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States Block from Accessing Debt from Capital Market After Accumulating N5.39tn in Unpaid Debt 

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5.39tn Debt Blocks States from Capital Market Borrowing

With a total debt burden of N5.39 trillion as at the end of December 2019, the 36 states of the federation are no longer eligible to borrow from the capital market, a new report, has said.

The 2020 edition of the BudgIT’s annual state of states report titled “Fiscal Sustainability and Epidemic Preparedness Financing at the State Level,” stated that the debt burden of the 36 state governments (excluding the Federal Capital Territory) stood at N5.39 trillion in 2019.

This is coming as the Osun State government has declared that it is not overwhelmed by the huge debt profile of the state, stressing that alternative means had been identified to meet the financial needs of the state.

The Lagos State Governor, Mr. Babajide Sanwo-Olu, who was the guest of honour at the unveiling of the report, also said that the state’s reliance on Federation Accounts Allocation Committee (FAAC) has reduced to only 21 per cent as at August 2020.

The report added that the states are no longer qualified to borrow from the capital market as a result of the regulation put in place by Debt Management Office (DMO) to forestall debt crisis on sub-national public borrowings.

However, the data released by the DMO had indicated that Nigeria’s total debt stock as of December 2019 stood at N27.4 trillion.

This includes N21.7 trillion owed by the federal government and N5.6 trillion owed by the state governments.

But the Communications Associate of BudgIT, Ms. Iyanu Fatoba, told THISDAY yesterday that the difference between the DMO’s N5.6 trillion and the BudgIT’s figure of N5.39 trillion could be attributed to the foreign exchange rate differentials as at the time the reports were compiled.

The BudgIT Research Lead, Mr. Abel Akeni, who reviewed the report, said that in the light of this debt growth, all the state governments have reached the ceiling set for them by the DMO, which stipulated that state government’s total debt must not be more than 50 per cent of its last year’s total revenue.

“And in our analysis, we observed that all the 36 states have actually reached this particular ceiling. All of them now have debts that are larger than the 50 per cent of their last year’s total revenue. It is going to be a struggle if they will be allowed to access funds from the capital market in 2020,” Akeni said.

The annual report, which was unveiled yesterday in Lagos State, stated that state governments accumulated N3.34 trillion debts in five years from N2.05 trillion in 2014 to N5.39 trillion in 2019, representing 162.87 per cent increase during the period under review.

The report also said that Lagos State is the most exposed state to exchange rate volatility because of its foreign debts.

It noted that just by devaluing the exchange rate of the Naira to the Dollar from N305 in January to N380 in September, the Lagos State’s foreign debt obligations have ballooned.

The report also ranked Rivers State as number one in its 2020 States’ Fiscal Sustainability Index (FSI), and was followed closely by Anambra, Ogun and Lagos States while Bayelsa, Osun, Ekiti and Plateau States were ranked lowest in terms of sustainability index

The FSI was based on the ability of each state government to meet its recurrent obligations with its internally generated revenue (IGR) or total revenue, as well as the state’s ability to repay its debts considering its total revenue in a single year and the degree of the state’s investments in capital projects compared to its overhead costs and other recurrent expenditures.

The BudgIT’s Communications Lead, Mr. Damilola Ogundipe, said: “To achieve fiscal sustainability, states need to grow their IGRs as options for borrowing are reduced due to debt ceilings put in place by the federal government to prevent states from slipping into a debt crisis. Therefore, there has to be a shift from the culture of states’ overdependence on FAAC.”

The report stated that only 15 states in the country are in a good position to meet their recurrent expenditures and loan repayment obligations from their total revenues.

These states are Rivers, Akwa Ibom, Delta, Sokoto, Kaduna, Anambra, Kano and Ebonyi States.

Others are Enugu, Kebbi, Borno, Katsina, Yobe, Imo and Bayelsa State.

