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

C O N F I D E N T I A L SECTION 01 OF 06 ABUJA 001312 
 
SIPDIS 
 
 
E.O. 12958: DECL: 06/11/2011 
TAGS: PGOV PINR PINS PREL ECON ENRG NI
SUBJECT: NIGERIA: THE OBASANJO ADMINISTRATION AT TWO YEARS 
-- A WORK IN PROGRESS 
 
 
Classified by Ambassador Howard F. Jeter, reasons 1.5 (B/D). 
 
 
¶1.  (C) Summary. At the halfway mark of his Presidency, 
Olusegun Obasanjo struggles to rebuild long-neglected 
institutions, restore public confidence, and jump-start the 
economy through deregulation and increased investment. 
Obasanjo's progress toward vital political and economic 
objectives is slowed by ingrained statist tendencies, a 
complex political climate with significant regional and 
ethnic tensions, wide-spread rent-seeking, corruption at all 
levels of government, and the allure of international 
diplomacy.  The formal political "transition" from military 
to civilian rule is basically achieved, but a timely economic 
transition to a productive market economy rooted in rule of 
law remains problematic.  Although the President says his 
greatest accomplishment has been "to substitute hope for 
despair," we see sparse evidence that hopefulness is broadly 
on the rise, but, rather, rising prices and the lack of a 
visible "democracy dividend."  He has governed well beyond 
the bare six months some observers gave him in May 1999, but 
both average Nigerians and political elites little understand 
the time needed to effect fundamental change.  Their 
impatience stokes opposition within and beyond the ruling 
party.  The prospect of a second Obasanjo term is now an open 
question.  End summary. 
 
 
A Quick Start? 
-------------- 
¶2. (U) As a retired general and former military Head of State 
acceptable both to the military establishment and to Northern 
elites, Obasanjo, a Yoruba from the Southwest, wasted no time 
in putting his stamp on the Fourth Republic. Immediately upon 
taking office he retired hundreds of military officers who 
had held political positions and chose a new set of military 
Service Chiefs.  He also instituted review panels for human 
rights violations, failed contracts, and dubious oil-lifting 
agreements.  His carefully balanced Cabinet, vetted by the 
Senate for regional and ethnic composition, took office a 
month later, following rigorous and spirited sessions on 
government ethics and the development goals of the 
Administration.  His hand firmly on the governmental tiller, 
Obasanjo appeared poised to put his programs quickly into 
place, including needed economic reforms. 
 
 
¶3. (C) Instead, he stumbled.  While President Obasanjo has 
been a tireless national leader with his eye on an endless 
series of issues (and he has a cadre of talented, ambitious, 
and pragmatic political operatives at his service) he is no 
master of the smoke-filled room.  Key policy initiatives were 
launched without proper preparation (primary example: the 
unilateral and failed bid to raise fuel prices in the summer 
of 2000).  In a self-seeking political environment where 
back-scratching and going-along-to-get-along are essential 
political tools, Obasanjo often came across as the stern 
schoolmaster laying down the law to unwilling pupils. 
 
 
¶4. (C) Obasanjo developed a tense and testy relationship with 
the National Assembly.  An often contemptuous President 
jousted almost daily with resentful Senators and 
Representatives.  While the President indulged in contests to 
install or unseat National Assembly leadership, his first 
full budget proposal languished, as did other initiatives. 
As advised by the IMF, Obasanjo exercised tight control over 
the national budget that did finally pass, but legislative 
critics decried his refusal to spend funds duly appropriated. 
  The Universal Basic Education Scheme and the Poverty 
Alleviation Program, both launched with much fanfare in 2000, 
took little account of constituent interests, and generated 
much avoidable opposition and ill-will among the 36 state 
governors.  The former was ultimately reworked, and the 
latter quietly scrapped and replaced. 
 
 
¶5. (C) Regional tensions surfaced with brutal suddenness in 
1999 and 2000.  The Obasanjo Administration intervened 
immediately with security forces, sometimes ham-handedly, 
sometimes in a more measured manner, but made no apparent 
efforts to ease the underlying sources of conflict.  Many 
lives were lost, with Nigeria's social fabric considerably 
strained, and its rising international reputation besmirched. 
 A wave of Sharia "reforms" in the North, and the advent of 
para-military bands in the Southwest and Southeast, increased 
the sense of a Nigeria drifting toward ever-greater division 
and discord without significant policy positions or bully 
pulpit remonstrations from the Executive.  The Obasanjo 
Administration seemed devoid of any sense for useful public 
relations. 
 
