WikiLeaks: Foreign investors turn away from sub-saharan Africa


Selected WikiLeaks extracts detailing the problems sub-saharan Africa faces with the cautiousness of foreign investors due to the economic downturn and persistent instability:

LONDON 00001886 001.2 OF 004 1. (SBU) Summary. London-based bank and development analysts are seeing positive signs emerging in sub-Saharan Africa’s (SSA’s) economies, after months of negative news, but remain cautious in their near-term outlook for the region. While prospects for the global economy are improving and there is some renewed investor interest in SSA, private sector analysts note that the economic situation in the region remains volatile and could worsen, rather than improve, in the coming months. There is evidence that foreign direct investment (FDI) and remittances are now weakening, and analysts note that the region remains highly vulnerable to decreases in NGO assistance and foreign bank lending. Private sector analysts assess a deterioration in FDI and cross-border bank lending would have a disproportionately negative impact on long-term growth, and cite potential cuts in public funding for education and infrastructure programs as particularly harmful to SSA’s long-term economic prospects. End Summary.

Crisis in the Region Still Unfolding ————————————

2. (SBU) Econoff met with London-based bank analysts and think tank researchers during the period from mid-July through early August 2009 to discuss the impact of the economic crisis on SSA and their assessment of the region’s key vulnerabilities in the months ahead. Bank analysts at HSBC and Goldman Sachs have been monitoring the situation in SSA closely for their international investors, while researchers at the Overseas Development Institute (ODI), a leading British think tank, are tracking the impact of the crisis on African countries’ poverty and development.

3. (SBU) Experts agreed that the economic downturn began to noticeably affect SSA during the fourth quarter of 2008, dispelling hopes that Africa’s lack of exposure to the global subprime market would spare it from the financial crisis. HSBC sub-Saharan equity analysts Marcel Mball-Ekobena and Umulingua Karangwa told Econoff that while leaders in SSA “were in denial in 2008,” the banks knew there was a problem on the horizon. By the first quarter of 2009 data showed the recession had already affected trade and portfolio investment in the region. The IMF estimates SSA experienced portfolio outflows of nearly $20 billion in late 2008 and no growth in the volume of exports.

4. (SBU) While bank and development analysts have begun to see positive signs emerging, they remain extremely cautious in their near-term outlook and told Econoff that the situation is volatile and could worsen in the coming months. Javier Perez de Azpillaga, Director of Economic Research at Goldman Sachs, noted that while there has been an uptick in the global economy, it is unclear whether it will be sustained; moreover, improvements to the global economy have not yet been transmitted to SSA. Similarly HSBC analysts told Econoff that portfolio investor interest in SSA is picking up, but has not materialized into new investments.

Trade and Portfolio Investment Hit First —————————————-

6. (SBU) Analysts agreed that the first effects of the global downturn on SSA came through the trade and portfolio investment channels. The downturn in trade affected LONDON 00001886 002.2 OF 004 virtually all the countries in the region, but some countries, such as Nigeria and Zambia, were particularly vulnerable due to their disproportionate reliance on raw material exports and commodity prices. While Goldman Sachs’ Perez de Azpillaga noted ongoing problems with trade financing, he and HSBC analysts were fairly upbeat on the near-term prospects for recovery in these channels. They assess an uptick in global demand and commodity prices should have a positive effect on the region this year,

7. (SBU) Like trade, portfolio investment flows to the region also suffered a significant decline early on. HSBC analysts explained that foreign investors, who had put capital primarily into banking, telecommunications, cement, and brewing companies, withdrew large amounts of funding when the crisis hit. Both HSBC analysts and Isabella Massa, a research fellow at ODI, said that their research showed that Nigeria, where HSBC estimates banking makes up about 80 percent of the stock market, and Kenya were the most affected by foreign redemptions. According to HSBC analysts, IPOs in most SSA countries, “virtually stopped.”

