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01ABUJA1312 2001-06-13 07:00:00 CONFIDENTIAL Embassy Abuja
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					  C O N F I D E N T I A L SECTION 01 OF 06 ABUJA 001312 


E.O. 12958: DECL: 06/11/2011

Classified by Ambassador Howard F. Jeter, reasons 1.5 (B/D).

1. (C) Summary. At the halfway mark of his Presidency,
Olusegun Obasanjo struggles to rebuild long-neglected
institutions, restore public confidence, and jump-start the
economy through deregulation and increased investment.
Obasanjo's progress toward vital political and economic
objectives is slowed by ingrained statist tendencies, a
complex political climate with significant regional and
ethnic tensions, wide-spread rent-seeking, corruption at all
levels of government, and the allure of international
diplomacy. The formal political "transition" from military
to civilian rule is basically achieved, but a timely economic
transition to a productive market economy rooted in rule of
law remains problematic. Although the President says his
greatest accomplishment has been "to substitute hope for
despair," we see sparse evidence that hopefulness is broadly
on the rise, but, rather, rising prices and the lack of a
visible "democracy dividend." He has governed well beyond
the bare six months some observers gave him in May 1999, but
both average Nigerians and political elites little understand
the time needed to effect fundamental change. Their
impatience stokes opposition within and beyond the ruling
party. The prospect of a second Obasanjo term is now an open
question. End summary.

A Quick Start?


2. (U) As a retired general and former military Head of State
acceptable both to the military establishment and to Northern
elites, Obasanjo, a Yoruba from the Southwest, wasted no time
in putting his stamp on the Fourth Republic. Immediately upon
taking office he retired hundreds of military officers who
had held political positions and chose a new set of military
Service Chiefs. He also instituted review panels for human
rights violations, failed contracts, and dubious oil-lifting
agreements. His carefully balanced Cabinet, vetted by the
Senate for regional and ethnic composition, took office a
month later, following rigorous and spirited sessions on
government ethics and the development goals of the
Administration. His hand firmly on the governmental tiller,
Obasanjo appeared poised to put his programs quickly into
place, including needed economic reforms.

3. (C) Instead, he stumbled. While President Obasanjo has
been a tireless national leader with his eye on an endless
series of issues (and he has a cadre of talented, ambitious,
and pragmatic political operatives at his service) he is no
master of the smoke-filled room. Key policy initiatives were
launched without proper preparation (primary example: the
unilateral and failed bid to raise fuel prices in the summer
of 2000). In a self-seeking political environment where
back-scratching and going-along-to-get-along are essential
political tools, Obasanjo often came across as the stern
schoolmaster laying down the law to unwilling pupils.

4. (C) Obasanjo developed a tense and testy relationship with
the National Assembly. An often contemptuous President
jousted almost daily with resentful Senators and
Representatives. While the President indulged in contests to
install or unseat National Assembly leadership, his first
full budget proposal languished, as did other initiatives.
As advised by the IMF, Obasanjo exercised tight control over
the national budget that did finally pass, but legislative
critics decried his refusal to spend funds duly appropriated.
The Universal Basic Education Scheme and the Poverty
Alleviation Program, both launched with much fanfare in 2000,
took little account of constituent interests, and generated
much avoidable opposition and ill-will among the 36 state
governors. The former was ultimately reworked, and the
latter quietly scrapped and replaced.

5. (C) Regional tensions surfaced with brutal suddenness in
1999 and 2000. The Obasanjo Administration intervened
immediately with security forces, sometimes ham-handedly,
sometimes in a more measured manner, but made no apparent
efforts to ease the underlying sources of conflict. Many
lives were lost, with Nigeria's social fabric considerably
strained, and its rising international reputation besmirched.
A wave of Sharia "reforms" in the North, and the advent of
para-military bands in the Southwest and Southeast, increased
the sense of a Nigeria drifting toward ever-greater division
and discord without significant policy positions or bully
pulpit remonstrations from the Executive. The Obasanjo
Administration seemed devoid of any sense for useful public

Turning a Corner?


