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Growing concern for Nigeria’s ballooning debt profile

With planned borrowing of N6.17trn in 2021, total public debt is expected to rise to N38.68tn by December 31, 2021.

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How to avoid debt despite economic challenges

According to reports, the Minister of Finance, Budget and National Planning, Zainab Ahmed, in her presentation to the Senate Committee on Local and Foreign Debts noted that the country’s total public debt will hit N38tn by December 2021. She noted that the total public debt stock (external and local borrowings) of the federal and state governments and the Federal Capital Territory stood at N31.01tn (US$85.90bn) as of June 30, 2020 and is projected based on existing approval to rise to N32.51tn by December 31, 2020. With planned borrowing of N6.17trn in 2021, total public debt is expected to rise to N38.68tn by December 31, 2021.

The N6.17trn planned borrowing mentioned by the Minister of Finance is higher than the expected budget deficit for 2021e. According to the president’s 2021 budget presentation documents, the Federal government plans to spend N13.08tn in 2021 which would be financed by Revenue of N7.88tn. This implies a budget deficit of N5.20tn which would be financed mainly by borrowings of N4.28tn, privatisation proceeds of N205.15bn and finally
project linked bilateral & multilateral loans of N709.69bn.

Whilst debt to GDP ratio remains within the acceptable threshold, we are increasingly worried about the government’s ballooning deficits and unsustainable debt service costs. While we acknowledge the need to pursue an expansionary fiscal policy under current economic conditions, it comes at the detriment of long term fiscal sustainability. In the recently released Medium-Term Expenditure Framework and Fiscal Strategy (MTEF/FSP),
debt service to revenue ratio rose to 99% in the first quarter of 2020.

With the economy on the path to a recession, government revenues particularly non-oil revenues would likely remain depressed in the next few quarters. In our view, the FG must implement fiscal consolidation measures to manage its expenditure. In addition, implementing policies aimed at improving the business environment will help mitigate the impact of the global pandemic on the profitability of private sector enterprises, thus providing support for non-oil revenue.

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CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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OPEC+ agree to raise oil production

For Nigeria, a combination of both higher oil prices and lower production cuts is needed to fund the country’s 2021 budget.

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OPEC+ 2, Oil production drops, as Nigeria complies with OPEC+ output cuts  

Following yesterday’s meeting, OPEC and other oil-producing nations led by Russia reached a deal to modestly increase production in January amidst a raging second wave of the coronavirus pandemic though with the prospect of vaccines offering some hope.

Based on the agreement, members of the Organization of the Petroleum Exporting Countries along with Russia and other countries will raise production gradually by 500,000 barrels a day over a 3month period starting in January. The increase, though less than 1% of the global oil market, comes amidst a second wave of coronavirus which is currently weighing on demand.

According to reports, the agreement was a compromise between countries that wanted a much larger increase of two million barrels a day, which was previously agreed on, and others that would prefer to maintain current production cuts of c.7.7mbp. The latter are considering the many uncertainties around the pandemic and the possibilities that demand will remain low. That said, the disagreement between both groups suggests that agreed quotas may not be adhered. Looking ahead, we expect the modest increase in OPEC+ production and the prospects of the discovery of effective vaccines to remain positive for oil prices in the short term if production cuts are adhered to. We however expect the rally in oil prices to be capped by subdued growth in the global economy which would continue to limit
the pace of recovery in oil demand.

Coming home to Nigeria, a combination of both higher oil prices and lower production cuts is needed to fund the country’s 2021 budget which is predicated on a production volume of 1.86mpd and oil price of US$40 per barrel. Amidst a recession, the hope of an economic rebound is largely hinged on sustained rebound in crude prices as the country has suffered a significant slump in revenue largely due to weak oil revenue. Furthermore, the economy continues to face severe dollar shortages due to lower oil receipts which continues to pressure the nation’s FX reserves.

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CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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6 Things to consider when looking for suppliers for your business

By putting these 6 things into consideration, you’ll tailor your supplier-selection process to your unique business needs.

