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Making sense of Nigeria’s Federal Government budgeting efficiency

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CBN Gov Godiwn Emefiele

It is true that governments all over the world continually argue for and indeed deploy public expenditure to put their GDP on a desired trajectory in what is called aggregate demand management. It is no shame that the Buhari administration borrowed and spent massively in order to achieve its GDP target, grow the economic pie and create jobs. However, the major worry of citizens, businesses and investors is whether government’s budgeted expenditure is having desired impacts on GDP. In other words, what is the efficiency of government expenditure (so far)? We will try to answer this question using a simple concept called fiscal multiplier. Fiscal multiplier is a static analysis (i.e. in a particular period). This article will go on to compare the desired with actual GDP and try to explain reasons for the divergence.

Before we investigate further, below (in Fig 1) is how the data stacks up.

The first thing one should observe is that there seems to be some sort of relationship from 2015 Q1 to 2016 Q3. However, government expenditure (red line) is very erratic (even within a budget cycle) which should not be. Before we proceed, we need to go behind the scenes to get Nigeria’s marginal consumption propensity which simply means how much kobo enters the economy from every 1 naira of spent income. We found this to be 87 kobo (0.87). Next, we need to find out how much kobo leaks out of our economy due to imports from 1 naira income spent on import. After data crunching we found this to be 52 kobo (0.52), this should have been more but has been constrained due to import controls by the CBN. These 2 result in a fiscal (expenditure) multiplier of 1.54, assuming that net taxes is zero for lack of data.

With that out of the way, we can begin to solve (in-sample forecast) for the desired or expected GDP for the Buhari administration (2016 Q3-’17 Q3) depending on the size of their quarterly budget releases. Therefore, according to our preceding analysis, the quarterly GDP forecasts are 3,690.63, 5,976.61, 8,230.34, 9,935.26 and 11,948.63 billion naira for the periods 2016 Q3 to ’17 Q3 respectively.

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Note GDP_F means GDP Forecast

Fig 2 above shows the variance from 2016 Q3 which further widened from 2016 Q4 to 2017 Q3. Why? 2016 Q4 showed impact of a slump which only meant a huge loss of consumers and investors’ confidence, both important autonomous aggregate demand components. There were signs of upbeat in output at 2017 Q2 onwards which were still worlds apart from forecasts. Certainly the economy needs shots of confidence which is something the economic managers have to devise. However, for this sort of situation oftentimes, analysts are quick to site poor budget implementation or outturn for the massive variance but our analysis has shown that once monies have been spent they have to go somewhere; at least our short-run fiscal multiplier says it must show up as income to folks in the economy. Sadly, that is why some empirical findings have shown that looted treasury funds, if spent internally without finding safe havens abroad, can impact GDP positively.

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In conclusion, watchers of economic forecasts from successful economies should be conversant with the work of the US president’s Council of Economic advisers (created by law). Through technical reports and research, they provide the objectives, strategies and intelligence for drafting economic management tools like the budget. Here in Nigeria, we continue to bemoan the strategy where the National Economic Council (a collection of politicians) continually show disdain for technical insights. Nigeria needs a blueprint (or institution) for enhancing budget performance efficiency, especially from the planning angle. In a future analysis, we will try to construct 2018 GDP forecast combining our knowledge of fiscal multipliers and warranted growth analysis.

 

Written by Enobong Udoh

Nairametrics frequently publishes articles from experts such as financial analysts, economists, researchers and investors. We also feature articles from guest writers and bloggers who wish to push their views and opinions through our platform. To get your articles on Nairametrics, kindly send an email to [email protected] and we will publish it within 24 hours of approval by our editorial team.

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Fidelity Bank Plc must cover the chink in its curtains to keep rising 

Fidelity Bank Plc follows the narrative of top tier-2 banks, which have had better or easier years.

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Fidelity Bank Plc

The Nigerian banking sector has consistently been one of the most profitable sectors in the Nigeria Stock Exchange market. However, in 2020, Deposit Money Banks (DMBs) have faced a flurry of impediments, which may have affected their solidity.

With reduced income from fee and commission implemented at the start of the year by the Central Bank of Nigeria, the paucity of foreign currency for international transactions, the resulting economic contraction from dire effects of the coronavirus pandemic, and the consequent operational constraints of keeping employees safe, 2020 is obviously fraught with numerous disorders for banking institutions.

READ: Another Fidelity Bank Non-Executive Director purchases 1 million shares worth N2.75million

For most, it hasn’t exactly been a year for growth at all, more like a walk in the woods, where improvements to bottom-line is almost unexpected. This period, many banks seem content with simply surviving and fundamentally matching their previous feats.

Fidelity Bank Plc follows the narrative of top tier-2 banks, which have had better or easier years. The bank generated a 2020 9M PAT of N20.4billion, rising 7.08% from the corresponding figures last year, but drilling solely into its results in Q3’2020 and its exact comparative period in 2019, the bank suffered reduced interest revenue, reduced fees and commission, reduced profit before tax, and reduced after-tax profit.

