NIGERIA ECONOMIC TIDBITS, JANUARY 2005

UNCLAS SECTION 01 OF 02 LAGOS 000030

SIPDIS

PASS TO USTR

SENSITIVE BUT UNCLASSIFIED

E.O. 12958: N/A
TAGS: ECON NI
SUBJECT: NIGERIA ECONOMIC TIDBITS, JANUARY 2005

Reftel: Lagos 1611


1. (U) This economic update includes:
-- Banking Reform Effort Drives Industry Change
-- Power Sector Reform Bill Signed
-- Recharge Card Import Ban Target Date Extended
-- A Nigerian Success Story: Expanding Cassava
Operations

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Banking Reform Effort Drives Industry Change
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2. (U) Since the July 6 Central Bank of Nigeria (CBN)
announcement of banking sector reforms requiring banks
to have a 25 billion naira minimum capital base by
December 2005, banks have been busy formulating
strategies to meet this goal. With the exception of
approximately ten of the largest banks, most banks will
have to merge with others to meet the CBN requirement.
Investment Bank and Trade Corporation (IBTC) Head of
Trade Finance, Oluwande Muoyo, stated that most merger
candidates are in the partner identification phase. She
added, given that there is only one year left to comply
with CBN requirements, one might expect banks to be
moving into the operational reorganization phase.
However, to ensure safe, strong banks emerge from this
process, management needs time for thorough due
diligence on potential partners. Most banks are still
in the throes of this process.


3. (U) Soon after the CBN announcement, a handful of
banks quickly identified merger partners, and publicly
announced their plans. Yet rumors are beginning to
emerge that at least one of these agreements will fall
through in the coming months. While banking stocks
listed on the Nigerian Stock Exchange have been heavily
traded during the last few months, the banks' overall
stock prices are in decline. Industry observers are
still positive about the CBN directive, believing the
changes will lead to a stronger Nigerian banking
sector. Yet uncertainty continues to be the word of
the day when it comes to the banking sector in Nigeria.
Banks formal consolidation plans were due to the CBN on
Friday, January 7. Post will report on the continued
banking reform process as those plans are made publicly
available.

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Power Sector Reform Bill Signed
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4. (U) On December 20, President Obasanjo signed into
law a long-awaited power sector reform bill. The bill,
heralded as a major tool in rehabilitating Nigeria's
ailing power sector, had been pending in the National
Assembly since President Obasanjo's first term. The
power sector reform bill is expected to create a power
sector regulatory agency to foster and oversee an
enabling environment for private sector participation
in the sector.


5. (U) Media reaction to the signing of the bill was
mostly positive. The law promises to break the
monopoly currently enjoyed by the Nigerian Electric
Power Authority (NEPA),the state-owned power company,
which has utterly failed to deliver reliable
electricity supplies. Nigerians hope the law will pave
the way for the entrance of experienced private sector
power providers to deliver efficient and constant
electricity to residencies and industries. However, it
is not clear if Nigerians are able or willing to pay
the higher tariffs such private sector operators are
likely to charge. (Comment: In 2004, NEPA generated
4,000 MW, though President Obasanjo recently said
10,000 MW was needed to meet average national demand.
The need for private investment in the sector to meet
bourgeoning demand is enormous. Details that emerge
over the next few months regarding the new power sector
regulatory body will play a large role in determining
the private sector's willingness to invest in this now
crippled sector. End comment.)

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Recharge Card Import Ban Target Date Extended
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6. (U) Telecom recharge cards can be imported into
Nigeria until March 31, 2005, the Nigerian Ministry of
Communications (MOC) recently announced. An import ban
on the cards was set to take effect January 1, 2005,
but MOC officials moved the date back, as functioning
local recharge card production facilities do not yet
exist. The MOC expects eight total production
facilities to be operational by the March 31 deadline.
(Comment: We expect some recharge card production in
Nigeria will be possible by March 31, but it is
doubtful that sufficient high-quality production
capability will be functional by then. A card scarcity
situation may arise, as it did June 2004 (reftel). End
comment.)
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A Nigerian Success Story: Expanding Cassava Operations
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7. (SBU) Chris Okeke is a partner in one of the largest
private law firms in Nigeria; he is also the proud
owner of 6000 hectares of cassava farms in four
Nigerian states, including Delta and Kwara States.
Okeke sees his agricultural philosophy as the true path
to sustainable development in Nigeria -- based on hard
work, investment in the land, and self-reliance. Okeke
has never received assistance from sources such as
USAID or other aid agencies. Starting with 150
hectares of land left to him by his father, Okeke built
two cassava processing plants. He soon realized
cassava supply was problematic, and has since focused
on vertical integration, buying the land needed to
guarantee an uninterrupted supply of cassava to his
factories. He is now purchasing land in Oyo State, and
expects to fully supply his processing facilities
within the next two to three years.


8. (SBU) Okeke views numerous business problems endemic
to Nigeria as challenges to resolve using logic. When
faced with numerous "area boys" demanding money, he has
trained and employed them on his farms. His goal is to
reach profitability in the processing facilities, and
then sell off sixty percent of farmland from which he
sources his cassava to farmers he has trained over the
last few years. Okeke believes offering the farmers a
reliable income will allow his plans to succeed, and
this type of investment is the only way for the
Nigerian agricultural sector to get back on its feet.
(Comment: Okeke's initiative is notable, but not widely
known. We will periodically report on other similar
success stories, which demonstrate Nigerian
entrepreneurs working towards reviving the country's
economy, and diversifying its revenues beyond petroleum-
based sources. End comment.)

Kramer