 
Turning a Corner? 
----------------- 
¶6. (C) However, by January of this year, Obasanjo had largely 
repaired his relations with the National Assembly.  The 2001 
budget had passed with relatively little discord.   The Niger 
Delta Development Commission (NDDC) and the Anti-Corruption 
Commission had been statutorily erected.  Funds began to flow 
for capital projects, and ethnic tensions appeared to slacken 
as government monies created "jobs" for restive "youths." 
Growing challenges to the existing federal revenue sharing 
formula and endless political machinations regarding the 2003 
elections did not threaten the cohesion of the nation; 
rather, they called into question the centralized nature of 
Nigeria's government structure, and the ability of the GON to 
make rational decisions. 
 
 
¶7. (C) His third year underway, Obasanjo still bestrides the 
national stage, although the nation's 36 governors, and a 
host of nascent political movements, threaten both his hold 
on the national agenda, and his chances for a second term (he 
is officially mum on the subject).  He retains his 
international prestige as the leading African statesman, and 
Nigeria's role in continental peacekeeping and diplomatic 
activism remains largely unchallenged at home and applauded 
abroad. 
 
 
The Economy: Some Reform, Some Growth, But Much Undone 
--------------------------------------------- --------- 
¶8. (C) Economic performance in 2000 and 2001 was mixed. 
Limited reforms have not stimulated significant growth or 
investment.  Expansion in the economy in 2000 was barely 
enough to keep up with population growth.  At best, a very 
small democracy dividend has been realized, one far too small 
to register with most Nigerians.  Moreover, a large 
"dividend" is unlikely when so much of the economy remains in 
State hands and budgets are devoted to prestige projects 
rather than poverty alleviation and growth.  A private sector 
assessment shows that Nigeria is one of the most difficult 
places in the world to do business.  The oil sector remains 
productive, but the rest of the economy is depressed. 
 
 
¶9. (C) A host of impediments bedevil the Nigerian political 
economy: pervasive poverty and massive unemployment; a lack 
of personal security; an educational system in shambles; 
ethnic and regional polarization; a barely functioning public 
health system unable to contend with HIV/AIDS and other 
infectious diseases; weak institutional capacity; widespread 
corruption and disrespect for the rule of law; decrepit 
infrastructure; self-serving and short-sighted demands for 
political power and economic benefits; and an ingrained 
mindset that looks to government for solutions to every 
problem.  This is Nigeria's legacy of forty years of 
mismanagement and, unfortunately, this is Obasanjo's 
inheritance. 
 
 
¶10. (C) The 2001 budget, twice the size of the 2000 budget, 
far exceeds what can be prudently financed.  A large deficit 
(as much as USD 1.5 billion) seems assured.  Capital 
expenditures are three times as great as the year before, and 
include many vanity projects and poor policy choices.  Yearly 
inflation, down to 2 to 4% at the end of 1999, is now 
approaching 20% and, by most accounts, accelerating.  The 
official government exchange rate gyrates dramatically 
between 100 to 130 to the dollar.  Despite the government's 
formal dedication to economic and social renewal, the budget 
consistently under-funds primary health care, education, 
farm-to-market road construction and other essential elements 
of a rational economic agenda. 
 
 
But There are Bright Spots 
-------------------------- 
¶11. (C) The government has begun to sell off its inefficient 
and bloated parastatals.  Fourteen enterprises have been sold 
in the banking, cement and fuel-retailing sectors. Nigeria 
Airways, vehicle assembly plants, palm oil companies and 
fertilizer plants are next.  Auction of mobile telephone 
licenses was especially encouraging.  Emergency repairs to 
the generating facilities of the electricity parastatal have 
somewhat increased the supply of power ( but the antiquated 
distribution system means systemic black-outs continue).  The 
attempt to liberalize fuel prices, though mishandled, shows 
firm recognition of the need to dispense with hugely 
expensive subsidies (up to USD 2.6 billion), and the GON 
continues to prepare public opinion for "deregulation."  The 
2000 Stand-by Arrangement (despite its now serious 
difficulties) did pave the way for an agreement with the 
Paris Club to reschedule Nigeria's debt.  Quick, decisive 
action now could still pull the economy from the brink of 
macroeconomic instability. 
 
 
¶12. (C)  Reduced expectations in the short-run appear 
essential.  Solid results, however small, that build capacity 
for the longer-term, are achievable.  Although ordinary 
people may be more willing to give the government the benefit 
of the doubt than are opinion leaders, neither group 
appreciates the depth of reforms that are necessary, nor the 
time required to improve the lot of ordinary Nigerians. 
Unrealistic expectations may spark political turmoil and 
aggravate economic malaise, undermining the very reforms 
needed to make a difference. 
 
