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35 States will struggle to fund budgets as Federal Government’s earnings fall

Thirty-five States will struggle to fund their budgets, as the Federal Government’s earnings declined in the first quarter of 2019 after the Federation Allocation Account Committee (FAAC) recorded a drop in its disbursement, posting N1.929 trillion.



Federation Allocation Account Committee, Nigeria's 2019 budget, FAAC disbursements

Thirty-five States will struggle to fund their budgets, as the Federal Government’s earnings declined in the first quarter of 2019. The Federation Allocation Account Committee (FAAC) recorded a drop in its disbursement after posting N1.929 trillion.

FAAC‘s disbursement of N1.929 trillion between January and March of this year showed a drop of 0.45 percent, a slight difference when compared to the disbursement of N1.938 trillion during the same period in 2018.

Despite the decline in its finances for 2019, the N1.929 trillion was higher than the result posted in 2017. There is a recorded 36.7 percent increase when compared to the N1.411 trillion disbursed in the corresponding period in 2017.

Why the decline matters: The drop in Q1 2019 ended an impressive run of N2 trillion disbursement which lasted for three consecutive quarters between Q2 to Q4 of 2018.

Impact of the decline for the FG: According to report, the Federal Government received N803.18 billion in the first quarter of the year, 1.18 percent lower than the N812.8 billion it received in the same period in 2018. When compared to the N549.1 billion disbursed in corresponding quarters of 2017, it’s 46.2 percent higher.

Impact of the decline for States: The drop means in the first quarter of this year, 36 states shared N675.2 billion. This is a 1.19 percent decline when compared to the N683.4 billion disbursed to the states in Q1 2018. However, it is 48 percent higher than the N456 billion disbursed in Q1 2017.

The story is different for LG: The report showed that while FG and the States recorded a decline in their disbursement in the first quarter of 2019, the Local Governments recorded an increase of 1.28 percent when compared to N393.4 billion disbursed in the first quarter of last year. This means that the LGA’s disbursement is 47.8 percent higher than the amount disbursed to them in Q1 2017.

Reason for the decline: The 0.45 percent recorded in the disbursement for the first quarter of 2019 is blamed on the fall in oil prices. This slightly affected the earnings of the Federal Government.

This was made known in the latest issue of the Quarterly Review of the Nigeria Extractive Industries Transparency Initiative (NEITI).

“Oil prices experienced a downward spiral from November 2018. Oil prices were above $80 per barrel in October 2018 but by December 2018, they had dropped to $57 per barrel. The average oil price for the first quarter of 2019 was $63.17 per barrel.

“Average oil price for the year 2018 was $71.06 per barrel. Thus, oil prices have been considerably lower in the first three months of 2019 than they were in 2018.”

States will struggle to fund budgets: NEITI disclosed that the budget presented by 35 states this year cannot be funded adequately. According to NEITI, even if the net FAAC disbursements to each state in 2017 and 2018 are combined, the funds will still not be enough.

There’s a problem: As usual, both the Federal Government and the States will, once again, depend on external borrowings to fund their budgets. This is despite condemnation that allocations to some ministries and projects which are said to be fraudulent.

Recall that the Senate Committee on Trade and Investment recently uncovered that the sum of N42 billion was allegedly allocated to a private company in the Ministry’s 2019 budget.

However, the Minister of Trade and Investment, Okechukwu Enelamah denied the claims that it intends to allocate such figures to a non-existing private company, stating that the said company ‘Nigeria Special Economic Zone Company‘ is jointly owned by FG and stakeholders which he refused to disclose.

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According to a document received by the Senate committee from the Corporate Affairs Commission (CAC), the company’s name is actually Nigeria Sez Investment Company Limited, and it exists as a private entity.


There has always been a criticism of projects in every budget each year, with most of them usually tagged unrealistic. This is because many people believe that the budget serves as a means for the Government to divert funds or ‘scam’ the people, just as London-based Chevening Scholar, Laolu Samuel-Biyi, recently observed.

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Olalekan is a certified media practitioner from the Nigerian Institute of Journalism (NIJ). In the era of media convergence, Olalekan is a valuable asset, with ability to curate and broadcast news. His zeal to write was developed out of passion to shape people’s thought and opinion; serving as a guideline for their daily lives. Contact for tips: [email protected]

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How Nigeria can make more money from Oil?

A hedged economy might create additional revenue needed for the country to rebalance its reserves.



Crude oil still remains a major source of revenue for Nigeria despite a tumultuous 2020 for oil prices. The commodity contributes 90% of our export earnings and will still be a major revenue generator for the foreseeable future.

With this in mind, it is high time Nigeria explores other forms of revenues that can be derived from oil. 200 million Nigerians cannot be catered for with the proceeds of a country that has a production capacity of 1.4 – 1.9 million barrels per day (depending on the quota with OPEC). In contrast, Saudi Arabia has a production capacity of 11 million barrels per day and a population of 30 million.

This article does not only relate to the issue of macroeconomic stabilization, but highlights if the Nigerian government can make use of financial instruments ‘hedging’ to diversify and provide the government with added flexibility and additional tools to make more revenue.

Most countries who do not partake in this hedging programme, either have lower costs of production like Saudi Arabia and Russia, or do not want to take the risks associated with the programme.

Case Study: Mexico

Last year, when oil prices crashed and entered negative digits, Countries dependent on oil were adversely affected by the crash. But somehow, Mexico for the fourth time, cashed about $2.5 billion from its oil hedge program.

