Cablegate: Nigeria Economic Update October 2004

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





E.O. 12958: N/A

1. (U) Summary: Nigerian manufacturers estimate they
lost roughly USD 150 million due to the October 11-14
nationwide fuel price strike. The strike may resume as
early as November 1. Several local airlines have
increased fares on domestic routes, primarily in
response to the increase in aviation fuel costs. Fuel
supply has also been a problem for the airlines. Banks
continue to consolidate in order to meet the
capitalization requirement set by the Central Bank of
Nigeria (CBN). US bank, Citigroup (NIB), underscoring
its long-term to the Nigerian market, broke ground on a
N3.2 billion (USD 25 million) new head office complex
in Lagos. End summary.

2. (U) This update includes:

-- Strike: Businesses Count Losses
-- Domestic Fare Increases; Shortages of Aviation Fuel
-- More banks Mergers
-- Citibank Nigeria Builds New Head Office Complex

Strike: Businesses Count Losses And
Brace for Possible Phase II

3. (U) Since the October 11-14 national strike against
the government-mandated September 23 fuel price
increase, businesses have been counting their losses.
The Manufacturers Association of Nigeria (MAN)
estimated the strike took approximately N20 billion
(USD 150 million) out of its members' pockets.

4. (U) The Nigerian press has been rife with reports of
further price hikes in the offing, triggered by the
escalating world crude-oil prices. However, the
Petroleum Product Pricing Regulatory Agency (PPRA) has
stated that it did not expect further price increases
yet, since products now being sold were imported
previously, when world market prices were lower.
(Note: Gasoline sold at N43 per liter before the
September 23 increase. Currently it sells for between
N52 and N55 across the country. Diesel increased from
N52 to N60 and kerosene from N50 to N62 per liter. End

5. (U) The two-week respite given at the end of the
October 11-14 strike by the NLC and other strike
organizers expires November 1. The NLC has ordered its
affiliate unions and state councils to "mobilize" for
phase II of the strike, but it has not yet announced
the strike's official resumption. Talks between labor
leaders and the GON continue.

--------------------------------------------- ------
Domestic Airfares Increase; Aviation Fuel Shortages
--------------------------------------------- ------

6. (U) Effective October 11, Nigerian domestic air
carriers increased fares between N1500 and N4500, which
represented about a 20 percent mark-up. The managing
director (MD) of one airline told us the fare increases
result from the rise in aviation fuel prices and from
fuel supply concerns. (Note: Domestic retailers
increased aviation fuel prices by 28 percent on
September 9.) The MD stated that airlines in the
competition-fierce domestic industry have been
reluctant to raise fares in response to previous fuel
price hikes for fear of losing customers. However, the
latest increase was too large for the carriers to
absorb. The other part of the equation, the MD said,
was fuel supply, which he characterized as "haphazard."
The MD said the supply problem was especially acute in
Abuja. Routes between Abuja and smaller airports such
as Ibadan and Ilorin were becoming unreliable. Some
airlines have chosen not to raise the nominal price of
their flights but have added a hefty "fuel surcharge."

More banks Mergers

7. (U) Banks continue to consolidate in order to comply
with the CBN's July 6 directive requiring all banks to
recapitalize to N25 billion ($188m) by December 2005.
Two mergers occurred in October. The new banks are
Astrabank (made up of Manny, Guardian Express, First
Atlantic and Assurance banks) and Sterling Bank
(Prudent, Magnum Trust, EIB International, NBM Bank and
Trust Bank of Africa).

8. (U) Astrabank has a combined network of over 120
branches, total asset N71 billion ($533m), total
deposit N48 billion ($361m) and total shareholders
funds N11 billion ($82m). While Sterling bank also with
about 120 branches, has total asset base N100 billion
($751m), a total deposit base about N66 billion ($496m)
and total shareholders fund N15 billion ($112m).

9. (U) The banking recapitalization initiative yielded
its first acquisition in October as Guaranty Trust Bank
(GTB) acquired Inland Bank. Stating a need for country-
wide strength, GTB which had strong operations in
southern Nigeria acquired Inland bank, whose 44
branches were primarily located in the north. This
acquisition will raise GTB's capital base from its
current N34 billion ($255m) to an estimated N40 billion
($300m) by end-2004.

10. (U) Meanwhile, some banks continue to try to meet
the CBN requirement by raising funds from the stock
market. Notable among such banks are Oceanic bank,
Access bank and Afribank. Oceanic bank floated its
initial public offer (IPO) to raise N16 billion or
$120m, while Access bank is attempting to raise N8.7
billion or $65.4m. Afribank, which is partly state-
owned, also went to the market to raise about N9
billion or $67.7m. (Comment: Some analysts are
skeptical the market can accommodate all the IPOs in
the offing. End comment.)

--------------------------------------------- --
Citibank Nigeria Builds New Head Office Complex
--------------------------------------------- --

11. (U) On October 22, Citigroup (Nigeria International
Bank) held a ground-breaking ceremony for its new N3.2
billion ($24m) head office complex in Lagos. The
building is expected to be completed by December 2006.
With over $87 million (N11.6bn) in investments,
Citigroup (NIB) represents the largest US investment in
Nigeria outside the energy sector, providing some 400
jobs in Nigeria.


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