The report further showed that another set of eight states are fairly able to also meet the recurrent and debt repayment expenditures from their total revenues and still have a little left for capital expenditure. These states are Jigawa, Edo, Nasarawa, Ogun, Niger, Kwara, Ondo and Zamfara.

However, the BudgIT stated that 13 states are in a delicate negative situation in terms of meeting their recurrent and debt obligations from their revenue without resorting to further borrowings to execute capital budget. These are Abia, Taraba, Benue, Cross River, Gombe, Bauchi, Adamawa, Plateau, Ekiti, Osun, Kogi, Oyo and Lagos states.

It also reported that 11 states, namely Taraba, Benue, Ekiti, Nasarawa, Kwara, Kano, Kogi, Adamawa, Bauchi, Plateau and Bayelsa, have overhead expenditures that are higher than their capital expenditures.

Akeni noted that recurrent expenditures, though not necessarily bad, could hamper the ability of a state to generate future revenues to invest in development projects, adding that some states used recurrent expenditures to prioritise certain items. For instance, Delta State has a miscellaneous budget of N33 billion under its recurrent items.

The report also put question mark on some capital expenditures like Akwa Ibom State Government House’s N22.61 billion budget while the state’s budget for health is N8.19 billion. Similarly, Adamawa State is spending N10.62 billion on reforms and governance alone higher than its expenditure for health or education.

The report listed five states that prioritised capital budget over recurrent expenses as Rivers, Kaduna, Akwa Ibom, Ebonyi and Kebbi states.

The report stated that three states – Bayelsa, Borno and Katsina would be worst hit “by dwindling revenue as they relied on net Federation Account (FAAC) allocation for 89.56 per cent, 88.30 per cent and 88.16 per cent of their total revenues, respectively in 2019. Lagos, Ogun and Rivers state will be least affected as they relied on FAAC for only 22.82 per cent, 35.31 per cent and 53.02 per cent of their total revenues, respectively.”

The Lagos State Governor, Sanwo-Olu, who was the guest of honour at the unveiling of the report, in his keynote address said that the state’s reliance on FAAC has gone down to only 21 per cent as at August 2020.

BudgIT’s Principal Lead, Mr. Gabriel Okeowo, noted that though some states have seen some improvement in their IGR between 2014 and 2019, there is still a need to put systems in place for aggressive IGR growth within the sub-national economies, especially as falling crude oil prices, OPEC production cuts and other COVID-19 induced headwinds are set to impact Federal Allocations over the next two years.

This paints a bleak outlook for Nigerian states who depend on FAAC allocation for their survival, even though dwindling revenue will affect all states differently.

“On sub-national epidemic preparedness, it is important for states to prioritize health financing especially on Water, Sanitation and Hygiene (WASH). While COVID-19 has garnered major attention in the last few months, it is worthy of note that states are currently battling at least six other deadly diseases, which already have vaccines or known treatment. In 2019, all 36 states recorded 94,500 cases of the deadly Cerebrospinal meningitis (CSM), measles, lassa fever, yellow fever, monkeypox and cholera combined. It is in the self-interest of state governments to grow their IGR and also invest in appropriate health systems through their budgets and other sustainable methods,” Okeowo explained.

Meanwhile, the Osun state government has declared that it is not in any way overwhelmed by the huge debt profile facing the state, stressing that alternative means had been identified to meet the financial needs of the state of the living spring.

The state deputy governor, Mr. Benedict Alabi, who made this disclosure in Abuja yesterday at the launch of a book “Life of a Quintessential Engineer: Biography of Oluyemi Oguntominiyi,” the immediate past Director of federal highways construction and rehabilitation.

Alabi, who spoke to reporters after the book presentation, emphasised that current administration in the state which will be two years old by December is not really bothered by the huge debt profile it inherited.

He said the ingenuity of Governor Gboyega Oyetola has created other avenues for the state to generate resources with a view to delivering the dividends of democracy to Osun people.

The deputy governor also hinted that the state government was currently tapping other revenue sources for the socio-economic development of the state.