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Great suppliers are a fundamental part of your business. They allow you to produce and get your products and services to your customers. But finding reliable suppliers for your business takes real effort. It requires much more than just skimming through a series of price lists. Here are 6 things to consider when looking for suppliers for your business.

1. Your Overall Budget

Your overall budget is one of the most important things to put into consideration when you’re searching for the best suppliers for your business. While you may not know the accurate cost of certain things, you need to have a clear idea of the amount of money you’re able and willing to spend before approaching potential suppliers. And one good way to do that is by researching how much some of the products and materials you need will cost you.

Assuming your business offers HVAC installation, maintenance, and repair services. You’ll need to know the prices of various HVAC parts, including air filters, belts, capacitors, fan motor, and coil condenser cleaners. The best way to do that is to visit the site of HVAC suppliers in your area and see how much they sell these parts. This information will help you create a reasonable budget. If you’d like a suggestion, you can take a look at Cold Air Central for quality HVAC parts and other products.

2. Reliability

Reliability is another important factor to consider when picking suppliers. Reliable suppliers provide quality products and materials in a timely manner. It’s always a good idea to work with reputable and well-established suppliers, as they have adequate resources and resilient systems that enable them to deliver without hiccups. But you can still work with small suppliers, especially if you cultivate a meaningful relationship with them.

3. Stability

When looking for the best suppliers for your business, go for those who are experienced, and have a stellar record of accomplishment. Stability is crucial, particularly if you’re looking for a long-term partnership with a specific supplier or there is only one supplier of a specific product or material that your business requires. You must also ensure the supplier is financially stable before entering any contract with them. A great way to do that is to request the credit history of a potential supplier.

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Another great way of finding out if a prospective supplier is stable is to check out review websites for testimonials from previous clients. You can also visit their official social media pages to see how they engage their followers and how they address complaints. If there are so many negative reviews and comments from customers, there is a high likelihood that they’re not going to be the best option for you.

4. Location

Consider location when searching for competent suppliers. Working with distant suppliers may sometimes result in longer delivery times and additional freight expenses. But if you want something fast, dealing with local suppliers might be a wise decision. That doesn’t mean you should overlook distant suppliers. Be sure to review freight policies of far-off suppliers. You may discover that bulk orders might attract free shipping. Or better yet, you can merge different orders to lower costs.

5. Production Capabilities

Look for suppliers who can produce the items you want. To verify the production capabilities of a potential supplier, you must do more than just speaking to a representative. A good one should consistently supply items that meet your standards.  Visiting the supplier is the only sure way to confirm their production capabilities.

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An in-person visit will give you a chance to audit the quality management system of the factory. If you don’t know what to check for during the visit or you want to do away with the cost of traveling overseas to the factory, working with a third-party can be a great option.

6. Cultural Fit

Check whether the goals and values of a potential supplier are aligned with yours. If they are, then partnering with that supplier would be a great idea. Some of the things that will help you tell whether a potential supplier is a cultural fit include:

  • The type of companies they work with.
  • A detailed quote that meets your specific requirements.
  • Minimum order quality.
  • A deep understanding of your business.

 

Conclusion

By putting these 6 things into consideration, you’ll tailor your supplier-selection process to your unique business needs. That way, you’ll choose the right supplier who will consistently deliver quality products and materials that your business requires. It could also enable you to cultivate long-term mutually beneficial relationships with your suppliers and reduce stress in selecting partners.


 

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Rachel Eleza, Growth Marketing Director at UpSuite and a part-time writer.

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Analysis: Nigeria needs an austerity diet

Why the Nigerian government needs to implement on Austerity Measures

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Analysis: Nigeria needs an austerity diet

Something strange happens on Saturday mornings on Bourdillion Road, Ikoyi, the UNILAG campus in Akoka, and Bode Thomas in Surulere is not exempted from this phenomenon.

If you look intently, you may observe it like David Attenborough filming the life of a baby elephant. Scores of differently sized people get on the road, some in lycra, some in garish pink, some in shorts, some on bicycles, and some with fanny packs.

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What are these people doing on the road? What do they want? Why would anyone wear reflective visors, 6 armbands, and ill-fitted long socks? It’s weight loss time, yeah! Excessive sugar is bad — it’s the work of the devil!

