NIGERIA: AFRICA FINANCE CORPORATION: DEVELOPMENT BANK OR

UNCLAS SECTION 01 OF 03 LAGOS 000201 SIPDIS SENSITIVE COMMERCE FOR KBURRESS ENERGY FOR CHAYLOCK TREASURY FOR DFIELDS RHALL STATE PASS USTR STATE PASS OPIC FOR ZHAN AND MSTUCKART STATE PASS TDA FOR PMARIN LFITTS STATE PASS EXIM FOR JRICHTER STATE PASS USAID FOR GWEYNAND AND SLAWAETZ E.O. 12958: N/A TAGS: EFIN ECON PGOV NI SUBJECT: NIGERIA: AFRICA FINANCE CORPORATION: DEVELOPMENT BANK OR FRONT FOR SPECIAL INTERESTS? REF: A. Lagos 143 ¶B. 07 Lagos 549 LAGOS 00000201 001.4 OF 003 Sensitive But Unclassified; Handle Accordingly ¶1. (SBU) Summary: President Yar'Adua has ordered an investigation into the Central Bank of Nigeria's (CBN) role in establishing the Africa Finance Corporation (AFC),which was set up in 2007 as an alternative to the African Development Bank (ADB). The AFC is owned by African banks (44 percent),industrial conglomerates and companies (16 percent),and the Central Bank of Nigeria(40 percent), and has the Chairmen of Nigeria's industrial conglomerate Dangote Group and China's Western Metal Production Company (WEMPCO) on the board of directors. Media reports allege that the AFC wrote the report of the "Presidential Commission on the Expansion of Electricity Infrastructure", and thereby positioned itself and its private stakeholders to benefit from the report's recommendations. During the Federal Government (FG) probe of the CBN's authority to invest in the corporation, the AFC is accelerating its divestment of the CBN's shareholding. Critics call AFC a front for special interests, and there is reason to be concerned as to whether the AFC will operate in the most transparent fashion as regards to project selection and investors. End Summary. Self-Styled "Alternative to ADB" -------------- ¶2. (U) The Africa Finance Corporation (AFC) was established in 2007 as a private sector-led investment bank and development finance institution with a capital base of USD 1 billion. AFC, the brainchild of CBN Governor Chukwuma Soludo, bills itself as an alternative to the African Development Bank; it is headquartered in Lagos. (Comment: In 2005, Nigeria lost its bid for the African Development Bank's Presidency to South Africa. It has been speculated that Governor Soludo set up the AFC so as to provide Nigeria the opportunity to play a role in setting the African development agenda. End Comment) ¶3. (SBU) In business proprietary materials shared with EconOff on May 10, AFC describes its strategy as concentrating on industries with attractive returns and high developmental impact. Priority sectors include power, transport infrastructure, heavy industry, oil and gas, mining, housing construction and mortgage finance, and telecommunications. Describing itself as an investment bank with a development mandate, AFC aims to control all aspects of a project's value chain, from project procurement to development, financing, execution, and operation. African banks hold 44 percent, and industrial conglomerates and corporations hold 16 percent of AFC's shares. (Note: It is not known whether the African banks holding the 44 percent equity include non-Nigerian banks. End Note) The CBN holds a 40 percent share. Board Includes Nigeria's Dangote Group, China's WEMPCO -------------- -------------- ¶4. (SBU) AFC's membership is open to independent African states represented by their central banks, African regional and sub-regional financial institutions, African public and private banks, financial institutions and private investors, and international private investors. Guinea Bissau and Sierra Leone formally joined the AFC in January and April 2008, respectively. (Note: It is unknown whether their central banks have invested. End Note) Other countries, including Liberia, Ghana, Gambia, Zambia, Mozambique, are in various stages of discussion about membership. AFC has a 21 member board of directors with CBN Governor Soludo as Chairman. Three seats are allotted to Nigeria's Minister of Finance, the CBN Deputy Governor, and the AFC's CEO. Oceanic Bank, Zenith Bank, Intercontinental Bank, United Bank for Africa, and Union Bank occupy five seats. Nigeria's Dangote Group, China's WEMPCO Group, Zenon Petroleum and Gas, and Leadway Assurance Company fill four seats. (Note: The AFC's First General Meeting prescribed that shareholders with USD 50 to 100 million investments are entitled to automatic representation on the board. End Note) The final nine seats are reserved for shareholders from other African LAGOS 00000201 002.4 OF 003 countries. AFC Partners with Shareholders for Power Project -------------- --- ¶5. (SBU) Since its launch, AFC has landed projects throughout Nigeria and in at least 10 other African countries. In Nigeria, projects include a USD 700 million ring road for Port Harcourt, USD 1 billion deep sea port project in Olokola with Ondo and Ogun States, a 3600 Megawatt (MW) coal fired power plant in Kogi State in partnership with Dangote and WEMPCO Groups, an independent power project (IPP) with Rivers State government, and a mortgage financing scheme for 10,000 homes in Lagos. (Note: According to a contact at AFC, as of May 10, AFC had not finalized the financing of any of these projects. End Note) AFC Writes Presidential Commission on Energy Report -------------- -------------- ¶6. (U) In February 19, 2008, President Yar'Adua set up the