Cablegate: Central Bank Response to Demarche On Foreign

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PP RUEHMA RUEHPA
DE RUEHOS #0104/01 0741048
ZNR UUUUU ZZH
P 141048Z MAR 08
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC PRIORITY 9821
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 9546
RUEHLO/AMEMBASSY LONDON 0806
RUEHFR/AMEMBASSY PARIS 0461
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 LAGOS 000104

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E.O. 12958: N/A
TAGS: EFIN EINV PREL PGOV NI
SUBJECT: CENTRAL BANK RESPONSE TO DEMARCHE ON FOREIGN
INVESTMENT RESTRICTIONS

REF: A. STATE 13856

B. ABUJA 127

1. (SBU) Summary. The Ambassador met with the Nigerian
Central Bank (CBN) Governor Chukwuma Soludo on March 6 to
express U.S. concerns about planned restrictions on foreign
investment in Nigerian banks. Soludo remained firm in his
intention to press forward with the new rules. While
foreigners will be free to apply for banking licenses to
compete in Nigeria provided they have 25 billion naira (USD
215 million), they will not be permitted to acquire stakes in
existing Nigerian banks above 10 percent. The Governor
reasoned that foreigners, particularly Americans, were too
risk adverse and the threat of capital flight was too great
to allow them to purchase outright existing Nigerian banks.
He sees Nigerian banks as part of the development framework
with branches throughout the country, something foreign banks
have shied away from. The Ambassador stressed our concern on
this issue, noting that there should not be any restrictions.
Despite our emphasis on this point, the CBN Governor was not
convinced and the policy is considered firm. End Summary.

2. (SBU) The Ambassador met with CBN Governor Soludo on March
6 to express U.S. concerns over the CBN's plans to restrict
foreign acquisition of Nigerian banks. When asked by the
Ambassador about the plans, Soludo acknowledged that Nigeria
will restrict foreign ownership of Nigerian banks to 10
percent of a bank's total capital. He gave the Ambassador a
copy of a Central Bank circular that will officially announce
the new restrictions. The paper elaborates on what the
governor told the Ambassador. According to the circular, for
any Nigerian owned bank, non-Nigerian individual or
institutional investors may not own more than the share of
the largest Nigerian investor nor may the total foreign
shareholding exceed 10 percent. Foreigners currently owning
more than 10 percent of a bank are grandfathered in, but they
may not exceed their current ownership level. Local Nigerian
banks may acquire or merge with a foreign bank only if the
foreign bank has operated in Nigeria for five years and has
branches in two thirds of the 36 states, excluding branches
in state capitals. In that case, foreign ownership of the
merged bank is restricted to 40 percent.

3. (SBU) Soludo said the risk adverse nature of foreign banks
was behind the decision. He pointedly and repeatedly held up
Citibank as an example of an risk adverse institution,
claiming the bank had operated in Nigeria for decades while
establishing few branches and restricting its commercial
lending to a few corporate clients. According to Soludo,
foreign banks like Citibank take commercial lending decisions
out of the hands of local Nigerians, delaying and preventing
needed investment in the country. Soludo also countered that
politicians in the United States have recently displayed a
hostile attitude towards foreign acquisition of U.S.
companies and financial institutions and he asked
rhetorically what the U.S. Government's reaction would be to
an hypothetical acquisition of J.P. Morgan by Chinese
investors. He did acknowledge that Nigeria may eventually
revisit the restrictions, but said that would be after his
own service as Governor was over. The CBN Governor noted
that bank licensing requirements for foreigners are the same
as for Nigerians and foreigners are free to apply for a
license to operate a bank in Nigeria if they meet the 25
billion naira (USD 215 million) capital requirement.

4. (SBU) The governor also raised the risk of capital flight
as a reason for restricting foreign ownership. He claimed
that foreigners were too quick to take their funds out of the
country at the slightest hint of bad news. Oddly, and
without irony, Soludo cited last year's call for the
redenomination of the Nigerian currency as an example.
(Note: In August 2007 the CBN announced plans to redenominate
the naira. The plan was overruled by President Yar'Auda days
later. End note). The CBN estimates that 3 to 5 billion
dollars in foreign investment left the country on the day the

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Federal Government reversed the plan.

5. (SBU) The Ambassador thanked Soludo for his openness on
the subject. She explained the benefits of open investment
in financial institutions and presented the Governor with a
non-paper drawn from the talking points in ref A. The
Governor thanked the Ambassador for her interest and received
the non-paper, but was firm in his position. When asked by
the Ambassador if the policy was in already place Soludo said
it was and that he was finalizing the formal announcement.

6. (SBU) In a subsequent lunch of the American Business
Council attended by the Ambassador and Assistant Secretary of
Commerce Israel Hernandez, Soludo went on to chide U.S.
investors for being too risk adverse. He said that while
Chinese, Indians, and Europeans were investing in Nigeria,
Americans were still doing their risk analysis. In his
words, American investors are "waiting until the food is
fully cooked" before coming to the table. The Ambassador
countered that Americans are investing in Nigeria, noting the
numerous U.S. companies operating in the country and the
interest of those actively exploring the Nigerian market.
(Note: His comments about AGOA will be reported septel. End
Note.)

7. (SBU) Comment: It is clear that Soludo is set in his
decision to restrict foreign bank ownership. It is less
clear whether that decision is being driven by a genuine
concern over investment and development in Nigeria or a
desire to protect established banks and their Nigerian
owners. Apparently Soludo does not see the contradiction in
decrying the lack of American investors while building
another barrier that could hinder their investment interest.
End Comment.

8. (U) This cable was cleared by Embassy Abuja.
BLAIR

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