NIGERIA: INFRASTRUCTURE CONDITIONS HINDER EXPORT

UNCLAS SECTION 01 OF 06 ABUJA 002045 SENSITIVE SIPDIS DEPT PASS TO USTR - AGAMA; USTDA - FITTS/MARIN; USITC -SCHLITT AND EXIM - JRICHTER DEPT OF ENERGY FOR HAYLOCK AND PERSON USAID AFR/SD FOR CURTIS TREASURY FOR PETERS AND HALL DOC FOR 3317/ITA/OA/KBURRESS, 3130/USFC/OIO/ANESA/DHARRIS USDA/FAS FOR C. MCKINNELL, R. VERDONK E.O. 12598: N/A TAGS: ETRD ENRG EAIR ELTN ECON PGOV EAID NI SUBJECT: NIGERIA: INFRASTRUCTURE CONDITIONS HINDER EXPORT COMPETITIVENESS REF: A. ABUJA 1942 ¶B. ABUJA 1794 ¶C. STATE 85109 ¶D. LAGOS 302 ¶E. LAGOS 318 ¶F. ABUJA 1563 ¶G. LAGOS 240 ¶H. ABUJA 1311 ¶I. LAGOS 132 ¶J. LAGOS 154 ¶K. ABUJA 411 ¶L. LAGOS 64 ¶M. LAGOS 7 ¶N. 07 LAGOS 768 ¶O. 07 ABUJA 2059 SENTITIVE BUT UNCLASSIFIED - NOT FOR DISTRIBUTION OUTSIDE USG ¶1. (U) SUMMARY. The overall state of Nigeria's infrastructure is poor. Rapid population growth and lack of investment and maintenance have greatly deteriorated existing infrastructure. In many areas of Nigeria, water supply, sewerage, sanitation, drainage, roads, electricity and waste disposal are virtually non-existent. Maintenance of the partially existing infrastructure has been infrequent. The country's population is between 140-150 million people with 92 million hectares of land and 853 kilometers (km) of coastline, which supports eight major rivers and eight seaports with annual freight through-put of 49 million tons. Roads carry a vehicle population of 5.5 million and road freight at 50 million tons per year. The railroad system is 4,660 km of standard and narrow gauge track. There are twenty-one airports, four with international flights, with passenger traffic at 5.4 million per year. The national electricity grid reaches only 40% of the population and much of that population has power only on a limited basis each day. The Nigerian government (GON) is actively trying to improve the situation by drawing up strategic plans for transportation and electricity generation seeking public private participation (PPP) to fund improvements. This cable is the second of two responses to reftel C regarding Nigeria's current physical infrastructure, capacity, state of repair and state of technology. END SUMMARY. . TRANSPORTATION SECTOR WOEFULLY INADEQUATE -------------- . ¶2. (U) In furtherance of the U.S. International Trade Commission's (USITC) preparation of three annual reports related to factors that affect trade patterns of selected industries in sub-Saharan African countries, Team Nigeria has put forward specific information to better understand the Nigerian landscape. The transportation sector comprises road, rail, water and air sub-sectors, and GON has unveiled a plan for an inter-modal system that would effectively link the different modes of transport to promote the socio-economic development. Federal and State plans include railway expansion and linkage with roads and airports. One plan is for the Federal Capital Territory (includes Abuja) to be linked with the railway system along with ports such as Warri, Lily Pond, Onne, and Tin Can Island. Likewise the airports may be linked with the railway to reduce congestion in intra-city transportation. The major framework for implementing the transformation of the transport sector is through concessions and PPPs aimed at attracting private sector investments and participation. . ROADS - NOT PASSING THE GRADE -------------- . ¶3. (SBU) In a January 24, 2008 meeting with the Ambassador and Africa Bureau Deputy Assistant Secretary Todd Moss, the Minister of Transportation Diezani K. Allison-Madueke, said the road network is unacceptable because of its serious negative economic impact and a major safety concern to passengers and vehicles. The poor road conditions greatly increase vehicle operating costs, lead to higher fuel consumption, more frequent vehicle maintenance, depreciation of vehicle values, longer travel times and increased accident rates. She lamented that the Ministry therefore, bears the burden of high road maintenance costs. ABUJA 00002045 002 OF 006 ¶4. (U) The Nigeria Federal Roads Maintenance Agency (FERMA) reports that the GON completed 34,000 kilometers (km) of road infrastructure between 1970 and 1982. The national network is currently estimated at 194,200 km with an estimated 2008 asset value of $38 million out of which 34,102 km (17.6%) is federal roads with asset value of $18.8 million. State roads account for 30,500 km (15.7%) and the local/rural roads cover 129,580 km (66.7%). The federal road network carries 70% of freight and services 90% of the socio-economic activities in the country. Between 2003 and 2007 FERMA assessed the condition of the federal roads network as follows: -- 50% of the road network was rated as collapsed and impassable; -- 