CHINESE BUSINESS CHANGES THE PLAYING FIELD

C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 000215

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DEPT PLEASE PASS TO JAMES WILLIAMS, OPIC
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E.O. 12958: DECL: 02/20/2017
TAGS: ECPS ECON EINV EIND PGOV PREL NI
SUBJECT: CHINESE BUSINESS CHANGES THE PLAYING FIELD


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1. (C) Summary: U.S. firms face "stiff and unfair"
competition from Chinese competitors in Nigeria. In a March
12 meeting, Motorola Managing Director Raphael Udeogu
(protect) said Chinese firms offered a combination of
flexible financing and low product costs, as well as
financial "inducements" in order to win contracts. However,
Nigerian companies complain of partially-completed
infrastructure, poor product quality, and elastic finance
terms. While European firms have long used similar business
practices, the Chinese are unusual for how widespread the
practices have become and the scale of the inducements. End
summary.

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Motorola Competes On An Uneven Playing Field
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2. (C) In a March 12 meeting, Motorola Managing Director
Raphael Udeogu (protect) told Econoff Motorola faced "stiff
and unfair" competition from Chinese firms operating in
Nigeria. Motorola could compete in some instances; in others,
it was forced to cede ground to firms from countries that
have more liberal regulations regarding business pratices and
ethics. Chinese firms often paid "inducements" to Nigerian
authorities and companies in exchange for contracts, he said.
In other instances, Chinese firms offered lower purchase
prices to existing Motorola clients. In the latter case,
Motorola could sometimes compete and retain its contract with
the customer by matching those prices, Udeogu said. While
this decreased Motorola's profit margin, explained Udeogu, it
was fair market competition. Where Motorola could not compete
was in the former scenario, in which Chinese firms
essentially bought contracts, he stated.


3. (C) Udeogu explained that Chinese firms have been
successful in obtaining contracts because they promised
competitive financing and products whose quality matched that
of Western companies. However, these promises were often not
delivered, claimed Udeogu. The installation of infrastructure
was partially completed or the attractive financing would
become unavailable. Furthermore, Nigerian clients often
complained of shoddy products, which had to be replaced at
additional costs to the Nigerian firm. Because there was
significant cost associated with breaking a contract,
Nigerian clients had little choice but to continue with these
agreements, explained Udeogu.


4. (SBU) While Nigerian companies often preferred to purchase
products from U.S. suppliers such as Motorola, U.S. firms
often could not compete with the financing offered by Chinese
firms. Chinese firms offered below-market interest rates,
long grace periods, and long-term financing. In contrast,
while financing from the USG through finance arms such as the
U.S. Trade and Development Agency, Export-Import Bank, and
Overseas Private Investment Corporation was valuable,
continued Udeogu, these agreements usually took a long time
to effect. This was a longer timeframe than the market was
willing to bear, lamented Udeogu. As a result, contracts were
sometimes lost to Chinese competitors.


5. (C) Udeogu said these business practices were not new.
European companies such as Siemens and Ericsson have long
offered "inducements" to obtain contracts, he observed.
However, Udeogu explained, the difference in competing with
Chinese firms was the pervasiveness of the practice and scale
of inducements offered.

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Transparency Initiative Levels The Playing Field
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6. (SBU) In order to increase its competitiveness, Motorola
employed a U.S.-based global advisory firm, GoodWorks
International, to lobby the GON to be more transparent in
bidding processes. GoodWorks was instrumental during the
privatization of NITEL and Mtel in 2003, Udeogu recounted.
During the bidding process, Goodworks brought to the

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attention of President Obasanjo opaque transactions. Obasanjo
was responsive, Udeogu sQd, going so far as to fire some
NITEL and Mtel leadership as a commitment to transparency.
Since the privatization of NITEL and Mtel, Motorola's
reliance on GoodWorks had lessened, stated Udeogu, and
Motorola was now better positioned to sell its own products.


7. (C) In spite of the challenges enumerated above, the
telecoms sector has been immensely successful. Evidence of
this was that Motorola now offered direct financing to
Nigerian firms. In a recently-signed agreement with Celtel
Nigeria (Celtel)/Mobile Telecommunications Company (MTC),
Motorola provided full financing in the amount of USD 50
million for a global system for mobile communications (GSM)
contract. This was a sign of a stable and lucrative operating
environment, Udeogu summed, and said Motorola was willing to
take a risk when dealing with reputable telecommunications
firms. Nonetheless, said Udeogu, the success of the telecoms
industry involved a good deal of luck. He recounted he was
recently told by a retired general that, had the GON known
telecoms reform would be so successful, the process would
have been politicized from the start, as everyone would have
wanted to share in the profits.

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Comment
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8. (C) Comment: Udeogu's comments echo those of
representatives of other foreign as well as Nigerian firms.
Foreign firms say they often cannot compete with the
financing and product cost offered by Chinese firms.
Moreover, U.S. businesses, in particular, are at a
disadvantage with firms that offer financial sweeteners in
exchange for contracts. Nigerian firms complain of shoddy
Chinese products and contract terms that are not upheld. In
spite of these well-known business practices, the finance
terms and product cost offered are too attractive to refuse.
End comment.
BROWNE