For over two decades, Mexico has guaranteed oil revenue via options contracts purchased from oil companies and Wall Street investment banks. Mexico’s hedging experiences of its oil exports is often used as an example for other countries to follow.

In 2009, after the financial global crisis, Mexico made $5.089 billion from it’s hedging position. In 2014, when oil prices plummeted and countries reliant on high oil prices were affected, Mexico was “unbothered”. The Ministry of Finance had purchased put options with one year maturity to hedge 228 million barrels of oil, about 28 percent of production, at a strike price of US$ 76.4 per barrel — US$ 31.1 above the actual average oil price in 2015. Mexico earned $6.4 billion from that hedge. In 2016, Mexico earned $2.7 billion from its hedging.

Since Mexico began running the hedge program in 2001, it has made a profit of $2.4 billion — payouts brought in $14.1 billion while the costs of running the programme cost $11.7 billion in fees to banks and brokers.

Last year, people argued that Mexico’s hard stance during the OPEC+ talks in April is directly related to the fact that it had a hedging programme in place. I must add that hedging gives you an edge in the markets but It’s far more technical, risky and in a few cases profitable. Sources within the NNPC say that the Nigerian government has not executed a hedging program yet.

So how does this programme work?

Mexico, a big exporter of oil and a member of OPEC, hedge their oil against declines that may occur in the market. Take for example, last year as a result of the pandemic and an unsuccessful OPEC meeting due to Russia and Saudi Arabia’s oil supply war, oil prices dropped to negative digits.

A government like Mexico, who hedges their oil with trading schemes would have been benefited from the drop. In this case, for every drop below the “strike price” (A strike price is the set price at which an oil derivative contract can be bought or sold when it is exercised) revenue is being made.

Hedging works both ways. It depends on who the hedger is. In the case above, Mexico is an exporter of oil, so it hedges against drop in prices. However, a country like Egypt, which announced it had executed its own hedging programme last year is a net importer of oil. Primarily, it hedges against the rise in prices. As oil prices rise, Egypt generates money despite naturally preferring low prices as an importer.

Additionally, the downstream sector needs to improve. This is another avenue Nigeria can take to make more money from Oil. The Nigerian downstream sector which involves petroleum product refining, storing, marketing and distribution has much room for development and can improve the fortunes of the millions of Nigerians. Oil accounts for 9% of Nigeria’s GDP and if we look at that, it’s very minimal if we take into context how important Oil is to our economy.

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As I wrote in the earlier premise, this is not as straightforward as it sounds. There are insurance premiums to consider (the cost of the hedging programme), timing of the execution and general oil market outlook to examine.


For example, it appears that investors are going long on oil. All commodity analysts and banks are also favouring high oil prices as a result of vaccine availability and global supply cuts. Goldman Sachs forecasts oil to be $70 by Q2 2021 and Morgan Stanley also sees Oil at $70 by the third quarter. It would be highly risky to hedge against declining prices in this environment. (Recall prices going in the opposite direction doesn’t favor the hedger).

A hedged economy might create additional revenue needed for the country to rebalance its reserves.

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PS. I am willing to discuss further with interested stakeholders on the possibility of carrying hedging operations for Nigeria.


Dapo-Thomas Opeoluwa is an Investment Banker and Energy analyst. He holds a degree in MSc. International Business, Banking and Finance from the University of Dundee and also holds a B.Sc in Economics from Redeemers University. As an Oil Analyst at Nairametrics, he focuses mostly on the energy sector, fundamentals for oil prices and analysis behind every market move. Opeoluwa is also experienced in the areas of politics, business consultancy, and investments. You may contact him via his email- [email protected]

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Consumer Goods

Sell-off of shares by investors extend Flourmillers loss on NSE to N25 billion

Nigerian Flour millers on NSE suffer a decline as wary investors offload shares.



Bloody February: Sell off of shares by investors extend Flourmillers loss on NSE to N25 billion

The sell-off of shares on the Nigerian Stock Exchange has triggered an N24.9 billion loss in the market capitalization of Flour Millers since the beginning of February, as wary investors offload.

It is important to note that the Nigerian Equity Market has been on the downward trend since the beginning of February, as wary investors sell off stakes in companies as the yields in the money market become attractive.

The results of this move led to a decline in the shares of companies listed on the Nigerian Stock Exchange, including a decline in the shares of Flour millers listed on the bourse.

A review of the performance of the stocks of these Flour millers on NSE revealed that the market capitalization of FLOUR MILLS, HONYFLOUR, and Northern Nigeria Flour Mills from the open of trade on February 1 till the close of trading activities on February 24 has declined from N154 billion to N129 billion.

How they have all performed

FlourMills has declined from N142.3 billion to N118.3 billion. However, the market cap of Honeywell Flour Mills has also declined, albeit marginally from N10.31 billion to N9.91 billion, while that of NNFM has declined from N1.72 billion to N1.25 billion. When added up, the three millers have lost N24.85 billion in market capitalization.

However, Flour Mills, the largest miller on NSE lost the most with N23.98 billion, as a percentage of market capitalization. Flour Mills is down by 16.85%.

Market activity

At the end of trading activities on the floor of the Nigerian Stock Exchange, the shares of Flour Mills declined by 6.9% to close at N28.85 per share, as investors sell off 5,029,161 ordinary shares of the company worth N143,009,264.10.

Shares of Honeywell at the close of trading activities today declined by 1.6%, while shares of Northern Nigeria Flour Mills remained unchanged at N7.02 per share.

The Consumer good index to which the Flour millers belong has fallen by 6.1% year since the beginning of February, compared to the Nigerian Stock Exchange All Share Index -5.17%.

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