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Cablegate: Nigeria: Ogun State Attracts Businesses with Land, Labor,

VZCZCXRO7070
RR RUEHMA RUEHPA
DE RUEHOS #0486/01 3380719
ZNR UUUUU ZZH
R 030719Z DEC 08
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 0349
INFO RUEHUJA/AMEMBASSY ABUJA 9990
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEHZK/ECOWAS COLLECTIVE
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC

UNCLAS SECTION 01 OF 02 LAGOS 000486

SIPDIS

DOE FOR GPERSONS, CHAYCOCK
TREASURY FOR DPETERS, RHALL, RABDULRAZAK
COMMERCE FOR KBURRESS
USDOC FOR 3130/USFC/OIO/ANESA/DHARRIS
STATE PASS USTR FOR LISER, AGAMA
STATE PASS USAID FOR NFREEMAN, GBERTOLIN
STATE PASS OPIC FOR ZHAN, MSTUCKART
STATE PASS TDA FOR LFITTS, PMARIN
STATE PASS EXIM FOR JRICHTER

E.O. 12958: N/A
TAGS: PGOV PHUM KDEM NI
SUBJECT: NIGERIA: OGUN STATE ATTRACTS BUSINESSES WITH LAND, LABOR,
AND LEADERSHIP

Ref. A)Lagos 429
B)Lagos 268
C)Lagos 7

1. (U) Summary: Governor Gbenga Daniel has branded Ogun "The Gateway
State", increased Ogun State's internally generated revenue eight
fold since taking office in 2003, and attracted over 100 new
manufacturing companies to the state. Ogun's land, labor, and
transportation are all less expensive than in Lagos State while the
state benefits from proximity to Lagos' ports, industries, and
markets. Shell Nigeria Gas provides natural gas via pipelines to
power over 40 industries; three independent power projects are
planned for the state; and the Ogun State Government plans to set up
a power distribution company to service businesses and communities.
The state believes it will generate jobs by mandating local content
in its three free trade zones. The Governor is credited with making
Ogun "business-friendly", and is promising to develop the state
before handing over to his successor in 2011. End summary.

Government Brands Ogun "Gateway State"
--------------------------------------

2. (U) Yosola Akinbi, Economic Adviser to the Governor, told EconOff
October 29 that since Daniel's assumption of office in 2003, the
state's internally generated revenue (IGR) had increased eight fold,
from Naira 100 million (USD 850,000) per month to N800 million (USD
6.8 million) per month. Before 2003, Ogun state's economy had been
dominated by the civil service, with no industries and businesses.
Over 90 percent of the state's revenue at that time went toward
recurrent expenditure. By 2006, over 100 factories had opened. In a
bid to position Ogun as "The Gateway State" and a
commercially-viable alternative to Lagos State, the Ogun State
Government (OSG) is aggressively pursuing major infrastructure
development projects, including a cargo airport, the Olokola Free
Trade Zone (FTZ) and Deep Sea Port (Note: The location of the
Olokola liquefied natural gas LNG project. End note), the Kajola
Specialized Railway Industrial FTZ, and the Ogun-Guangdong FTZ.

Proximity to Lagos Key
----------------------

3. (U) Cheap labor and inexpensive, abundant land are drawing
businesses from Lagos to Ogun State. Dimeji Owofemi, Executive Vice
Chairman of Multi-Trex Investment Ltd, said Ogun has more unused
land then does Lagos, and fees for acquiring land are only around 15
percent of the costs in Lagos. Salaries in Lagos are higher, and the
costs associated with employee accommodation are five times higher
in Lagos, he noted. According to Ade Popoola, Managing Director of
Reals Confectioneries Ltd, operating in Ogun cuts the company's
production costs by 35 percent and transportation costs by 25
percent. Both business executives emphasized that Ogun's
comparative advantage in lower land and labor costs alone would not
draw businesses out of Lagos; instead, it is Ogun's geo-strategic
position as Lagos' neighbor, allowing businesses to have easy access
to Lagos' ports, roads, industries, and market, that makes Ogun
attractive.

Pro-Business Leadership Boosts Investor Confidence
--------------------------------------------- -----

4. (U) Governor Daniel's pro-business attitude had been pivotal in
attracting businesses and investments into Ogun State. According to
Owofemi and Popoola, Daniel has made a point of meeting directly
with potential investors and of attending opening ceremonies to
demonstrate his commitment to companies' growth and well being. His
effort alone had transformed Ogun into an investor-friendly state,
the interlocutors said.

Local Content Required in FTZs
------------------------------

5. (U) Economic Adviser Akinbi said the Ogun State Government (OSG)
has signed a memorandum of understanding (MoU) with developers,
requiring that they employ Nigerian workers for 40 percent of
mid-skilled jobs and 70 percent of low-skilled jobs in the state's
several FTZs. (Note: The use of local content in FTZs is a sticky
issue for state governments and foreign developers, including the
Chinese, who often source manual labor from their home countries.

LAGOS 00000486 002 OF 002


End Note) Unlike other states, said Akinbi, OSG believes that
stipulations can be negotiated that will protect local communities
and generate local employment opportunities.

IPPs, Transformers, Gas to Improve Power
----------------------------------------

6. (U) Three independent power projects (IPPs) are planned for Ogun.
According to Akinbi, once the IPPs go on stream, OSG plans to form a
public-private power distribution holding company to buy back from
the national grid the power generated from the state's IPPs, and to
distribute it to industries and communities. OSG has budgeted in
fiscal year 2009 to buy transformers to service social facilities
such as schools and hospitals. The transformers are already in
country and will be installed starting in September 2009.
Reportedly, the OSG has signed an MoU with Shell Nigeria Gas to
supply natural gas to additional industries. (Ref A) Shell has
connected over 40 business customers to its gas distribution network
within Ogun State since 2003.

Daniel Pushes Projects Before Term Ends
---------------------------------------

7. (U) With less than three years left in his second term, Governor
Daniel needs to get key infrastructure projects going before a
change in administration in 2011 will likely make them fall by the
wayside, Economic Adviser Akinbi emphasized. Tri-Dex's Owofemi
believes that, while projects tend to disappear with a change in
administration, economically viable projects will survive changes in
governments and political parties. Owofemi noted another concern to
businesses, namely the lack of inter-state planning. Pointing to
the natural gas pipeline that runs along the Lagos-Ibadan Expressway
where his factory is located, Owofemi said his factory was built
after the pipeline was laid, and, as a result, could not afford the
costs of getting connected to the pipeline. His factory runs on
generators, which is more expensive than natural gas.

8. (U) Comment: Daniel is working hard to turn Ogun's comparative
advantage into jobs for the state's citizens. It remains to be seen
how far he can develop the state before handing over to his
successor in 2011. End comment.

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

BLAIR

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