VZCZCXRO5283
PP RUEHMA RUEHPA
DE RUEHUJA #0630/01 0981406
ZNR UUUUU ZZH
P 071406Z APR 08
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 2528
INFO RUEHOS/AMCONSUL LAGOS 9027
RUEHZK/ECOWAS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
UNCLAS SECTION 01 OF 02 ABUJA 000630
SIPDIS
SENSITIVE
SIPDIS
DEPT PASS TO USTR-AGAMA, EXIM-JRICHTER
TREASURY FOR PETERS AND HALL
DOC FOR 3317/ITA/OA/KBURRESS, 3130/USFC/OIO/ANESA/DHARRIS,
DOE FOR GPERSON, HAYLOCK
E.O. 12958: N/A
TAGS: ECON EFIN EINV OREP KCOR PREL NI
SUBJECT: NIGERIA: MINISTER OF STATE SHARES HIS VIEWS ON THE ECONOMY
WITH CODEL SHELBY
REF: ABUJA 578
SENSITIVE BUT UNCLASSIFIED - PROTECT ACCORDINGLY.
1. (SBU) Summary. Senators Shelby, Gregg and Corker, along with the
Ambassador, met with Minister of State for Finance Aderemi Babalola
on March 17. The meeting focused on the financial sector and
efforts towards combating money laundering and terrorist financing.
Babalola told the Senators that the Government of Nigeria (GON) is
improving its supervision of the financial sector to check money
laundering and financial crimes. The oil price based fiscal rule
aimed at saving oil windfall will continue. There is collaboration
between fiscal and monetary authorities to control money supply in a
bid to ensure price stability. The GON prefers a public-private
partnership model rather than public spending to solve Nigeria's
infrastructure problems. End Summary.
2. (SBU) On March 17, Senators Richard Shelby, Judd Gregg and Bob
Corker accompanied by Ambassador Sanders, EconCouns, and EconOff and
Econ Specialist (notetaker), met with Aderemi Babalola, Minister of
State for Finance, to discuss Nigeria's financial sector and efforts
towards combating money laundering and terrorist financing.
.
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We Have Lifted the Bar on Supervision
-------------------------------------
.
3. (SBU) Babalola reported Nigeria has improved supervision of the
financial services industry and there are further plans to enhance
supervision. The Central Bank of Nigeria (CBN) and the Nigerian
Deposit Insurance Corporation (NDIC) regulate the banks. The CBN is
an independent agency that collaborates with the Ministry of Finance
to achieve monetary and fiscal stability. The NDIC reports directly
to the Ministry of Finance.
4. (SBU) The banking industry has moved to risk-based supervision, a
departure from past prudential guidelines supervision. There is
collaboration between the banks, the CBN and the Nigerian Financial
Intelligence Unit (NFIU) to curtail money laundering. Babalola
stated that the GON has also focused on the capital market to rein
in laundered money. Currently all applications for shares in public
offers are verified to ascertain the sources of funds and the
identity of applicants. There are also plans to introduce
electronic channels for shares allotment, dividend payment and other
transactions in the capital market to streamline supervision.
.
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Oil Price Based Fiscal Rule Will Continue
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.
5. (SBU) Babalola contended that the oil price based fiscal rule
saving revenues above the budget benchmark price will continue even
though the basis for Nigeria's excess crude account is not
recognized by the constitution. The oil price based fiscal rule is
a strategy for controlling money supply and achieving monetary
stability by sterilizing excess crude oil revenues above the budget
benchmark price. It ensures proper fiscal planning by overcoming
the boom-bust cycle associated with high oil prices which results in
the inability of the government to complete projects embarked upon
when revenues were high. The strategy has led to more collaboration
between the CBN and the Ministry of Finance. He reported ongoing
discussions among the Presidency, state governors and the National
Assembly to convince the states that this fiscal rule is necessary.
.
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Infrastructure
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.
6. (SBU) Regarding the huge infrastructure problems in Nigeria,
Babalola said that past governments had relied solely on public
spending to solve the problem. This resulted in fiscal and monetary
instability and no infrastructural improvement. Babalola said the
government's strategy is to leverage private capital for
infrastructure projects while social infrastructure such as
education and health remain financed by the government.
.
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Joint Venture Cash Calls
------------------------
.
7. (SBU) On the GON's yearly obligations in joint ventures with
ABUJA 00000630 002 OF 002
multinational oil companies popularly referred to as Cash Calls,
Babablola said the government cannot fully fund its expected yearly
equity obligations, which amount to about $8 billion. The GON will
pay $5 billion in 2008 and there is an agreement with the oil
companies to raise the $3 billion shortfall from both the domestic
and international capital markets. He posited that since the return
on investment in the sector is quite high based on the current
international price for crude oil, there shouldn't be a problem in
raising the $3 billion shortfall from the capital market.
.
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Comment
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.
8. (SBU) Continuous USG collaboration with the GON has resulted in
serious GON efforts to combat money laundering. The infrastructure
problems are huge and it is possible that through public private
partnerships better results will be achieved. Macroeconomic
stability has been enhanced by implementation of the excess crude
account and it is important that the GON find a way to maintain the
account. If it is eliminated, federal and state spending would
increase, leading to higher inflation. The understanding between
the GON and the multinational oil companies may already be yielding
some fruits as Shell and ExxonMobil have announced plans on
alternative sources of funding. This may go a long way in ensuring
that upstream projects are not stalled due to lack of funds.
9. (U) The Codel did not have an opportunity to clear this message.
SANDERS