 
Resource Control/Decentralization 
--------------------------------- 
¶13. (C) Virtually all 36 state governors, North and South, 
advocate a redistribution of national resources, with more 
funds flowing to the states and local governments, and less 
being retained by the national government.  Exactly how to 
achieve this is another story entirely.  Northern governors, 
although in agreement on the need to redraw revenue-sharing 
formulas, are no great friends of the call for local resource 
control.  If the Southern governors win local control, then 
the federal revenue will consist of not much more than 
customs receipts, VAT, and income tax, all very minor sources 
of funds.  Although some Northern governors make brave noises 
on local resource control, in the end the Northern governors 
appreciate that their budgets would essentially evaporate 
should federal oil revenue end.  The on-shore and off-shore 
revenue argument is again a cause of unease among 
Northerners, for greater "derivation" (for oil-producing 
states) means less federal revenue to be split 36 ways. 
 
 
A New Ruling Class? 
------------------- 
¶14. (C) A new class of politically astute governors offers 
the prospect of significant alterations to Nigeria's 
political economy.   Nearly all state treasuries were empty 
in May 1999.  Many states were also deeply in debt.  Two 
years on, debts paid, and (in at least some states) bloated 
work forces reduced, they are now able to employ the 
significant resources they receive from the "federation 
account" for something other than debt reduction and payment 
of salaries.  Some are making real strides toward meeting 
the needs of their people.  Anecdotal accounts indicate that 
many are drawing on state funds to build campaign war chests. 
 
 
 
 
¶15. (C) The nation's governors have banded together to press 
Abuja for more police and anti-crime machinery, movement on 
infrastructure development, a greater role in national 
educational and health policy, and a host of other issues. 
Many governors have proven adept and creative in managing 
their budgets and resources and forming alliances with their 
fellow state executives.  Northern executives may be 
distracted over Sharia and more statist than Southern 
colleagues in their outlook on the national economy.  The 
bulk of the nation's private industry is in the South. 
Subsidies, programs and employment from the federal 
government are not easy to part with.  But they continue to 
seek alliances of convenience with their Southern 
counterparts, as all share a strong interest in reducing 
federal power.  With a President preoccupied with debt 
relief, ECOWAS affairs, an endless string of foreign visitors 
and his own extensive foreign travel, the governors quietly 
solidify their political gains -- and their political power. 
 
 
New Parties, New Opposition 
--------------------------- 
¶16. (C) New political "formations" arise almost weekly.  So 
far unregistered by the Independent National Electoral 
Commission-INEC), they contend for membership and resources 
amongst themselves and with the three registered political 
parties.  These parties' leaders quietly oppose new party 
registration but face strong internal opposition.  Splinter 
factions in all three political parties, the ruling PDP 
(People's Democratic Party), APP (All People's Party), and AD 
(Alliance for Democracy), sense opportunity and potential 
political safehaven in these new formations, as do many state 
governors.  If the new groups succeed in registering for 
election 2003, the end result could be a wide open electoral 
campaign. 
 
 
¶17. (C) The National Assembly is reviewing INEC's draft act 
setting basic ground rules for elections.  Several of the new 
political groupings have announced a refusal to abide by this 
proposed act, which is required by the Constitution, but 
this, if taken seriously, would lead to electoral chaos. 
Legislators would prefer to take their time to sort out their 
political options (and, perhaps, prevent or delay new party 
registration).  But INEC must begin essential preparations 
quickly.  Local elections are now less than a year away (and 
will be run by state INECs, another headache for the national 
body). 
 
 
Niger Delta 
----------- 
¶18. (C) Some believe the Delta needs only a few honest 
brokers to mend tribal fences and restore hope for economic 
development; yet there seem none to be found.  The indigenes 
distrust and resent government officials, oil companies, 
tribal chiefs, youth group leaders, and self-appointed 
conflict resolvers.  Attempts to buy peace with short-term 
handouts are no real solution.  Tribal chiefs and clan 
leaders sacrifice truth on the altar of political expediency 
(behavior not unknown outside the Niger Delta).  Although 
ethnic tension has not lately approached the levels seen in 
late 1999, the area still seethes with resentment and the 
potential for turmoil.  The NDDC has been formally 
established to build basic social infrastructure in the 
South, but the NDDC statute saddles it with the staff, 
liabilities, and unfinished business of OMPADEC, its failed 
predecessor.  With this burden of past governmental folly, 
the NDDC will make slow and painful progress. 
 
