NIGERIA ECONOMIC UPDATE, FEBRUARY 2005

C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 000167

SIPDIS

STATE FOR AF/W
STATE PASS TREASURY FOR ASEVERENS AND SRENANDER
STATE PASS DOC PHUEPER

E.O. 12958: DECL: 10 YEARS
TAGS: ECON NI
SUBJECT: NIGERIA ECONOMIC UPDATE, FEBRUARY 2005

Classified By: Acting Consul General Ronald Kramer per 1.4 (b) and (d)


1. (U) This economic update includes:
-- MTS First Wireless Management Crisis Sends US Citizen
Packing
-- Nigerian Stock Exchange Woos Real Estate Investors
-- Virgin Atlantic Positions Itself for Vmobile Stake
-- Banking Update - Mergers Continue Amidst Sector
Uncertainty

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MTS First Wireless Management Crisis Sends US Citizen Packing
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2. (SBU) MTS First Wireless (MTS),a local telecommunications
company which is 44 percent owned by Atlanta-based MTS Inc.,
last week experienced a hostile management take over
resulting in a near arrest of a US citizen in Nigeria, an
Economic and Financial Crimes Committee (EFCC) investigation,
and uncertainty for the company's future. According to a
deputy manager associated with the previous management
structure, three former company directors became disgruntled
at the prospects of losing their jobs and of their share
holdings being diluted by new investors.


3. (C) The three went to the EFCC with claims of (fraudulent
allocation of shares) and corruption against MTS First
Wireless. However, before the EFCC could get an
investigation underway, one of the takeover managers hired
local police to lock former MTS management out of the
company's Lagos headquarters, arrest MTS board members, and
impound MTS property such as automobiles. One of the board
members was in police custody from January 19 through 24.
Another, an American citizen, told Econoff he averted arrest
by calling the EFCC and alerting them to the local police
interference in the incident. The amcit left Nigeria for the
US indefinitely on January 26.

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Nigerian Capital Market As Real Estate Financing Option
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4. (SBU) Former Nigerian Stock Exchange (NSE) Director
General, Hayford Alile, on January 31 affirmed the NSE
planned strategy to woo real estate developers to the capital
market. Alile told the Nigerian Institute of Estate
Surveyors and Valuers (NIESV) they should turn to the capital
market for long-term debt and equity financing options in
return for shared investment income.


5. (SBU) Interest rates between 20 and 30 percent make
long-term financing for real estate impractical. Real estate
purchases are often paid in their entirety, in cash, at date
of purchase. The average Nigerian is unable to save long
enough to acquire the large sums of cash needed for real
estate purchases. Nicholas Okoye, NSE Head of Strategy and
Derivative Markets, told Econoff the NSE is developing a real
estate (securitization) program to be marketed in late
2005, which will result in more affordable financing for real
estate and potentially bring the NSE a large infusion of
investors and investor options.

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Virgin Atlantic Positions Itself for Vmobile Stake
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6. (U) Press reports that Vmobile, Nigeria's second largest
GSM company has been having talks with Virgin Group, UK,
owners of Virgin Mobile. This follows the breakdown of talks
between Vmobile and Vodacom of South Africa in May 2004.
Vmobile, which has over 1.5 million subscribers, has been
bedeviled by a string of controversies since its management
changeover from former owners, Econet Wireless International,
of Zimbabwe.


7. (SBU) A contact at Vmobile confirmed Virgin Group's
interest in the company, but expressed doubts of a positive
outcome to investment talks between the two companies.
According to them, "talks were held, but we are not too
optimistic",. Contrastly, some industry watchers believe a
Vmobile-Virgin Mobile deal might be brokered by second
quarter 2005, especially since the Virgin Group recently
clinched the deal to operate Nigeria's flag carrier, Virgin
Nigeria.

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Banking Update - Mergers Continue Amidst Sector Uncertainty
-------------- --


8. (U) Access Bank and Ecobank are confident they will meet
the Central Bank of Nigeria (CBN) recapitalization
requirement of 25 billion naira by December 2005. Access
Bank and Ecobank both hope to meet the 25 billion naira mark
by building a base of 10 - 15 billion naira, then to
identify one (similarly-minded) bank with which to merge.
Bismarck Rewane, MD, Financial Derivatives, warns, however,
the (10 plus 15) equation oversimplifies the challenges of
merging banking operations.


9. (SBU) According to Fred Udoaka, Regional Manager, IBM West
Africa, technology integration is the first shoal over which
many merging companies stumble; yet if navigated
successfully, it can be the area where merging banks will
save the most money in the long run. Udoaka expressed
concern that the CBN deadline may not give banks ample time
for integration planning in technology and other operational
areas.


10. (SBU) In separate news, the CBN in December announced
that it is launching a series of investigations into several
banks. The CBN is looking into allegations that banks have
been financing their IPOs by loaning the investment capital
needed to their customers, who later sell the shares back to
repay the loans.

KRAMER