The Presidency has debunked claims making rounds in the media that the Federal Government offered the sum of N100 billion to the Miyetti Allah Cattle Breeders Association of Nigeria (MACBAN).

The reaction is coming against the backdrop of the media war going on between the Presidency and the Ondo State Government over the quit order on Miyetti Allah.

The denial was made by the Senior Special Assistant to the President, Garba Shehu while appearing on a Television Programme on Channels Television, who said no such amount was given to appease the association over the reported killing by some herdsmen.

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What Garba Shehu is saying

Garba Shehu, when asked if the Federal Government offered N100 billion to the association, said, “That is an absolute falsehood. In all of those meetings, I have confirmed that in any of those meetings nothing like money was discussed. All of the issues were about the involvement of the leadership of this group in getting them to prevail upon their erring members and they are many. How do they assist the administration to recover weapons that are widely owned by these elements?’’

According to Shehu, the existence of some miscreants in a group does not entirely mean the entire members of the association are criminals.

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He noted that Miyetti Allah is a cultural group just like the Afenifere associated with the Yorubas and the Ohaneze Ndigbo of the southeast.

He said, “The Miyetti Allah group is like Ohanaeze Ndigbo or the Afenifere. It’s just a cultural group. There are criminals with the Yoruba race and you cannot say because there are Yoruba criminals, then Afenifere is a band of criminals.’’

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What you should know

• It can be recalled that the crisis between the Fulani herdsmen and some parts of the country came to the fore once again following the 7-day quit notice by Ondo State Governor, Rotimi Akeredolu, for herdsmen to vacate forest reserve area to curb the spate of kidnappings in the state allegedly committed by criminals hiding in the forest.
• However, in their reaction, the Presidency cautioned the Governor against the action saying that the herders cannot be pushed out of the reserve for any reason. They said the governor does not have any constitutional powers to ask anybody to leave the state.
• The Presidency’s reaction has drawn widespread criticisms from some lawyers and social-cultural groups like the Afenifere, Coalition of Oduduwa Elders, Southern and Middle Belt Leaders Forum, who have expressed support for the Ondo State Governor.

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Lagos State thrives as the economic backbone of Nigeria and with its GDP rivaling African nations, it is no surprise that what happens in Lagos, affects Nigeria in its entirety.  

Following the impact of the COVID-19 pandemic, Lagos State had quite naturally reduced its expectations for the year 2020. From a proposed budget of N1.169 trillion, the State reviewed it downwards by 21% to N920.5 billion – out of which it was still able to attain an overall performance of 86%.

Total revenue alone was 93% of projections and this is despite the pandemic, the additional costs of the #EndSARS protests, as well as the other disruptions that followed. As the Lagos State Commissioner for Economic Planning & Budget, Sam Egube puts it, ‘excuses build bridges to nowhere.’  

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That said, a 2021 budget of N1.163 trillion is nothing short of audacious, particularly considering the revisions made to last year’s projections. Signed into law by the Governor on 31st December 2020, it was prepared to first prioritize the completion of all on-going projects in the State and then to meet a series of objectives from employment creation, increased investment in human capital development, i.e. education and healthcare, deployment of functional technology in public services, amongst others.  

While the budget succinctly themed, “Rekindled Hope” and the many proclamations of the T.H.E.M.E.S agenda are remarkable, revealing a desire to reach for more, there is ardent need to interrogate the sources that make up the budget, what they are projected to be used for, and the possible limitations between the lines.  

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Funding the budget and the debt quagmire  

The total budget of N1.163 trillion is expected to be funded from a total revenue estimate of N971.028 billion, made up of Total Internally Generated Revenue (TIGR) of N723.817 billion, capital receipts at N71.811 billion, and federal transfers at N175.400 billion.  

While the figures for Federal transfers and receipts are said to have been conservative, the breakdown assumes that a key part of the budget is expected to come from the State’s Internally Generated Revenue (IGR).  

During the official budget speech, the Commissioner of the Lagos State Ministry of Economic Planning and Budget had explained that Lagos State Internal Revenue Service (LIRS) performance is expected to increase by 30% in 2021. On one hand, systems such as simpler collection systems are being tightened to boost revenue; on the other, more companies will remit taxes with many tax holidays from 2020 taken care of in the past year.  

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They also expect to harness the huge revenue-generating opportunities in the State particularly in the real estate and transportation sectors while also leveraging data to uncover available opportunities. Following the 21% revision of the past year, particularly with many of the same challenges still at the fore, the assumptions for the projected revenue can really only be proven by their delivery.   

The deficit of N192.494 billion is projected to be funded by a combination of both internal and external loans. Now, while borrowings of N192.5 billion compared to projected IGR of N723.8 billion is relatively fair as the State is projecting to internally generate almost 4 times of its proposed borrowings, the underlying debt challenge of the nation should naturally still cause a few raised eyebrows for the additional debt – even though it is projected to be used in its totality to fund capital projects. The ongoing instability in the FX market, as well as the increasing debt burden this will pose, are some of the main points of consideration with the budget deficit financing.   

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Speaking at the “Facts-Behind-The-Figures Media Roundtable,” Commissioner for the Lagos State Ministry of Economic Planning and Budget, Sam Egbe explained that most of the loans taken will be in Naira in order to protect the State from FX risks as much as possible. The Commissioner of Finance, Dr. Rabiu Olowo, had also explained that the loans to be taken are well within fiscal sustainability levels.   