 
Sharia 
------ 
¶19. (C) Ethnic and tribal ferment in the South-South has 
been matched by a Sharia crusade in the North.   Profound 
misunderstanding seems often seem inevitable on this divisive 
issue.  Sharia reform is a broadly grassroots movement, the 
mom-and-apple-pie of the North, that no Northern elected 
leader can oppose.  Yet, by and large, Northern governors and 
Emirs feel little sympathy for it.  A truly Sharia-based 
society would establish a rival system of social and 
political control.  Those responsible for decades of misrule 
and theft of resources (grasping Northern politicians and 
complacent Emirs) would not last long.  Sharia for most 
politicians in the North is something to placate the Northern 
masses, who (like the Southern masses) increasingly want a 
democracy dividend, justice for the poor and better living 
conditions. 
 
 
¶20. (C) Only two Northern governors have shown real personal 
commitment to the imposition of criminal Sharia, Governor 
Kure of Niger State, a pious Muslim, and Governor Sani of 
Zamfara State, a skillful and amoral demagogue.  All eight 
far Northern states have now adopted some form of enhanced 
criminal Sharia, as has Niger State just to the south. 
Virtually all these states have limited themselves to 
essentially cosmetic changes, reinforcing bans on alcohol, 
requiring conservative dress in public places, and other 
relatively minor dictates.  (Zamfara is a special case, with 
medieval amputations imposed twice on male thieves, and two 
adulteresses caned).  Obasanjo's public response has lately 
been to studiously avoid commenting on the movement (after 
several public statements in 2000 condemning Zamfara's laws 
as unconstitutional).  Vice President Abubakar seriously 
damaged his standing in the North with an ultimately 
unsuccessful call on Northern governors to revert to the 
"status quo" and refrain from further action on criminal 
Sharia. 
 
 
21.(C) Obasanjo's Rose Garden strategy on Sharia, while 
galling to many Southerners, has arguably done no harm.  Much 
of the early ferment over Sharia reforms has dissipated.  He 
will likely watch from afar, and hope that Northern governors 
(aided by his Northern Vice President, Northern National 
Security Advisor, and other Northerners serving in his 
Administration) can quietly keep the Sharia reform movement 
within non-confrontational channels. 
 
 
Transparency, Rule of Law, Corruption 
------------------------------------- 
¶22. (C) The war that Obasanjo must wage, and win, is against 
public corruption.  Nigeria annually contests for the 
unenviable rating as the most corrupt nation on earth. 
Previous civilian and military regimes institutionalized 
public corruption to a nearly unimaginable extent, and the 
generally accepted view is that things are no better than 
during military rule. 
 
 
¶23. (C) The Presidency does not hesitate to lubricate its 
political objectives with hard cash.  The President generally 
stands above the fray, but his political handlers hand out 
the pay packets when an important Presidential goal hangs in 
the balance.  Many of his Ministers are corrupt, and they set 
the tone for those serving under them.  Corruption in the 
courts is as omnipresent as sanctity of contract is absent. 
In a society where only money talks, establishing the rule of 
law and reforming important public institutions are not 
near-term goals.  However, convincing the general public that 
corruption will not be tolerated is something the GON can 
begin. 
 
 
¶24. (C) The arrest and prosecution of high-level government 
officials is the place to start.  The new Anti-Corruption 
Commission, still organizing, has done no more than pursue 
very minor public officials.  Although pre-existing laws 
forbid public corruption, regular Justice Ministry 
prosecutors take little action.  Even if his personal 
rectitude seems clear, Obasanjo has yet to convince his own 
top officials that they will be held liable for corrupt acts. 
 
 
 
 
Reforming the Military -- Civilian Authority Ascendant 
--------------------------------------------- --------- 
¶25. (C) One bright spot for the nation is the military's 
assumption of a more traditional mission of national security 
and regional peacekeeping.  Well-timed retirements and 
reorganizations have side-lined many practitioners of 
military old-think.  USG training (Operation Focus Relief, 
MPRI) demonstrates to the rank-and-file that a proper 
orientation wins equipment, training, respect, greater 
legitimacy, and professional opportunity.  Whether the very 
upper ranks accept these opportunities as readily is perhaps 
still an open question.  The sudden "scheduled" retirement of 
Army chief General Victor Malu came after his continuing 
obstructionist behavior, behavior that bordered on 
insubordination.  But we should remember that President 
Obasanjo neutralized what we and others expected would be a 
real political threat (we recall some of our British 
colleagues predicting Obasanjo's demise within six months of 
assumption of authority).  In fact, the sacking of the 
Service Chiefs, which occurred with some predictable protests 
from northerners, but not from the military establishment, 
represented a watershed in Nigeria's political-military 
relations: a clear assertion of civilian authority over the 
man-on-horseback. 
 
