NIGERIA ECONOMIC UPDATE, JANUARY 2005

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

Reftel: Lagos 1611


1. (U) This economic update includes:
-- Banking Reform Effort Drives Industry Change
-- Power Sector Reform Bill
-- 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 that require
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 the ten 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 told us recently that
most merger candidates are identifying prospective
partners. She added one might expect banks to
reorganize their operations soon, given that there is
only one year left to comply with the CBN's
requirements. To ensure that safe, strong banks emerge
from this process, management needs time to complete
due diligence on potential partners. Most banks are
still engaged in 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, bank share prices
are in decline. Although industry observers are still
positive about the CBN directive, believing the changes
will lead to a stronger Nigerian banking sector,
uncertainty remains the word of the day when it comes
to the banking sector in Nigeria.

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Power Sector Reform To Be Signed Soon?
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4. (U) President Obasanjo may soon sign a long-awaited
power sector reform bill into law. Awaited as a major
tool in rehabilitating Nigeria's ailing power sector,
the bill had been pending in the National Assembly
since President Obasanjo's first term. The power sector
reform act will establish a power sector regulatory
agency to foster and oversee an enabling environment
for private sector participation in the sector.
(Comment. The power that will be given the new
regulatory body will play a large role in determining
whether private sector firms will invest in this now
crippled sector. End comment.)


5. (SBU) The law promises to break the monopoly enjoyed
by the Nigerian Electric Power Authority (NEPA),the
state-owned power company, which has utterly failed to
deliver reliable electric power. Nigerians hope the
law will encourage private sector suppliers to deliver
efficient and constant power to residences and business
firms. (Comment: In 2004 NEPA generated 4,000 MW at
peak capacity output. President Obasanjo recently said
10,000 MW is needed to meet average national demand.
The need for private investment in the sector is thus
enormous. End comment.)

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Recharge Card Import Ban Target Date Extended
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6. (SBU) The Nigerian Ministry of Communications (MOC)
recently announced that rechargeable telephone calling
cards may be imported into Nigeria until March 31,

2005. An import ban on the cards was set to take
effect January 1, 2005, but MOC officials have not
implemented the ban, as functioning local recharge card
production facilities do not yet exist. The MOC
expects eight production facilities to be operational
by the March 31 deadline. (Comment: We expect some
recharge card production in Nigeria by March 31, but
doubt that much high-quality production capability will
be available by then. Cards could once again be in
short supply, as they were in June 2004 (reftel). End
comment.)

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A Nigerian Success Story: Expanding Cassava Operations
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7. (SBU) Chris Okeke, a partner in one of the largest
private law firms in Nigeria, also cultivates 6000
hectares of cassava in four Nigerian states including
Delta and Kwara States. Taking advantage of 150
hectares of cassava under cultivation that his father
had left him, Okeke built two processing plants before
realizing that the supply of cassava was problematic.
He has since been integrating vertically, buying land
to ensure an uninterrupted supply of cassava to his
factories. He is now purchasing land in Oyo State, and
expects to supply fully his processing facilities
within the next two to three years.


8. (SBU) Okeke considers his agricultural philosophy --
hard work, investment in the land, and self-reliance --
the underpinning of sustainable development in Nigeria.
He views the numerous business problems as challenges
to be resolved using logic. A while back, for example,
when "area boys" (unemployed thugs) demanded money, he
trained and employed them on his farms. He said he
seeks to profit from his processing facilities, and
then sell sixty percent of the farmland he cultivates
to farmers he has trained over the last few years.
Okeke said offering the farmers the prospect of a
reliable income is the only way to revive Nigeria's
agricultural sector. (Comment: Okeke's initiative is
notable, but not widely known. We plan to report other
success stories showing Nigerian entrepreneurs
diversifying Nigeria's economy. End comment.)

KRAMER