VZCZCXRO7744
RR RUEHMA RUEHPA
DE RUEHUJA #0127/01 0221254
ZNR UUUUU ZZH
R 221254Z JAN 08
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC 1892
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHLO/AMEMBASSY LONDON 0498
RUEHOS/AMCONSUL LAGOS 8600
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS SECTION 01 OF 02 ABUJA 000127 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS TO USTR-AGAMA, EXIM-RICHTER, USTDA-EBONG 
TREASURY FOR PETERS AND HALL 
DOC FOR 317/ITA/OA/BURRESS, 3130/USFC/OIO/ANESA/HARRIS 
DOE FOR GAY AND PERSON 
LONDON FOR POLOFF RICK BELL FOR AF DAS TODD MOSS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ETRD EINV PGOV NI
SUBJECT: FINANCE MINISTER, BANK GOVERNOR: NIGERIA MOVING 
FORWARD (BEFORE LONG) 
 
 
SENSITIVE BUT UNCLASSIFIED -- NOT FOR INTERNET DISTRIBUTION. 
 
¶1. (SBU) Participants at an Economist Magazine roundtable in 
Abuja kept up a drumbeat of concern that the Yar'Adua 
Government is not moving quickly enough to deepen reforms and 
respond to economic needs, including infrastructure.  Finance 
Minister Usman made a strong case that the GON is preparing 
plans on oil, gas, and power for rollout in the next month or 
so.  Central Bank Governor Soludo defended dollar 
distributions to state governments and expressed his 
confidence that bank capitalization will benefit Nigeria's 
lagging industrial sector.  End Summary. 
 
¶2. (SBU) The Economist Fourth Business Roundtable with the 
Government of Nigeria was held in Abuja January 14-15. 
Participants repeatedly questioned when the Government would 
finally roll out concrete policies and programs for oil and 
gas and electric power to support the Seven Point Agenda and 
the goal of Nigeria becoming one of the world's top twenty 
economies by 2020. 
 
¶3. (SBU) Finance Minister Shamsudeen Usman stated in his 
presentation to the Roundtable that the Yar'Adua 
administration had been moving methodically in order to 
govern based on rule of law, but was about to roll out 
policies in key areas, including an electricity tariff 
structure that would allow power plant and related 
investments to move forward.  He predicted the National 
Assembly would approve the 2008 Budget by the end of January. 
 He stressed the Government's determination to maintain the 
macroeconomic stability of recent years, and to avoid 
ill-conceived projects.  Referring to a USD nine billion rail 
agreement with the Chinese reached under the previous 
administration, Usman said, "If that had happened in China, 
those involved would have been shot." 
 
¶4. (SBU) Continuing, Dr. Usman noted that USD 10 billion had 
been spent on the power sector from 2000-2007, with little 
discernible increase in supply.  He said Nigeria's big 
mistake in the three previous oil booms was "translating oil 
dollars into Naira and spending it."  He stressed the need to 
commit to a long-term oil reserve fund.  Usman said Nigeria 
needed to invest USD 40-50 billion in infrastructure over the 
next six years to double current growth rates.  He said 
policies and regulations for infrastructure would be 
forthcoming by the end of February, including a clear plan 
for the power sector. 
 
¶5. (SBU) Usman emphasized that the Government was working 
broadly on reforms, including customs, tax policy, compliance 
with due process, and public sector reform.  It was also 
working to have each state government adopt fiscal 
responsibility and due process and assisting with the 
establishment of state-level debt management offices. 
 
¶6. (SBU) In response to a presentation by an executive with 
Proctor and Gamble and to a question from the floor by 
Econcouns, Usman said that a committee led by former Senator 
Udoma Udoma was taking a hard look at Nigeria's system of 
high tariffs and many import bans.  He admitted that 
virtually all banned goods were being sold in Nigeria, and 
thus potential tariff revenues were instead enriching 
individual officials.  Usman said Udoma would complete his 
report by the end of January.  The Government's goal was to 
create a level playing field -- if an industry were entitled 
to a concession or an incentive, those would be made 
available to all companies. 
 