6. (C) However, by January of this year, Obasanjo had largely
repaired his relations with the National Assembly. The 2001
budget had passed with relatively little discord. The Niger
Delta Development Commission (NDDC) and the Anti-Corruption
Commission had been statutorily erected. Funds began to flow
for capital projects, and ethnic tensions appeared to slacken
as government monies created "jobs" for restive "youths."
Growing challenges to the existing federal revenue sharing
formula and endless political machinations regarding the 2003
elections did not threaten the cohesion of the nation;
rather, they called into question the centralized nature of
Nigeria's government structure, and the ability of the GON to
make rational decisions.

7. (C) His third year underway, Obasanjo still bestrides the
national stage, although the nation's 36 governors, and a
host of nascent political movements, threaten both his hold
on the national agenda, and his chances for a second term (he
is officially mum on the subject). He retains his
international prestige as the leading African statesman, and
Nigeria's role in continental peacekeeping and diplomatic
activism remains largely unchallenged at home and applauded

The Economy: Some Reform, Some Growth, But Much Undone



8. (C) Economic performance in 2000 and 2001 was mixed.
Limited reforms have not stimulated significant growth or
investment. Expansion in the economy in 2000 was barely
enough to keep up with population growth. At best, a very
small democracy dividend has been realized, one far too small
to register with most Nigerians. Moreover, a large
"dividend" is unlikely when so much of the economy remains in
State hands and budgets are devoted to prestige projects
rather than poverty alleviation and growth. A private sector
assessment shows that Nigeria is one of the most difficult
places in the world to do business. The oil sector remains
productive, but the rest of the economy is depressed.

9. (C) A host of impediments bedevil the Nigerian political
economy: pervasive poverty and massive unemployment; a lack
of personal security; an educational system in shambles;
ethnic and regional polarization; a barely functioning public
health system unable to contend with HIV/AIDS and other
infectious diseases; weak institutional capacity; widespread
corruption and disrespect for the rule of law; decrepit
infrastructure; self-serving and short-sighted demands for
political power and economic benefits; and an ingrained
mindset that looks to government for solutions to every
problem. This is Nigeria's legacy of forty years of
mismanagement and, unfortunately, this is Obasanjo's

10. (C) The 2001 budget, twice the size of the 2000 budget,
far exceeds what can be prudently financed. A large deficit
(as much as USD 1.5 billion) seems assured. Capital
expenditures are three times as great as the year before, and
include many vanity projects and poor policy choices. Yearly
inflation, down to 2 to 4% at the end of 1999, is now
approaching 20% and, by most accounts, accelerating. The
official government exchange rate gyrates dramatically
between 100 to 130 to the dollar. Despite the government's
formal dedication to economic and social renewal, the budget
consistently under-funds primary health care, education,
farm-to-market road construction and other essential elements
of a rational economic agenda.

But There are Bright Spots


11. (C) The government has begun to sell off its inefficient
and bloated parastatals. Fourteen enterprises have been sold
in the banking, cement and fuel-retailing sectors. Nigeria
Airways, vehicle assembly plants, palm oil companies and
fertilizer plants are next. Auction of mobile telephone
licenses was especially encouraging. Emergency repairs to
the generating facilities of the electricity parastatal have
somewhat increased the supply of power ( but the antiquated
distribution system means systemic black-outs continue). The
attempt to liberalize fuel prices, though mishandled, shows
firm recognition of the need to dispense with hugely
expensive subsidies (up to USD 2.6 billion), and the GON
continues to prepare public opinion for "deregulation." The
2000 Stand-by Arrangement (despite its now serious
difficulties) did pave the way for an agreement with the
Paris Club to reschedule Nigeria's debt. Quick, decisive
action now could still pull the economy from the brink of
macroeconomic instability.

12. (C) Reduced expectations in the short-run appear
essential. Solid results, however small, that build capacity
for the longer-term, are achievable. Although ordinary
people may be more willing to give the government the benefit
of the doubt than are opinion leaders, neither group
appreciates the depth of reforms that are necessary, nor the
time required to improve the lot of ordinary Nigerians.
Unrealistic expectations may spark political turmoil and
aggravate economic malaise, undermining the very reforms
needed to make a difference.

