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FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 2188
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 8816
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 03 ABUJA 000372 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT ALSO FOR EB/IFD/OIA 
DEPARTMENT PASS TO USTR (AGAMA) 
 
E.O. 12958 
TAGS: EFIN ECON ETRD PGOV KCRIM KJUS NI
SUBJECT: AF DAS MOSS' MEETINGS WITH NIGERIAN CENTRAL BANK AND 
FINANCE OFFICIALS 
 
SENSITIVE BUT UNCLASSIFIED -- HANDLE ACCORDINGLY. 
 
¶1. (SBU) Summary: Deputy Governor of the Central Bank of Nigeria 
(CBN) told AF DAS Todd Moss and the Ambassador that the CBN will 
soon issue a policy on foreign banks merging with or acquiring 
Nigerian banks. The upcoming policy is not/not aimed at restricting 
other entry or operations by foreign banks. Both the CBN and the 
Finance Ministry are working to further economic and financial 
reforms. The Finance Ministry is professionalizing public service 
while the CBN is working with the Economic and Financial Crimes 
Commission (EFCC) to increase financial sector reporting on 
Suspicious Transaction Reports and would welcome USG advice in that 
effort. The Minister of State for Finance told AF DAS Moss that the 
Ministry and the Debt Management Office (DMO) are developing a 
framework to guide states in debt management. Soon, each state will 
have a DMO office. End summary. 
 
¶2. (SBU) AF DAS Todd Moss and the Ambassador met with Deputy 
Governor of the Central Bank of Nigeria Tunde Lemo and Minister of 
State for Finance Aderemi Babalola in separate meetings on January 
¶23. Topics discussed included the banking sector, the budget, 
federal and state-level spending, the EFCC, and the Niger Delta 
Development Commission (NDDC). 
 
-------------- 
Banking Sector 
-------------- 
 
¶3. (SBU) CBN Deputy Governor Lemo commented that the ongoing banking 
consolidation program was a success, reducing the number of banks 
from 89 to 24.  Bank assets had grown from N206 billion to N1.6 
trillion (from 1.75 billion to 13.4 billion dollars) and banks now 
account for 10 of the 12 most capitalized companies listed on the 
Nigerian Stock Exchange (NSE).  Deputy Governor Lemo declared that 
there is no risk of over-capitalization in Nigeria.  Banks fund 
domestic and international commerce, small and medium enterprises, 
and manufacturing. Not all banks have the capacity and skill to 
invest in the oil sector. 
 
-------------- 
Foreign Banks 
-------------- 
 
¶4. (SBU) AF DAS Toss Moss inquired about restrictions on foreign 
banks in the Nigerian banking system.  Lemo stated that three 
foreign banks are presently operating in Nigeria, and more are eager 
to invest in the banking sector.  Lemo said that the GON regards 
banks as development partners, but past experience shows that 
foreign banks are reluctant to open branches outside of major 
cities, where most people live.  The CBN intends to limit mergers 
and acquisitions involving foreign banks.  The upcoming policy is 
not/not aimed at restricting other entry or operation by foreign 
banks. He said that foreign banks can freely establish their own 
operations in Nigeria if they meet the minimum capital requirement 
of 25 billion Naira. (Note: We expect that the Ambassador and 
Governor Soludo will discuss the mergers and acquisitions issue this 
week. End note.) 
 
------------------------------------- 
Suspicious Transaction Reports (STRs) 
------------------------------------- 
 
¶5. (SBU) Lemo stated that the CBN works with other federal agencies, 
including the Financial Intelligence Unit of the EFCC, in dealing 
with money laundering issues. Commercial banks need to be properly 
trained to report STRs. He expressed that both CBN and banks are 
interested in further developing training on STRs and would welcome 
USG advice on expanding such training. 
 
--------------- 
Debt Management 
--------------- 
 
¶6. (SBU) In his discussion with DAS Moss and the Ambassador, 
Babalola said that the Ministry of Finance and the Debt Management 
Office (DMO) are in process of developing a framework to guide 
states in debt management and that each state will soon have a DMO. 
 
Reckless spending in the past demanded the development of the fiscal 
responsibility act.  However, the new fiscal responsibility act is 
only on the federal level, but the federal government is encouraging 
the states to adopt it.  Thirteen state legislatures have adopted 
fiscal responsibility legislation. Babalola said the rest of the 
states would follow suit "within two months." 
 
