Southern Nigeria Economic Update

UNCLAS LAGOS 000646

SIPDIS


PASS TO USTR

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E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD KIPR PGOV NI
SUBJECT: Southern Nigeria Economic Update


1. (U) Summary: Lagos analysts estimate that Nigeria's inflation
rate is as high as 10.97 percent in contrast with the 4.8 percent
recorded by the Bureau of Statistics in July. A major Lagos textile
mill, Atlantic Textile Mill, was forced to close because of
unfavorable business environment, making 2,000 workers redundant.
Physicians from hospitals in Lagos, Akwa Ibom and Anambra will
assess next steps following President Yar'Adua's announcement that
health care would no longer be provided by local governments. End
summary.


2. (U) This economic update includes:
-- Lagos Analysts Say Inflation Near 11 Percent
-- More Job Losses as Lagos Textile Factory Shuts Down
-- GON Takes Over Health Sector from Local Governments

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Lagos Analysts Say Inflation Nears 11 Percent
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3. (U) Analysts at Financial Derivatives Company (FDC),a Lagos
based financial consulting firm, estimate the inflation rate at
10.97 percent. This contrasts with the estimate published recently
by the National Bureau of Statistics (NBS) which estimated the
year-on-year inflation rate for July at 4.8 percent, down from 6.4
percent recorded in June. FDC reported that prices of some
commodities including kerosene (180 percent) and candles (45
percent),rose significantly due mainly to poor electricity supply.
Prices of food items, notably maize and bread, increased marginally.
(Note: During the recent bakers strike, the price of bread increased
by 30-40 percent. Again last week, the price of bread soared by
25-30 percent to naira 150-160 (USD 1.20-1.28) per 900 grams when
the price of a unit of wheat flour increased by 700 naira
(approximately USD 5.60). End Note)


4. (U) Analysts also said interest rates for overnight deposits
opened in August at 6.5 percent and rose to 7.3 percent because of
withdrawal of 19.5 billion naira (USD 150 million) Nigeria National
Petroleum Corporation (NNPC) funds from banks. Rates closed the
month at 5.8 percent, with the injection of 469 billion naira (USD
3.6 billion) monthly statutory allocation to states and local
governments.


5. (U) The Wholesale Dutch Auction (WDAS) of the Central Bank of
Nigeria (CBN) offered USD560 million in August, 30 percent less than
the previous month; total offer taken up by banks also declined by
44.4 percent to USD557.6 million. The naira appreciated to 126.2
naira against the dollar, up from 127.1/USD in July.

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More Job Losses as Lagos Textile Factory Shuts Down
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6. (U) Atlantic Textile Mills, a leading local manufacturer of
African print and wax fabrics closed its flagship Lagos factory in
September. The mill, which employed some 2,000 workers, cited
unfavorable business conditions and poor infrastructure,
particularly the high cost of generating electric power, as major
reasons for the closure. Members of the National Union of Textile
and Garment Workers of Nigeria (NUTGWN) decried the high cost of
diesel, which most industries use to power electricity generating
sets. Diesel costs between 85 naira and 95 naira per liter. On
average, a medium sized manufacturing company spends 20 million
naira monthly on power generation.


7. (U) Over 33 textile mills across Nigeria have closed down in the
last 3 years, resulting in a loss of some 500,000 jobs directly and
indirectly in the industry. In early September, Kaduna-based United
Nigerian Textile Limited (UNTL) was forced to make 10,000 workers
redundant because of high cost of production and lack of competitive
edge against cheaper smuggled textiles.


8. (U) Meanwhile, the United Bank for Africa (UBA) plans to raise 70
billion naira on behalf of the Government of Nigeria (GON) to
revitalize the textile industry. Local press reports that the bank
will provide the funds to the GON for onward lending to textile
manufacturers, at a single-digit interest rate. It is not clear how
the bank plans to raise the money; however, local financing was
sought after the GON failed to meet the requirements for raising the
funds through Eurobonds.

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GON Takes Over Health Sector from Local Governments
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9. (U) Local governments (LGs) will no longer be responsible for the
provision of primary health care. In press reports, the task force
set up by President Yar'Adua to review the National Health Policy
noted that primary health care, upon which 80 percent of the
population depended, was wrongly placed in the charge of local
governments which have little capacity to adequately provide the
service.

10. (U) The task force noted that over 18 billion naira had been
deducted, with little or no justification given, by state
governments from local governments' share of statutory allocations
intended for primary health care delivery in the local government
areas. The Obasanjo administration had awarded a contract for the
construction of Comprehensive Primary Health Care Centers (CPHCC) in
each of the 774 local government areas between March and June 2007
to a local firm, Mathan Nigeria Limited. Funds for the CPHCC
projects were being deducted from the federation account until
President Yar'Adua stopped the deductions in August and set up a
panel to investigate the contracts. The firm claims to have received
only 14.8 billion naira, of which 5 billion naira had been spent on
the project.

11. (U) In addition, the GON has set up a ministerial committee to
assess the health sector and proffer solutions. The committee headed
by Professor Akin Osibogun of the Lagos University Teaching
Hospital, also has as members; Dr. Obehi Okojie, University of
Benin; Dr. Ibanga Iyang, University of Uyo; and Dr. Goz Ifeadike,
Nnamdi Azikiwe University Teaching Hospital, Anambra.

12. (U) There are indications that the 2008 budget proposal to
reduce local government allocations from 20.6 percent to 15.21
percent may be a result of the withdrawal of LGs' responsibility to
provide such services as healthcare. LGs will still provide water
and education for the people. If approved, federal and State
governments' share of the federation account will increase from
52.68 percent and 26.72 percent to 53.69 percent and 31.1 percent
respectively.
McConnell