Resource Control/Decentralization


13. (C) Virtually all 36 state governors, North and South,
advocate a redistribution of national resources, with more
funds flowing to the states and local governments, and less
being retained by the national government. Exactly how to
achieve this is another story entirely. Northern governors,
although in agreement on the need to redraw revenue-sharing
formulas, are no great friends of the call for local resource
control. If the Southern governors win local control, then
the federal revenue will consist of not much more than
customs receipts, VAT, and income tax, all very minor sources
of funds. Although some Northern governors make brave noises
on local resource control, in the end the Northern governors
appreciate that their budgets would essentially evaporate
should federal oil revenue end. The on-shore and off-shore
revenue argument is again a cause of unease among
Northerners, for greater "derivation" (for oil-producing
states) means less federal revenue to be split 36 ways.

A New Ruling Class?


14. (C) A new class of politically astute governors offers
the prospect of significant alterations to Nigeria's
political economy. Nearly all state treasuries were empty
in May 1999. Many states were also deeply in debt. Two
years on, debts paid, and (in at least some states) bloated
work forces reduced, they are now able to employ the
significant resources they receive from the "federation
account" for something other than debt reduction and payment
of salaries. Some are making real strides toward meeting
the needs of their people. Anecdotal accounts indicate that
many are drawing on state funds to build campaign war chests.

15. (C) The nation's governors have banded together to press
Abuja for more police and anti-crime machinery, movement on
infrastructure development, a greater role in national
educational and health policy, and a host of other issues.
Many governors have proven adept and creative in managing
their budgets and resources and forming alliances with their
fellow state executives. Northern executives may be
distracted over Sharia and more statist than Southern
colleagues in their outlook on the national economy. The
bulk of the nation's private industry is in the South.
Subsidies, programs and employment from the federal
government are not easy to part with. But they continue to
seek alliances of convenience with their Southern
counterparts, as all share a strong interest in reducing
federal power. With a President preoccupied with debt
relief, ECOWAS affairs, an endless string of foreign visitors
and his own extensive foreign travel, the governors quietly
solidify their political gains -- and their political power.

New Parties, New Opposition


16. (C) New political "formations" arise almost weekly. So
far unregistered by the Independent National Electoral
Commission-INEC), they contend for membership and resources
amongst themselves and with the three registered political
parties. These parties' leaders quietly oppose new party
registration but face strong internal opposition. Splinter
factions in all three political parties, the ruling PDP
(People's Democratic Party), APP (All People's Party), and AD
(Alliance for Democracy), sense opportunity and potential
political safehaven in these new formations, as do many state
governors. If the new groups succeed in registering for
election 2003, the end result could be a wide open electoral

17. (C) The National Assembly is reviewing INEC's draft act
setting basic ground rules for elections. Several of the new
political groupings have announced a refusal to abide by this
proposed act, which is required by the Constitution, but
this, if taken seriously, would lead to electoral chaos.
Legislators would prefer to take their time to sort out their
political options (and, perhaps, prevent or delay new party
registration). But INEC must begin essential preparations
quickly. Local elections are now less than a year away (and
will be run by state INECs, another headache for the national

Niger Delta


18. (C) Some believe the Delta needs only a few honest
brokers to mend tribal fences and restore hope for economic
development; yet there seem none to be found. The indigenes
distrust and resent government officials, oil companies,
tribal chiefs, youth group leaders, and self-appointed
conflict resolvers. Attempts to buy peace with short-term
handouts are no real solution. Tribal chiefs and clan
leaders sacrifice truth on the altar of political expediency
(behavior not unknown outside the Niger Delta). Although
ethnic tension has not lately approached the levels seen in
late 1999, the area still seethes with resentment and the
potential for turmoil. The NDDC has been formally
established to build basic social infrastructure in the
South, but the NDDC statute saddles it with the staff,
liabilities, and unfinished business of OMPADEC, its failed
predecessor. With this burden of past governmental folly,
the NDDC will make slow and painful progress.



