NIGERIA: ENERGY, OTHER SECTORS HAMPERED BY

UNCLAS LAGOS 000764

SIPDIS

SENSITIVE BUT UNCLASSIFIED - HANDLE ACCORDINGLY
SIPDIS

STATE FOR AF/W
TREASURY FOR DPETERS, RHALL, RABDULRAZAK
ENERGY FOR PERSON, GAY
COMMERCE FOR KBURRESS
STATE PASS USTR FOR LISER, AGAMA
STATE PASS OPIC FOR ZHAN, MSTUCKART, JEDWARDS
STATE PASS TDA FOR EEBONG, DSHUSTER
STATE PASS EXIM FOR JRICHTER
STATE PASS USAID FOR NFREEMAN, GBERTOLIN

E.O. 12958: N/A
TAGS: EINV EIND EFIN ENRG NI
SUBJECT: NIGERIA: ENERGY, OTHER SECTORS HAMPERED BY
BUSINESS CLIMATE


1. (U) Summary: Representatives from an international
investment firm expressed optimism about the Nigerian market
but cautioned that volatility in all sectors hampers further
growth. Continued stable economic growth, in their opinion,
depends on the growth of the (nonvolatile) retail sector.
Progress in the power sector remains stalled. End Summary.

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OVERALL BUSINESS CLIMATE CHALLENGING
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2. (SBU) During a November 16 meeting in Lagos with
EconCouns, Funke Okybadejo and Abubakar Momodu of the
international private equity firm firm Actis discussed the
challenges of investing in Nigeria. Actis, which specializes
in emerging markets around the world, provides equity capital
for buyouts, general business development and project finance
transactions in real estate and infrastructure. Okubadejo
discussed the overall investment climate in Nigeria and noted
that often Actis deals with unsophisticated business owners
who don't know their own sector. The lack of infrastructure
drives up producers' cost of production, making their
products less competitive. While some funds do offer
financing for business owners, according to Okubadejo, the
solid investment opportunities the funds seek are often
lacking. Banks do have the skills to make investments, but
often political interference complicates the businesses'
growth and development, she said. Nonetheless, growth
opportunities clearly exist, with Momodu noting that the
Nigerian GSM (global system for mobile communications) market
exceeded growth projections by 100 percent.

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POWER SECTOR STRUGGLING IN CURRENT CLIMATE
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3. (SBU) On the subject of independent power projects (IPPs),
Okubadejo and Momodu said that, despite the privatization
resulting from the Electric Power Sector Reform Act of 2005,
most new generation and distribution projects are stalled -
including the IPP in which Actis is invested. Although the
demand for power across the country is enormous, companies
that seek to do business in the electricity sector face long
negotiations, murky pricing policies and difficulties in
arranging local bank financing.


4. (U) The instability of the investment arena, exacerbated
by high energy prices, uncertain business outlooks, and a
stumbling infrastructure, makes investors hesitant to enter
the Nigerian market. Stable industries, such as retail,
could provide a counterbalance to the uncertainty present
elsewhere, Okubadejo said.


5. (U) This cable has been coordinated with Embassy Abuja.


HUTCHINSON