¶7. (SBU) Usman appealed to the private sector for expert 
advice to ensure that ongoing policies were clear, including 
a new national tax policy currently under development.  The 
Government was establishing a joint tax board to coordinate 
the tax policies and practices of the national, state, and 
local governments, and to cut down on abuses. 
 
¶8. (SBU) In his own presentation, Central Bank (CBN) Governor 
Chukwuma Charles Soludo highlighted the challenge of 
maintaining single digit inflation in the face of high oil 
prices, pressure to increase spending, and rising capital 
 
ABUJA 00000127  002 OF 002 
 
 
inflows.  He noted recent high returns in Nigerian money 
markets and capital markets, and his focus on the future 
healthy development of the financial sector, and the banks in 
particular. 
 
¶9. (SBU) Professor Soludo stated that preliminary figures 
from the National Bureau of Statistics indicated a 2007 
growth rate of 7.6 percent, in a political transition year. 
The inflation estimate stood at around 5.2 percent, down from 
8.5 percent at the end of 2006.  Transport, education and 
health prices remained high.  Monetary policy had been tight 
for the past two years, due to liquidity injections. 
 
¶10. (SBU) Soludo defended the CBN's decision to share inflows 
in the currency in which they were earned, including Paris 
Club accounts and oil revenues, to avoid an oversupply of 
Naira in the domestic markets.  He acknowledged past concerns 
about capital flight, but pointed out that capital inflows 
had increased as the bank had eased off the currency controls 
which had been very stringent earlier in Nigeria's history. 
 
¶11. (SBU) The CBN's current approach was to target monetary 
aggregates and to move to an inflation targeting framework, 
in line with the Central Bank Act of 2007.  Price stability 
was now the CBN's number one function.  Soludo said the bank 
needed to allow markets to operate freely, while realizing 
that could lead to appreciation of the exchange rate, 
especially as the CBN controlled less than 30 percent of the 
forex supply, which was dominated by the interbank market. 
He said Nigeria needed a competitive exchange rate regime to 
avoid killing off the nascent non-oil sector. 
 
¶12. (SBU) Soludo said that banking sector consolidation since 
2005 had resulted in an almost four-fold increase in 
aggregate credit to the economy.  At the same time, he 
acknowledged audience concerns about how deep into the 
economy credit was moving and was convening a national 
stakeholders forum on banks and the economy.  Nonetheless, 
credit to the private sector had grown by close to 100 
percent, and total bank branches had expanded from 3200 to 
¶4300.  Depositors had increased from 15 to 22 million. 
Larger, stronger Nigerian banks now had operations in 18 
African countries and would operate throughout the entire 
continent within a few years, Soludo predicted. 
 
¶13. (SBU) On foreign ownership, Soludo said foreign banks 
could set up freely in Nigeria, but the CBN would look 
closely at acquisitions of shares of Nigerian banks.  He said 
that studies showed that ownership mattered in the role 
commercial banks played in national development.  The CBN 
will come out with formal guidelines on acquisitions and 
mergers, but Soludo expressed a preference for Nigerian 
entities retaining at least 60 percent ownership and for 
mergers with foreign banks to take place only after five 
years of in-country operations extending to two-thirds of 
Nigeria's 36 states, "excluding state capitals."  He said 
that Nigeria would remain one of the most liberal markets for 
the entry of foreign banks, and in comparison cited U.S. 
concerns about small minority foreign ownership shares of 
American banks. 
 
¶14. (SBU) Soludo appeared sanguine that negative impacts 
would be minimal if the National Assembly raised the crude 
oil reference price from USD 54 to USD 59, noting that the 
Economist Intelligence Unit had predicted high oil prices 
through the mid-term.  He said he and the GON were grappling 
with how to manage the excess crude account.  Given that the 
Constitution stated that revenues had to be "shared" with the 
three levels of government, he said a system of "sharing by 
holding" was under discussion to avoid problematic legal 
issues while still preserving funds for the future. 
SANDERS