19. (C) Ethnic and tribal ferment in the South-South has
been matched by a Sharia crusade in the North. Profound
misunderstanding seems often seem inevitable on this divisive
issue. Sharia reform is a broadly grassroots movement, the
mom-and-apple-pie of the North, that no Northern elected
leader can oppose. Yet, by and large, Northern governors and
Emirs feel little sympathy for it. A truly Sharia-based
society would establish a rival system of social and
political control. Those responsible for decades of misrule
and theft of resources (grasping Northern politicians and
complacent Emirs) would not last long. Sharia for most
politicians in the North is something to placate the Northern
masses, who (like the Southern masses) increasingly want a
democracy dividend, justice for the poor and better living

20. (C) Only two Northern governors have shown real personal
commitment to the imposition of criminal Sharia, Governor
Kure of Niger State, a pious Muslim, and Governor Sani of
Zamfara State, a skillful and amoral demagogue. All eight
far Northern states have now adopted some form of enhanced
criminal Sharia, as has Niger State just to the south.
Virtually all these states have limited themselves to
essentially cosmetic changes, reinforcing bans on alcohol,
requiring conservative dress in public places, and other
relatively minor dictates. (Zamfara is a special case, with
medieval amputations imposed twice on male thieves, and two
adulteresses caned). Obasanjo's public response has lately
been to studiously avoid commenting on the movement (after
several public statements in 2000 condemning Zamfara's laws
as unconstitutional). Vice President Abubakar seriously
damaged his standing in the North with an ultimately
unsuccessful call on Northern governors to revert to the
"status quo" and refrain from further action on criminal

21.(C) Obasanjo's Rose Garden strategy on Sharia, while
galling to many Southerners, has arguably done no harm. Much
of the early ferment over Sharia reforms has dissipated. He
will likely watch from afar, and hope that Northern governors
(aided by his Northern Vice President, Northern National
Security Advisor, and other Northerners serving in his
Administration) can quietly keep the Sharia reform movement
within non-confrontational channels.

Transparency, Rule of Law, Corruption


22. (C) The war that Obasanjo must wage, and win, is against
public corruption. Nigeria annually contests for the
unenviable rating as the most corrupt nation on earth.
Previous civilian and military regimes institutionalized
public corruption to a nearly unimaginable extent, and the
generally accepted view is that things are no better than
during military rule.

23. (C) The Presidency does not hesitate to lubricate its
political objectives with hard cash. The President generally
stands above the fray, but his political handlers hand out
the pay packets when an important Presidential goal hangs in
the balance. Many of his Ministers are corrupt, and they set
the tone for those serving under them. Corruption in the
courts is as omnipresent as sanctity of contract is absent.
In a society where only money talks, establishing the rule of
law and reforming important public institutions are not
near-term goals. However, convincing the general public that
corruption will not be tolerated is something the GON can

24. (C) The arrest and prosecution of high-level government
officials is the place to start. The new Anti-Corruption
Commission, still organizing, has done no more than pursue
very minor public officials. Although pre-existing laws
forbid public corruption, regular Justice Ministry
prosecutors take little action. Even if his personal
rectitude seems clear, Obasanjo has yet to convince his own
top officials that they will be held liable for corrupt acts.

Reforming the Military -- Civilian Authority Ascendant



25. (C) One bright spot for the nation is the military's
assumption of a more traditional mission of national security
and regional peacekeeping. Well-timed retirements and
reorganizations have side-lined many practitioners of
military old-think. USG training (Operation Focus Relief,
MPRI) demonstrates to the rank-and-file that a proper
orientation wins equipment, training, respect, greater
legitimacy, and professional opportunity. Whether the very
upper ranks accept these opportunities as readily is perhaps
still an open question. The sudden "scheduled" retirement of
Army chief General Victor Malu came after his continuing
obstructionist behavior, behavior that bordered on
insubordination. But we should remember that President
Obasanjo neutralized what we and others expected would be a
real political threat (we recall some of our British
colleagues predicting Obasanjo's demise within six months of
assumption of authority). In fact, the sacking of the
Service Chiefs, which occurred with some predictable protests
from northerners, but not from the military establishment,
represented a watershed in Nigeria's political-military
relations: a clear assertion of civilian authority over the