Presidential Commission on Accelerated Expansion of Electricity Infrastructure to draw up a plan to deliver 6,000 Mega Watts of electricity in 18 months (Ref B). The Commission submitted its report in late March 2008. Recommendations included that, over a transition period of two years, the Federal Government establishes a "Special Purpose Vehicle" (SPV) to oversee the 18 companies created in 2006 by the unbundling of the Power Holding Company of Nigeria, and raise over USD 2 billion from private sector resources to complete the National Integrated Power Projects. ¶7. (SBU) AFC has been closely involved with the Commission. The AFC's CEO and two other board members, Nigerian billionaire Aliko Dangote of Dangote Group and China's Lewis Tung of WEMPCO, were members of the Commission. (Note: The Dangote Group is arguably Nigeria's largest industrial conglomerate. Its business operations extend across West Africa and include food processing, cement manufacturing, and sugar refining. Forbes listed Aliko Dangote as the 334th wealthiest man in the world in 2008. Under the Obasanjo administration, Dangote was a founder of the controversial Transnational Corporation (TransCorp),a collective of disparate interests close to former President Obasanjo. TransCorp is widely perceived as having been a vehicle through which participants profited from the disposal of government assets, including the Nicon Hilton hotel, telecommunications firm Nitel and oil blocks. End Note) The news media reported that AFC wrote the Commission's report and recommended itself as the adviser to the Federal Government during the transition period; it is unclear whether the opportunity to participate was offered to other entities, whether AFC had the requisite expertise, or whether the recommendations were subject to any public scrutiny. After the report's formal approval by President Yar'Adua and the Federal Executive Council, AFC reportedly kicked off the initiative in late April by conducting the financial due diligence for establishment of the SPV. Pointing to AFC's extensive involvement in both the Commission and the initiatives coming out of the report, some media outlets and industry watchdogs have raised questions about the AFC's nontransparent role and influence. (Note: AFC issued a news release in mid February, touting its role in the Commission as a sign of private sector leadership in a public-private partnership. End Note) The media has questioned whether AFC was created as a development bank or as a front vehicle for special interests. Probe of CBN Shareholding Underway -------------- ¶8. (SBU) The AFC commenced operation in September 2007. In response to AFC's request for the conferment of diplomatic legal status as a multilateral financial institution, President Yar'Adua, on April 16, established a Presidential Committee to determine whether the CBN acted within the law and regulations in setting up AFC, and to verify CBN's authority to invest USD 462 million equity in the institution. The probe has triggered a firestorm of controversy. AFC's supporters said the probe is a politically-motivated move to bring down Soludo and his policies. Opposition parties railed LAGOS 00000201 003 OF 003 against Soludo's allegedly extralegal commitment of CBN assets. To counter the latter, Soludo said the CBN Act of 2007 empowered him to invest in growth-promoting businesses; he also said no legal provision prohibits him from sitting on the AFC's board. The AFC contact told EconOff on May 10 it has always been in the CBN's plan to draw down its holdings in AFC from 40 to 5 percent. In light of the ongoing probe, AFC is speeding up the divestment of CBN funds in order to take the heat off Soludo, said the AFC contact. ¶9. (U) President Yar'Adua, in a May 19 interview with the Britain's Financial Times, called Soludo's decision to set up the AFC a mistake. Nigeria's membership in AFC, which purports to be a multilateral financial institution, must be approved by the Federal Executive Council and Senate, the President said. "Economically Correct, Commercially Shady, Politically Wrong" -------------- ¶10. (SBU) In May 22 meetings with EconOff, a knowledgeable contact with extensive experience working for U.S. corporations in senior management positions in the energy sector called the selection and involvement of private partners such as Dangote and WEMPCO into AFC opaque at best. He said no one knew how these private groups were identified and selected, and whether other groups were offered the opportunity to participate. This process falls in line with former President Obasanjo's modus operandi, he said. A well-respected Lagos financial investor described AFC as "economically correct, commercially shady, and politically wrong." ¶11. (SBU) Comment: Even without the CBN investment, the AFC's intimate involvement in the "Presidential Commission on Accelerated Expansion for Electricity Infrastructure" smacks of cronyism. The real danger is that the AFC will use its considerable insider access to cherry pick the best public projects for investment. Some have speculated that the Commission and its report would do no more than transfer public assets into private hands (ref A). AFC's inception, structure, and method of operating lend some credence to these predictions. End Comment. ¶12. (U) This cable was cleared with Embassy Abuja. Hudson