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Fuel Subsidy, Debt Servicing Pushing Nigeria into Bankruptcy — Sanusi

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  • Fuel Subsidy, Debt Servicing Pushing Nigeria into Bankruptcy — Sanusi

The Emir of Kano, Mallam Muhammad Sanusi II, has warned that Nigeria is on the verge of bankruptcy as fuel and electricity subsidies, as well as debt servicing, continue to eat into government revenue.

Sanusi, who is a former governor of the Central Bank of Nigeria, said this while delivering his address at the ongoing third National Treasury Workshop, organised by the office of the Accountant-General of the Federation in Kano.

He advised President Muhammadu Buhari’s administration to scrap fuel and electricity tariff subsidies in order to stabilise the economy.

He said, “In 2011, when I was CBN governor, Nigeria made $16bn from petroleum sales, and we spent $8bn importing petroleum and spent another $8.2bn subsidising the product…and I asked, ‘Is this sustainable?

“The country is bankrupt and we are heading to bankruptcy. What happens is that the Federal Government do pay petroleum subsidy, pays electricity tariff subsidy, and if there is a rise in interest rates, the Federal Government pays. What is more life-threatening than the subsidy that we have to sacrifice education, health sector and infrastructure for us to have cheap petroleum?”

Sansui said, “If truly President Buhari is fighting poverty, he should remove the risk on the national financial sector and stop the subsidy regime, which is fraudulent.”

He said the President must tell Nigerians the facts about the economic situation and act promptly to address it.

Sanusi told the participants at the workshop, “We need to ask these questions: why are there high mortality rates, malnutrition, high rate of out-of-school children, among others, while the national treasury goes to petroleum sector?

“In 2016, we were told that we are consuming 28 million litres of petrol per day and just a few weeks ago, we were told that it has jerked up to 60 million litres daily; what went wrong? Since I have decided to come here, you have to accept what I have said here. And please, if you do not want to hear the truth, never invite me.”

The Emir expressed worry about the state of public finance in the country, saying there were a number of very difficult decisions that must be made.

He said, “We should face reality. His Excellency, the President, said in his inaugural speech that his government would like to lift 100 million people out of poverty. It was a speech that was well received, not only in this country but worldwide.

“The number of people living in abject poverty in Nigeria is frightening. By 2050, 85 per cent of those living in extreme poverty in the world will be from the African continent, and Nigeria and the Democratic Republic of Congo will top the list.

“Two days ago, I read that the percentage of government revenue going to debt servicing had risen to 70 per cent. These numbers are not lying. They are public numbers. I read them in the newspapers. When you are spending 70 per cent of your revenue on debt services, then you are managing 30 per cent.

“And then, you continue subsidising petroleum products and spending N1.5tn per annum on petroleum subsidy! And then we are subsidising electricity tariff. And maybe, you have to borrow from the capital market or the Central Bank of Nigeria to service the shortfall in the electricity tariff. Where is the money to pay salaries? Where is the money for education and other government projects?”

In his address at the workshop, the Chairman, Economic and Financial Crimes Commission, Mr Ibrahim Magu, stressed the need to tackle corruption in the country and warned public and private office holders to desist from corrupt practices.

Economic and financial experts, who spoke with our correspondents in separate interviews, expressed divergent views on the Emir’s statement that the country was heading towards bankruptcy.

The President, Lagos Chamber of Commerce and Industry, Mr Babatunde Ruwase, said the chamber had always stood against petrol subsidy, adding that it was not economically healthy to keep subsidising consumption.

He said instead of subsidising consumption, the money should be channelled into capacity building in the educational sector, health and other ventures.

“Productive ventures like farming should benefit from subsidy and not consumption. If we continue the way we are going, it is only a miracle like a sudden and astronomical rise in the global price of crude oil that will save us; otherwise, the nation will definitely go bankrupt,” he added.

According to Ruwase, the current subsidy regime is not sustainable and is open to abuse and fraud.