35% was rated as in poor structural condition; -- 10% was rated in good condition; -- 5% was rated very good. The GON medium-term strategy plan targets improving the road network to 82.4% in very good condition, 5.89% in good condition and only 12% in poor or bad condition by 2015. This major improvement plan is estimated to cost $5 billion. . RAIL SYSTEM - DECAYING SINCE INDEPENDENCE -------------- . ¶5. (U) The railway infrastructure was inherited from the colonial period and is virtually moribund with no history of upgrades or systematic maintenance programs. In designing the Nigerian rail system, the colonial administration came up with north-south lines without linking east to west. The aim then was to convey agricultural products from the north to the ports in the south. In the post independence era, the railway system actively supported economic activities as a bridge between the north and south. The system consisted of 3,500 km of narrow-gauge (1.067 meter) rail track. The system's basic elements were two main lines running inland from the coast: -- In the west from Lagos to Kano, opened in 1912; -- In the east from Port Harcourt to a junction with the western line at Kaduna, opened in 1926. ¶6. (U) Three major extensions were subsequently constructed: -- A branch line from Zaria to Kaura Namoda (an important agricultural area in the northwest) completed in 1929. -- A branch from Kano to Nguru (a cattle-raising region in the northeast) completed in 1930. -- A 645- kilometer branch from the eastern line to Maiduguri, completed in 1964. -- A short spur to the mining areas at Jos and three short branches from Lagos, Minna and Kaduna completed the system. Inadequate maintenance and funding have contributed to the severe deterioration of the entire system. ¶7. (SBU) According to Nigerian Railway Corporation Managing Director Mazi Nwankwo, in a discussion with EconOff on September 15, 2008, there is a plan to refurbish the entire system, including keeping the narrow gauge system. Another plan to convert the entire system to standard gauge (1.435-meter) by laying new track parallel to the old was shelved in the early 1980s and again in 2008 for lack of funding. Nwanko said the GON will purchase new locomotives, engines, and rail cars and there are active discussions with General Electric and others. ¶8. (U) In addition, the Ministry of Transportation is actively proposing the following railway concessions: -- A western railway from Lagos to Nguru and Kaura Namoda via Zaria; -- An eastern railway from Port Harcourt to Maiduguri including the Kaduna to Kafanchan link; -- A central railway from Itakpe to Warri via Ajaokuta. In an August 8, 2008 presentation on infrastructure, Minister for Transportation Diezani Alison-Madueke said the estimated cost of these proposed public private partnerships is US$ 1.303 billion. . MARITIME TRANSPORT HAS POTENTIAL TO GROW -------------- . ¶9. (U) Nigeria is rich with waterways and the use of these waterways would improve the movement of goods and people. However, very ABUJA 00002045 003 OF 006 little planning or funding has been dedicated to the maritime sector. Nigeria has over 10,000 km of navigable waterways from the Nigeria/Niger and Nigeria/Cameroon borders to the Atlantic Ocean, comprising rivers, creeks, 26 lagoons and lakes. In the intra-Coastal waters the Nigerian main river system is a Y-configuration suitable for North-South movement of people and goods. Nigerian inland waterways transportation (IWT) development is in its infancy. The inland waterways consist of 27 rivers, 36 lagoons/creeks/canals and two lakes. Two of the three largest rivers in West Africa flow through Nigeria, thus providing significant natural transportation advantages. The IWT in Nigeria connects all major cities/commercial centers and major agricultural belts. Most of the rivers are navigable only during the flood season of June through mid October. The major rivers are the Niger and Benue and both require constant maintenance/dredging to make them passable. Landing facilities on the rivers are mostly absent. The GON recently has made efforts to develop a master plan to guide and direct the development of the IWT industry, but no progress has been made. ¶10. (U) Nigeria has a total of eight ports, which are delineated into 25 terminal and concessions to private operators, of which eighteen are located in Lagos and Rivers states and seven in Warri and Calabar. The cargo through-put in tons in-bound is 31,937,804 and out-bound is 17,235,530 for a total of 49,173,324 tons. The Ministry of Transportation has developed a long list of investment opportunities for public private partnerships at the ports with mixed results. ¶11. (U) The volume of exports via maritime transport is low. Unprocessed