8. (SBU) While banking contacts told Econoff that they are seeing renewed interest in SSA from investors, they cautioned that this has not yet translated into anything tangible. Perez de Azpillaga told Econoff that SSA markets continue to be affected by a “return to vanilla products,” whereby investors are willing to accept lower returns in exchange for lower risk. In South Africa, Perez de Azpillaga explained, there have been some positive private capital inflows in recent months, but not enough to offset the outflows. Massa told Econoff that ODI assesses that in the coming months those countries with a still high degree of foreign presence in the market, such as Kenya and Zambia, will be the most vulnerable to a further drop in portfolio investment.

FDI and Remittances Weakening —————————–

9. (SBU) London-based analysts are seeing the first signs of problems with FDI in some SSA countries. HSBC contacts told Econoff that FDI is slowing, and pointed to a recent IMF study that estimates FDI in SSA will drop by roughly 18 percent in 2009. ODI’s Massa told Econoff that Zambia has experienced a holding back and scaling down on investment projects, especially in the mining sector. In Nigeria, evidence indicates that most of the proposed new investments have been stopped and investors have adopted a “wait and see,” approach. According to Massa, ODI’s economic modeling completed this spring found that a 10 percent drop in FDI inflows would lead to a 0.5 percent decrease in SSA’s income per capita over the long-term.

10. (SBU) Remittance inflows, typically more resilient than other forms of private capital flows, are also declining, according to analysts. Massa told Econoff that ODI research found that Lesotho, Sierra Leone, and Kenya are being disproportionately affected due to their reliance on these funds. Backing up these findings, the World Bank in April forecast that worker remittances to SSA would fall by between 4.4 percent and 7.9 percent in 2009.

Growing Concern over Aid and Cross-Border Lending ——————————————— —-

11. (SBU) So far there has been little evidence of a pullout of official aid, but both bank and development analysts expressed concern about decreases in NGO assistance to the region. According to Massa, ODI research does not have hard data that NGO’s are cutting assistance, but they have anecdotal information that this is occurring. She added that while the global focus has been on official aid commitments, development experts with whom she has spoken are much more concerned about a drop in NGO support. HSBC analysts also pointed to decreased NGO aid as the key problem, but added that they believe even official aid may be at risk, as there is a big difference between committing funds and sending funds.

12. (SBU) Similarly, while there has been no evidence of a LONDON 00001886 003.2 OF 004 contraction in international bank lending to SSA, analysts see some countries in the region as vulnerable should foreign-owned banks withdraw capital from, or close subsidiaries to make up for domestic losses. British and French banks are the largest foreign players in the region, according to Massa, making up 27 percent and 17 percent of the foreign bank market, respectively. South African banks are the largest regional players, and Goldman’s Perez de Azpillaga told Econoff that these banks are reducing domestic credit availability by setting more demanding terms, such as higher collateral, and are less willing to lend regionally. He added, however, that this is more the result of risk aversion, than protectionism. According to Massa, Uganda and Kenya would be most affected by a contraction in cross-border lending, as they have the highest share of foreign owned banks. She added that the think tank’s modeling shows a 10 percent decrease in cross-border lending would affect long-term SSA growth by about 0.7 percent annually.

Potential Long-Term Effects —————————

16. (SBU) ODI’s modeling shows that of all private capital flows, FDI and cross-border lending have the greatest impact on the region’s long-term growth. Should these flows experience a significant slowdown in the coming months, the impact would be far more detrimental to SSA than the downturn in trade and portfolio investment has been, according to Massa. Massa also expressed concern that the economic crisis will result in African governments’ inability to provide adequate social safety nets and will push more Africans into poverty, reversing gains made in education and health. In particular, she sees lack of investment in education as creating long-term problems for regional growth.

17. (SBU) HSBC analysts, too, noted that a reduced ability of African governments to fund infrastructure programs will have long-term implications. They told Econoff that most SSA governments are now scaling back infrastructure projects, and “spending is down to a trickle.” Should the situation LONDON 00001886 004.2 OF 004 continue, they are concerned that low investment will impact electricity and roads, creating a negative cycle whereby poor infrastructure reduces the attractiveness of the area to foreign investors. On the positive side, they noted that there are very few real “emerging markets” left in the world, so investors will eventually return to SSA. Africa’s comparative advantage is that its one of the few areas in the world that still has a largely untapped market and significant natural resources. Visit London’s Classified Website