 
The Enticements of International Diplomacy 
------------------------------------------ 
¶26. (C) Obasanjo has embraced his foreign affairs portfolio, 
offering as it does a welcome respite from the rough and 
tumble of domestic politics.  Periodically legislators and 
media commentators allege that Obasanjo's extensive foreign 
travels earn Nigeria nothing, and only divert the President 
from pressing domestic issues.  Obasanjo responds that such 
travel is necessary to repair Nigeria's reputation, and win 
its rightful place in the world.  He can cite re-admission to 
the Commonwealth, the conclusion of an IMF Standby Agreement, 
the very real prospect of debt relief from the Paris Club, 
and USG narcotics certification as examples of the benefits 
to be gained from full diplomatic engagement.  Obasanjo's 
ultimate goal, aside from positively influencing donors and 
creditors, is to secure a permanent seat on the UN Security 
Council. 
 
 
¶27. (C) Nigeria's efforts in West Africa are extensive and 
widely applauded, and the country continues to be the 
dominant player in the sub-region.  Obasanjo also seeks or 
accepts a role in such disparate African trouble spots as 
Burundi, DROC, Sudan, and Zimbabwe.  The GON also actively 
participates in OPEC deliberations, G-77, the NAM, and other 
international fora.  Obasanjo has forged a strategic 
partnership with President Mbeki of South Africa, and taken a 
leading role both in plans for the African Union and in a new 
strategy for an African renaissance, the Millenium Action 
Plan.  However, with little to show in the way of a concrete 
democracy dividend for the average impoverished Nigerian, 
abstruse issues such as debt relief, Standby Agreements and 
African Union may not appeal to voters in 2003. 
 
 
Two Years Gone: Time for Celebrations? 
-------------------------------------- 
¶28. (U) Nigeria marked May 29, 2001, the second anniversary 
of civilian rule, as a public holiday.  Not, Obasanjo said in 
a speech that day, "out of vanity" but from "our unalloyed 
commitment" to an "enduring, sustained and sustainable" 
democratic transition.  He reminded his audience that 
democracy is not "an event but a process," and that 
"aspirations for immediate dividends," while understandable, 
were "unrealistic."  Said the President, "even with the best 
will and the greatest efforts, the necessary fundamental 
transformation is bound to take years to achieve." 
 
 
¶29. (C) His analysis strikes us as correct, but not a 
sufficient answer to his domestic critics.  At the halfway 
mark, President Obasanjo's scorecard is decidedly mixed.  Has 
he succeeded in substituting hope for despair?  Not in our 
judgment, but he clearly has done better than many expected 
two years ago.  Have we become more impatient than the 
average Nigerian?  Surely it is an open question whether 
Obasanjo has made enough of a difference to win a second term 
in an open and transparent contest.  He does have two more 
years, and may be able to hinder his opposition through 
manipulating political party registration.  However, Obasanjo 
also faces limited policy running room and an increasingly 
complicated domestic political climate.  There is some 
progress, but hardly enough to improve the plight of 120 
million-plus largely penniless citizens. 
 
 
¶30. (C) Could Obasanjo have moved more quickly?  Given 
Nigeria's many deep divisions and enduring problems, probably 
not.  But in retrospect, had he paid closer attention to 
domestic matters, and mounted a more focused effort on issues 
of deep public concern, he perhaps could have set the stage 
for a stronger second half.  The "transition" begun on May 
29, 1999 is still a work in progress. 
 
 
¶31.  (C) All-in-all, however, the situation may not be as bad 
as it sometimes seems.  Nigerians are enjoying a virtual 
renaissance in their constitutional freedoms.  They can say 
what they like, write what they like, and freely criticize 
their leaders.  The press is open and free, and a start is 
being made in restoring this country's once proud 
institutions.  The praetorian instincts of the military  have 
been bridled, and the private sector has gained some ground. 
Although still very imperfect, the human rights record is 
better than it has been for some time.  The trappings of 
democracy abound; moreover, Nigeria has regained acceptance 
and respectability in the international community.  These are 
not insignificant gains. 
Jeter