VZCZCXRO5155
RR RUEHMA RUEHPA
DE RUEHOS #0201/01 1620630
ZNR UUUUU ZZH
R 100630Z JUN 08 ZDK
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 9934
INFO RUEHUJA/AMEMBASSY ABUJA 9643
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHDC

UNCLAS SECTION 01 OF 03 LAGOS 000201 
 
SIPDIS 
SENSITIVE 
 
COMMERCE FOR KBURRESS 
ENERGY FOR CHAYLOCK 
TREASURY FOR DFIELDS RHALL 
STATE PASS USTR 
STATE PASS OPIC FOR ZHAN AND MSTUCKART 
STATE PASS TDA FOR PMARIN LFITTS 
STATE PASS EXIM FOR JRICHTER 
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV NI
 
SUBJECT: NIGERIA: AFRICA FINANCE CORPORATION: DEVELOPMENT BANK OR 
FRONT FOR SPECIAL INTERESTS? 
 
REF: A. Lagos 143 
 
 ¶B. 07 Lagos 549 
 
LAGOS 00000201  001.4 OF 003 
 
 
Sensitive But Unclassified; Handle Accordingly 
 
¶1. (SBU) Summary: President Yar'Adua has ordered an investigation 
into the Central Bank of Nigeria's (CBN) role in establishing the 
Africa Finance Corporation (AFC), which was set up in 2007 as an 
alternative to the African Development Bank (ADB).  The AFC is owned 
by African banks (44 percent), industrial conglomerates and 
companies (16 percent), and the Central Bank of Nigeria(40 percent), 
and has the Chairmen of Nigeria's industrial conglomerate Dangote 
Group and China's Western Metal Production Company (WEMPCO) on the 
board of directors.  Media reports allege that the AFC wrote the 
report of the "Presidential Commission on the Expansion of 
Electricity Infrastructure", and thereby positioned itself and its 
private stakeholders to benefit from the report's recommendations. 
During the Federal Government (FG) probe of the CBN's authority to 
invest in the corporation, the AFC is accelerating its divestment of 
the CBN's shareholding.  Critics call AFC a front for special 
interests, and there is reason to be concerned as to whether the AFC 
will operate in the most transparent fashion as regards to project 
selection and investors. End Summary. 
 
Self-Styled "Alternative to ADB" 
-------------------------------- 
 
¶2. (U) The Africa Finance Corporation (AFC) was established in 2007 
as a private sector-led investment bank and development finance 
institution with a capital base of USD 1 billion.  AFC, the 
brainchild of CBN Governor Chukwuma Soludo, bills itself as an 
alternative to the African Development Bank; it is headquartered in 
Lagos. (Comment: In 2005, Nigeria lost its bid for the African 
Development Bank's Presidency to South Africa.  It has been 
speculated that Governor Soludo set up the AFC so as to provide 
Nigeria the opportunity to play a role in setting the African 
development agenda.  End Comment) 
 
¶3. (SBU) In business proprietary materials shared with EconOff on 
May 10, AFC describes its strategy as concentrating on industries 
with attractive returns and high developmental impact.  Priority 
sectors include power, transport infrastructure, heavy industry, oil 
and gas, mining, housing construction and mortgage finance, and 
telecommunications.  Describing itself as an investment bank with a 
development mandate, AFC aims to control all aspects of a project's 
value chain, from project procurement to development, financing, 
execution, and operation.  African banks hold 44 percent, and 
industrial conglomerates and corporations hold 16 percent of AFC's 
shares. (Note: It is not known whether the African banks holding the 
44 percent equity include non-Nigerian banks. End Note) The CBN 
holds a 40 percent share. 
 
Board Includes Nigeria's Dangote Group, China's WEMPCO 
--------------------------------------------- --------- 
 
¶4. (SBU) AFC's membership is open to independent African states 
represented by their central banks, African regional and 
sub-regional financial institutions, African public and private 
banks, financial institutions and private investors, and 
international private investors.  Guinea Bissau and Sierra Leone 
formally joined the AFC in January and April 2008, respectively. 
(Note: It is unknown whether their central banks have invested. End 
Note) Other countries, including Liberia, Ghana, Gambia, Zambia, 
Mozambique, are in various stages of discussion about membership. 
AFC has a 21 member board of directors with CBN Governor Soludo as 
Chairman.  Three seats are allotted to Nigeria's Minister of 
Finance, the CBN Deputy Governor, and the AFC's CEO.  Oceanic Bank, 
Zenith Bank, Intercontinental Bank, United Bank for Africa, and 
Union Bank occupy five seats.  Nigeria's Dangote Group, China's 
WEMPCO Group, Zenon Petroleum and Gas, and Leadway Assurance Company 
fill four seats.  (Note: The AFC's First General Meeting prescribed 
that shareholders with USD 50 to 100 million investments are 
entitled to automatic representation on the board.  End Note) The 
final nine seats are reserved for shareholders from other African 
 
LAGOS 00000201  002.4 OF 003 
 
 
countries. 
 
