
duties and import surcharges as a good source of federal 
revenue and beneficial to local industry. End Comment. 
 
 
GON to Sell Steel Rolling, Palm Oil, and Brick Firms 
--------------------------------------------- ------- 
11. The Bureau of Public Enterprises (BPE) informed Post 
February 19, 2003, that it is seeking core investors to 
submit expressions of interest to buy (1) 51 percent shares 
in three steel rolling mills, (2) 70 percent shares in two 
palm oil processing mills, and (3) 100 percent shares in 
seven brick manufacturing firms. Further information may be 
obtained at www.bpeng.org. 
JETER