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READ: STANBIC IBTC posts Profit After Tax of N45.2 billion in H1 2020

Fidelity Bank Plc concluded Q3 with a profit position of N9.1billion, 13.7% decline compared to its position in 2019 y/y. PBT reduced by 12.9% from N10.8billion in 2019 to N9.4billion this year. Gross earning in Q3 was only N49billion as against N57billion in 2019 – plummeting 14%.

The Group Chief Executive Officer of the bank, Mr. Nnamdi Okonkwo, commenting on the result said: “Our 9 months results reflect our resilient business model, particularly in a very challenging operating environment. We worked closely with our customers to gradually recover from the economic impact of the pandemic and the attendant effect of the lockdown. The drop in gross earnings was due to the decline in interest and similar income, caused by lower yields and drop in fee income.”

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READ: Sterling Bank Plc records 3.28% decline in 2020 9M gross earnings

True cause of the reduction in earnings

DMBs generate gross earnings under three primary subheads: Interests earned, Fees and commission, and Other operating income. Fidelity Bank Plc generated a combined total of N150.8billion for the period ended September 2020 from these three categories, compared to the N158.5billion in the corresponding period last year.

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Deeper analysis reveals that this rising tier-2 bank has seen more deficit in revenue from fee and commission compared to the other aforementioned gross-earnings’ generating-sources within this period. Interest earned dropped by a difference of N4.3billion, while revenue from fee and commission saw a decline of N4.8billion from N14.5billion in 2019 to N19.3billion YoY.

Fee and commission as a component of gross earnings

Card maintenance fees, account maintenance fees, commission on remittances, collect fees, telex fees, electronic transfer fees, amongst others, represent the plethora of channels that makes up income from fee and commission.

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READ: Strong performance from Stanbic IBTC, despite weak retail banking position

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The real insight this particular component of gross earnings provides is that a spike in revenue generated indicates increasing/increased customer account activity. The more a customer maximizes the usage of an account’s product and facilities, the more the revenue earned from this segment. Thus, earnings from fees and commissions are so overriding due to their apparent controllability.

For example, a bank could make the decision to purely pursue and aggressively drive the usage of its ATM debit card and promptly see the revenue from commission rise. Furthermore, an increased rate of card production and collection necessitates usage and consequently means more money is earned as card maintenance fees.

READ: Unity Bank Plc posts gross earnings of N11.04 billion in Q3 2020

The fact that gross earnings reduced mostly from fees and commissions should be a telling concern for the Management of Fidelity Bank Plc. Post covid-19 would birth the dawn of a new era for business processes. The management must guarantee the usability of its electronic banking channels, promotion of its cards, and with urgency, implement improved service delivery mechanisms to ensure that it is the first port of call to customers for general payments and remittances.

These measures are of grave significance in the bid to bridge its widened fee and commission income gap.

READ: Central Bank says monetary policy not to blame for rising food cost

Other indices

Holistically, in the 9 months ended September, it is worthy of note that the bank made certain advancements. Customer Deposits, Net Loans and Total Assets all grew in double digits. Customer Deposits grew by 22.3% from N1.2billion to N1.5billion, Total Assets also rose by 21% from N2.1billion in 2019 to N2.5billion, and Net Loans rose by 12.9% to N1.3billion from N1.1billion.

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Airtel is paying up its debts

Airtel’s annual report revealed that the company has a repayment of $890 million due in May, as well as, an installment of $505 million due in March 2023.

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Top payday loans, Airtel is paying up its debts

Airtel’s presence in 14 countries from East Africa to Central and West Africa would have been impossible without relevant financial investments. But, while the funds have been key to its growth in the past few years, many of its financial obligations are starting to mature quickly.

The Covid-19 pandemic has had negative economic effects on different sectors of the economy; however, the resilience of the telecom sector is evident in an increase in Airtel’s income. The overall performance of Airtel increased with a revenue growth in constant currency of 19.6% in Q2 compared to 16.4% recorded in Q1, while revenue on reported basis increased by 10.7% to $1.82 billion, with Q2 revenue growth of 14.3%.


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Unilever Nigeria Plc: Change in management has had mixed impact

9 months into the change of management, Unilever Nigeria Plc’s performance in Nigeria has been largely underwhelming.

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Unilever Overseas increases stake in Unilever Nigeria Plc

Change in the management of a company is never a walk in the park. Transitions usually take time to yield the desired results. Organizations can look to past successful managerial transitions for inspiration, but not for instruction because there is no defined playbook. The decision to replace Mr Yaw Nsarkoh, who served as the Managing Director of Unilever Nigeria Plc until the end of 2019 was plausible, but adjustments were never going to be an easy task.

Mr Nsarkoh had served as Managing Director of the company for 5 years and steered the course of its proceedings with remarkable skill up until the financial performance disaster which culminated in his resignation on November 28th, 2019.


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