NIGERIA: ECONOMIC ROUNDUP JANUARY 31

UNCLAS SECTION 01 OF 03 ABUJA 000221

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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