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Nigeria spends N1.11 trillion to service debt in half year 2019 

Nigeria spent a whooping N1.11 trillion to cover debt service obligations in the first six months of the year 2019.

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Nigeria spent a whooping N1.11 trillion to cover debt service obligations in the first six months of the year 2019. This is revealed in the 2020 budget circular just released by the Federal Ministry of Finance, Budget and National Planning 

According to the data extracted from the Federal Government circular, the Ministry of Finance, Budget and National Planning released a total sum of N1.11 trillion to cover debt service obligations as at 30th June 2019.  

Some breakdown: According to the report, the Federal Government aggregate revenue of N6.99 trillion was projected to fund the 2019 Budget of N8.92 trillion. This implies a deficit of N1.92 trillion will be financed mainly by borrowing. 

  • Earlier data obtained from the Central Bank of Nigeria showed that international payment made by Nigeria in the form of debt servicing between January and June 2019 was estimated at N263.7 billion or $859 million.
  • Meanwhile, it was disclosed in the circular that as at June 30th 2019, the total debt service rose to 1.11 trillion in just six months.  
  • More details provided in the circular show that the Federal Government actual revenue was N2.04 trillion, and this represents only 58% of the N3.49 trillion pro-rata budget.  
  • Essentially, it was stated that shortfall of 42% is attributable to the underperformance of both oil and non-oil revenue.  

[READ MORE: Nigeria’s VAT Increase: Penny-Wise, Pound Foolish]

The circular reads:Seasonal factors, as well as the slow recovery in economic activities that drive consumption and the lingering security issues, contributed to the underperformance of the various revenue sources.”  

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According to the budget circular, the non-implementation of other revenue initiatives like the restructuring of JV oil assets and tighter performance management of Government-Owned Enterprises (GOEs) further explain the weak revenue performance.

2019 budget performance: The report further shows that of the total appropriation of N8.92 trillion and a prorated expenditure sum of N4.46 trillion, N3.39 trillion was spent by June 2019 (i.e. 76% performance).  

“A total of N2.05 trillion has been released for non-debt recurrent expenditure, including Salaries, Pensions and Overheads, while N1.11 trillion has been released to cover debt service obligations during the period,” the report reads.  

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In effect, it was stated that a deficit of N1.35 trillion was incurred as at end of June 2019, which is 70% of the budgeted deficit for the full year. 

Meanwhileno capital expenditure release was made in the first half of 2019 under the 2019 Budget Provision. According to the ministry’s report, the reason for this was because the 2018 capital budget was implemented until June 2019 as stipulated in the 2018 Appropriation Act. 

[READ ALSO: Nigeria’s Inflation rate drops to 11.02% in August 2019 despite border closures]

Critical downsides: The N1.11 trillion paid to service debt in half-year 2019 is exactly 54% of revenue made within the period. This further affirms that debt servicing takes a larger chunk of the country’s revenue.  

  • The rising debt profile and its attendant cost have become worrisome, and the government shows no sign of slowing down as it has already been stated that another sum of N1.7 trillion will be borrowed to finance the 2020 budget. 
  • While debt financing is not entirely bad, the latest disclosure implies that Nigeria’s debt challenge persists, and this may take the country’s debt profile to a new height in the coming year, while capital projects still face some major setbacks.     

 

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1 Comment

1 Comment

  1. ANODEBENZE

    September 18, 2019 at 12:45 pm

    I think the govt is doing well on taxes collection,and fixing taxes.THERE IS A LITTLE PROBLEM WHICH THE GOVT MAY DO, OR THINK ABOUT IT.This is how they do their vat collection.ALMOST ALL BUSINESS COMPANY OR UNIT that,have a cash register linked by computer into a database,when a purchase by a customer,when this sales is finished.VAT is already done and linked by electronic to the Russian tax office instantly.
    Now we may change labour law as most business unit are family owned.so we do have problem with tax collection in nigeria

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Blurb

#ENDSARS Protests: Why this is different

The #ENDSARS is not just a protest about rogue police officers, it is larger than that and this is why.

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In June 2019, the Hong Kong Government revealed plans to implement a controversial law that allows the extradition of Hong Kong citizens to mainland China.  

As the government dithered, pockets of protests broke out, which triggered clashes with Policemen that most protesters viewed as excessive. Within days, protesters went from a few thousands to over 2 million, the largest in the history of Hong Kong.  

By the time the government decided to pull back the bill; the protesters, many of them young, were already demanding for more than just a withdrawal of the bill. They wanted the police investigated and prosecuted for using excessive force, amnesty for protesters, and a right to vote for all.  

The protests lasted for about 6 months only to be dissipated by social distancing requirements, due to the COVID-19 pandemic. Before then, protesters had grounded the economy, which drove the Hong Kong economy into a recession and $3 billion in stimulus.  

Nigeria is experiencing its own version of protests similar to that of Hong Kong, except that it does not have any money to inject as stimulus. The latest protests were triggered by anger over the alleged violent killings and extortion by the controversial anti-robbery unit of the police, known as SARS or FSARS.  

