NIGERIA: ECONOMIC ROUNDUP JUNE 13

UNCLAS SECTION 01 OF 03 ABUJA 001026

SIPDIS


STATE FOR AF/W
STATE PASS OPIC, TDA, AND EXIM
STATE PASS USTR
COMMERCE FOR ITA/MAC


E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV EAIR EPET NI
SUBJECT: NIGERIA: ECONOMIC ROUNDUP JUNE 13

REF: A. LAGOS 524

B. ABUJA 576

C. ABUJA 440



1. (U) This periodic economic report from Abuja and Lagos
includes:
--Obasanjo Highlights Economy in Inaugural Speech . . . But
Disputes Poverty Figures
--Obasanjo Holds Off Naming Cabinet
--GON Bans Import of Baryte, Mineral Used for Oil Drilling
--World Airways Lands in Lagos
--Parallel Market Exchange Rate Premium Widens
--Central Bank Buys U.S. Equipment


Obasanjo Highlights Economy in Inaugural Speech . . .
-------------- --------------

2. (U) In his May 29 inaugural speech, President Obasanjo
highlighted corruption, infrastructure, power supply,
industrialization, agriculture, healthcare, and education as
key issues for his next term.



3. (U) On corruption, the President said he would strengthen
the Independent Corrupt Practices Commission Act to improve
the handling of corruption cases in court. He pledged to
construct more roads and better maintain existing ones and
said his government aims to increase electrical generation to
at least 10,000 megawatts a day by 2007. (Note: Current
installed capacity is 6,000 megawatts a day; however, output
as of January 2003 fluctuated from around 3,000 to 4,000
megawatts a day. End Note)



4. (U) Privatization and assistance to small and medium
enterprises would be the focus for industrialization policy,
Obasanjo stated. For the agricultural sector, the President
said achieving food security through increased crop and
livestock productivity would be the priority. The President
also stressed the importance of better marketing strategies
to improve returns for farmers.



5. (U) The President said more resources will go to hospitals
and healthcare delivery systems, while in education the GON
will focus on refurbishing educational institutions and
implementing the World Bank's $101 million Universal Basic
Education Project.


. . . But Disputes Poverty Figures
--------------

6. (U) At a May 28 Children's Day event in Abuja, President
Obasanjo disputed claims that 70 percent of Nigerians are
living in poverty, declaring that such claims by economists
do not reflect reality. Obasanjo said, "I was told that in
1992 it was 42 percent of Nigerians and in 1996, it jumped to
70 percent. I don't believe it . . . but if I had been
informed that it was 42 per cent before the (July 2000 to
October 2001 IMF) Structural Adjustment Program, and after
SAP it jumped, I would gladly have accepted it."



7. (U) While contesting the poverty figure, Obasanjo
acknowledged "intolerable poverty among our people both in
rural and urban areas." However, he said that despite rural
poverty, "people in villages eat relatively well and also
have schools to send their children to, have feeder roads and
dispensaries at their disposal at certain levels."



8. (SBU) Comment: Obasanjo's questioning of poverty
statistics and readiness to blame the IMF was an unfortunate
statement made for domestic political consumption. Coming on
the eve of his inauguration, Obasanjo may have been
attempting to shield his previous administration from blame
for the Nigerian economy's poor performance and lack of
progress in poverty alleviation. The attempt to shift blame
is understandable but not very helpful. However, while
Obasanjo may disagree with the actual poverty figures and
grumble about the IMF, he knows that poverty is a huge
problem and economic growth is a must. The priorities he
outlined in his inaugural speech are useful steps to
alleviate poverty and in line with the Mission's economic
policy recommendations. End Comment.


Obasanjo Holds Off Naming Cabinet
--------------

9. (U) The President said he will hold off on formally
announcing his new Cabinet until the National Assembly
reconvenes on June 24. Meanwhile, Abuja is buzzing with
speculation on who will get what roles on Obasanjo's new
economic team.



10. (SBU) Ngozi Okonjo-Iweala, a Vice President at the World
Bank, is being considered for the top position at the
Ministry of Finance. Okonjo-Iweala, educated at Harvard and
MIT, has been with the World Bank since 1982. In 2000, she
took time off from the World Bank to assist President
Obasanjo in establishing a Debt Management Office. Mission
contacts say Okonjo-Iweala has asked Obasanjo to appoint
Charles C. Soludo as Chief Economic Advisor. Soludo, now
Executive Director of the African Institute for Applied
Economics, has consulted extensively for multilateral
development organizations as well as USAID. Magnus Kpakol,
the President's former Chief Economic Advisor, has confirmed
that he will hold a new position devoted exclusively to
poverty alleviation.



11. (SBU) Saidu Samaila Sambawa, who lost the Kebbi State
governor's race as the PDP's candidate, appears to be slated
to head the Ministry of Agriculture. Sambawa is an
accountant, banker, and international businessman who holds a
Master's Degree in Business Administration from the
University of Wales. Recent press reports, however, indicate
that Sambawa may be upstaged, as PDP Chairman Audu Ogbeh is
rumored to be interested in the job.



