NIGERIA: AMBASSADOR DISCUSSES ECONOMIC OUTLOOK WITH

UNCLAS SECTION 01 OF 02 LAGOS 000186 SENSITIVE SIPDIS FOR GABORONE PASS PDROUIN FOR BAGHDAD PASS DMCCULLOUGH STATE PASS OPIC FOR DERB, ZHAN, MSTUCKART, JEDWARDS STATE PASS TDA FOR LFITTS, PMARIN STATE PASS USAID FOR NFREEMAN, GBERTOLIN, GWEYNAND STATE PASS EXIM FOR JRICHTER, KJACKSON DOC FOR 3317/ITA/OA/KBURRESS DOC FOR 3310/USFC/OIO/ANESA/DHARRIS DOC FOR USPTO-PAUL SALMON TREASURY FOR DFIELDS, AIERONIMO, RHALL, DPETERS E.O. 12958: N/A TAGS: EFIN EFIN EAID NI SUBJECT: NIGERIA: AMBASSADOR DISCUSSES ECONOMIC OUTLOOK WITH NIGERIA'S PRIVATE SECTOR Ref: A.) Lagos 154 ¶1. (U) Summary: In her meetings with Bank PHB and Coca-Cola on March 23 and March 25, Ambassador engaged Bank PHB and Coca-Cola executives on their outlook on the economy. Bank PHB Managing Director expressed confidence in the Central Bank of Nigeria's (CBN) recent monetary policies, and in the competency of CBN Governor Charles Soludo to shepherd the banking and financial sector through this turbulent time. In particular, he argued that a new framework, made of a better regulatory structure and improved industry standards and practices, has crystallized in the banking and financial sector, instilling a sense of confidence that Nigeria can and will weather the financial and economic crisis. Coca-Cola, however, expressed reservation about the CBN's deposit and lending interest rates cap, arguing that the cap would encourage under-the-table fees and activities by lending banks. Coca-Cola also informed Ambassador about the added costs of doing business in Nigeria, namely the Government of Nigeria's (GON) partial trade liberalization system and its penchant for imposing arbitrary levies on companies. End summary. Bank PHB Optimistic on Soludo and Economic Outlook -------------- -------------- ¶2. (SBU) Ambassador met with Francis Atuche, Managing Director of Bank PHB, on March 23 to understand the banking industry's perception of Central Bank of Nigeria (CBN) Governor Charles Soludo and his possible re-appointment in May 2009 and to discuss Nigeria's economic outlook. Atuche told Ambassador that the three hour consultation meeting on March 21 between Nigerian bank Managing Directors and Soludo was productive, resulting in an agreement effectively between the banking sector and the CBN on a 15 percent and 22 percent cap on deposit and lending interest rates for the industry (Ref A). Atuche credited Soludo for consulting with the private sector on crafting policy solutions to temper the effects of the global financial crisis and economic slow down on Nigeria. He also expressed confidence in Soludo's competency and intention to support the Nigerian banking sector. (Comment: While Atuche did not explicitly endorse Soludo's re-appointment, he neither dismissed nor criticized the idea, which in itself could be construed as a vote of confidence coming from his bank. End comment) ¶3. (SBU) Atuche believes that Nigeria will weather the financial crisis given the new regulatory and industry framework and Nigeria's relative insularity from the global financial system. According to Atuche, the CBN under Soludo's leadership has implemented sound monetary policies, which recently included the installation of an expanded discount window and the injection of foreign reserve funds into the system to boost liquidity. While acknowledging that the interest rate cap could lead to under-the-table banking activities and practices, he said the fixed two percent fee cap should prevent the problem from getting out of hand. He also said that the banking sector, under CBN management, has raised industry standards and practices over the years. Altogether, better regulatory structure and improving industry performance have resulted in a fundamental change to the system. Atuche did concede that the overall health of the banking and financial sector and economic outlook for Nigeria will depend largely on what transpires on the global stage, which in turn is linked to the U.S. market and economy. However, he believes that Soludo will help shepherd the industry through the economic hardship. Interest Rates Cap Will Not Help -------------- ¶4. (SBU) In a meeting with the Ambassador on March 25, Coca-Cola and its Nigerian bottling subsidiaries' executives alerted Ambassador to the adverse effects that the interest rate cap could have on the manufacturing sector. Coca-Cola executives contended that, even with the fixed two percent fee cap, banks would find ways to add extra fees under-the-table. As a result, they believe that the new interest rate regime would backfire. The Coca-Cola executives also told Ambassador that Coca-Cola's distributors, which are small to LAGOS 00000186 002 OF 002 medium size, currently face on average a 30 percent interest rate for overdrafts while its corporate partners enjoy on average an 18 percent interest rate for overdrafts. The high 30 percent overdraft charge is detrimental for distributors, especially in the midst of the credit crunch and liquidity crisis. (Note: Coca-Cola has over 215,000 distributors and employs about 6,200 employees in Nigeria. End note) Companies Suffer From Arbitrary Levies and Trade Restrictions -------------- ¶5. (SBU) Coca-Cola executives told Ambassador that arbitrary levies and taxes imposed by the Government of Nigeria are posing huge problems for the manufacturing industry. As examples, they talked about the corporate social responsibility bill that proposes a 3.5 percent levy and an energy bill that also proposes a 3 percent levy on a company's before-tax-profit. According to these executives, Coca-Cola is already paying a significant amount in taxes, and the imposition of arbitrary levies further eats into the company's revenue stream. In addition, Coca-Cola said the GON's system of partial trade liberalization is thwarting the growth of the domestic manufacturing base. Coca-Cola cited the sugar monopoly as presenting a significant cost to the soft-drink business. In response to this concern, Ambassador assured Coca-Cola executives of the ongoing efforts by the U.S. Mission to push the GON for more movements on the Trade and Investment Framework Agreement (TIFA), toward establishing a Bilateral Investment Treaty (BIT),and to eliminate trade barriers, tariffs, and bans. ¶6. (SBU) Comment: Even with the CBN's new monetary policies still under heated debate, Soludo's engagement with the private sector has instilled more confidence among some key banking and financial stakeholders. Coca-Cola's story, however, presents a much different picture. Ambassador will continue to engage the GON as well as private sector to assess the CBN policy impacts on key industries and the impact of the global financial crisis. End comment. ¶7. (U) This cable was cleared with Embassy Abuja. Blair