“Osun State has great potentials. It is like a gold that is untapped. Last year November, we organised an economic and investment summit where we showcased the potentials of the state to the whole world. We rested on the three plaques of agriculture, mining and tourism where we have comparative advantages.

“In the last one year, if not for the COVID – 19 pandemic, 42 companies would have been established in Osun State. But as of now, we have 15. One was even inaugurated last week at Iragbiji area where the firm would convert cassava to ethanol. What we are trying to do is that we want to transform the state to an industrial state and to go into the exploration of our mineral resources”.

Alabi explained that despite the limited resources available to the state, Osun had been able to pay salaries as and when due as well as massive infrastructural development of the state.

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’s Non-oil Revenue Now N1.15 Trillion – Minister of Finance

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Mrs. Zainab Ahmed, the Minister of Finance, Budget and National Planning, has said that Nigeria’s non-oil revenue is now N1.15 trillion, representing 15.7 percent above the country’s target. This, she claimed, was a result of the federal government’s efforts at diversifying the nation’s economy.

Mrs. Ahmed disclosed this at the Institute of Directors (IoD) 2021 Annual Directors Conference which was held on Wednesday in Abuja.

According to the News Agency of Nigeria (NAN) the event with the theme: “Creating the Future: Deepening the Corporate Governance Practice through Multi-Sectoral and Multi-Generational Collaborations,” was meant to discuss economic development.

Mrs Ahmed added that the recent development was in line with President’s commitment to further diversifying the Nigerian economy which is heavily dependent on oil. She observed that Nigeria was showing resilience in recovery from recession from coronavirus (COVID-19) pandemic which intensely affected global economies.

The minister said the federal government alongside the private sector had implemented a wide range of monetary measures to stimulate economic recovery, growth and development, job creation and improved standards of living.

She also explained that the government was doing everything to improve and diversify Nigeria’s revenue generation.

Nigeria was quickly able to exit recession and is on her way to path of sustainable growth and we are intensifying efforts to grow and diversify our revenue sources to grow revenue from the current 8 per cent.”

“Our non-oil revenues have grown to N1.15 trillion, representing 15.7 per cent above set target. We are working on the 2021 finance bill and it’s nearing completion. Also, the recent approval of the medium-term national development plan is an important milestone of Buhari’s commitment to delivering sustainable growth and we require strong support and monitoring during implementation,” she said.

Mrs Ahmed reinforced the government’s decision to do something about infrastructure and reduce the cost of production for businesses in the country.

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Intra-Regional Trade Potential a Key Focus in New Report

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A new focus report, produced by Oxford Business Group (OBG) in partnership with the African Economic Zones Organisation (AEZO), shines a spotlight on the continent’s rapidly developing industrial sector, which is poised to become a key driver of broader economic growth as regional integration increases.

Titled ”Economic Zones in Africa – Focus Report”, the report was launched at the AEZO’s 6th Annual Meeting II, which took place on November 25 at the African Continental Free Trade Area (AfCFTA) Secretariat office in Ghana, with participants also able to attend remotely. The meeting was held under the banner “Connecting African Special Economic Zones (SEZs) to Global Value Chains at the era of the AfCFTA” and explored a range of topical issues relating to SEZs, from their potential to boost trade to the impact of Covid-19 on the continent’s supply chains.

The focus report examines the wealth of benefits that the AfCFTA is expected to deliver to both Africa’s economic zones and the businesses located in them, which range from greater market access to a reduction in trade barriers and lower production costs.

The disruption that the pandemic brought to supply chains and the opportunities emerging from the health crisis for businesses to become part of nascent regional value chains across a more closely connected continent are a key focus.

The report also charts the digital transformation taking place in many of Africa’s economic zones, as businesses make the move away from traditional segments to high-tech processes and digital services, adding value to their offerings in the process.

In addition, it provides in-depth analysis of the drive evident among many SEZs to put environmental, social and governance principles and sustainable business practices at the heart of their strategies, at a time when ethical investment and alignment with the UN Sustainable Development Goals are high on the global agenda.

