The Nigerian government is battling to meet multifarious needs of the economy. This has, in no way, been easy, especially with the impact of the pandemic.
But the country has unproductive assets scattered across various parts of the country, which the government can leverage to grow its revenue stream and fulfil its financial obligations. But this requires political will.
Africa’s biggest economy has as much as $900 billion of idle assets in real estates and agriculture alone, sitting with the Federal Government, according to an estimate by global consulting firm, Pricewaterhousecoopers.
Analysts say privatising or securitising these assets–which daily lose their real value to wear and tear– could help the government generate private capital, create jobs for the teeming youths and lift over 40 percent of its population living in poverty.
The government needs to privatise or sell off some of these idle assets to realise funds, said Ayodeji Ebo, senior economist/head, research & strategy, Greenwich Merchant Bank.
“A lot of these assets are depreciating by the day because they are not in use. If the government doesn’t want to give out totally, they can have an operating and transfer arrangement with the private sector. Someone takes it up, renovates and brings it up to a functional level while the government can just be a part of it,” Ebo said.
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“These funds can be channelled into more productive areas and would even reduce the cost of the government since a number of these assets require a bit of maintenance without them getting any value from them,” he told Businessday.
The government should go into some sort of public-private partnership or concession of these unproductive assets to some private organisations or companies so they can bring in the needed funds, capital or liquidity needed to revitalise the economy, said Abiodun Keripe, head of research, Afrinvest Limited.
“These idle assets need to be converted into something that can be economically viable. Such that depending on the nature of the asset and what they can be used for, they can then begin to use it to generate revenue which based on the agreement the government will have its share and the private can have it own too,” Keripe told Businessday.
The question of whether or not the government should prioritise equity over debt, by either selling off these unproductive assets to the private sector players who are known to be better at the management of resources or securitising them as investable assets to generate the needed revenue from these assets, has been a recurring one.
Rather than prioritising equity as a sustainable way of funding, the government has opted for debt, with the total debt burden (federal + states) hitting N31 trillion as of June 2020, according to DMO data, many of which are foreign denominated, susceptible to foreign exchange volatility.
For every N100 generated as revenue, the government is spending N70 to service its debt, a development which analysts say is unsustainable for an economy hoping for a better future for its younger generations.
But the ballooning debt is yet to translate into meaningful growth and development for the citizens.
Africa’s most populous nation is still faced with a mirage of challenges including a weak economic growth averaging 2 percent below its population, a high unemployment rate of 27 percent, soaring commodity prices, high unemployment rate, falling per capita income, weak purchasing power, deepening poverty and widening inequality.
The economy is just a quarter away from recession, and expected to contract by 4.3 percent in 2020, based on IMF projections, and might take up to three years before it begins to record any sign of meaningful growth.
Nigeria has an economic challenge that is significant and potentially severe, Doyin Salami, renowned economist and head of the Presidential Economic Advisory Council (EAC) said.
According to him, the federal and the state governments alone lack the firepower and would need huge private investments to move the needle in the country.
He wondered why in a world awash with $19 trillion in private capital, invested in negative-yielding assets, Nigeria still struggles to attract private investments to create jobs and grow its economy.
“Nigeria is a capital diffusion country and the access of the public sector to resources is not just diminishing but the prospect is not looking too good. Private sector capital, both international and domestic, has to be relied upon if we are going to spur investments in any meaningful way,” Salami said recently in a conference with the theme: ‘Privatisation in Nigeria and the Outlook for Subnational Economic Development.’
“The country needs roughly 19 million jobs, and must grow at 6 percent annually in the next decade to tackle poverty and unemployment; and private investments must be at the heart of that growth,” Salami said, urging state governments to let out unproductive assets in their states to attract investment.
Bismarck Rewane, CEO of Lagos-based Financial Derivatives Company and member of the EAC, said the average level of gross fixed investments in Nigeria at 15 percent of the total GDP of $450 billion is too low. “You will need about 30-40 percent for it to have an impact,” he said.
Rewane noted that investment led strategy is the most effective one for growing countries, states, local governments, and this has been proven in various countries, including Singapore and Indonesia.
“If you invest any amount in the private sector, you will get a 6.25 lift, which is the multiplier effect, against keeping or leaving it with the government. It will also create jobs and help in reducing income inequality. Over 60 percent of our gross capital formation in the country is stranded. Rather than raising debt, we need to sell those assets. This is because debt sustainability undermines fiscal consolidation,” he said.
Documents presented to the floor of the Senate recently revealed plans by the gederal government to sell off some of its assets to raise funds after the Coronavirus induced global lockdown, caused a fall in oil demand, Nigeria’s biggest foreign earner, wiping out more than half of its revenue.
The government hopes to get N434 billion from the sales of Integrated Power Plants in Geregu, Omotosho, and Calabar in 2021. It also plans to concession the National Arts Theatre, Tafawa Balewa Square, and all the River Basin Development Authorities at N836 million while the National Stadium in Lagos, the Moshood Abiola Stadium, Abuja, and two others were pegged for concessioning at N100 million.
While the move by the government appears plausible given the impact the COVID has had on its income stream, analysts who spoke to Businessday recalled that several plans to privatise state assets have been greeted by a lack of political will.
Data from the Budget Office of the Federation shows that Nigeria recorded no privatisation proceeds in the first half of 2020, a clear deviation from the N63.02 billion which it said it will generate as a privatisation proceeds.