cashew, cocoa, shea nuts, sesame nuts, and cotton constitute the primary commodities shipped by sea. Currently only 20% of all shipping containers leave Nigeria filled with goods and commodities. The U.S. Trade and Development Agency (USTDA) is providing technical assistance to the Nigerian Ministry of Transport in the development of an integrated computerization plan for the operations and management of the Nigerian Ports Authority. This project will help increase the productivity of the Nigerian Ports Authority, and build human capacity to analyze, design and manage information technology (IT) systems. This technical assistance is expected to facilitate more efficient trade throughout the entire region. . AVIATION - IMPROVING BUT MORE NEEDS TO BE DONE -------------- - . ¶12. (SBU) The problems in the sector range from obsolete and malfunctioning air navigation equipment, inaccurate weather measuring instruments, and disrepair of fire tenders, runways, conveyor belts and other passenger processing equipment. USTDA conducted a definitional mission in June 2008, looking at potential projects at airports and with the Nigeria Civil Aviation Authority (NCAA),which has not been completed. Following several major air crashes in 2005 and 2006 the GON has provided increased funding for the sector. However, several public investigations in the National Assembly have revealed that ministers and other high-level officials may have diverted funds to their own pockets. Despite these issues, the aviation sector remains the fastest and safest means of transportation in Nigeria, due in large part to an on-going partnership with the U.S. Federal Aviation Administration (FAA),the World Bank, and others. In January 2008 an FAA team began the first of many two-week visits, through 2010, to help Nigeria's aviation industry achieve Category One certification. The team is concentrating on eight key areas: legislation, regulation, civil air authority structure and oversight functions, technical guidance, qualified technical personnel, licensing and certification, continued surveillance obligations, and resolution of safety issues. The World Bank has provided $46.6 million in International Development Association (IDA) credits for Nigeria under the West and Central Africa air transport safety and security project. The funds are providing an upgrade to the infrastructure and navigational aids at airports. The upgrades will include an institutional study of each aviation agency, aircraft and aircrew recertification exercise, Port Harcourt and Abuja airports' operational perimeter fences and patrol routes construction and rehabilitation, and installation of wind shear detection systems for Lagos, Port Harcourt and Kano ABUJA 00002045 004 OF 006 airports. ¶13. (U) Four (Lagos, Abuja, Port Harcourt and Kano) of the 21 airports in Nigeria operate international routes. Domestic passenger traffic levels were six million in 2007, with another three million for international flights. Annual numbers recorded for the first three quarters of 2008 indicate passenger traffic growing, especially internationally. ¶14. (SBU) During 2007 and 2008 discussion with EconOff, the Ministry of Transportation Director Dr. Tunji Bolade and NCAA Director General Dr. Harold Demuren contended that the GON's new policy thrust is to follow up the National Civil Aviation Policy (NCAP) of 2001, which set in motion deregulation and privatization, to further develop a privatized, autonomous, highly commercialized and competitive aviation industry. ¶15. (U) The sector has shifted from a purely public driven sector to a liberalized sector with private sector participation in the airline business. The country presently has 17 private domestic airlines with four private airlines operating international routes and 20 foreign airlines operating in the country. ¶16. (SBU) According to Demuren, Nigeria has 100 aircraft that are less than 10 years old among which are mainly newer Boeing 737-700 models. The implementation of the Cape Town Convention by the GON has enabled several domestic airlines such as Arik Air, Chanchangi, Bellview, IRS and Virgin Nigeria to acquire new aircraft. Another benefit of the Convention is the possibility of lower insurance premiums for Nigerian operators. Similarly, Nigeria has signed an Open Skies Agreement on direct flights with the USG. (NOTE: In early 2008, the Department of Transportation approved Virgin, Arik, and Bellview to wetlease flights to the U.S.; meaning that they are leasing airplanes including crews, maintenance and insurance. END NOTE). The designated Nigerian carriers are Virgin Nigeria, Arik Air and Bellview while the American carriers are Delta and Continental Airlines. ¶17. (SBU) Also the aviation sector has embraced