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Cablegate: Nigeria: Hernando de Soto Tells Lagos Governor How to Make

VZCZCXRO1512
RR RUEHMA RUEHPA
DE RUEHOS #0169/01 1330831
ZNR UUUUU ZZH
R 120831Z MAY 08
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 9900
INFO RUEHUJA/AMEMBASSY ABUJA 9614
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC

UNCLAS SECTION 01 OF 02 LAGOS 000169

SIPDIS

COMMERCE FOR KBURRESS
ENERGY FOR PERSON, CHAYLOCK
TREASURY FOR DPETERS, RHALL, RABDULRAZAK
STATE PASS USTR FOR LISER, AGAMA
STATE PASS TRANSPORTATION FOR KSAMPLE
STATE PASS OPIC FOR ZHAN, MSTUCKART, JEDWARDS
STATE PASS TDA FOR EEBONG, DSHUSTER
STATE PASS EXIM FOR JRICHTER
STATE PASS USAID FOR NFREEMAN, GBERTOLIN

E.O. 12958: N/A
TAGS: ECON EFIN EINV NI

SUBJECT: NIGERIA: HERNANDO DE SOTO TELLS LAGOS GOVERNOR HOW TO MAKE
LAGOS WORK FOR THE POOR

1. (U) Summary: Delegates to the 22-25 April Lagos State Economic
summit discussed the challenges facing Lagos city as it attempts to
transform itself from a congested urban environment to a modern mega
city. Renowned economist Hernando De Soto said a property titling
system can create access to credit for the state's poor and bring
them into the formal sector. The focus must be on practical means to
transform the State into a livable, workable place for Nigeria's
poor. A former Singaporean development official described the
constellation city model used in Singapore as the appropriate model
for the new Lagos mega city. The U.S. Chief of Mission to Nigeria
attended the State Summit dinner and Closing Ceremony. End
summary.

Lagos: Toward A Model Mega City
-------------------------------

2. (U) The Fourth Lagos State Economic Summit "Transforming Lagos
into Africa's Model Mega City" was held from April 22 - 25. It
focused on seven thematic areas the Lagos State Government (LSG)
considered pivotal to transforming Lagos into a model mega city.
They are power; environment, water, and sanitation; housing and
physical planning; transportation; public order and security; human
capital development; and finance. Governor Babatunde Fashola,
Former Governor Bola Tinubu, Economic Adviser to the President
Tanimu Yakubu, and other top state government officials attended.
The U.S. Chief of Mission to Nigeria attended the State Summit
dinner and the Closing Ceremony. The summit drew extensive
participation from the public and private sectors, foreign
investors, and international financial institutions. Inaugurated
under former Governor Tinubu eight years ago, Lagos State hopes to
make this an annual event.

Prior Summit Reap Results
-------------------------

3. (U) Ben Akabueze, Commissioner for Budget and Economic Planning
and Chairman of Summit Organizing Committee highlighted the state
government's progress in implementing previous summit
recommendations. He listed the introduction of the Land Use charge
to consolidate existing land-related fees paid annually by
landowners, computerization of the land registry, and passage of
laws to establish State microfinance initiatives for graduates of
vocational training as examples. The State has increased internally
generated revenue (IGR) to 10 billion naira (USD 83 million) per
month and instituted a 40 billion naira (USD 333 million) mortgage
loan program for civil servants.

Titling is Key to the Poor's Economic Participation
--------------------------------------------- ------

4. (U) Lagos State Government must put in place a property title
system that goes beyond just proving ownership; it must also create
access to credit, Hernando De Soto told attendees via video
recording. There can be no credit, capital or rule of law without a
good property titling system, he elaborated. The LSG must be
willing to provide a framework that draws people out of the shadow
economy to register their property and that provides the necessary
incentives for more property owners to pay taxes. These incentives,
De Soto contended, must include security and key infrastructure such
as roads and drainage. In addition, the property titling system
must allow landowners to use their land as collateral for loans.