On electricity tariff, he said, “If the government wants investors to come into the electricity sector, it has to relax its control and allow the economic cost to determine the tariff. The current tariff we have was set three years back and it is lower than the cost of investing in the sector.”

The Registrar, Chartered Institute of Finance and Control of Nigeria, Mr Godwin Eohoi, described the nation’s debt service cost as high but said it could not make the country go bankrupt.

According to him, there are many areas that the country can explore to generate much-needed revenue.

He, however, said the over-reliance on oil had made it difficult to focus on the revenue-earning potential of the non-oil sector.

He said, “The debt profile of Nigeria is very high and there is no doubt about it. But we have revenue that can sustain it and there is the capacity to do more. I don’t see Nigeria going into bankruptcy. There is no doubt that we have high debt profile but the revenue we are generating is gradually increasing and there is an aggressive drive by all the agencies of government to boost revenue generation.

“While I agree with the Emir that the amount spent on debt service is high, I disagree with him that it will lead us to bankruptcy. The government has given an indication that revenue would be increased; so, if that is achieved, then we can avoid bankruptcy.”

When asked if he was in support of the removal of subsidy, he said, “Subsidy is an issue that has lingered for long and it will take the political will for it to be removed. There is no political will to remove it now.”

A former President, Association of National Accountants of Nigeria, Dr Sam Nzekwe, described the Emir’s statement as a wake-up call to the government to make things work better in the economy.

He said, “It is subjective that Nigeria is heading to bankruptcy, but I think what he is trying to say is that because of our dependency on oil when there is internal and external volatility or attack on oil pipes, we will not be able to produce as much.

“If there is volatility in prices, then there will be a problem. We have not been able to get the economy working as we are supposed to. A country whose economy is not producing and the population is growing faster than the economy is a problem. The government is still the driver of the economy, but we need to get the private sector to drive the economy. We need to create an enabling environment for things to work, provide critical infrastructure for the private sector to join.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Economy

Nigeria Borrows $4 Billion Through Eurobonds as Order Book Peaked at $12.2 Billion

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Eurobonds - Investorsking

The Federal Government of Nigeria has raised a fresh $4 billion through Eurobonds, according to the latest statement from the Debt Management Office (DMO).

Nigeria had set out to raise $3 billion but investors oversubscription peaked at $12.2 billion, enabling the Federal Government to raise $1 billion more than the $3 billion it announced.

DMO said “This exceptional performance has been described as, “one of the biggest financial trades to come out of Africa in 2021” and “an excellent outcome”.

Bids were received from investors in Europe, America, Asia and several local investors. The statement noted that the quality of investors and the size of the Order Book demonstrated confidence in Nigeria.

The Eurobonds were issued in three tranches, details, namely seven years–,$1.25 billion at 6.125 per cent per annum; 12 years -$1.5 billion at 7.375 per cent per annum as well as 30 years -$1.25 billion at 8.25 per annum.

The DMO explained that the long tenors of the Eurobonds and the spread across different maturities are well aligned with Nigeria’s Debt Management Strategy, 2020 –2023.

The Eurobonds were issued as part of the New External Borrowing stipulated in the 2021 Appropriation Act. DMO noted that the $4 billion will help finance projects state in the 2021 budget.

Nigeria’s total debt stood at $87.239 billion as at March 31, 2021. However, with the $4 billion new borrowing, the nation’s debt is now $91.239 billion. A serious concern for most Nigerians given the nation’s weak foreign revenue generation and rising cost of servicing the debt.

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CIBN Banking and Finance Conference 2021: Structural Transformation and Growth

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Coronation Merchant Bank - Investors King

Today we highlight one of the sessions, ‘Economic Recovery’, at the recently concluded CIBN Banking and Finance conference. This was a hybrid event in Abuja, Lagos and partially virtual last week. The Covid-19 disruptions have created demand and supply shocks in the global system while unlocking new opportunities for growth.

