Some US Companies in Nigeria Point to Poor Governance as

UNCLAS SECTION 01 OF 02 LAGOS 000243 SENSITIVE SIPDIS DEPARTMENT FOR EE/TPP/ABT/ATP SPECK TREASURY FOR PETERS AND HALL DOC FOR 3317/ITA/OA/KBURRESS, 3130/USFC/OIO/ANESA/DHARRIS E.O. 12958: N/A TAGS: ECON EAGR EAID ETRD NI SUBJECT: Some US Companies in Nigeria Point to Poor Governance as Chief Obstacle ¶1. (SBU) Summary. Representatives of American business that are part of the American Business Council (ABC) in Nigeria on May 15 outlined for visiting Nigeria Desk Officer the multitude of problems that US investors face in Nigeria as well as the opportunities presented by the Nigerian market. Pfizer noted enforcement of intellectual property rights as a major problem it currently faces, while the high cost of doing business in Nigeria will keep it from manufacturing locally for the foreseeable future. General Electric (GE) said corruption was its biggest fear. (Note: GE on May 27 signed its first country-to-company agreement with the GON. End Note.) Meanwhile Coca-Cola remarked on Nigeria's high cost of capital, poorly trained labor force, and plethora of regulatory agencies often working at cross purposes. The executives universally identified the Nigerian government's economic mismanagement as their chief constraint. Despite these roadblocks, executives indicated that Nigeria was simply too large of a market, with the potential for continued returns on investment, to ignore. End Summary. Pfizer: Flimsy Legal Environment Checks Presence -------------- --- ¶2. (SBU) In a series of meetings in Lagos on May 15, the Nigeria Desk officer and EconOff heard the variety of challenges that confront US non-oil industry manufacturing companies operating in Nigeria. Pfizer's Country Manager for Nigeria, Enrico Liggeri, said Nigeria's high production costs prohibited the company from manufacturing in Nigeria and that the company's sole function in Nigeria is to market pharmaceuticals produced elsewhere. Liggeri said Pfizer would not even consider locating manufacturing in Nigeria due to the lack of local infrastructure and high labor costs. He recounted a recent World Bank study that found Nigeria's workforce to be the least productive in Africa, due to high costs and low skill and education levels. ¶3. (SBU) Liggeri saw little progress on intellectual property rights (IPR) and requested USG assistance to help the Nigerian government improve its legal code and customs enforcement. (Note: The Mission is providing technical assistance on IPR issues. End Note.) Draft legislation that carried stricter penalties for IPR violations was stalled in the legislature. Meanwhile, Liggeri opined that pervasive corruption within the Nigerian Customs Service probably negated the impact of training for customs officials. Liggeri did however note that efforts to sensitize customs officers to the health dangers posed by counterfeit drugs could encourage greater enforcement. ¶4. (SBU) Liggeri provided an update on the lawsuit brought against Pfizer by the federal and Kano state governments for allegedly undertaking clinical trials without proper documentation and expressed confidence that the matter would be settled out of court soon. While looking forward to putting the matter to rest, Liggeri said the lasting impact of the suit was to scare away all pharmaceutical firms from conducting potentially lifesaving clinical trials in Nigeria for the foreseeable future. GE: Concerns About Risks -------------- ¶5. (SBU) GE Country Executive Lolu Adubifa noted that pervasive corruption was the company's chief challenge in Nigeria. He said GE's reputation and share value were the company's two greatest assets and that corporate management wanted to ensure these were protected and not jeopardized by participating in questionable business practices common in Nigeria. Of chief concern, according to Adubifa, were the practices of GE's counterparties in Nigeria, the constant vetting of which consumed vast resources. ¶6. (SBU) Interacting with the Nigerian government, the chief consumer of GE's electrical products, was a particular frustration for Adubifa. He opined that the government lacked sufficient vision and programmatic skills to sufficiently address the power situation in Nigeria. While Adubifa believed that the government's goal of producing 6,000 mega watts by the end of this year was achievable by implementing some quick fixes, he said power sector policy paralysis would almost certainly undermine further gains. Coca-Cola: Pressed On Virtually Every Front -------------- ¶7. (SBU) Coca-Cola Managing Director Islay Rhind and his management LAGOS 00000243 002 OF 002 team said the company and its associated bottlers in Nigeria faced a range of obstacles. Of chief concern for the bottlers were access to affordable financing and skilled labor. Even before the current global financial crunch, Nigeria's high cost of capital forced Coca-Cola bottlers to raise funds from shareholders, rather than seek bank financing. Low education standards, according to the executives, had forced Coca-Cola and its bottlers to provide basic technical training to its roughly 7,500 workers. Although retention of skilled labor was a perennial concern, the executives noted they had no choice but to invest in the training to overcome declining education standards. ¶8. (SBU) The Coca-Cola executives said Nigeria's Byzantine regulatory system and antiquated intellectual property rights regime were persistent problems. Coca-Cola operations in Nigeria have to comply with multiple regulators with similar functions but conflicting compliance requirements. Moreover, the statutes were unclear and presented little avenue for recourse. The executives noted that intellectual property-the firm's greatest asset-was not recognized by Nigerian authorities as being of value. For instance, Nigeria's outdated legal code does not recognize a new bottle design as intellectual property even though it is crucial to Coca-Cola's brand value. ¶9. (SBU) Despite challenges at all levels of operations, Rhind said Coca-Cola's presence in Nigeria was crucial to its global strategy and that there was huge potential for growth in this market of more than 140 million people. Suggesting that the Nigerian market for bottled drinks was still largely untapped, the executives noted that annual per capita consumption ranged from 141 units in Lagos to 16 units in the north, as compared to roughly 260 in South Africa. Speaking to the importance of this market, Rhind said Nigeria was one of only three locations in Africa where Coca-Cola manufactured soft drink concentrate. ¶10. (SBU) Comment: Despite representing different sectors, the executives from Pfizer, GE, and Coca-Cola painted a near-uniform picture of American companies seeking to expand ties to Nigeria but struggling with the country's poor business environment. The laundry list of problems is long and familiar but ultimately can be traced back to government mismanagement or outright predation. These and other American firms, with the Mission's support, have begun to come together in the form of the American Business Council in the hope of creating a more effective lobby for more business-friendly regulation. Pfizer's Liggeri characterized Nigeria as a challenging opportunity, but until the Nigerian government improves the country's business climate the challenges will remain and the opportunities will not fully materialize. However, they all indicated that the potential of Nigeria's market, in spite of the challenges, remains part of their business goals given the sheer size of the country and its population. End comment. ¶11. (U) This cable has been cleared by Embassy Abuja. Blair