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For years, young Nigerians, mostly via social media, have called for the unit to be disbanded and rogue elements in the force brought to justice. Despite repeated promises by the government, they have failed to heed to their demands, triggering a new wave of protests that has now spread across the country. 

From demanding an end to SARS, prosecution of rogue police officers, and reforms; Protesters are more emboldened, threatening to continue if all their demands are not met. The government is scrambling to contain a situation that is escalating and could dangerously metamorphose into violent clashes with authorities, leading to loss of lives and destruction of properties 

There is also fear that this week’s protest could be sustained for more days, if not weeksYou only need to look at the economy of the Nigerian Youth to understand why this is such a critical moment. 

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According to data from the National Bureau of Statistics, Youth unemployment is at an all-time high of 34.9%, making up 64.3% of total unemployed Nigerians. University students have also been at home for months, due to the 7 months ASUU strike.  

Their parents are also facing tougher economic conditions with inflation rate galloping past 13%, after multiple devaluations and the removal of fuel subsidy. It was just a matter of time for them to find a rallying point to vent their frustration. 

There is still a window for the government to deescalate tensions, and it is not just by accepting the terms of protesters on paper and making bogus pronouncements. Nigerian youths want concrete actions and it starts by making immediate changes in the leadership of the Police – the rogue unit in particular. Officers suspected of murdering innocent Nigerians need to be made to face justice.  

The government also needs to urgently resolve its dispute with the Academic Staff Union of Universities (ASUU) on the Integrated Payroll and Personnel Information System (IPPIS). Students and young Nigerians also need to be offered grants and palliatives to help them cushion the effects of an economic crunch that is in no way their making.  

Proceeds from the Nigerian Youth Investment Funds should be disbursed immediately to those who have applied. The government also needs to introduce student loan schemes for millions of Nigerian youths, who can’t afford to pay for quality university education.  

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The National Assembly also needs to introduce laws that protect young Nigerians from police brutality, status profiling and wrongful arrest. Investments in mega tech hubs across the country, establishment of recreation zones in major cities must be carried out by State Governments, to keep them engaged in activities that can better their lives.  

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No investor, local or foreign will put money in any country where its youths are in long-drawn protest with the governmentAs the economic cost of the protests for the last few days continues to mountthe negative effects could be more dire than a deeper recession. 

#ENDSARS does not just represent a protest against rogue Police officers; it is a symptom of the poor state of the economy, which for months has only gotten worse. Fortunately, the agitation can still be managed but time is running out.  

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Blurb

Thrive Agric: “Where is my money?”

AgriTech firms make promises of mouth-watering returns, but what they do not reveal loud enough is just how risky the investment is.

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Fund a farmer, make a profit! Thus, says Thrive Agric, a popular AgriTech company that crowdsources funds from investors in exchange for a profit. The business model appears simple and easy for any basic investor to understand.

When you invest through them, they pool your funds along with other investors and then invest the collective sums in farms across the country. When the farmers harvest, they sell the farm produce at a profit, receive the cash, and split among investors who contributed to the pool. The company keeps a commission for itself. It all makes business sense, except for one thorny challenge – It is highly risky.

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Last week, a Twitter user posted a tweet demanding a refund of his investment in Thrive Agric – almost a million naira. The company lamented that they could not pay him, because they had experienced losses due to the COVID-19 pandemic. The investor was taking none of the excuses, resulting in a name and shame on twitter that has since gone viral.

READ: Nigeria’s Broadband subscriptions peak at 82.7m – Prof. Danbatta

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AgriTech Investments as they have come to be known has gained popularity as a viable investment option for Nigerians, who are still afraid of investing in the stock market. The largely unregulated sector leverages technology, an easy and relatable business model, and the promise of a mouth-watering return to yield-hungry investors. What they however do not reveal loud enough is just how risky the investment is.

Farming in a country like Nigeria is a highly risky venture that relies on a value chain that is fragmented, full of middlemen, and largely inefficient. Nigeria’s average yield per hectare is one of the lowest in the world, largely due to lack of farming inputs such as fertilizer, irrigation, and insecurity.

READ: We wanted to help users pay themselves first – Piggyvest

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AgriTech firms like Thrive Agric face these risks when they pool money from investors and pass on to farmers. Though part of their role in the investment scheme includes monitoring how the funds are utilized by farmers, they have no control over several risk factors such as the impact of COVID-19, which they alluded to as the challenges for not being able to pay investors.

Perhaps, if they disclose the inherent risks in the business, investors will be better informed and size up their risk against the returns. A cursory look at the company’s website reveals there is nowhere that it is mentioned that there is a risk of not getting all or part of your money when you invest. It probably would ruin the pitch if they did.

READ: Livestock Feeds: How this company survived over half a century producing animal feed

This is why when you visit their website and that of their competitors like Farmcrowdy (who pioneered this business) what you see are testimonials of just how well the investments are doing. You could argue that they had not defaulted in any of their previous rounds, so there was no need to say otherwise.