The Enticements of International Diplomacy


26. (C) Obasanjo has embraced his foreign affairs portfolio,
offering as it does a welcome respite from the rough and
tumble of domestic politics. Periodically legislators and
media commentators allege that Obasanjo's extensive foreign
travels earn Nigeria nothing, and only divert the President
from pressing domestic issues. Obasanjo responds that such
travel is necessary to repair Nigeria's reputation, and win
its rightful place in the world. He can cite re-admission to
the Commonwealth, the conclusion of an IMF Standby Agreement,
the very real prospect of debt relief from the Paris Club,
and USG narcotics certification as examples of the benefits
to be gained from full diplomatic engagement. Obasanjo's
ultimate goal, aside from positively influencing donors and
creditors, is to secure a permanent seat on the UN Security

27. (C) Nigeria's efforts in West Africa are extensive and
widely applauded, and the country continues to be the
dominant player in the sub-region. Obasanjo also seeks or
accepts a role in such disparate African trouble spots as
Burundi, DROC, Sudan, and Zimbabwe. The GON also actively
participates in OPEC deliberations, G-77, the NAM, and other
international fora. Obasanjo has forged a strategic
partnership with President Mbeki of South Africa, and taken a
leading role both in plans for the African Union and in a new
strategy for an African renaissance, the Millenium Action
Plan. However, with little to show in the way of a concrete
democracy dividend for the average impoverished Nigerian,
abstruse issues such as debt relief, Standby Agreements and
African Union may not appeal to voters in 2003.

Two Years Gone: Time for Celebrations?


28. (U) Nigeria marked May 29, 2001, the second anniversary
of civilian rule, as a public holiday. Not, Obasanjo said in
a speech that day, "out of vanity" but from "our unalloyed
commitment" to an "enduring, sustained and sustainable"
democratic transition. He reminded his audience that
democracy is not "an event but a process," and that
"aspirations for immediate dividends," while understandable,
were "unrealistic." Said the President, "even with the best
will and the greatest efforts, the necessary fundamental
transformation is bound to take years to achieve."

29. (C) His analysis strikes us as correct, but not a
sufficient answer to his domestic critics. At the halfway
mark, President Obasanjo's scorecard is decidedly mixed. Has
he succeeded in substituting hope for despair? Not in our
judgment, but he clearly has done better than many expected
two years ago. Have we become more impatient than the
average Nigerian? Surely it is an open question whether
Obasanjo has made enough of a difference to win a second term
in an open and transparent contest. He does have two more
years, and may be able to hinder his opposition through
manipulating political party registration. However, Obasanjo
also faces limited policy running room and an increasingly
complicated domestic political climate. There is some
progress, but hardly enough to improve the plight of 120
million-plus largely penniless citizens.

30. (C) Could Obasanjo have moved more quickly? Given
Nigeria's many deep divisions and enduring problems, probably
not. But in retrospect, had he paid closer attention to
domestic matters, and mounted a more focused effort on issues
of deep public concern, he perhaps could have set the stage
for a stronger second half. The "transition" begun on May
29, 1999 is still a work in progress.

31. (C) All-in-all, however, the situation may not be as bad
as it sometimes seems. Nigerians are enjoying a virtual
renaissance in their constitutional freedoms. They can say
what they like, write what they like, and freely criticize
their leaders. The press is open and free, and a start is
being made in restoring this country's once proud
institutions. The praetorian instincts of the military have
been bridled, and the private sector has gained some ground.
Although still very imperfect, the human rights record is
better than it has been for some time. The trappings of
democracy abound; moreover, Nigeria has regained acceptance
and respectability in the international community. These are
not insignificant gains.