12. (SBU) Julius Ihonvbere is rumored as the new Minister of
Petroleum Resources. The new portfolio would oversee Nigerian
National Petroleum Corporation (NNPC) and manage the
country's participation in OPEC. Ihonvbere is a political
economist who worked from 1999 to 2002 at the Ford Foundation
in New York. He returned to Nigeria June 2002 and was
appointed head of Nigeria's Bitumen Implementation Commission.


GON Bans Import of Baryte, Mineral Used for Oil Drilling
-------------- --------------

13. (U) On May 14, GON Minister for Solid Minerals Modupe
Adelaja announced an import ban on baryte, a mineral form of
barium sulphate. Baryte is used in oil well drilling to
counter-act the force of oil and gas when released from the
ground and prevent their explosion. The mineral is abundant
throughout Nigeria, according to the Ministry for Solid
Minerals, and is mined in small quantities.



14. (SBU) Oil industry contacts tell Econoffs the ban has
actually been in effect for a year. They say that for a fee
they have been able to get exemptions from the ban so that
they can import enough baryte to continue drilling.


World Airways Lands in Lagos
--------------

15. (U) World Airways, inaugural flight from Atlanta arrived
in Lagos May 29, ending the Mission's five-month advocacy
campaign on the airline's behalf to ensure the GON honored
our Open Skies Agreement (Refs. A and B). At the arrival
ceremony, Consul General Hinson-Jones highlighted the U.S.
role in bolstering safety and security at Nigerian airports
and lauded the importance of improved passenger and cargo
links between the two countries. World Airways officials
commended Mission advocacy efforts during the event.



16. (SBU) Comment: World Airways' and its booking agent
Ritetime Travel's inexperience in Nigeria complicated their
efforts to obtain landing rights. In early January, World
advertised service from the United States to Nigeria without
consulting Minister of Aviation Kema Chikwe. Slighted by the
presumptive announcement, Chikwe stalled the airline's
approval. The logjam was broken only when Ambassador Jeter
raised the matter with President Obasanjo. World Airways--now
positioned to profit from the lucrative U.S.-Nigeria cargo
and passenger routes, will fly weekly from New York, Atlanta,
and Houston into Lagos. End Comment. (Note: Several press
reports indicate that Kema Chikwe will not return to the
Ministry of Aviation, probably true because she demonstrated
very little political drawing power in her home state of Imo.
End Note.)


Parallel Market Exchange Rate Premium Widens
--------------

17. (U) The Central Bank reports that the naira held steady
against the dollar in April, falling by 8 kobo to 127.77
naira per dollar from the March average. Meanwhile, the naira
depreciated by 1.75 naira to the dollar in the parallel
market, falling to 138.75. That depreciation widened the
parallel market premium from 7.6 to 8.5 percent. The naira
held steady against the dollar in May, closing the month at
127.82 in the official market and 139.50 in the parallel
market. Meanwhile, the Central Bank reports that external
reserves stood at $9.4 billion at the end of April, up from
7.4 billion just six months ago.

18. Comment: In keeping steady with the U.S. dollar, the
naira has weakened against the euro, falling from about 137
naira to the euro at the beginning of March to about 152 by
the end of May. As a result, imported European goods are
noticeably more expensive. It is unclear to what extent
inflation, down to a 10.6 percent yearly rate in April, will
reflect these price increases. Meanwhile, U.S. suppliers may
exploit a price advantage over their European competitors if
exchange rates remain steady. End Comment.
Central Bank Buys U.S. Equipment
--------------

19. (U) In April 2003, Currency Systems International (CSI),
a Dallas-based subsidiary of U.K.-based currency printing
company De La Rue Systems, sold three high-speed banknote
sorting machines worth $3.43 million to the Central Bank of
Nigeria. CSI hopes for more sales to the Central Bank and
plans to provide service and training contracts to the
Central Bank in the near future. In making the sale, CSI
broke a 13-year monopoly held by a German firm on sales of
printing and sorting equipment to the CBN.



20. (SBU) CSI and De La Rue's Nigerian representatives,
Interprods Ltd. of Lagos, tell Econoff that the Central Bank
is poised to acquire more printing and sorting equipment
later this year. In addition to banknote printing and sorting
equipment, the Central Bank would require new coin pressing
and sorting equipment that Interprods says it may source from
the United States.



21. (SBU) Comment: Nigeria is a cash-based economy, and the
500 naira note is its highest denomination. This note is
worth approximately four dollars, making large-scale
transactions very cumbersome (Ref. A). A 1,000 naira note
would simplify things to a degree. The Central Bank had plans
to introduce such a note, but recently scrapped the idea
citing inopportune economic conditions. For now, economists'
concerns that a 1,000 naira note could encourage inflation
apparently have bested consumers' demands for convenience,
but the issue will likely be revisited in the next few years.
End Comment.
JETER