NIGERIA: FEDERAL, STATE SOLUTIONS TO ADDRESS NATIONAL

UNCLAS SECTION 01 OF 02 LAGOS 000259 SIPDIS STATE PASS USAID FOR NFREEMAN, GBERTOLIN DOC FOR 3317/ITA/OA/KBURRESS DOC FOR 3310/USFC/OIO/ANESA/DHARRIS DOC FOR USPTO-PAUL SALMON TREASURY FOR RHALL, DPETERS STATE PASS EXIM FOR JRICHTER STATE PASS OPIC FOR DERB, ZHAN, MSTUCKART, JEDWARDS STATE PASS TDA FOR LFITTS, PMARIN E.O. 12958: N/A TAGS: EINV EAID EIND EFIN NI SUBJECT: NIGERIA: FEDERAL, STATE SOLUTIONS TO ADDRESS NATIONAL HOUSING DEFICIT, BUT MORE REFORM NEEDED Ref: A) Septel Lagos 258 B) 07 Lagos 621 C) 07 Lagos 553 D) 07 Lagos 549 E) 07 Lagos 472 ¶1. (U) Summary: Federal and state governments have adopted policy solutions to encourage more private sector participation in housing construction and delivery throughout Nigeria. While some states, including Lagos, have taken the lead in pioneering housing financing and construction schemes, existing housing construction projects are stalled, signaling that the housing gap will be hard to close in the short to medium term future. End Summary. National Policy: Bigger Role for Private Sector -------------- -- ¶2. (U) In 2002, Nigeria's National Housing Policy (NHP) was adopted to promote private sector-driven mass-housing by improving the availability and accessibility of land. Unlike the 1982 and 1991 housing policies, NHP 2002 incorporates the private sector as the engine of housing development and delivery, representing a major shift in the government's approach. ¶3. (U) Housing experts from Pison Housing Company, a Nigerian firm, told EconOff several months ago that one major component of the NHP 2002 is already in force. NHP 2002 eliminated the Housing Ministry's home building mandate and charged the Ministry with policy formulation and creation of an enabling environment for investors in the housing sector. The Federal Housing Authority (FHA),the Ministry's construction arm, is charged with the responsibility of building homes with the private sector. Pursuant to the 2002 NHP policy, Lagos State Government (LASG) recently advertised the "New Private Estate Developers' Scheme". Under this program, LASG will make available to developers parcels of land ranging from 1 to 25 hectares on which to develop housing. ¶4. (U) However, additional reforms are needed. Francis Sheen, Executive Director of U.S.-based TransAtlantic, told Pol-Econ Chief July 8 that two bills have been introduced in the National Assembly that will address inadequacies in the system that prevent the expansion of housing construction and finance. The first bill provides the legal framework for securitization of mortgages and establishes a system of non-judicial foreclosures in the event of mortgage defaults. The second bill modernizes Nigeria's land use regime, and provides for, among other things, a new system for dealing with resources found in and under the land. Both bills reached second reading in February, and Security and Exchange Director General told Ambassador June 3 that the National Assembly has promised to take up issue more vigorously in its upcoming session. No subsequent action has been taken on them. Lagos Streamlines Land Registration and Titling -------------- -- ¶5. (U) In the absence of national land use reforms, the Lagos State Government has made efforts to streamline the registration and titling of land, Mohammed Santuraki, Managing Director of First Bank of Nigeria Mortgages told EconOff on May 28. While there is "seeming clarity" about the process, "much uncertainty" remains as developers actually go through the process. For instance, obtaining approval for a housing project can take anywhere from one to six months, he lamented. He believes overcoming these challenges will be tougher in Lagos given the high demand for housing and the high cost of land. Lagos' Mortgage Division, Land Registry Established -------------- -------------- ¶6. (U) Lagos State Government (LASG) also has set up a Fast-Track Mortgage Division in the High Court of Lagos State and created a Mortgage Registry and separate Mortgage and Survey Desks in the Directorate of Land Services. (Note: With respect to these initiatives, Sheen said the "machinery" has not been put in place to execute their mandates. Santuraki claimed he had not heard of these initiatives, and if implemented, the banking sector had not felt their effects. End Note) Lagos Establishes Loan Securitization Scheme LAGOS 00000259 002.2 OF 002 -------------- ¶7. (U) TransAtlantic Chairman Mike Williams told EconOff, in other past conversations related to this issue, that the company plans to build a mixed-use community that includes 4,000 to 5,000 low to high-income housing units, primary and secondary schools, and retail shops in Ilasan, a community located about 40 minutes drive outside of Lagos' commercial center. (Note: TransAtlantic uses the Nigerian Federal Government's definition of low-income housing, i.e. housing costing between Naira 2.5 million to 5 million (USD 20,000 to 40,000. End Note) The construction in Ilasan would create approximately 2,000 local jobs, Williams estimated. TransAtlantic will partner with the Lagos Building Investment Company Limited (LBIC),a primary mortgage institution and private-public venture supported by the Lagos State Government. Under this partnership, LBIC would offer potential buyers home loan financing, provide TransAtlantic the estate property, and thereby own 30 percent of the project. In light of Nigeria's housing laws, TransAtlantic will utilize Asset Backed Commercial Paper (ABCP) conduits. In using ABCP, LBIC would purchase individual loans from Nigerian banks, securitize them, and sell them to investors in order to replenish the banks' credit line. Police, Military Housing Programs Stall -------------- ¶8. (U) However, public and private housing projects with promise have faltered. TransAtlantic's Sheen told EconOff that state governments received appropriations from the Federal Government in early 2008 for a police housing program. That program has fallen by the wayside as state governments failed to allocate land and to see through the projects. TransAtlantic had planned on building 100,000 housing units for the Nigerian police in each of Nigeria's 36 states as part of the program, he said. ¶9. (U) The Nigerian military had devised a similar housing scheme for its retirees in partnership with United Bank for Africa (UBA). Under this program, 20 percent of the government's allocation to a retiree's pension would be diverted to payments on a mortgage for a period of 15 to 25 years. Conceived four years ago, the scheme took off in 2007 with the construction of 50 houses in Kogi State, but has been grounded since because the military has not been paying its retirees either pensions or post-service separation incentives. ¶10. (U) Private low-income housing projects in Kaduna, Rivers, and Anambra states have stalled as well, Sheen said. The state governments have allocated the land for the projects, but U.S. investors have not moved forward with the discussion. TransAtlantic hopes to conduct a second housing feasibility study in partnership with the U.S. Overseas Private Investment Corporation to update one done approximately five years ago. Developers Run Gauntlet of Extra-legal Taxes -------------- ¶11. (U) Despite advances in other areas, private developers continue to suffer at the whim of government officials, First Bank's Santuraki said. In Lagos State, government officials frequently add on additional levies, and developers have to absorb some of the costs and hope to pass the remainder onto the customers. This is easier to do with prime property, he noted. ¶12. (U) Comment: State governments need to realize any effort made at reducing bureaucratic bottlenecks and streamlining policies at the state level will be undermined by a lack of accountability and transparency in the system. Moreover, patchwork housing development schemes will only be a drop in the bucket in terms of the national housing deficit. Without real reforms to existing land and housing policies, good business sense will deter private investors and developers from making long-term investment. End Comment. ¶13. This cable was cleared with Embassy Abuja. BLAIR