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Cablegate: More Scratch Card Fever: The Planned January

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

051337Z Aug 04

UNCLAS SECTION 01 OF 02 LAGOS 001611

SIPDIS

STATE PASS FCC, EX-IM, AND OPIC

E.O. 12958: N/A
TAGS: ECPS ECON EINV NI
SUBJECT: MORE SCRATCH CARD FEVER: THE PLANNED JANUARY
2005 BAN ON CARD IMPORTS

REF: (A) 04 LAGOS 1562, (B) 04 LAGOS 1364, (C) 04 ABUJA

1323

1. (SBU) Summary: As the GON's January 1, 2005 import
ban on recharge cards draws near, the Nigerian
Communications Commission is beginning to license
companies to produce the cards locally. Wary of the
reliability of most local card producers, major
Nigerian telecom companies are exploring alternatives
to recharge cards. Virtual-top-up and electronic
vouchering seem to be the favored options. End
summary.

2. (U) Readily available "scratch cards" or recharge
cards account for much of the success of the Nigerian
GSM (Ref A), fixed wireless, and international call
markets. The cards allow customers to pay for calls up-
front - a practical means of communication and payment
in Nigeria's largely cash-based economy.

3. (SBU) In May, the Communications Minister announced
an import ban on scratch cards effective January 1,
2005. In a recent conversation with Econoff,
government-owned Nigerian Security Printing and Minting
Company (the Mint) official Don Etim welcomed the ban
and confirmed the Mint's interest in getting into
scratch card production. The Mint sees itself as well-
positioned to enter the market since it already prints
secure paper products such as currencies and entry
visas (Ref B). Etim said the NCC will license four
companies to manufacture scratch cards in Nigeria.

4. (U) The NCC, however, apparently has not yet decided
to limit the number of licenses. MTN Chief Corporate
Affairs Executive, Joke Giwa, and Odu'a Telecoms Ltd.
(Oduatel) General Manager, Olusegun Owolabi, told
Econoff in separate meetings that they had not heard
about such a limitation. Owolabi asserted the NCC is
likely to consider all applications for production
before announcing the number of licensees.

5. (U) Recently, the NCC announced 27 recharge card
manufacturers or distributors met the criteria to pre-
qualify for production licenses. These companies have
until August 9, 2004 to submit applications for the
next and final stage of "processing the applications".

6. (U) While telecom company officials we talked to do
not trust Nigerian local producers of scratch cards,
they also do not seem concerned about the ban. They
are confident about identifying alternatives to scratch
cards. Industry sources have reported possible
substitutes like MTN's "Virtual Top-Up" (VTU)
technology, and electronic vouchering systems. A pilot
VTU scheme is now available to selected MTN customers.
VTU users are expected to hold bank accounts through
which electronic funds are drawn to replenish
customers' calling cards.

7. (SBU) Telecom contacts, however, recognize the
limitation of the VTU in a cash economy like Nigeria,
and that electronic vouchering may be more appealing to
most subscribers. MTS First Wireless (MTS) plans to
use such a system. Customers will buy calling time
from a company-licensed dealer. They will be given
vouchers with code numbers that customers will key into
a phone to recharge minutes. French company Ingenico
is reportedly partnering with Chams Nigeria Ltd. for a
similar system.

8. (SBU) In the meantime, most operators seem to have
stockpiled cards in anticipation of the ban. (Comment:
The recent shortage of MTN scratch cards (Ref A) is
unrelated to this stockpiling. MTN is one of the few
companies we spoke with not stockpiling cards.)
Oduatel has a one-year supply of recharge cards in
country, while MTS technical engineers said the company
has enough recharge cards in stock to tide them over
until it adopts an alternative means of payment.

9. (SBU) MTN's Giwa said the company will consider
investing in its own production facility in Nigeria if
no credible manufacturer or supplier of secure recharge
cards emerges by November of this year. Giwa welcomed
interest by U.S. companies. (Comment: MTN's
traditional scratch card provider, Nitecrest, is one of
the 27 applicants for a production license in Nigeria.)
Giwa said she questions the product quality of any
company already operating in the secure printing
business in Nigeria. MTN's main concern is ensuring a
secure product, a factor of importance to MTN's
credibility.

10. (U) Nigeria's four licensed GSM operators import an
estimated 10-20 million scratch cards per month that
generate naira 10-20 billion ($76 million to $152
million) in monthly revenues. In addition, millions of
long distance, international, and fixed wireless
recharge cards are imported for use in the local
market. The recharge card ban could disrupt the flow
of billions of dollars in revenue and the life style of
millions of telecoms customers across Nigeria if
Nigerian producers cannot supply the market and
alternative means of payment do not take hold soon.

11. (SBU) Comment: The telecoms sector is Nigeria's
most profitable one after the oil sector. Its growth
potential is evident. (MTN alone projects a subscriber
base of 14 million for itself. It now serves 2.3
million in the country.) The sector is fast-paced and
ever changing; innovation may obviate need for recharge
cards in the not-too-distant future. Whether the
recharge card ban will foster local production or the
use of substitutes will be another Nigerian test of the
infant industry argument that underpins the numerous
bans instituted by the Obasanjo administration (Ref C).
If this ban follows suit with the others, local
producers by themselves will not be able to take up the
slack. Unless substitutes to scratch cards also become
available, this ban will likely have a negative effect.
End comment.

BROWNE

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