Given the pre-existing financing challenges and growing spending needs, many developing countries are in dire need of financial support. As a result of the pandemic, the financing gap for the sustainable development goals increased by 70% (over USD4.2bn). The speaker on this session, Amina J. Mohammed, Deputy SecretaryGeneral of the United Nations and Chair of the United Nations Sustainable Development Group focused on structural transformation, technology, finance and sustainability.

Recent developments such as the allocation of the USD650bn in Special Drawing Rights (SDR) were highlighted during the session. Although the SDR offers improved liquidity into the system, Africa is set to receive only USD32.2bn (or 6.4% of the total amount). Therefore, it is important that the funds are channeled towards well-targeted sectors that can contribute to sustainable development.

The banking and finance sector plays a crucial role. The Africa Continental Free Trade Area (AFCFTA) agreement offers an opportunity for the financial sector to work within a continental market of 1.2 billion people. According to Amina J. Mohammed, three main actions areas will reshape the financial sector and support stronger recovery.

The first, better customer engagement with a dynamic range of relevant products and services that go beyond bank-based financing mechanisms and offer innovative financial products tailored to specific needs of business ecosystems. Second, the adoption of new operating models to drive efficiency and inclusion. Third, a deliberate focus on enabling sustainable development investing.

Furthermore, Nigeria’s banking and finance industry is well positioned to drive specific UN sustainable development goals such as inclusive and affordable credit, especially for micro, small and medium-sized enterprises. The industry can also provide support towards climate change.

Technology also featured in the discussion points. Undoubtedly, technology is a catalyst for growth across economies and the pandemic has further exposed the deficit within the sector across developing countries. Investments in digital infrastructure need to be rapidly expanded and scaled up to boost socio-economic development.

The speaker commended the FGN’s efforts on its push towards sustainable economic recovery. Some policy and regulatory reforms highlighted include, regulation of fintechs and related services to strengthen payment systems and regulate data protection; the green bonds which Nigeria first issued in 2017 in support of green projects, including solar energy and the modernisation of the Nigerian stock exchange that has given rise to a new operational structure and leadership.

These are laudable steps. However, we note that there is still room for improvement. To achieve double-digit GDP growth and sustainable development, structural transformation should remain on the FGN’s priority list.

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Economy

FG Plans To Deliver 15 Projects Across The Country With $4B Foreign Loans

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Muhammadu Buhari

Nigeria’s Presidency has explained that a total of 15 projects, spread across the six geo-political zones of the country, are to be financed with more than $4 billion from multilateral institutions.

Malam Garba Shehu, Senior Special Assistant to the President on Media and Publicity stated on Saturday in Abuja that the loan is under the 2018-2021 medium-term (rolling) external borrowing plan.

He revealed that President Muhammadu Buhari had already requested the Senate to approve sovereign loans of $4.054billion and €710million as well as grant components of $125million for the proposed projects.

He quoted the letter by the president as saying that the sovereign loans will be sourced from the World Bank, French Development Agency (AFD), China-Exim Bank, International Fund for Agricultural Development (IFAD), Credit Suisse Group and Standard Chartered/China Export and Credit (SINOSURE).

He said: “The President’s request to the Senate listed 15 proposed pipeline projects, the objectives, the implementation period, benefiting states, as well as the implementing Ministries, Departments and Agencies (MDAs).

“A breakdown of the Addendum to the Proposed Pipeline Projects for the 2018-2021 Medium Term (rolling) External Borrowing Plan shows that the World Bank is expected to finance seven projects including the $125million grant for ‘Better Education Services for All’.’’

According to him, the Global Partnership for Education grant is expected to increase equitable access for out-of-school children and improve literacy in focus states.

He expressed the hope that the grant, which would be implemented by the Federal Ministry of Education and the Universal Basic Education Commission (UBEC), would strengthen accountability for results in basic Education in Katsina, Oyo and Adamawa States.

Other projects to be financed by the World Bank, according to Shehu, are the State Fiscal, Transparency, Accountability and Sustainability Programme for Results as well as the Agro-Processing, Productivity, Enhancement and Livelihood Improvement Support Project.