The Nigerian government is battling to meet multifarious needs of the economy. This has, in no way, been easy, especially with the impact of the pandemic.
But the country has unproductive assets scattered across various parts of the country, which the government can leverage to grow its revenue stream and fulfil its financial obligations. But this requires political will.
Africa’s biggest economy has as much as $900 billion of idle assets in real estates and agriculture alone, sitting with the Federal Government, according to an estimate by global consulting firm, Pricewaterhousecoopers.
Analysts say privatising or securitising these assets–which daily lose their real value to wear and tear– could help the government generate private capital, create jobs for the teeming youths and lift over 40 percent of its population living in poverty.
The government needs to privatise or sell off some of these idle assets to realise funds, said Ayodeji Ebo, senior economist/head, research & strategy, Greenwich Merchant Bank.
“A lot of these assets are depreciating by the day because they are not in use. If the government doesn’t want to give out totally, they can have an operating and transfer arrangement with the private sector. Someone takes it up, renovates and brings it up to a functional level while the government can just be a part of it,” Ebo said.
“These funds can be channelled into more productive areas and would even reduce the cost of the government since a number of these assets require a bit of maintenance without them getting any value from them,” he told Businessday.
The government should go into some sort of public-private partnership or concession of these unproductive assets to some private organisations or companies so they can bring in the needed funds, capital or liquidity needed to revitalise the economy, said Abiodun Keripe, head of research, Afrinvest Limited.
“These idle assets need to be converted into something that can be economically viable. Such that depending on the nature of the asset and what they can be used for, they can then begin to use it to generate revenue which based on the agreement the government will have its share and the private can have it own too,” Keripe told Businessday.
The question of whether or not the government should prioritise equity over debt, by either selling off these unproductive assets to the private sector players who are known to be better at the management of resources or securitising them as investable assets to generate the needed revenue from these assets, has been a recurring one.
Rather than prioritising equity as a sustainable way of funding, the government has opted for debt, with the total debt burden (federal + states) hitting N31 trillion as of June 2020, according to DMO data, many of which are foreign denominated, susceptible to foreign exchange volatility.
For every N100 generated as revenue, the government is spending N70 to service its debt, a development which analysts say is unsustainable for an economy hoping for a better future for its younger generations.
But the ballooning debt is yet to translate into meaningful growth and development for the citizens.
Africa’s most populous nation is still faced with a mirage of challenges including a weak economic growth averaging 2 percent below its population, a high unemployment rate of 27 percent, soaring commodity prices, high unemployment rate, falling per capita income, weak purchasing power, deepening poverty and widening inequality.
The economy is just a quarter away from recession, and expected to contract by 4.3 percent in 2020, based on IMF projections, and might take up to three years before it begins to record any sign of meaningful growth.
Nigeria has an economic challenge that is significant and potentially severe, Doyin Salami, renowned economist and head of the Presidential Economic Advisory Council (EAC) said.
According to him, the federal and the state governments alone lack the firepower and would need huge private investments to move the needle in the country.
He wondered why in a world awash with $19 trillion in private capital, invested in negative-yielding assets, Nigeria still struggles to attract private investments to create jobs and grow its economy.
“Nigeria is a capital diffusion country and the access of the public sector to resources is not just diminishing but the prospect is not looking too good. Private sector capital, both international and domestic, has to be relied upon if we are going to spur investments in any meaningful way,” Salami said recently in a conference with the theme: ‘Privatisation in Nigeria and the Outlook for Subnational Economic Development.’
“The country needs roughly 19 million jobs, and must grow at 6 percent annually in the next decade to tackle poverty and unemployment; and private investments must be at the heart of that growth,” Salami said, urging state governments to let out unproductive assets in their states to attract investment.
Bismarck Rewane, CEO of Lagos-based Financial Derivatives Company and member of the EAC, said the average level of gross fixed investments in Nigeria at 15 percent of the total GDP of $450 billion is too low. “You will need about 30-40 percent for it to have an impact,” he said.
Rewane noted that investmentled strategy is the most effective one for growing countries, states, local governments, and this has been proven in various countries, including Singapore and Indonesia.
“If you invest any amount in the private sector, you will get a 6.25 lift, which is the multiplier effect, against keeping or leaving it with the government. It will also create jobs and help in reducing income inequality. Over 60 percent of our gross capital formation in the country is stranded. Rather than raising debt, we need to sell those assets. This is because debt sustainability undermines fiscal consolidation,” he said.
Documents presented to the floor of the Senate recently revealed plans by the gederal government to sell off some of its assets to raise funds after the Coronavirusinduced global lockdown, caused a fall in oil demand, Nigeria’s biggest foreign earner, wiping out more than half of its revenue.
The government hopes to get N434 billion from the sales of Integrated Power Plants in Geregu, Omotosho, and Calabar in 2021. It also plans to concession the National Arts Theatre, Tafawa Balewa Square, and all the River Basin Development Authorities at N836 million while the National Stadium in Lagos, the Moshood Abiola Stadium, Abuja, and two others were pegged for concessioning at N100 million.
While the move by the government appears plausible given the impact the COVID has had on its income stream, analysts who spoke to Businessday recalled that several plans to privatise state assets have been greeted by a lack of political will.
Data from the Budget Office of the Federation shows that Nigeria recorded no privatisation proceeds in the first half of 2020, a clear deviation from the N63.02 billion which it said it will generate as a privatisation proceeds.