 
ABUJA 00000372  002 OF 003 
 
 
------------------------ 
Finance Ministry Reforms 
------------------------- 
 
¶7. (SBU) Babalola told DAS Moss and the Ambassador that 
institutional reforms were focused on professionalizing public 
service. Previous reforms had relied too much on consultants and 
when they left, there was no capacity to continue the reforms.  The 
new plan was to have consultants work more closely with civil 
servants, while also encouraging people from the private sector to 
join the civil service and share their knowledge and experience with 
civil servants in order to create institutional capacity. Since 
2006, reforms have slowed down. When President Yar'Adua assumed 
office, people expected the pace of reforms to pick up again, but 
this hasn't happened. However, Babalola said, once the budget has 
been passed by the National Assembly, the GON will roll out a series 
of new and deeper reforms but did not elaborate further. 
 
------- 
Budget 
------- 
 
¶8. (SBU) Babalola said the government used International Monetary 
Fund guidelines to create the 2008 budget, some for the first time. 
Under the new system there is a focus on rule of law and a 
commitment to implementing what comes out of the budget process. For 
the first time, money allocated for a specific fiscal year must be 
spent or committed during that fiscal year, which should reduce the 
deficit and abuse of public funds. The money not spent or committed 
must be returned to the Treasury. The GON wants to have a 
private-sector-led economy and wants public-private partnerships to 
play a larger role in the economy. 
 
¶9. (SBU) In response to DAS Moss' inquiry whether Nigeria would 
combine higher spending with a reduction in import tariffs to reduce 
inflation, Babalola acknowledged that a lot of money was being 
pushed out into the economy. Higher oil prices are expected to 
result in higher revenues for the GON despite production disruptions 
in the Niger Delta. This is expected to lead to increased money 
supply which could be inflationary. However, the CBN had devised a 
strategy of sharing revenues to the states in dollars to reduce 
inflation from an excess supply of naira. (Note: Press reports 
during the second week of February stated that the Government had 
halted this practice for some allocations. End note). 
 
-------------------------- 
Excess Crude Account (ECA) 
-------------------------- 
 
¶10. (SBU) Babalola stated that funds presently in the ECA would stay 
there. (Note: Apparently a reference to the GON's commitment to 
maintain USD eight billion in the ECA. End note).  The accretion 
would be shared with the states, but the government was considering 
imposing conditions on the release of the money; for example, 
requiring 70 percent of the money released to the governors to be 
used to purchase capital imports to support high-value 
infrastructure projects. Babalola said if the National Assembly 
raised the benchmark price by more than five or six dollars per 
barrel there could be problems, implying that such an adjustment by 
the Assembly would not be fiscally prudent. 
 
-------------- 
State Spending 
-------------- 
 
¶11. (SBU) The Ministry of Finance is also looking at ways to improve 
fiscal accountability at the state level. According to Babalola, in 
the past, states would obtain an Irrevocable Standing Payment Order 
(ISPO) from the federal government for purchases, as a guarantee in 
order to borrow money from private markets. In the past, one 
Governor obtained ISPO to purchase planes for his state, but ended 
up employing them for his private use. As the example shows, this 
practice was open to waste and abuse. 
 
--------------------------------------------- - 
Economic and Financial Crimes Commission (EFCC) 
--------------------------------------------- - 
 
¶12. (SBU) Discussion between DAS Moss and Babalola turned to recent 
developments at the EFCC and its future. Babalola emphasized that 
the goal was to institutionalize reform. The GON wants reforms to 
outlive Ribadu, giving future chairmen a chance to prove that EFCC 
will continue the course of its work even without Ribadu. The 
Ambassador told Babalola that the decision to reassign Ribadu was 
problematic, following as it did on the heels of former Delta State 
 
ABUJA 00000372  003 OF 003 
 
 
Governor Ibori's arrest by the EFCC on corruption charges.  She said 
that while the U.S. understands that institutions are greater than 
individuals and that it was a presidential prerogative to send 
Ribadu for a year long senior management course at the National 
Institute for Policy and Strategic Studies in Kuru, the way the 
decision was made increased doubts on the GON's commitment to the 
EFCC's anti-corruption efforts. Babalola argued that if the new 
(acting) chairman carried on the work of the EFCC, such doubts would 
be assuaged. 
 
----------------------------------------- 
Niger Delta Development Commission (NDDC) 
----------------------------------------- 
 
¶13. (SBU) DAS Moss and the Ambassador asked about government 
leverage over the NDDC. Babalola emphasized that it was tough to 
monitor budgetary allocations paid to the NDDC. The government was 
trying to see what projects it should give money to rather than 
increasing the amount of money NDDC receives. Statutorily, the NDDC 
must receive money from the federal government, but there was 
nothing in the constitution or law about monitoring the activities 
of the NDDC. Babalola said that it could actually be illegal for the 
government to bring in an external auditor to conduct an audit of 
the NDDC. (Note: Due to the statutory authority of the NDDC, only 
the National Assembly has the power to order an audit. End note). 
 
¶14. (U) AF DAS Moss cleared this message. 
 
SANDERS 
 
 
 
6