He said the benefiting states for the agro-processing project included, Kogi, Kaduna, Kano, Cross River, Enugu and Lagos with the Federal Ministry of Agriculture and Rural Development as the implementing ministry.

The presidential aide stated that the objective of the project was to enhance the agricultural productivity of small and medium-scale farmers and improve value addition along priority value chains in the participating states.

Shehu added that the World Bank would also be financing the Nigeria Sustainable Water Supply, Sanitation and Hygiene (WASH) project in Delta, Ekiti, Gombe, Kaduna, Katsina, Imo and Plateau States, for the next five years.

According to him, the project, when completed, is expected to improve rural water supply, sanitation and hygiene nationwide towards achieving Sustainable Development Goals (SDGs) for water supply and sanitation by 2030.

“Under the external borrowing plan, the World Bank-supported projects also include Nigeria’s COVID-19 Preparedness and Response Project (COPREP), under the supervision of the Federal Ministry of Health and Nigeria Centre for Disease Control (NCDC).

“The project, which has an implementation period of five years, will respond to threats posed by COVID-19 through the procurement of vaccines.

“Furthermore, no fewer than 29 states are listed as beneficiaries of the Agro-Climatic Resilience in Arid Zone Landscape project, which is expected to reduce natural resource management conflicts in dry and semi-arid ecosystems in Nigeria,’’ he said.

He gave the names of the benefiting states for the project to be co-financed by the World Bank and European Investment Bank (EIB) to include: Akwa Ibom, Borno, Oyo, Sokoto, Kano, Katsina, Edo, Plateau, Abia and Nasarawa.

Others are; Delta, Niger, Gombe, Imo, Enugu, Kogi, Anambra, Niger, Ebonyi, Cross River, Ondo, Kaduna, Kebbi, Jigawa, Bauchi, Ekiti, Ogun, Benue, Yobe and Kwara.

He said the World Bank would also be funding the Livestock Productivity and Resilience project in no fewer than 19 states and the Federal Capital Territory (FCT) while the China EXIM Bank is expected to finance the construction of the branch line of Apapa-TinCan Island Port, under the Lagos-Ibadan Railway modernisation project.

Shehu said: “The French Development Agency will finance two projects, which include the National Digital Identity Management project and the Kaduna Bus Rapid Transport Project.

“The digital identity project will be co-financed with World Bank and EIB.

“The Value Chain Development Programme to be financed by IFAD and implemented in Anambra, Benue, Ebonyi, Niger, Ogun, Taraba, Nasarawa, Enugu and the Kogi States will empower 100,000 farmers, including over 6,000 and 3,000 processors and traders, respectively.

“The loan facility to be provided by European ECA/KfW/IPEX/APC will be spent on the construction of the Standard Gauge Rail (SGR) linking Nigeria with Niger Republic from Kano-Katsina-Daura-Jibiya-Maradi with branch to Dutse.

“The specific project title, Kano-Maradi SGR with a branch to Dutse, has an implementation period of 30 months and will be implemented by the Federal Ministry of Transport.

“The Chinese African Development Fund through the Bank of China is expected to provide a loan facility of $325 million for the establishment of three power and renewable energy projects including solar cells production facility Phase 1 & II, electric power transformer production, Plants 1, II, III and high voltage testing laboratory.

“The National Agency for Science and Engineering Infrastructure (NASENI) will implement the project aimed at increasing local capacity and capability in the development of power and renewable energy technologies and infrastructure,’’ he further disclosed.

Shehu revealed that Credit Suisse would finance major industrialization projects as well as micro, small and medium enterprises schemes to be executed by the Bank of Industry.

He said the SINOSURE and Standard Chartered Bank would also provide funds for the provision of 17MW Hybrid Solar Power infrastructure for the National Assembly (NASS) complex. “The project, with an implementation period of five years, is expected to address NASS power supply deficit and reduce the higher overhead burdensome cost of running and maintaining fossil fuel generators (25MW installed capacity) to power the assembly complex,’’ he added.

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