WikiLeaks: UK government’s initiative for Nigerian business


Below are selected WikiLeaks extracts on the UK government’s plans for ‘responsible’ Nigerian business

SUBJECT: NIGERIA: UK INITIATIVE TO OFFER CLEAN DEVELOPMENT

MECHANISMS

1. Summary. Following numerous consultations with senior Nigerian political and industry leaders, the UK government is moving forward with an initiative to facilitate responsible business development in Nigeria. Implemented by the Department of Energy and Climate Change (DECC), the program aims to provide training and high-level coordination to Nigerian policy-makers and corporate leaders, to improve Nigerian companies’ capacity in policy development, regulatory control and communication and to help develop Nigerian industry, especially the energy sector, in an environmentally friendly manner. The program is currently vetting potential participants and will begin training in March 2010. End summary.

Clean Development Mechanisms —————————-

2. The UK’s Department of Energy and Climate Change’s new program will partner Nigerian policy-makers and industry leaders with senior UK officials to share best practices and offer practical support for the clean development of Nigerian industries, particularly the energy sector. The UK Department for Business will assist in partnering UK corporations with Nigerian counterparts and oversee the advancement of clean development projects.

3. The program plans to partner up to fifty senior Nigerian corporate managers with senior UK government and regulatory department officials to impart best practices in policy development, regulatory practices, commercial contracts, communication and technical skills. Nigerian Business leaders participating in the program will also work with experienced UK-based corporations, especially in the UK oil and gas sector.

Training Goals ————–

4. DECC-provided policy development training will include stakeholder relationship management, principles of transparency, effective consultation procedures and public relations management in an effort to bolster the efficacy of the processes which Nigerian managers use to develop corporate policy.

5. Regulatory Best Practices training will include regulation and pricing workshops, technical standards workshops and systems design and management. This aspect is designed to educate prospective regulatory managers in industry about the core concepts and skills they will need to ensure an effective relationship with regulatory agencies. 6. DECC hopes to establish a Nigerian body with a clear policy framework to provide local assistance and coordination for the program, for which funding has been approved. Program managers have already held a number of high-level consultations on the project with Nigerian counterparts in London and Abuja. The program is currently vetting potential participants with the help of Nigerian regulatory agencies and seeks to begin implementation in early 2010. The program includes the possibility of a UK trade mission to Nigeria by Summer 2010. Visit London’s Classified Website: XXXXXXXXXXXX

WikiLeaks: Chinese oil companies not welcome in Nigeria


Extract from a Wikileaks cable on the lack of trust in Chinese oil companies presence in Nigeria. Statements about corruption and alleged difficulties in working for Chinese companies:

“Two xxxxxxxxxxxx officials recently volunteered that Chinese oil companies had made a lot of mistakes in Nigeria and neither official welcomed their presence. Nigeria National Petroleum Company (NNPC) xxxxxxxxxxx said on xxxxxxxxxxxx the NNPC is aware of how the Chinese have behaved in the Sudan and Chad and that the Chinese do not know how to deal with a democratic government. xxxxxxxxxxxx complained on November 11 that there is no recourse when dealing with the Chinese and that the Chinese do not respect local laws. The poor image of the Chinese helps to explain why they were never a serious threat to the renewal of the international oil companies’ (IOCs) oil mining licenses (OMLs).

——————-

ruffled feathers…

——————-

2. (C) Nigeria National Petroleum Company (NNPC) xxxxxxxxxxxx discussed the Chinese oil companies’ recent attempts to obtain deep water oil mining leases (OMLs) with Economic Counselor and Trade and Investment Specialist on November 13. xxxxxxxxxxxx said that Shell Nigeria had opened the door for the Chinese by resisting GON efforts to pass the proposed Petroleum Industry Bill (PIB) and telling the National Assembly that the “Nigerian oil industry would be dead” if the PIB passed. “So they brought in the Chinese,” xxxxxxxxxxxx said.

