Cablegate: Nigeria Economic Update, October 12

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

120832Z Oct 04





E.O. 12958: N/A


1. (U) This update includes:

-- Airfare Increase of 40% Expected for Domestic
-- Runway to Shut Down for 8 Months at Lagos
International Airport for Safety Upgrades
-- Textile Leaders in the Lagos Area Want to Take
Advantage of AGOA
-- Cadbury Nigeria Thrives Despite High Production

--------------------------------------------- ---------
Airfare Increase of 40% Expected for Domestic Flights
--------------------------------------------- ---------

2. (U) While the nation braced for the nationwide stay-
at-home October 11 in protest over announced fuel price
hikes, domestic airline operators saw this as the
opportune moment to decide increased fares. The press
reported that fares for domestic travel might increase
as much as 40 percent due to the expected cost increase
for jet fuel. (Note: Most domestic tickets currently
cost about 10,000 naira (around $75). End Note.)
However, an official from a domestic airline, Overland
Airways, told econoff each airline will decide their
fare increases. While some companies may seek a forty
percent hike, others may not.

3. (U) Federal Airports Authority of Nigeria (FAAN)
Chief Passages Officer, Victor Arisa, told Econoff past
fuel increases negatively affected domestic airlines.
People opt for alternative means of travel than pay
higher fares. For now, Arisa said, the airfare hike is
simply being discussed as a possibility. Comment: Some
rate of increased fares is expected as carriers pass on
their increased fuel cost to the consumer. However,
most observers believe an across-the-board 40 percent
hike is unlikely. End comment.

--------------------------------------------- ----
Runway to Shut Down for 8 Months at Lagos International
Airport for Safety Upgrades
--------------------------------------------- ----

4. (U) Meanwhile, the Murtala Muhammed International
Airport has closed one of its two runways for re-
surfacing and rehabilitation. Domestic and
international flights will therefore share a single
runway for up to eight months. Federal Airports
Authority of Nigeria (FAAN) General Manager of
Security, Mrs. A.A. Faworaja, told Econoff the closure
will not affect flight schedules due to the mutual
exclusivity of most international and domestic takeoff
and landing flight times. The runway's rehabilitation
is expected to cost more than 2 billion naira (about
$15 million).

--------------------------------------------- ---------
Textile Leaders in the Lagos Area Want to Take
Advantage of AGOA
--------------------------------------------- ---------

5. (SBU) Econoff and Econspec recently met with J.P.
Olarewaju, Executive Director of Nigerian Textile
Manufacturer's Association and Nigerian Textile Mills
management. Olarewaju said Nigerian textile
manufacturers were in bad shape. In the past seven
years, nearly 50 mills have closed around the country
and eleven are currently in danger of the same. The
GON banned textile imports in January 2004 to help
ailing manufacturers; but cheap smuggled imports still
make their way into Nigeria, crowding out locally-made
products. Nigerian textile manufacturers want to take
advantage of AGOA to boost sales but few have the
capability to produce textiles for the US market,
Olarewaju said.

6. (SBU) Dangote-owned Nigerian Textile Mills told
Econoff and Econspec it is one of only two or three
Nigerian textile producers preparing to export to the
US today. Dangote Group companies are part of the
privileged few enterprises in Nigeria with the capital
base to invest in new equipment and training to meet US
production and quality standards. During the meeting,
Nigerian Textile Mills management pleaded for US market
information (Note: Econoff referred them to the Lagos
AGOA Resource Center (reftel) End Note.)

7. (SBU) Comment: President Obasanjo's appointed
Special Advisor on AGOA has been actively prmotoing
AGOA opportunities to Nigeria's textile manufacturers
through meetings and symposiums. However this cajolery
will be largely ineffective until Nigerian
manufacturers gain the capacity to manufacture
competitively priced, quality goods. End Comment.

--------------------------------------------- ---------
Cadbury Nigeria Thrives Despite High Production Costs
--------------------------------------------- ---------

8. (SBU) During a September 24 visit to the Cadbury
Nigeria processing facility, Managing Director, Bunmi
Oni, told CG and Econoff that Cadbury is successfully
navigating the challenges of the Nigerian business
environment -- uneven power supply, import bans and
high tariffs on product inputs, and high corporate
taxes. Despite high production and ancillary costs,
Cadbury is doing well. The company's profits have
increased for each of the last four years and Oni
predicted that current production would triple or
quadruple over the next four years.

9. (SBU) To cope with a nationwide power supply
problem, the energy-intensive Cadbury factory has its
own eight megawatt power transformer on site. Cadbury
also has its own water supply and purification system.
To cope with the erratic quality and output of Nigerian
sugar and cocoa crops, Cadbury Nigeria takes measures
such as providing local cocoa farmers with higher-
quality plants, or importing products at a higher cost.
To minimize the impact of Nigeria's poor infrastructure
and the vagaries of its overall agricultural system,
Cadbury has decided to become as self-contained an
operation as possible.

10. (U) Comment: Cadbury Nigeria is proof that
companies can be successful in Nigeria despite the
challenging production environment. However, companies
have to be innovative and also have access to
sufficient capital to help them invest in ways that
overcome Nigeria's infrastructural inefficiencies. For
companies willing to take on the vast Nigerian market
opportunities and risks, Cadbury is a successful model
of ingenuity, resourcefulness and good management.

© Scoop Media

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