AFC Partners with Shareholders for Power Project 
--------------------------------------------- --- 
 
¶5. (SBU) Since its launch, AFC has landed projects throughout 
Nigeria and in at least 10 other African countries.  In Nigeria, 
projects include a USD 700 million ring road for Port Harcourt, USD 
1 billion deep sea port project in Olokola with Ondo and Ogun 
States, a 3600 Megawatt (MW) coal fired power plant in Kogi State in 
partnership with Dangote and WEMPCO Groups, an independent power 
project (IPP) with Rivers State government, and a mortgage financing 
scheme for 10,000 homes in Lagos. (Note: According to a contact at 
AFC, as of May 10, AFC had not finalized the financing of any of 
these projects. End Note) 
 
AFC Writes Presidential Commission on Energy Report 
--------------------------------------------- ------ 
 
¶6. (U) In February 19, 2008, President Yar'Adua set up the 
Presidential Commission on Accelerated Expansion of Electricity 
Infrastructure to draw up a plan to deliver 6,000 Mega Watts of 
electricity in 18 months (Ref B).  The Commission submitted its 
report in late March 2008.  Recommendations included that, over a 
transition period of two years, the Federal Government establishes a 
"Special Purpose Vehicle" (SPV) to oversee the 18 companies created 
in 2006 by the unbundling of the Power Holding Company of Nigeria, 
and raise over USD 2 billion from private sector resources to 
complete the National Integrated Power Projects. 
 
¶7. (SBU) AFC has been closely involved with the Commission.  The 
AFC's CEO and two other board members, Nigerian billionaire Aliko 
Dangote of Dangote Group and China's Lewis Tung of WEMPCO, were 
members of the Commission. (Note:  The Dangote Group is arguably 
Nigeria's largest industrial conglomerate.  Its business operations 
extend across West Africa and include food processing, cement 
manufacturing, and sugar refining.  Forbes listed Aliko Dangote as 
the 334th wealthiest man in the world in 2008.  Under the Obasanjo 
administration, Dangote was a founder of the controversial 
Transnational Corporation (TransCorp), a collective of disparate 
interests close to former President Obasanjo.  TransCorp is widely 
perceived as having been a vehicle through which participants 
profited from the disposal of government assets, including the Nicon 
Hilton hotel, telecommunications firm Nitel and oil blocks. End 
Note)  The news media reported that AFC wrote the Commission's 
report and recommended itself as the adviser to the Federal 
Government during the transition period; it is unclear whether the 
opportunity to participate was offered to other entities, whether 
AFC had the requisite expertise, or whether the recommendations were 
subject to any public scrutiny.  After the report's formal approval 
by President Yar'Adua and the Federal Executive Council, AFC 
reportedly kicked off the initiative in late April by conducting the 
financial due diligence for establishment of the SPV.  Pointing to 
AFC's extensive involvement in both the Commission and the 
initiatives coming out of the report, some media outlets and 
industry watchdogs have raised questions about the AFC's 
nontransparent role and influence. (Note: AFC issued a news release 
in mid February, touting its role in the Commission as a sign of 
private sector leadership in a public-private partnership.  End 
Note) The media has questioned whether AFC was created as a 
development bank or as a front vehicle for special interests. 
 
Probe of CBN Shareholding Underway 
---------------------------------- 
 
¶8. (SBU) The AFC commenced operation in September 2007.  In response 
to AFC's request for the conferment of diplomatic legal status as a 
multilateral financial institution, President Yar'Adua, on April 16, 
established a Presidential Committee to determine whether the CBN 
acted within the law and regulations in setting up AFC, and to 
verify CBN's authority to invest USD 462 million equity in the 
institution.  The probe has triggered a firestorm of controversy. 
AFC's supporters said the probe is a politically-motivated move to 
bring down Soludo and his policies.  Opposition parties railed 
 
LAGOS 00000201  003 OF 003 
 
 
against Soludo's allegedly extralegal commitment of CBN assets.  To 
counter the latter, Soludo said the CBN Act of 2007 empowered him to 
invest in growth-promoting businesses; he also said no legal 
provision prohibits him from sitting on the AFC's board.  The AFC 
contact told EconOff on May 10 it has always been in the CBN's plan 
to draw down its holdings in AFC from 40 to 5 percent.  In light of 
the ongoing probe, AFC is speeding up the divestment of CBN funds in 
order to take the heat off Soludo, said the AFC contact. 
 
¶9. (U) President Yar'Adua, in a May 19 interview with the Britain's 
Financial Times, called Soludo's decision to set up the AFC a 
mistake.  Nigeria's membership in AFC, which purports to be a 
multilateral financial institution, must be approved by the Federal 
Executive Council and Senate, the President said. 
 
"Economically Correct, Commercially 
Shady, Politically Wrong" 
----------------------------------- 
 
¶10. (SBU)  In May 22 meetings with EconOff, a knowledgeable contact 
with extensive experience working for U.S. corporations in senior 
management positions in the energy sector called the selection and 
involvement of private partners such as Dangote and WEMPCO into AFC 
opaque at best. He said no one knew how these private groups were 
identified and selected, and whether other groups were offered the 
opportunity to participate.  This process falls in line with former 
President Obasanjo's modus operandi, he said.  A well-respected 
Lagos financial investor described AFC as "economically correct, 
commercially shady, and politically wrong." 
 
¶11. (SBU) Comment: Even without the CBN investment, the AFC's 
intimate involvement in the "Presidential Commission on Accelerated 
Expansion for Electricity Infrastructure" smacks of cronyism.  The 
real danger is that the AFC will use its considerable insider access 
to cherry pick the best public projects for investment.  Some have 
speculated that the Commission and its report would do no more than 
transfer public assets into private hands (ref A).  AFC's inception, 
structure, and method of operating lend some credence to these 
predictions. End Comment. 
 
¶12. (U) This cable was cleared with Embassy Abuja. 
 
Hudson