3. (C) Asked about how the Chinese handled themselves in Nigeria, xxxxxxxxxxxx said, “the Chinese are very aggressive because they need the oil.” “They came in with big money,” he said, “and they were ready with large loans with low interest rates.” But the Chinese also made some mistakes. First, xxxxxxxxxxxx said, “We know what had happened in the Sudan and Chad and we know enough about them to know where we want them and where we don’t.” At the same time, xxxxxxxxxxxx said, “No one really desires to see the IOCs go when we have worked with them so long. Long-term friendships develop, a lot is learned from them, and we know how they do business.”

4. (C) Second, xxxxxxxxxxxx said, “Their oil companies are run by the Chinese government and they do not know how to deal with the Chinese government and they do not know how to deal with a democratic government. For example, the Chinese told the NNPC officials which fields they wanted and the NNPC officials had to say, ‘No, this field is operated by someone.'” The Chinese acted dumbfounded and said, “You mean we can’t have it?” “The PIB did not come from nowhere,” xxxxxxxxxxxx explained. Much consultation occurred before the GON presented the PIB to the National Assembly and all that was not going to be undone because of a Chinese official. “The Chinese caused the problem,” he summarized, “and they ruffled a lot of feathers.” xxxxxxxxxxxxadded that Gazprom of Russia had used a similar approach. “We are lucky we have a democratic government” he said, “Under the military, the Chinese and Russians would be here.”

—————————-

…and no forwarding address

—————————-

5. (C) xxxxxxxxxxxx colleagues also told visiting Coordinator for International Energy Affairs (S/CIEA) David Goldwyn and his delegation on November 11 that he and his union colleagues did not want the Chinese in the Nigerian oil sector. Goldwyn was asking about the problems faced by xxxxxxxxxxxx said, “The Chinese are here and that is a huge problem!” “xxxxxxxxxxxx have a list of the worst five countries to work for,” xxxxxxxxxxxx said, “and they are on that list.” xxxxxxxxxxxx explained that xxxxxxxxxxxx had experienced a problem with ExxonMobil when they “wrongfully fired a worker.” xxxxxxxxxxxx applied pressure through the U.S. steel workers and the worker in question was given a choice of being re-hired or compensated and xxxxxxxxxxxx chose the latter. “If xxxxxxxxxxxx a problem with a Chinese company,” xxxxxxxxxxxx complained, “who can xxxxxxxxxxxx to?” (COMMENT: Nigerian xxxxxxxxxxxx have complained to Labor Officer that the Chinese do not have industrial relations representatives or any formal human resources process other than the immediate supervisor who does the hiring and firing. Dealing with non-English-speaking Chinese officials also hinders constructive interaction. END COMMENT).

6. (C) xxxxxxxxxxxx later elaborated by alleging that Chinese labor practices were not good so no one wants to be part of it. “Look at the Chinese mining companies in Zambia,” xxxxxxxxxxxx said, “the labor unions there had to chase them out.” xxxxxxxxxxxx noted that corrupt people in China were put to death, but overseas they quickly adapt to the local environment, including adopting corrupt practices. “The Chinese have no respect for local laws,” xxxxxxxxxxxx said, “and they compromise a lot of things, including safety.”

7. (C) Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) xxxxxxxxxxxx said the Chinese were the first to bribe local officials to win contracts and get around local laws. By contrast, xxxxxxxxxxxx said xxxxxxxxxxxx played by the rules and was above-board. “xxxxxxxxxxxx proud of xxxxxxxxxxxx company in that respect,” xxxxxxxxxxxx said. (See reftel for additional background on Goldwyn’s meeting with the xxxxxxxxxxxx).

——-

comment

——-

8. (C) The poor image of the Chinese helps to explain why they never seriously threatened renewal of the IOCs’ oil mining licenses (OMLs), the first of which the GON signed with ExxonMobil on November 20. Most of the remainder will be signed in the coming weeks. Minister of State for Petroleum Resources Odein Ajumogobia told the joint GON-ExxonMobil press conference on the same day that, “There was never any consideration of selling or trading one firm for another.” But he also said that, “NNPC has a right to relinquish any part of its equity to any third party that expresses interest and it is in that regard that the discussions with the Chinese have been carrying on.” The GON owns 60 percent of all the joint ventures with the IOCs (55 percent in the case of Shell). So, the NNPC and the IOCs could still end up having minority Chinese partners –whether they like it or not.

