VZCZCXRO2258
RR RUEHMA RUEHPA
DE RUEHOS #0189/01 1070804
ZNR UUUUU ZZH
R 170804Z APR 09
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 0707
INFO RUEHUJA/AMEMBASSY ABUJA 0311
RUEHOR/AMEMBASSY GABORONE 0087
RUEHGB/AMEMBASSY BAGHDAD 0021
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 WASHINGTON DC

UNCLAS SECTION 01 OF 02 LAGOS 000189 
 
SENSITIVE 
SIPDIS 
 
FOR GABORONE PASS PDROUIN 
FOR BAGHDAD PASS DMCCULLOUGH 
COMMERCE FOR KBURRESS 
TREASURY FOR DPETERS, RHALL, RABDULRAZAK 
STATE PASS USTR FOR LISER, AGAMA 
STATE PASS OPIC FOR ZHAN, MSTUCKART, JEDWARDS 
STATE PASS TDA FOR EEBONG, DSHUSTER 
STATE PASS EXIM FOR JRICHTER 
STATE PASS USAID FOR NFREEMAN, GBERTOLIN 
USDOC FOR 3130/USFC/OIO/ANESA/DHARRIS 
USDOC FOR USPTO - PAUL SALMON 
USDOJ FOR MARIE-FLORE KOUAME 
 
E.O. 12958: N/A 
TAGS: EFIN EINV ETRD PGOV NI
SUBJECT: NIGERIA: LAGOS ECONOMISTS SEE MARKET DOWNTURN AS CYCLICAL, 
SIGNS OF MARKET HITTING ROCK BOTTOM 
 
Septel 
 
¶1. (SBU) Summary: Ayo Teriba, Managing Director of Economic 
Associates, a premier economic research firm in Lagos, argues that 
Nigeria's economic down turn is cyclical and not structural.  He 
also believes that the President's announcement of a deficit in the 
2009 budget had set off panic among the public and private sector 
and aggravated the crisis. Bismarck Rewane, CEO of Financial 
Derivatives, argues that there have been signs of the market hitting 
rock bottom, indicating that reprieve might be forthcoming. End 
Summary. 
 
Contraction Cyclical, Not Structural 
------------------------------------ 
 
¶2. (U) Ayo Teriba, Managing Director of Economic Associates, argued 
in an economic forum on March 31 that Nigeria's ongoing market 
contraction represents a cyclical downturn following two years of 
growth.  He emphasized that the contraction should not be seen as 
structural because the expansion in itself was not structural. 
Therefore government structural intervention is not the right 
remedy. The proper role for the GON is to reduce the level of 
uncertainty and opacity in the market, particularly in the banking 
sector. Bolstering the public and private sector confidence will 
help economic recovery, Teriba argued. 
 
3% Budget Deficit Projection Aggravates Crisis 
--------------------------------------------- - 
 
¶3. (U) Teriba also contended that President Yar'Adua's presentation 
of the 2009 budget with a 3 percent budget deficit projection had 
set off panic among investors and consumers and aggravated the 
crisis.  According to Teriba, the prevalent assumption among the 
general public was for the GON to draw down the Excess Crude Account 
(ECA) to cushion the Nigerian economy in hard times.  The budget 
deficit projection by the President left the public with the 
impression that there was no money left in the ECA to cushion the 
economy, Teriba explained. (Note: The GON released USD 1.5 billion 
from the ECA in March to increase liquidity. There is a lack of 
consensus as to how much is currently in the ECA, with estimates 
ranging from USD 13 billion to USD 15 billion. Foreign reserves, 
which includes the ECA, is estimated at USD 48 billion. End note) 
The President's formal announcement of the deficit and his intention 
to borrow to finance the deficit added gravity to the situation, 
Teriba concluded. As a result, the odds are stacked against the CBN, 
and no monetary measures could take pressure off the depreciating 
exchange rate. (Comment: Post finds Teriba's analysis on the ECA 
incorrect. There has been able public news about how much there was 
in the ECA, and the pressure from the states to release at least one 
billion dollar to cover state revenue deficits. 
 
Market Might Have Hit Rock Bottom 
--------------------------------- 
 
¶4. (SBU) Bismarck Rewane, CEO of Financial Derivatives Company and 
member of the President Economic Steering Committee, argued in an 
economic outlook presentation on April 7, that there have been signs 
of the market hitting rock bottom. Rewane said some banks, including 
Intercontinental, Oceanic and Bank PHB, are currently managing a 
liquidity crisis, and CBN's new expansionary monetary polices might 
not help them (Septel). EconSpec observed in March customers queuing 
to withdraw cash from Intercontinental Bank's ATM machines that were 
not working purportedly due to system trouble. 
 
¶5. (U) Bloomberg reported April 1 that the Nigerian Stock Exchange's 
All Share Index (ASI) has lost 36.82 percent in 2009, the steepest 
quarterly decline in more than a decade, making it the worst of 89 
benchmark indexes tracked by the firm for 2009.  The NSE has 
experienced cumulative loss of 82.26 percent in ASI since March 
 
LAGOS 00000189  002 OF 002 
 
 
¶2008. According to Rewane, the 19 banks quoted on the NSE have lost 
Naira 5.25 trillion (USD 35 billion) since March 2008. In addition, 
the Nigerian economy remains under intense pressure from not only 
low oil output, Rewane contended, but also from a sharp drop in 
electricity power supply, estimated by unconfirmed sources to have 
gone as low as 700 megawatts in March 2009. Persistent port 
congestion has resulted in high inventory levels, which translated 
into high unpaid credits. Rewane said with signs of the market 
hitting rock bottom, reprieve might be ahead, although Nigeria is 
still a long way from a sustained economic recovery. 
 
¶6. (SBU) Comment: It is common practice to categorize Lagos-based 
financial analysts as being "pessimistic" or "rosy" in their 
assessment of the economic environment, government leadership, and 
policy viability.  Teriba is widely reputed as an optimist while 
Rewane is a pessimist.  In an environment where certain banks and 
financial institutions manipulate their balance sheets and 
accounting books, reliable data are hard to come by and analyses 
must be balanced against one another. Post argues that the economic 
impact has yet to be fully felt in all sectors and industries in 
Nigeria.  While reprieve might be forthcoming for the NSE, other 
sectors might be a long way from hitting the bottom. End comment. 
 
¶7. (U) This cable has been cleared by Embassy Abuja. 
 
Blair