Cablegate: Nigeria: Report Casts Doubts On Viability of Africa Finance

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RR RUEHMA RUEHPA
DE RUEHOS #0315/01 2200731
ZNR UUUUU ZZH
R 070731Z AUG 08
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 0102
INFO RUEHUJA/AMEMBASSY ABUJA 9779
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC

UNCLAS SECTION 01 OF 03 LAGOS 000315

SIPDIS

STATE PASS USTR FOR AGAMA
STATE PASS USAID FOR NFREEMAN, GBERTOLIN
STATE PASS EXIM FOR JRICHTER
STATE PASS OPIC FOR ZHAN, MSTUCKART, JEDWARDS
STATE PASS TDA FOR LFITTS, PMARIN
DOC FOR 3317/ITA/OA/KBURRESS
DOC FOR 3310/USFC/OIO/ANESA/DHARRIS
DOJ FOR MARIE-FLORE KOUAME
TREASURY FOR RHALL, DPETERS

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

SUBJECT: NIGERIA: REPORT CASTS DOUBTS ON VIABILITY OF AFRICA FINANCE
CORPORATION

REF: A) Lagos 201
B) Lagos 143
C) 07 Lagos 549

1. (SBU) Summary: On July 23, news media reported the submission of
a report by the Presidential Committee set up by President Yar'Adua
to investigate the Central Bank of Nigeria (CBN) Governor Chukwuma
Soludo's role in setting up the Africa Finanace Corporation (AFC), a
multilateral development corporation. The report found the CBN
lacking authority in making an investment in the AFC and Governor
Soludo liable for gross negligence and abuse of office with his role
in the corporation's set up. Nigerian commercial banks with equity
holdings in AFC are not concerned about their investment. AFC,
under new leadership, is moving faster than before. End Summary.

Committee Divided on Soludo's Role
----------------------------------

2. (U) On July 23, news media reported that the Presidential
Committee, set up by President Yar'Adua on April 14 to determine
whether the CBN acted within the law and regulations in setting up
the Africa Finance Corporation (AFC), and to verify the CBN's
authority to invest USD 462 million equity in the institution,
submitted its report to the Federal Government Attorney General.
Saharareporters published excerpts of the report on its website.
(Comment: Saharareporters, reputedly an online news agency
comprising of international reporters, is known for its sensational
news reporting. It is unclear how Saharareporters obtained a copy
of the report. End Comment)

3. (SBU) AFC contact told EconOff July 26 that the Presidential
Committee actually submitted two reports because the committee
members were divided in their assessment of the CBN and Governor
Soludo's roles in setting up the corporation. The AFC received the
same report published by Saharareporters. According to the contact,
a second report is more sympathetic to Governor Soludo, although it
is unknown to whom, if anyone, it has been submitted. The
Government of Nigeria (GON) has yet to make any public statement
regarding the report.

Report: CBN Lacked Authority to Invest
---------------------------------------

4. (U) According to the report published by Saharareporters, the CBN
invested roughly USD 463 million as a 42.5 percent equity stake in
AFC, and the CBN Board approved the transaction on August 2, 2006.
The AFC was launched in April 2007, and the CBN authorized the first
fund transfer in November 2007.
The Committee found that, although the governments of Guinea-Bissau
and Sierra-Leone had transmitted "letters of acceptance" of the
offer to join in early 2008, there had been no actual investment
made.
Conceptualized as a multilateral development institution with
government-based membership, the report said the CBN investment
needed "the express approval of the Federal Government of Nigeria",
similar to the ratification of a treaty, before funds could be
committed. In the absence of such approval, the CBN "lacked the
authority" to invest in the AFC, the report found.

5. (U) On May 2, the Committee told the CBN to withdraw its
investment in the AFC; the CBN effectuated this request on May 8.
CBN funds are now in an account with JP Morgan Chase Bank, pending a
final decision by the GON on the continuation of its investment in
the AFC. The Committee directed the CBN on June 27 to make no
withdrawals or have any "adverse dealings" on the account pending
the GON's final decision.

