NIGERIA: OGUN STATE ATTRACTS BUSINESSES WITH LAND, LABOR,

UNCLAS SECTION 01 OF 02 LAGOS 000486 SIPDIS DOE FOR GPERSONS, CHAYCOCK TREASURY FOR DPETERS, RHALL, RABDULRAZAK COMMERCE FOR KBURRESS USDOC FOR 3130/USFC/OIO/ANESA/DHARRIS STATE PASS USTR FOR LISER, AGAMA STATE PASS USAID FOR NFREEMAN, GBERTOLIN STATE PASS OPIC FOR ZHAN, MSTUCKART STATE PASS TDA FOR LFITTS, PMARIN STATE PASS EXIM FOR JRICHTER E.O. 12958: N/A TAGS: PGOV PHUM KDEM NI SUBJECT: NIGERIA: OGUN STATE ATTRACTS BUSINESSES WITH LAND, LABOR, AND LEADERSHIP Ref. A)Lagos 429 B)Lagos 268 C)Lagos 7 ¶1. (U) Summary: Governor Gbenga Daniel has branded Ogun "The Gateway State", increased Ogun State's internally generated revenue eight fold since taking office in 2003, and attracted over 100 new manufacturing companies to the state. Ogun's land, labor, and transportation are all less expensive than in Lagos State while the state benefits from proximity to Lagos' ports, industries, and markets. Shell Nigeria Gas provides natural gas via pipelines to power over 40 industries; three independent power projects are planned for the state; and the Ogun State Government plans to set up a power distribution company to service businesses and communities. The state believes it will generate jobs by mandating local content in its three free trade zones. The Governor is credited with making Ogun "business-friendly", and is promising to develop the state before handing over to his successor in 2011. End summary. Government Brands Ogun "Gateway State" -------------- ¶2. (U) Yosola Akinbi, Economic Adviser to the Governor, told EconOff October 29 that since Daniel's assumption of office in 2003, the state's internally generated revenue (IGR) had increased eight fold, from Naira 100 million (USD 850,000) per month to N800 million (USD 6.8 million) per month. Before 2003, Ogun state's economy had been dominated by the civil service, with no industries and businesses. Over 90 percent of the state's revenue at that time went toward recurrent expenditure. By 2006, over 100 factories had opened. In a bid to position Ogun as "The Gateway State" and a commercially-viable alternative to Lagos State, the Ogun State Government (OSG) is aggressively pursuing major infrastructure development projects, including a cargo airport, the Olokola Free Trade Zone (FTZ) and Deep Sea Port (Note: The location of the Olokola liquefied natural gas LNG project. End note),the Kajola Specialized Railway Industrial FTZ, and the Ogun-Guangdong FTZ. Proximity to Lagos Key -------------- ¶3. (U) Cheap labor and inexpensive, abundant land are drawing businesses from Lagos to Ogun State. Dimeji Owofemi, Executive Vice Chairman of Multi-Trex Investment Ltd, said Ogun has more unused land then does Lagos, and fees for acquiring land are only around 15 percent of the costs in Lagos. Salaries in Lagos are higher, and the costs associated with employee accommodation are five times higher in Lagos, he noted. According to Ade Popoola, Managing Director of Reals Confectioneries Ltd, operating in Ogun cuts the company's production costs by 35 percent and transportation costs by 25 percent. Both business executives emphasized that Ogun's comparative advantage in lower land and labor costs alone would not draw businesses out of Lagos; instead, it is Ogun's geo-strategic position as Lagos' neighbor, allowing businesses to have easy access to Lagos' ports, roads, industries, and market, that makes Ogun attractive. Pro-Business Leadership Boosts Investor Confidence -------------- -------------- ¶4. (U) Governor Daniel's pro-business attitude had been pivotal in attracting businesses and investments into Ogun State. According to Owofemi and Popoola, Daniel has made a point of meeting directly with potential investors and of attending opening ceremonies to demonstrate his commitment to companies' growth and well being. His effort alone had transformed Ogun into an investor-friendly state, the interlocutors said. Local Content Required in FTZs -------------- ¶5. (U) Economic Adviser Akinbi said the Ogun State Government (OSG) has signed a memorandum of understanding (MoU) with developers, requiring that they employ Nigerian workers for 40 percent of mid-skilled jobs and 70 percent of low-skilled jobs in the state's several FTZs. (Note: The use of local content in FTZs is a sticky issue for state governments and foreign developers, including the Chinese, who often source manual labor from their home countries. LAGOS 00000486 002 OF 002 End Note) Unlike other states, said Akinbi, OSG believes that stipulations can be negotiated that will protect local communities and generate local employment opportunities. IPPs, Transformers, Gas to Improve Power -------------- ¶6. (U) Three independent power projects (IPPs) are planned for Ogun. According to Akinbi, once the IPPs go on stream, OSG plans to form a public-private power distribution holding company to buy back from the national grid the power generated from the state's IPPs, and to distribute it to industries and communities. OSG has budgeted in fiscal year 2009 to buy transformers to service social facilities such as schools and hospitals. The transformers are already in country and will be installed starting in September 2009. Reportedly, the OSG has signed an MoU with Shell Nigeria Gas to supply natural gas to additional industries. (Ref A) Shell has connected over 40 business customers to its gas distribution network within Ogun State since 2003. Daniel Pushes Projects Before Term Ends -------------- ¶7. (U) With less than three years left in his second term, Governor Daniel needs to get key infrastructure projects going before a change in administration in 2011 will likely make them fall by the wayside, Economic Adviser Akinbi emphasized. Tri-Dex's Owofemi believes that, while projects tend to disappear with a change in administration, economically viable projects will survive changes in governments and political parties. Owofemi noted another concern to businesses, namely the lack of inter-state planning. Pointing to the natural gas pipeline that runs along the Lagos-Ibadan Expressway where his factory is located, Owofemi said his factory was built after the pipeline was laid, and, as a result, could not afford the costs of getting connected to the pipeline. His factory runs on generators, which is more expensive than natural gas. ¶8. (U) Comment: Daniel is working hard to turn Ogun's comparative advantage into jobs for the state's citizens. It remains to be seen how far he can develop the state before handing over to his successor in 2011. End comment. ¶9. (U) This cable was cleared with Embassy Abuja. BLAIR