Cablegate: Nigeria: Economic Roundup Cable

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 ABUJA 002884

SIPDIS

STATE FOR AF/W, AF/EPS

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD NI
SUBJECT: NIGERIA: ECONOMIC ROUNDUP CABLE

REF: A. ABUJA 2768
B. ABUJA 2626
C. ABUJA 2567

1. This periodic economic report includes:
--Dutch Auction Holds Naira Steady
--Supplemental Budget Withdrawn
--IMF and GON begin Article IV Consultations
--Hotels' Privatization in Jeopardy
--Business Opportunities for U.S. Firms in Lagos State
--Nigeria to sign Paris Club Debt Agreement with U.S. by
November

Dutch Auction Holds Naira Steady
--------------------------------
2. At the Central Bank's latest Dutch Auction, held October
15, the Naira traded at between 127 and 128 to the dollar,
consistent with weeks previous and about a 5 percent
depreciation from before the auction was introduced in July
2002, when it traded at about 121 (Ref. B). Central Bank
Deputy Governor for Policy Ernest Ebi told econoffs last week
that bank management is pleased with how the Dutch Auction
System (DAS) has operated to date, claiming that the
differential between the DAS-determined exchange rate and the
parallel market has now narrowed to less than 8 percent.
Meanwhile, Chief Economic Advisor to the President Magnus
Kpakol recently commented that "the differential was
practically zero." Comment: Our calculations, based on a
parallel market rate of 137.5 naira/dollar, indicate that the
differential is closer to 9 percent, still a decent rate of
return for those with access to dollars at the official rate
who would then sell them at the parallel market rate. End
comment.

Supplemental Budget Withdrawn
-----------------------------
3. On October 9, President Obasanjo withdrew the 236 million
naira (almost $2 billion) budget request that he had
submitted to the House of Representatives on September 22
(Ref. A). Comment: We believe that the President introduced
the supplemental budget to entice lawmakers to give up their
impeachment efforts against him. With lawmakers still
unwilling to do so, Obasanjo decided to withdraw the carrot.
End comment.

IMF and GON begin Article IV Consultations
------------------------------------------
4. An IMF team was in Abuja from October 9 to 17 to conduct
annual (the last were concluded in April 2001) Article IV
Consultations with the GON. The team will review the GON's
macroeconomic policy framework since it pulled out of an
informal monitoring agreement with the IMF in April 2002
(septel).

Hotels' Privatization in Jeopardy
---------------------------------
5. Abuja African Properties Limited, winning bidder in the
GON's privatization of the NICON Hilton Hotel, was to have
paid $61.7 million by September 27 to the Bureau of Public
Enterprises (BPE), while Hans Gremlin Nigeria Limited had
until October 4 to come up with $34 million for its winning
bid for the Abuja Sheraton Hotel and Towers. BPE officials
have confirmed press reports that they have extended the
payment deadlines to October 21 for Abuja African Properties
and October 28 for Hans Gremlin Nigeria because both
companies were unable to secure enough foreign exchange (BPE
will not accept naira) to finance the transaction. They
predict that Hans Gremlin Nigeria will be able to put
together the financing, but say that Abuja African Properties
will not be able to put together financing.

6. Meanwhile, the Abuja Federal High Court has issued a
temporary restraining order barring the sale of the NICON
Hilton Hotel pending the resolution of a suit filed by the
employees of Nicon Insurance (the parastatal insurance
company that owns the hotel property) against the BPE and
other government agencies. The plaintiffs claim that the sale
would diminish the security offered to policyholders because
NICON Insurance would lose an asset while the proceeds from
the sale would belong to the BPE.

Business Opportunities for U.S. Firms in Lagos State
--------------------------------------------- -------
7. The Governor of Lagos State is pursuing development plans
that may benefit U.S. firms. Folorunsho Falarin-Coker, the
Governor's personal assistant, told econoffs on October 11
that he and the Governor plan to go to Washington in November
to pursue talks on the rehabilitation of the Lagos State
water supply and rail transport systems. Falarin-Coker said
the Governor wants to privatize the water supply system but
must first invest state money to upgrade the system to meet
the populations immediate water needs. The Governor is also
holding talks with VW Brazil and Volvo for the purchase of
busses for use in Lagos. Falarin-Coker said the Governor
might be willing to engage in discussions with USTDA
regarding a feasibility study for the establishment of a
metropolitan bus authority, which a private operator might
help set up, operate, and transfer.

8. Probably in an attempt to show that the Governor is
serious about business, Falarin-Coker said that the Governor
opposes debt relief. He reportedly told World Bank officials
in Washington earlier this month that Nigeria should pay the
debt it owes and "get on with business." Falarin-Coker said
the Governor favors a break up of Nigeria's national
telecommunications company, NITEL, and recommends that the
utility be restructured along state or regional lines. Such a
development, if it were to come about, might generate
opportunities for U.S. firms.

Methanol Processing Plant Proposed Near Lagos
---------------------------------------------
9. Eurochem Technologies Corporation Ltd. of Singapore and
local partners are building a methanol processing plant on
Lagos' Lekki Peninsula. When operational, it is expected that
the project will utilize approximately 220 million cubic feet
of gas, currently being flared, to produce the methanol,
which will eventually be feedstock for the production of
polyethylene and polypropylene--both used in the production
of plastics. The facility is expected to serve as a hub for
other petrochemical industries in the downstream oil sector.
Ancillary infrastructure to be constructed will include a
seaport and other petrochemical manufacturing plants that
would utilize the feedstock. Annual export revenues of $350
million are being estimated. The project is being
financed--at least partially--through the ongoing debt
conversion scheme, involving purchase of the country's
external debt from creditors, presumably at some discount,
and selling it back to the debtor at a favorable rate.

Nigeria to sign Paris Club Agreement with U.S. by November
--------------------------------------------- -------------
10. Director General of the Debt Management Office (DMO) Akin
Arikawe told the Ambassador that the U.S.-Nigeria bilateral
Paris Club debt agreement will be signed by November. Arikawe
also told emboffs that Nigeria
was close to agreement with the United Kingdom on nearly $6
billion in bilateral debt. He said that the debt is to be
paid over eight years and the interest rate charged is 4.6
percent.
JETER

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