the PPP model such as the partnership at the new modern domestic airport terminal (MMA2) by a private company Bi-Courtney Aviation Services Limited through the Build, Operate and Transfer (BOT) arrangement which was inaugurated in 2007. The GON has appropriated funds in the 2008 budget for the provision of state-of-the-art equipment at several airports. Concurrently, the Ministry of Transportation is reportedly modernizing two control towers at the Lagos and Abuja international airports, while plans are in the works to modernize the Port Harcourt and Kano airports. ¶18. (U) Unreliable electricity supplies are a major problem for airports. As a result, new generators have been installed by the Federal Airport Authority of Nigeria (FAAN) at the Kano (1,000 kilovolt amp generator) and Abuja (dedicated dual line 33 Kilovolt power supply, from the National grid) international airports to deal with frequent power outages. ¶19. (U) New Meteosat (MSG-2) Satellite Receivers have been reportedly installed at the four international airports across the country to improve weather forecasting. The most recent commissioning was May 2, 2008 at the Abuja airport. In addition, the Total Radar Coverage of Nigeria (TRACON) and communication equipment V-SAT are on-going projects of the Nigeria Airspace Management Agency (NAMA). The V-SAT is to provide ground to ground and ground to air communication from every part of Nigeria while the TRACON project is to provide total radar coverage for the Nigerian airspace ¶20. (U) Building human capacity is another GON priority. The Nigerian College of Aviation Technology (NCAT) in Zaria provides aviation training in Nigeria and is being restructured and repositioned to improve its mandate of providing manpower development for the sector. . ELECTRICITY PROBLEMS PERSIST -------------- . ABUJA 00002045 005 OF 006 ¶21. (SBU) At the Nigerian Infrastructure Summit on August 7, 2008 President Yar'Adua emphasized that Nigeria's chronic lack of power is holding back its economic development. (NOTE: Only 40% of Nigerians have access to the national electricity grid and those connected to the grid often go weeks without electricity or have it for only a few hours each day. Businesses and residences must generate their own electricity via diesel generators, or use renewable power such as solar. END NOTE). In a July 24, 2008 meeting with Under Secretary for Economic Affairs Reuben Jeffery and Ambassador (reftel F),the Permanent Secretary for the Federal Ministry of Energy (Power) Dr. Abdullahi Aliyu commented that Nigeria's electricity supply is inadequate and characterized by frequent interruptions and countrywide load shedding. As of June 3, 2008 only 3,966 megawatts (MW) per day were potentially available from an installed capacity of up to 7,982 MW. However, actual power generation had decreased and by June 22, 2008 was as low as 850 MW per day because of insufficient gas supply and low water levels at hydro plants. ¶22. (SBU) Aliyu reported that the Ministry had a strategic plan (reftel H) through which it expects to expand distribution and transmission networks. In addition, the plan calls for increasing power generation from existing and new plants by December 2009 to a peak of 7,982 MW and an average of 6,180 MW. The medium phase would add new power generation for a peak of 14,737 MW and an average of 11,540 MW by December 2011. A major issue in providing added megawatt output through new and refurbished power plants is "perceived" insufficient natural gas supply (reftel A). (NOTE: The GON is unwilling to purchase gas for domestic use at a price which is sufficient to compensate companies for their production costs. END NOTE). ¶23. (SBU) According to Aliyu, total domestic gas supply is 700 Million Standard Cubic feet per day (MMSCF/d) which would equal a total power generation capacity of 2,000 MW per day for gas-fired power plants. According to the GON's gas supply plan, available natural gas will increase to 1,400 MMSCF/d by the end of 2008, to 2,042 MMCF/d by the end of 2009, and then to 3,600 MMSCF/d by December 2011. The increased gas supply will come from reduced flaring, existing/new reserves, production efficiencies, and expanded infrastructure. At the request of the Minster of State for Energy (Gas) Odusina, USAID (Reftel A) has commissioned assistance to the Government of Nigeria through the Ministry to review plans and policies in support of the World Bank partial loan guarantees, gas supply to power turbines, and gas flare reduction. ¶24. (SBU) Aliyu said the most important requirement of the strategic plan is the creation of seven training centers, for in-country technical training. He requested USG assistance in identifying qualified train-the-trainers instructors and