NIGERIA: CHRISTMAS EVE ECONOMIC ROUND-UP

UNCLAS SECTION 01 OF 03 ABUJA 002216

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: EAIR ETRD KISL PTER NI
SUBJECT: NIGERIA: CHRISTMAS EVE ECONOMIC ROUND-UP

SENSITIVE BUT UNCLASSIFIED, NOT FOR PUBLICATION ON THE
INTERNET OR INTRANET.


1. (SBU) Summary: We report another telecommunications
victory for a United States company and another GON milestone
in transparency as CODEM systems won a USD 28 million
telecommunications contract after months of wrangling over
alleged corruption by GON officials and European companies.
U.S. air carrier World Airways, however, is likely to cease
operations to and from Nigeria and the United States on
December 26 as a response to USD 1.8 million in arrears owed
the airline by its Nigerian booking agent Ritetime Aviation.
GON officials' solicitations for holiday cash payoffs are
reportedly making the holiday season expensive for
businessmen and industrialists in the economically depressed
northern city of Kano, making unemployment worse for restless
young Muslims, and a main direct road link between the North
and South, Kogi State's 27-year-old poorly maintained Murtala
Mohammed Bridge has been reduced from four to two lanes of
traffic. End summary.

CODEM Wins USD 28 Million Telecommunications Deal
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2. (SBU) On December 15 the GON awarded U.S.-based CODEM
Systems, and its Nigerian partner Kabtel, a USD 28 million
contract to provide communications equipment to the Ministry
of Communications (MOC). According to Embassy sources, the
MOC originally awarded the contract to the German company
Ferrostaal early this year due mainly to Ferrostaal's several
hundred thousand USD payoffs to MOC officials. After
protests from CODEM and several Embassy advocacy letters on
CODEM's behalf to President Obasanjo, the Office of the
President assigned Oby Ezekwesili, the Senior Special
Assistant to the President on Budget Monitoring and Price
Intelligence Unit, to review the case and conduct a second
bidding round.


3. (SBU) During the December 15 second bidding round at the
Presidency, Ezekwesili chided MOC officials for again
conducting an "unethical and non transparent" bidding
process. Post had a similar experience with the MOC while
advocating for a multi-million dollar Motorola contract
earlier this years. Three bidders, Ferrostaal (German),
Thalys (French) and CODEM, presented bids. The French
company was subsequently eliminated from the process because
it had not secured financing, while Ferrostaal's bid was
nearly USD 4 million more than CODEM's. Ezekwesili, who
prequalified the three bidders on technical grounds, awarded
CODEM the contract based on its low bid price and financial
package.


4. (SBU) Ezekwesili applauded the Embassy for sending Econoff
to the bidding process, quipping that the German and French
Embassies did not seem interested in a transparent bidding
process. Ezekwesili stated several times that Nigerian
business and government have a lot to learn from the United
States. She also said European companies played a major role
in cheating Nigerians out of money in less than transparent
contracts over the years, due mainly to bribes and the GON's
lack of technical and computer expertise. Nonetheless, she
invited all three companies to stay engaged in Nigeria's
telecommunications industry. She advised CODEM and Econoff
that Nigeria will be watching to see if the United States
firm can "deliver" on this contract.

World Airways Likely to Halt Air Service to Nigeria
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5. (SBU) World Airways Vice-President of Operations Robert
DuBois informed Econoff that the airline will likely announce
December 26 that it will at least temporarily cease flight
operations to and from Nigeria and the United States due to
USD 1.8 million in arrears owed the carrier by its Nigerian
booking agent, Ritetime Aviation. World Airways, which began
operating round-trip flights from Lagos to New York, Atlanta
and Houston in mid-2003, reported increasing passenger
numbers and profit potential, but DuBois commented that
Ritetime's arrears "represent a significant financial
exposure, and we (World Airways) must adhere to prudent
financial procedures and practices." Dubois stated that
World Airways is committed to keeping its Nigeria-United
States routes, but he doubts that World Airways can get
another booking agent within 4 to 6 months. World Airways,
which operates USG charter flights and lucrative oil-business
routes into Africa, says it does not have the infrastructure
to ticket in Nigeria and therefore must work through a
booking agent.

6. (SBU) Ritetime's Chairman Peter Obafemi has a checkered
past in Nigerian aviation. For example in 2000, an
Obafemi-led consortium won a GON contract to construct the
National Aircraft Maintenance Center (NAMC) in Lagos.
Embassy sources said Obafemi paid cash up front to former
Minister of Aviation Kema Chikwe and Vice President Atiku in
order to win the bid. The U.S.-based Obafemi then tried to
sell his rights to construct and operate NAMC to several
aircraft maintenance companies, but without luck. Obafemi
had neither the financial nor technical partners to
constructed the estimated USD 500 million NAMC project.

4. (SBU) Comment: Ritetime's failure to pay World Airways is
unfortunate, but European carriers (British Airways, KLM,
Virgin) -- which have recently dropped prices to compete with
World Airways' lower fares -- will welcome the carrier's exit
from the Nigerian market. World Airways officials stated
that its U.S.-Nigeria route was potentially one of the
airline's most profitable. Hopefully a short-term deal can be
reached between World and Ritetime to continue service, but
that seems unlikely for now. With the demise of World
Airways, Air Afrique and Ghana Airways services, the Nigerian
and West African market is under-served and ripe for U.S.
carriers to consider operating direct service from Nigeria to
the United States. End comment.

