VZCZCXRO3467
PP RUEHPA
DE RUEHUJA #0900/01 1150744
ZNR UUUUU ZZH
P 250744Z APR 06
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 5354
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHLO/AMEMBASSY LONDON 0451
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 ABUJA 000900 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR KOHLER/SEVERENS 
USDOC FOR 3317/ITA/OA/KBURRESS 
USDOC FOR 3130/USFCS/OIO/ANESA/DHARRIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON NI
SUBJECT: LOCAL VIEWS ON NIGERIA'S FITCH AND S&P RATINGS 
 
REF: A) ABUJA 657 B) ABUJA 321 
 
¶1. (U) Summary:  Some Lagos business leaders, looking at the 
credit ratings as a broad indicator of Nigeria's economic 
prospects, consider the January 31, 2006 Fitch Ratings of BB 
minus and the February 6, 2006 Standard and Poor's (S&P) 
Ratings of BB minus for long-term foreign currency and BB 
rating for local currency are too optimistic.  They criticize 
the reports for not mentioning concerns regarding 
double-digit inflation and wage pressures likely to arise as 
the 2007 election draws near.  Some view the reports as 
politically motivated and not an accurate indicator of the 
business climate in the nation's commercial hub, Lagos.  End 
summary. 
 
Reserves Forecast Too Optimistic? 
--------------------------------- 
 
¶2. (SBU) A number of Lagos based analysts have weighed in 
with their opinion of Nigeria's recent credit ratings.  Some 
of them tended to view the ratings as an overall statement on 
Nigeria's economic prospects, while others addressed the more 
relevant (to the ratings) question of Nigeria's likelihood of 
repaying its debt. Several Nigerian economists said the Fitch 
Report's 2006 year-end international reserves forecast of USD 
42 billion is too optimistic.  They place the figure between 
USD 30-35 billion.  Financial Derivatives Company CEO, 
Bismarck Rewane, criticized the report for not fully 
addressing the Central Bank of Nigeria's (CBN) failure to 
control inflation and regulate monetary policy, and perhaps 
more importantly, its inability to spur growth in the small 
and medium-sized enterprises (SME).  Economic Associates CEO, 
Ayodele Teriba, believes the ratings failed to take into 
account the CBN's lack of true autonomy in controlling 
monetary policy, as well as its often contradictory policies 
regarding controlling inflation and spurring growth in the 
SME sector.  United Bank of Africa Executive Director Chika 
Mordi argued the CBN was not performing its primary duty, 
controlling inflation and directing monetary policy.  Teriba 
opined that positive economic growth in Nigeria was more a 
result of an upswing in the global economy and higher oil 
prices, not necessarily because of Government of Nigeria 
(GON) reforms or policies.  Moreover, the recent disruptions 
to oil production in the Niger Delta, and concerns that oil 
production might be halted further, were not addressed at the 
time of the credit ratings (refA). 
 
High Domestic Debt 
------------------ 
 
¶3. (SBU) Rewane criticized the Fitch Report for not 
addressing the impact of the 2007 elections in determining 
economic outcomes.  He said the GON would face pressure to 
raise minimum wages as workers continued to face double-digit 
inflation and reduction in living standards.  Moreover, 
bureaucratic inefficiencies were likely to cause delays in 
meeting debt payments and obligations.  The possibility of 
slippage, or delay in payment remained high.  Lagos Business 
School Director Pat Utomi said the real challenge was paying 
off domestic debt, which he believed the GON was unlikely to 
do. 
 
¶4. In contrast, our U.S. Department of Treasury 
Representative emphasized that with the settlement of the 
Paris Club debt, Nigeria's overall debt stands at 4.5% of 
GDP, far more reasonable than the 60% figure in 2003.  The 
Federal Government (FG) was in the process of restructuring 
the domestic debt with longer maturities, aiming to develop 
the capital markets of Nigeria for the future. 
 
Banking Community Skeptical 
--------------------------- 
 
¶5. (SBU) Bank experts believe attributing positive economic 
forecasts based on the GON's on-going reform program was 
misleading, because the reforms had not brought fundamental 
improvements in the economy or raised living standards for 
the majority of Nigerians.  Firms faced much higher costs of 
production than in the rest of the region due to poor 
infrastructure and bureaucratic obstacles. Nigerians faced 
limited access to credit, inefficient land titling and 
conveyance procedures, multiple taxes and tariffs, and poor 
health care and education.  First Bank Nigeria Capital 
Limited Executive Vice-President, Kofo Majekodunmi, said 
Nigeria had the lowest level of GDP per capita of any country 
 
ABUJA 00000900  002 OF 002 
 
 
rated BB minus, while unemployment was high, and living 
standards are poor.  Several years of sustained effort were 
necessary to tackle economic and social challenges, he said. 
Majekodunmi conceded, however, the positive ratings had 
promoted foreign investment, and had led to some increase in 
portfolio investment into the economy. 
 
¶5. (SBU) Utomi said the reports were 'politically' motivated. 
 The teams sent by Fitch and S&P to do their ratings spent 
their time in Abuja speaking with Finance Minister Ngozo 
Okonjo-Iweala and other high-level government officials, 
without examining the realities on the ground.  Other experts 
concurred that greater exposure to the business and 
microeconomic environment outside Abuja might have led both 
organizations to give Nigeria a lower rating. 
 
¶6. (SBU) Comment: The fact Nigeria was rated has been a 
positive advertisement for Nigeria's reform program, and has 
led to increased investor confidence. The Finance Minister 
and GON are touting the Fitch and Standard and Poor ratings 
as indicators their reform programs are working.  With most 
reforms focused at the macroeconomic level, however, and with 
only two years of implementation, the impact while very 
positive is limited in its scope.  Many Nigerians believe 
their overall living standards have declined under the 
Obasanjo administration. In a land where conspiracy theories 
abound, some see the timing of the reports engineered to 
promote political agendas and boost support for President 
Obasanjo in the run-up to the 2007 election.  The GON hopes 
these ratings will boost investor confidence in Nigeria's 
economy while increasing access to long-term external credit 
for local businesses.  Whether the GON can build on improved 
investor confidence is another question.  Some members of the 
Lagos financial community are not so optimistic. 
 
¶7. (U) This cable was drafted by CG Lagos. 
FUREY