He explained that “We cannot depend on our own internally generated revenue or the federal transfer that we get from the federal government if we want the kind of development that Lagos needs at this time. For this, there are two main benchmarks that we follow. We have the federal debt management office benchmark of 30% debt to revenue, and of course the World Bank benchmark which is 40%. We closed the year 2020 at 19.8% and for the year 2021. While we project about 22% debt to revenue ratio, we are still within both benchmarks.”  

The deficit financing of N192.5 billion is proposed to be raised through local capital market bonds of N100 billion, external loans of about N55 billion, and internal loans of about 37.5 billion.  

Priority sectorial allocation  

The total expenditure for the year 2021 is broken down into capital and recurrent expenditure at N702.9335 billion and N460.587 billion respectively, a ratio of 60:40. While there could be arguments as to the sustainability of the allocations given the infrastructural gap in the State, there are a few extra-budgetary strategies for funding projects that the government put in place to bridge the gaps.  

Some of them include Private Sector Infrastructural partnerships, bespoke financing terms, and structured (also PPP) critical infrastructure as used for the blue and red rail as well as the metro broadband fibre ring. The argument is that the State can deliver more than can be captured in the budget.  

The allocation breakdown for the total N1.163 billion based on the Classification of Functions of Government (COFOG) also reveals an upward increase in Economic affairs (consisting of Agriculture, Commerce, Tourism, Art & Culture, Energy and Mineral Resources, Transportation, Infrastructure and Waterfront) from 26.55% of the budget in 2020 allocation to 29.35% at N341.4 billion in 2021.  

This implies that opportunities could exist in these areas for Lagosians and international investors willing to produce the value the State requires to meet its objectives. While the sectorial allocation isn’t bereft of limitations as indeed it really cannot solve all the problems at the same time, major considerations should be around its successful implementation and the government’s continued transparency to Lagosians in economic happenings.   

From green bonds to foreign listings and a determination to plant its seeds across various nations on the African continent, Access Bank over the past few years has shown its desire to grow across its triple-bottom-line. 

On the people front, the bank has a reputation for offering arguably the best incentives to its employees in the banking sector even though last year’s plan to cut down salaries threatened to dent this reputation.

It has also introduced some of the sector’s most innovating products aimed at driving financial inclusion and protecting the bank’s market share from FinTechs. The bank has also supported small businesses through loans and financial advisory in line with the CBN’s quest to improve private sector credit.

READ: Access Bank completes acquisition of Zambian Cavmont Bank Ltd

On the environmental front, it’s spending big bucks on CSR, making a name for itself as a leader in Sustainability, and in terms of dominance, its merger with Diamond Bank and other expansionary measures have turned it into Nigeria’s largest bank and one of Africa’s top banks.

While these moves have shed a positive light on the bank,  investors are left to play catchup as the benefits of the mergers and acquisitions are yet to result in improved return on investment for anyone who bought the shares over a year ago. 

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Its low Return on Investment (ROI)  

While Access Bank has many strides to its name, a lot more needs to be done to make it a winner with investors. Its share price has struggled to gain the same momentum achieved by its rivals in the banking sector, particularly the FUGAZ. 

Year to date 2020 Access Bank stock has performed poorly when compared to its peers. While the likes of Zenith Bank (33%), UBA (21%), Fidelity (23%), and FCMB (80%) posted double-digit returns, Access Bank fell by 16% in 2020.

In terms of value, the market prices the stock lower when compared to its earnings, making it one of the cheapest stocks in the sector. This is buttressed by its 2.9x (as of January 22nd) price to earnings ratio, one of the lowest in the sector.

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In the same vein, the Tier 1 bank also has a lower dividend yield compared to its contemporaries and has not been able to breach its 52-week high of N10.90. One reason for this is that investors are wary of the bank’s loan book mostly inherited from its merger with Diamond Bank. Investors will rather go with some Tier 2 banks that have better upward trends in price appreciation than getting stuck with low valuation multiples. 

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Access Bank merger blues

As mentioned, one Achilles heel to its valuation problems could be its aggressive expansion strategy, driven by acquisitions. Since its acquisition of Diamond Bank, its valuation has plummeted piling on paper losses for investors who have held the stock since then.

Access Bank is currently valued at N325.2 billion in market capitalization less than half of its N679 billion suggesting a price to book ratio of 0.47x.

While being large provides the benefits of economies of scale, it needs to be nimble and focussed to milk the opportunities provided by the synergies

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The bank recognizes this challenge, recently holding an investor call where it explained its move towards a HoldCo structure.

Access Bank will maintain four core subsidiaries under the holding company. They are Access Bank Group – focussed on commercial banking services, Payment Business – its mobile money and payment services business, Lending & Agency Banking – microfinance and microlending services, and Insurance.

Its efforts in restructuring into a HoldCo structure as well as expansions to other African regions – from Kenya to South Africa, is expected to further enhance its overall returns,  and perhaps drive up valuations. 

READ: Access Bank will no longer accept cheques with logo of defunct Diamond Bank

Fundamental analysis of recent financials 

Access Bank has recorded positive strides in terms of its fundamentals.  In its latest 9 months results, net interest income decreased by 6.6% year-on-year, but profits increased by 15% to N102.3 billion. 

Access Bank also implements one of the most aggressive recoveries of bad loans in the banking sector pulling in N38.9 billion in recovery in 2019 and N24.7 billion in the first 9 months of this year. These recoveries filter into the bottom line and bolster confidence about its ability to confront its challenges and win.