Kano Atmospherics: Little Cheer During the Holiday Season
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8. (U) With roughly 20 major industries operating, down from
a high of 130 industries in the early 1980s, Kano's
industrial sector decline is stoking unemployment, economic
decay and leech-like corruption. During visits to Kano with
a major Kano-based textile manufacturer and a shoe factory
operator during the Muslim holiday Eid-El-Fitr in November
and in the weeks before Christmas, Econoff visited Kano's
three industrial parks and met with business leaders.
Several business leaders stated that high transportation and
operating costs -- plants must run on generators because the
national power grid constantly cuts out and GON redundant
state and federal bureaucrats needs to be paid off or they
will hinder plant operations -- were their main impediments.
Nigerian products thus cannot compete in quality and price
with imported goods, especially goods brought in illegally,
said one businessman. The Abacha regime decimated industry
in Kano by commandeering plants or simply deporting Kano's
mainly Lebanese/Syrian industrialists, stated a Lebanese
businessman. Since Obasanjo took power in 1999, little has
been done to improve or develop business in Kano, added a
Chinese shoe manufacturer.


9. (SBU) When asked what businessmen do during the holiday
season, a Lebanese businessman said, "hide." The businessman
added that whether it is a Christian or Muslim holiday, all
levels of Kano's mainly Muslim local, state and federal
government officials need to be paid off. A Lebanese
businessman said that this was corruption, but that it is how
business is done in Nigeria. A Lebanese in Nigeria supplying
the Ministry of Education stated that he usually gives a
Minister or Governor USD 5,000 to USD 10,000 around the
Christmas holidays, depending on how important he or she was
to his operation, while other junior officers received about
USD 1,000. Any major business firm has a person dedicated
solely to paying often hundreds of thousands of dollars a
year, he thought, to clear inputs through customs, to ensure
that the police do not seize products to or from the plant,
and to gain security cooperation from restive religious or
traditional leaders in the area who need a new car or
spending money. With Kano sliding into economic decay, the
remaining, mainly foreign, businessmen Econoff met in Kano
said requests for payoffs during the holidays and other
payoffs are causing them to add 25 to 40 percent in their
operating costs for kickbacks. A Lebanese borehole drilling
contractor said she mainly deals with Nigerian brokers who
kick back 50 percent of the contract to state or federal
officials (depending on the project),take a 25 percent cut
for themselves, and employ the Lebanese to do the actual work
for the remaining 25 percent. Everyone makes money, she
stated.


10. (U) The mood among all Kano businessmen Econoff spoke
with was pessimistic. While admitting there is still a lot
of money to be made in Nigeria, the businessmen pointed out
that foreigners operate almost all major industries in Kano.
Nigerian-owned businesses such as the Dangote group are all
well connected to the ruling PDP party through cash
contributions for which they benefit from import bans on
foreign products, i.e., cement. Kano's decline, in part, can
be attributed to payoffs and business leaders being too close
to members of the ruling elite who fall from power, concluded
a Lebanese businessman. But Nigeria needs Lebanese
industrialists just like the rest of West Africa, a
businessman said, withot whom Nigeria would not produce
anything except oil. A Lebanese merchant, born in Nigeria
with a Nigerian passport, concluded that the GON's biggest
mistake was not allowing all its citizens to participate in
politics and government. "Nigerians will never accept me as
a citizen", he said, "so we (Lebanese, Indians, Chinese) are
here to make money and work within this system".


11. (SBU) Comment: The North's economic decline bodes ill for
the thousands of young men and women graduating from
universities and secondary schools yearly only to be
unemployed or underemployed. Urban unemployed youth have
sparked major outbreaks of religious violence in both Kano
and Kaduna since 1999. Further economic decay in Kaduna,
Zaria and Kano seems unavoidable in the near term. End
comment.

Main North-South Link Threatened
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11. (U) One of the most important bridges connecting northern
Nigeria to the South and East, Kogi State's 27-year-old
Murtala Mohammed Bridge is in such poor structural condition
that it is disrupting transportation and commercial links.
The bridge near Lakoja, the only way across the river for
traffic from Lagos to the north, has been reduced from four
lanes to two because of numerous missing steel expansion
joints and car-sized pot holes that have weakened the
structural integrity of the span. GON officials stated that
the Ministry of Works plans to reinstall lights to make the
bridge safer at night. However, a Ministry of Work officials
stated that a new bridge will likely be constructed in the
"near future" under a Build, Operate and Transfer (BOT)
arrangement. In the meantime, the Ministry will use money
collected from bridge tolls to repair the existing structure.


12. (SBU) Comment: The poor condition of the road south from
Abuja coupled with the bridge's reduced capacity have caused
over 200 accidents in the month of November alone. With
Nigeria's rail system in disrepair, almost all trade from
South to North goes by this dangerous road and bridge, adding
further costs to Northern consumers and travelers. It is
unlikely that the Ministry of Works can do the necessary
repairs on the bridge using meager toll collections. The GON
has proposed a 1.5 Naira per liter tax on gasoline for road
improvments, but perhaps only a collapse of the bridge will
spark the necessary GON funding for bridge repairs. End
comment.
Roberts