5. (U) Vice President of the Institute of Liberty & Democracy (ILD)
Manuel Mayorga drew out the practical elements of De Soto's theme in
his remarks on "Legal Enterprises and Property Rights". He noted
that people operate in the "extralegal economy" because the legal
system is burdensome and not adapted to local norms and needs. The
extralegal sector does not include the poorest of the poor; rather
it creates jobs and wealth for a large informal economy in any
developing country. He therefore urged the LSG to dispel the idea
that people in this sector are unwilling to pay taxes and to make
every effort to bring them into the mainstream. He also urged
leveraging local knowledge, so that properly registered property can
become a source of working capital.

LAGOS 00000169 002 OF 002

Link "Constellation Cities" by Transport
----------------------------------------
6. (U) Liu Thai Ker, former CEO of Singapore Urban Redevelopment
Authority, presented the "constellation cities" model, where
settlements are divided into clusters of 2.5 to 3 million people, as
an appropriate design for Lagos. Each "constellation" city is
developed based on its special characteristics and then linked to
other cities by a modern inter-modal transport system.
7. (U) Noting that the Lagos Mega City includes four local
government areas (LGAs) in neighboring Ogun State, Lagos State
Commissioner for Urban Development Bolaji Abosede said the state is
already sectioned into constellation cities. Starting with the
constellation city made up of Victoria and Ikoyi Islands, the LSG
plans to rehabilitate roads in and between at least seven
constellation cities including the Lekki-Epe, Ikeja and Yaba areas
of the state. Each constellation city has a central business
district (CBD) to minimize the need for people to leave their
locality to have access to basic social and economic services. At
the same time, he said, developing new towns can help to decongest
the city center. Efforts are being made to convince owners of old
buildings within development areas to allow construction of modern
multi-story buildings on their sites in exchange for partial
ownership upon completion. While this approach has been partially
successful, many property owners remain suspicious. The government
is also facilitating mortgage loans for shop owners in several
markets currently under redesign, Abosede said.
Promote Green Spaces for the Poor
---------------------------------
8. (U) Enrique Penalosa, former Mayor of Bogota, touted changes to
the Bogota urban environment that brought green spaces to the poor.
In a rapid fire presentation, he showed slides of bike paths
paralleling major streets, housing developments bordering parks,
streets closed to vehicular traffic to allow recreational
activities, and other innovative approaches to making the urban
environment habitable for the poor. The audience gave him a
standing ovation, with one participant remarking "that man could be
elected mayor of Lagos".
Internally Generated Revenue Grows by 300 percent
--------------------------------------------- ----
9. (U) Lagos State's internally generated revenue (IGR) reached
31.48 billion naira in first quarter 2008. Executive Chairman of
Lagos State Internal Revenue Service Tunde Fowler said the IGR grew
from 34.53 billion naira in 2004, to 94.85 billion naira in 2007,
growth of 300 percent over the period. As the economic capital of
the country, the State has the potential to generate even more
revenue, he said.
Improve Tax Collection to Close Budget Gap
------------------------------------------
10. (U) Taxation remains the main source of funding for the Lagos
State Government. The more government relies on private funding, the
costlier the projects become, said Ade Ipaye, Special Adviser to
Lagos State Governor on Taxation. The LSG requires 16.2 billion
naira (USD 135 million) monthly to fund its budget and it is
estimated that 50 percent will be funded by the State's IGR, which
is currently only 10 billion naira (USD 83 million) monthly. To
bridge the gap, the LSG plans to increase tax revenue by plugging
loopholes in its tax system, improving the collection process, and
simplifying tax procedures. Ipaye warned that in the future
taxpayers will have to show tax payment documentation in order to
obtain contracts and licenses as well as conduct land transactions
and other business with the state government.
11. (U) Comment: De Soto and Penalosa sent a resounding message to
the LSG: focus on practical means to make the city sustainable and
livable for Nigeria's poor. The administrations of Action Congress
Governors Tinubu and Fashola appear to have responded with reforms
to Lagos' property registration systems, improved public
transportation, and increased green space and parks. Nevertheless
they face an uphill battle to transform Lagos into a model mega
city. End Comment.

12. (U) This cable was cleared with Embassy Abuja.

Blair

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