The report includes in-depth case studies and viewpoints by representatives from key industry players namely: Tanger Med; Polaris Parks; Lagos Free Zones; Ghana Free Zones Authority; Misurata Free Zone; and Sebore Farms.

It also includes a contribution from Ahmed Bennis, Secretary General, AEZO, in which he highlights the role that SEZs are playing in the continent’s industrial transformation and the importance of supporting their development.

“Economic zones can play a game-changing role in Africa’s diversification and inclusion by providing end-to-end solutions and services that support industrial upgrades and increase countries’ attractiveness for investment,” he said. “With the implementation of AfCFTA and the post-Covid-19 recovery that the world is beginning to experience, we believe that real investment opportunities exist in Africa at this moment, which can translate into job creation and social and economic development. Africa has resources that need to be developed and economic zones can play a key role in this.”

Bernardo Bruzzone, OBG’s Regional Editor for Africa, added that while African economic zones had experienced production problems during the pandemic due to global supply chain disruptions, ongoing remedial action, including new infrastructure and human capital development, would help provide resilience against future external shocks.

“Africa’s real GDP growth is forecast to reach 3.4% in 2021, with an increase in intra-regional trade and improved connectivity among the facilitators of economic recovery,” Bruzzone said. “Looking ahead, we see economic zones as having a key role to play in helping the AfCFTA achieve its potential through the development of new strategies that will lead to a more diverse, higher-value range of exports.”

The study forms part of a series of tailored reports that OBG is currently producing with its partners, alongside other highly relevant, go-to research tools, including a range of country-specific Growth and Recovery Outlook articles and interviews.

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Lagos Budget N1.4 Trillion for 2022, Budget Surpasses Five Other Southwest States Combined

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Lagos state government has proposed N1.388 trillion budget for the year 2022. The proposed budget was presented to the House of Assembly on Wednesday.

While presenting the proposed budget, Governor Babajide Sanwo-Olu said the State would be spending N325 billion on vital infrastructure projects in key sectors to energise and expand the growth of the State’s economy.

The key areas of growth identified by the Governor include Works and Infrastructure, Waterfront Infrastructure Development, Agriculture, Transportation, Energy and Mineral Resources, Tourism, Entertainment and Creative Industry, Commerce and Industry, Wealth Creation and Employment.

The proposed budget, christened “Budget of Consolidation”, will be the last full-year fiscal plan of the State before the next general election.

About N823.4 billion, representing 59 per cent of the 2022 budget, is earmarked for capital expenditure. Recurrent expenditure, representing 41 per cent, is N565 billion, which includes personnel cost, overhead and debt services.

Of the total proposed expenditure, N1.135 trillion would accrue from Internally Generated Revenues (IGRs) and federal transfers, while deficit financing of N253 billion would be sourced from external and domestic loans, and bonds projected to be within the State’s fiscal sustainability parameters.

The State would be earmarking an aggregate of N137.64 billion, representing 9.92 per cent of the 2022 budget, for the funding of green investment in Environment, Social Protection, Housing and Community Amenities.

This financial proposal is presented with a sense of duty and absolute commitment to the transformation of Lagos to a preferred global destination for residence, commerce, and investment. The budget projects to see a continuing but gradual recovery to growth in economic activity as the global economy cautiously recovers from the impact of the Coronavirus pandemic,” the governor said while presenting the budget to the house.

Meanwhile, the 1.388 trillion budgeted for 2022 is higher than the budget of the five other southwest states combined. For 2022, Ekiti State’s budget is 100.7 billion, Osun 129.7 billion, Ondo 191billion, Oyo 294 billion. Ogun’s budget for 2022 is not yet finalised, but going by their 2021 budget of 339 billion, the combined budget of the five South-West states then amount to 1.053 trillion. With this, Lagos state budget is higher than the five states budget with a difference of 335 billion.

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