9. (U) Embassy coordinated this telegram with ConGen Lagos.Sanders”

Nigeria: The Happiest Place on Earth


Just a quick post to share this article, written by Bim Adewunmi. The piece was recently published in the British newspaper site, The Guardian, following a poll citing Nigeria as the ‘happiest’ country in the world. There is nothing for me to add apart from saying that I am not at all surprised with the findings. After multiple extended visits to Nigeria, I could tell Nigerians are people full of hope and an inner happiness called ‘joy’. Something those of us in the west could learn from. Read the article here.

Hello. Does anybody know where the election date has gone?


After taking a short break away from the blog, to pack up and move to another country, I was excited at the prospect of catching up on Nigerian politics – in particular the 2011 elections which were rumoured to take place early this year. So a quick search on Google comes up with nothing – a further search produces the same result. However, I stumble across a story in the Vanguard that suggests that the election may now take place in April. April?! If somebody could please fill me in on why the date has been pushed so far back , it would be much appreciated.

During my search on the upcoming elections, I also stumbled across a story about suspected vote rigging during the registration of eligible voters across the country. Hodewu Avoseh, a member of the Lagos State House of Assembly, said that he had received information about stolen Direct Data Capture (DDC) machines. Avoseh said: “Six machines have already been hijacked in various centres around Aguda, Surulere.”

The Independent National Electoral Commission (INEC) employed the services of the National Youth Service Corps (NYSC) to oversee election registration and voting. This news will disappoint many Nigerians who had hoped for some improvement in the voting process this time around.

Late last year, Chairman of the INEC, Prof. Attahiru Jegu, had warned Nigeria to not expect a perfect election, but had done his best to reassure the country that the INEC “will bring a remarkable and substantive improvement that will make Nigerians accept the credibility of the elections.” Read the full story here.

Who is to blame for this debacle? What suggestions do you have to stamp out voting corruption  from the grassroots?

WikiLeaks: Cables discuss possible electoral reform


Selected extracts from the WikiLeaks site on electoral reform, working with “ineffective” state governors and the federal government:

Foreign Office West and Southern Africa DAS-equivalent Janet Douglas told PDAS Carter July 22 that relative stability in West Africa and a UK budget crunch had meant a reduced UK presence and programming in West Africa, but agreed that Briton Edwin Dyer’s June murder in Mali by AQIM had been a “game changer.

Strongly endorsing greater U.S.-UK dialogue on Nigeria at the desk officer and technical levels, Douglas agreed that it was important to focus on the critical areas of electoral reform, constitutional succession, and corruption issues with the federal government. Assistance should be back-loaded, as the Nigeria government has the resources to begin initiatives but lacks the political will.

On the elections, Douglas agreed there is great potential for violence and that while the elections will likely be “bad,” it will be important to deal with governance and democracy as a process. She agreed that working with local civil society organization in the run-up to the elections on both conflict mitigation and transparency issues would be important.

She also supported working with individual states and governors, corrupt and ineffective as they may be, because they were providing an avenue of engagement and were more effective than the current, largely leaderless federal government.

AQIM =Al-Qaeda in the Islamic Maghreb




							

WikiLeaks: “Nigeria has enormous potential” part 2


Continuing extract from leaked cable on Nigeria’s role within Africa and “impressive governors” to watch out for:

Akwa Ibom governor Godswill Akpabio was singled out as an impressive governor by Mark Ward. Akpabio has built up infrastructure and industrial development. He is “one to watch” per Ward. Other Southern governors that were highlighted included were Rivers State governor Chibulke Amaechi and Edo State governor Oshiomhole. Fawthrop suggested that USAID has a lot to offer in the South in that if USAID makes a mistake it is OK. If a private company engages in a similar project and makes a mistake you have a FCPA investigation. The Consul General (CG) added that it might be possible to team up with security assets of the IOCs to arrange diplomatic trips to the Niger Delta. This arrangement would not happen “100 percent of the time,” but more often than not, per the CG.

USAID = United States Agency for International Development

FCPA =  Foreign Corrupt Practices Act