to develop course curriculum. . POOR INFRASTRUCTURE CRIPPLES EXPORTS -------------- . ¶25. (U) Nigeria is one of the largest growers of cashews in the world; however, because of the power deficit and the state of other infrastructure, 90% of the cashews are shipped to India and Vietnam where it is processed and then exported to the United States. The high costs of electricity, labor, and transportation leave the Nigerian processing and exporting cashew industry uncompetitive. Experts contend that the cost of shipping cashews to India or Vietnam for processing is actually lower than that of establishing and operating a processing factory locally. ¶26. (U) According the Nigerian National Bureau of Statistics, Nigeria's manufacturing industry accounts for 4% of GDP. The textile industry has been particularly hit hard by Nigeria's decaying infrastructure. The industry claims high transportation costs, infrequent electricity supply, inconsistent government industrial policies, and multiple taxation, have created a high cost of doing business that hinders their ability to compete. The GON has responded with several bail out plans and the latest is for $594 million; however, none of the plans have been implemented. During this time 35,000 textile workers have lost their jobs as a result of at least 12 textile mills closing (reftel O). ABUJA 00002045 006 OF 006 . PORTS AND CUSTOMS ANOTHER BARRIER -------------- . ¶27. (SBU) Exporters contend that exporting from Nigeria via maritime carriers is costly given the lack of port infrastructure, absence of an inter-modal transport network across the country, security risks, and non-transparent custom procedures. Roads coming in and out of the ports are decaying, and over-usage results in around-the-clock traffic congestion. Despite the Nigerian Custom Service's (NCS) recent claimed adoption of a 48 hours custom clearance policy, congestion leads to ships queuing up to berth at cargo terminals and containers waiting to be transported out of the ports. The chokepoints resulting from the lack of infrastructure at and around the ports affect the efficiency at which goods can be processed. The absence of an inter-modal transport network where the various modes of cargo transport (rail, road, and maritime) are linked together makes the transportation of goods from the hinterland to the ports capital and time intensive. Cargo robberies and thefts are common. Cargo trucks often never make deliveries or are seen overturned and abandoned by the side of the road. ¶28. (SBU) Due to problems associated with transporting goods, freight forwarders do not operate inland container depots or offer cross-country transport services. As a result, exporters are solely responsible for delivering goods from the production points to the ports and loading them into containers. In addition, the poor state and lack of equipment and facilities contributes to port inefficiency, adding delays and costs, and increased incidences of damaged goods. Custom clearance procedures and congestion at/around the ports are another major contributor to inefficiency. ¶29. (SBU) Another hazard is providing NCS with proper documentation. Exporters must provide on average five to six documents to NCS. Often the required documentation is not readily known or available to Nigerian exporters, therefore they then incur middlemen fees and, in most cases, arbitrary charges imposed by custom officials. ¶30. (SBU) One positive improvement has been that port concessionaires have increased maintenance, and purchased new and improved equipment, which have benefited efficiency. For instance, four new cranes were evident in the skyline at the APM terminal in recent months. . COMMENT -------------- . ¶31. (SBU) The "resource curse" has played a major impact in Nigeria's infrastructure development. In the first years after independence in 1960 through the 1970s oil boom, the GON spent sufficient funds on infrastructure. In the last 30 years budget planning and execution have been poor. The result is a decrepit infrastructure base that greatly hinders economic development. Since President Yar'Adua took office in May 2007, the GON and National Assembly have done much talking about what the problems are and have made pledges to marshal all the resources available to at least meet the challenge of increasing electricity supply. Despite all the proclamations and reams of new plans, little has been accomplished. ¶32. (SBU) The Ministries of Transportation and Energy continue to put forward strategic plans and the associated requests for additional funding. The USG can play a positive role in response to the GON requests for technical support, contractors, products, and training. This cable was coordinated with Consulate Lagos. PIASCIK