However, alerting investors about the inherent risks in a crowdsource investment scheme is not only responsible but a matter of best practice and compliance. The Security and Exchange Commission (SEC), noted this in its draft Exposure on Proposed News Rules guiding crowdfunding. Section 9a (iv) states that the crowdfunding company is expected to share a general risk warning on participating in funding through the company’s platform.

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READ: Where to invest your N5m to N500m safely and securely

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It also requires in Section 14 that they must publish on their website that “Investing through an online portal is risky and Issuers raising funds through the portal include new or rapidly growing ventures,” and that “Investment in the businesses hosted on the portal is very speculative and carries high risks; Investors may lose their entire investment and must be in a position to bear this risk without undue hardship.” This proposed compliance requirement is not been done by most AgriTech firms.

If this had been published on its website and duly communicated to its potential investors, we may have avoided the embarrassing and reputation damaging question that any fund manager wants to avoid – “Where is my money?”, especially if they don’t have it.

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First Bank is cutting inefficiencies and focusing on its strengths

While the bank has everything to be thankful for, care should still be taken towards driving its growth objective.

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First bank, Dr. Adesola Adeduntan, CEO, FirstBank

Being the first entrant to any industry, no matter how lucrative, is only an advantage when there is zero competition. In the real world, for any business to stay in the game, it must constantly innovate, expand its market share, and carry out the necessary moves to survive the equally changing business and economic landscape. First Bank being the premier bank in West Africa has undoubtedly witnessed this change over time. If there is one thing the bank has done, it has stayed relevant through decades, even after many that came after it have fallen by the wayside.

READ: CAC to register companies within 48 hours, approve business name same day

The year 2020 had forced many businesses across the world to reassess their positions, and a strategy many have adopted is cost cutting – for good reasons. Given the economic and financial constraints with limited resources, cutting operational inefficiencies and focusing on areas that offer the best value has proven to be worth the effort for many. While the COVID-19 pandemic might not have had anything to do with FBN Holdings cutting off its risk underwriting business, FBN Insurance ltd, the company made the decision within the year and it couldn’t have come at a better time than when it did.

READ: FIDELITY BANK PLC: Frail earnings outlook but valuations still attractive

First Bank’s performance in Q2 2020

Like most companies, First Bank’s revenue (Net interest income) took a hit as stated in its Q2 2020 Y-O-Y results. Net interest income dropped by 7.34%, from N141.7 billion in Q2 2019 to N131.3 billion in Q2 2020, following significant reduction in investment securities over the quarter. Profit before tax grew by 14.3%, from N36.2 billion to N41.4 billion for the period under review. Profit after tax grew by 56.3%, from N31.6 billion to N49.5 billion year on year.

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READ: Nigerian Breweries’ Q1 earnings report shows profit decreased by 31.4% to N5.5 billion

Operating expenses also increased by 0.9% y-o-y from N137.9 billion to N139.2 billion; while it suffered impairment charge for credit losses of N30.7 billion from N22.1 billion in Q2 2019. Its Gross earnings increased by 5.8% to N296.4 billion, from N280.3 billion in the period under review.

Divesting from its risk underwriting arm and its capital injection

FBN Holdings completely divested from its risk underwriting arm, completely selling off its 65% stake in FBN Insurance Ltd to Sanlam Emerging Markets (Proprietary) Ltd. effective from June 1st, 2020.

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According to the group, “we successfully divested from the underwriting (insurance) businesses, to focus on our banking operations. We are confident this will enhance greater value to our stakeholders and strengthen the Group’s resolve to consolidate its leadership of the banking sector.”

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

This single action did many things for the bank. Following the divestment, the holding capital, FBN Holdings, had injected equity capital of N25 billion into the bank, thereby boosting its overall Capital Adequacy Ratio to 16.5% (excluding profit for H1 2020). In a similar vein, the bank’s total assets was boosted by 14.9% year-to-date from ₦6.2 trillion as at Dec 2019 to ₦7.1 trillion in June, 2020. By pumping the required capital into the bank, it was able to effectively mitigate the regulatory requirements that many banks have struggled with over the past few months. Not only does it have a comfortable buffer against regulatory requirements; it has the available financial resources to look out for emerging business opportunities, and fully deepen its strengths in its core business areas.

READ; Nike stocks post gains, women’s apparel division grow by 200%

While the bank has everything to be thankful for, with the play of events; care should still be taken towards driving its growth objective. In truth, its financial position excluding the capital injection does not particularly reveal new strengths. Hence, a false sense of security, given the current economic challenges amidst the COVID-19 pandemic and all the challenges it births, like possible increase in impairment provisions, ailing investments, and so on, could have the company dissipating its newly injected capital.

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READ: UBA Plc H1’2020 results, a true reflection of its rightsizing decision? 

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For investors, while an amazing growth opportunity does exist especially given its new resources, the best bet is to hold as a dividend stock, patiently waiting for its long-term growth strategies to play out in the years to come.

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