Chocolates, biscuits, and weight gain

You know deep down you shouldn’t eat these incredibly sweet things, but when you are down and tired, you can’t resist — it improves your mood. The World seems like a sweeter place suddenly, you smile a little bit, and you forget the problem.

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READ: Nigeria’s total debt to hit N33 trillion – Senate

However, you get another urge for more sugar and eat again. Your problem is still not gone, but you feel alright. With time, you realize that you have gained weight and must face the hard truth — cut down on sugar or choke on it.

If you choose the latter, five years down the line, your weight has grown from 75kilos to 225kilos — an additional problem to your worries. A person weighing 225kilos is super morbidly obese and may have many health problems.

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The Nigerian government is in a similar situation, it has a weight problem, a large debt load attached to it that it simply can’t afford or ignore any further. It’s time to hit the road, change its diet, and consult with the doctor. In orthodox economics, countries getting on a diet and hitting the gym is called Austerity. Austerity is never a popular route for governments.

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In Fela’s classic, Teacher don’t teach me nonsense, he lamented about the pain of austerity and included it alongside other pains felt by the citizenry some 30 years ago. Whether we like it or not, government finances must be put on a diet; at best, a delay can ensue.

The longer the delay, the fatter the debt pile gets, and many more problems will emerge. People will feel even more pain without austerity. Austerity is not unique to developing countries, it is important to mention that in 2010, post the global financial crisis, the UK’s Chancellor of the Exchequer, George Osborne, introduced austerity measures on government finances to enable its future sustainability. This after all is an economically developed country mindful of its finances. If the UK government can do it, why not Nigeria? Could it be the do-it-yourself economic ideas?

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What does austerity diet involve?

A significant cut in government spending and largesse. It entails saying goodbye to the sweet-looking jeeps and furniture, the not so large civil service a.k.a government jobs, and to an ever-increasing attempt at collecting more taxes from poor Nigerians.

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Recall, more than half of Nigeria’s population is living below the bread line. It’s unclear from whom any tax increase will emerge. There is debate amongst orthodox economists about the timing of austerity diets — should it be during a crisis or during boom times? There is no clear-cut answer, but it’s easier to take the pain in a growing economy than one undergoing strain.

READ: Nigerian retail industry can’t grow without proper franchise system – CIG boss

It is sometimes possible to escape the diet. Some patients go for bariatric surgery and extensive liposuction and this helps them cut down in a very short space of time, without the attendant pain via the organic process. Nigeria did this in 2005 by securing debt forgiveness from the G8 countries to the tune of thirty billion dollars. Interestingly, this is roughly what Nigeria owes today.

Borrowing into unsustainable debts

It is unlikely anyone will cancel Nigeria’s debt again. So, why does the government keep borrowing when it’s apparent the country can’t afford it?

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Well, if one keeps getting cheap biscuits and chocolates, then it’s easy to eat more. Reviewing the basic debt stats can be deceptive without a good enough grasp of the stats for sustainable and non-explosive debt.

In my last article, I discussed how DIY economics or homegrown economic ideas have done damage to price stability in Nigeria. Without a critical review of how best to adjust an explosive debt path, countries are bound to stay the destructive course. Considering indicators used by George Osborne as a benchmark for Nigeria, Nigeria is on an explosive and unsustainable borrowing path.

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There is absolutely nothing wrong with leverage or borrowing. In many instances, especially with businesses and corporates, it helps them achieve their financial goals. However, there is a proverb from the South Western part of Nigeria that translates to, “one ought not to live an extravagant life, whilst in debt”.

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The statistics show that Nigeria continues to borrow extravagantly, without the impact being felt on the streets.

READ: 9 Brilliant ideas to pay off debt fast in 2021

What is the near term solution?

A selective increase in government revenue may be the way. Tax increase is highly unpopular but selective taxes on businesses that have benefitted from historical tax cuts and waivers may be the place to start.


This article was contributed by Dayo Oduwole. You can contact Dayo via his email, [email protected], or tweet at him @TheRealOladayo

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