Report: Soludo "Grossly
Negligent", Abused Office
-------------------------

6. (U) The report found CBN Governor Soludo to be the "chief
visioner" and "active directing mind" of the AFC initiative. The
CBN Board's decision to commit funds to the AFC in November 2007,
before it became legally operational, was "hasty, procedurally wrong
and legally flawed." Purportedly Soludo received approval for CBN's
investment in AFC from former President Obasanjo before Obasanjo

LAGOS 00000315 002 OF 003

left office in May 2007; however, the CBN's payment was not made
until five months later in November, under President Yar'Adua's
administration. According to the report, Governor Soludo failed to
brief President Yar'Adua and the Federal Executive Council on the
need for AFC's ratification from the time of the fund transfer to
the start of the investigation. The Committee found Soludo liable
for "gross negligence, recklessness and gross abuse of office," and
urged the GON to "take appropriate action" against the CBN Governor.

AFC's CEO Sacked
----------------

6. (SBU) EconOff's AFC contact said July 22 that Austine Ometoruwa,
AFC's Chief Executive Officer, had been suspended in an emergency
AFC Board meeting. The suspension was ostensibly because of
Ometoruwa's slow and ineffectual management style. The contact said
AFC Vice President Solomon Asamoah had taken over. On July 23,
local news media reported Ometoruwa's suspension coincided with the
submission of the committee report. (Comment: Banking and financial
interlocutors had speculated that Ometoruwa would be removed as a
strategy to take the heat off Governor Soludo and to save the AFC.
End Comment)

Banks Not Worried About Investment in AFC
-----------------------------------------

7. (SBU) Nigerian commercial banks with substantial investments in
AFC and memberships on its Board of Directors are not worried that
recent developments threaten the funds committed. China
Onyemelukwe, Managing Director of Zenith Capital, told EconOff July
3 that CBN Governor Soludo made personal phone calls to bank heads
to cajole them into investing. When Zenith Bank's Managing Director
received a call from Soludo asking for investment, he consulted
first with Onyemelukwe then with other banks. The banks consulted
among themselves about the amount of investment each would
contribute, Onyemelukwe explained. Zenith invested with the
understanding that it would get its equity holdings back should
anything happen to AFC, he said. Oti Ikomi, Executive Director of
Corporate Banking Group, Oceanic International Bank, told EconOff
June 11 that it would be "easy" for Oceanic to withdraw its funds.
(Note: Zenith and Oceanic Banks each has a 4.59 percent equity
holding in AFC. End Note)

AFC's Capital Base Small
Compared to Nigeria Banks
-------------------------

8. (SBU) Zenith Capital's Onyemelukwe said the AFC, under former CEO
Austine Ometoruwa, tried to position itself in direct competition
with local commercial banks. According to Onyemelukwe, AFC would
arrive at meetings and insist on taking the lead over the commercial
banks in negotiating project contracts and terms. He said the banks
did not understand the reasons behind AFC's jostling for power; the
corporation's USD 1 billion capital base is considered "a drop in
the bucket" when compared to the capital bases of the local
commercial banks. Onyemelukwe also noted that the former CEO
Ometoruwa spent a lot of time in Europe and did not successfully
enlist buy-in from stakeholders.

AFC Pushing Ahead with Projects
-------------------------------

9. (SBU) Post's AFC contact said the corporation is moving ahead
even faster than before under the leadership of Solomon Asamoah, the
new AFC CEO. During his first week in office, Asamoah had
demonstrated a decisive and organized management style, the contact
said. AFC contact expressed confidence that the corporation would
be successful. She claimed that one large local commercial bank had
tried to recruit AFC staff to manage development projects similar to
those in AFC's portfolio, signifying AFC's early success in
originating and structuring projects in Nigeria.

10. (SBU) Comment: The rumored submission of two reports by the
Presidential Committee reflects the division between AFC's
enthusiasts and its critics. It is unclear whether AFC will survive
without the CBN equity investment and Soludo's support. End comment.

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

Blair

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