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.’
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.
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.
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.
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.
Currency deregulation and finding the true value of the Naira
Why does a government borrowing heavily choose to subsidize the dollar?
A colleague said to me, “it’s uncanny how your Central Bank’s policy on Foreign Exchange is similar to that of Zimbabwe of 2008”.
I had to go check what Zimbabwe did and where it led them to. Zimbabwe. after a bout of hyperinflation, abandoned its currency. Nigeria’s current arrangement may get us there.
It is a good time to own a BDC. BDC licenses can cost as much as N15m now. The same license cost about N3m some years ago. Why has it gone up? A BDC can generate a weekly return of N1.3-1.4m just on a $50k bid. Most people can live on that. With a spread of N65 on a dollar: official at 410 and parallel at 475, why do you have to sweat?
So what is the impact of this? A long run destruction of the economy, a higher subsidy than calculated on petrol and a significant market distortion. A distortion that profits less than 1% of the population and sending a higher number into poverty.
With, until recently, accretion to reserves impaired by low crude prices and low volumes, there is a rapid depletion of the country’s reserves. Why does a government borrowing heavily choose to subsidize the dollar?
The answer is corruption. Corruption played out supported by perceptions of what could happen to the middle class if the Naira were allowed to float. Nigerians tend to politicize the exchange rates. It’s for them a sign of economic management. Governments in power have that awareness. It’s part of the play in sustaining corruption.
The future is bleak. The external reserves shed over a $1billion in the last few weeks. Nigeria is consuming the present and the future. There is really nothing to show for the years of interventions. With the ongoing challenges in security and rising poverty, the destination is going to be a crash.
It is time for market unification. It is time for Nigeria to move to find the true value of the Naira. It must stop the corruption in the markets.
Written by Demola Adigun
Tinted windows: A quest for privacy and our collective need to be safe
There is an urgent need to balance out the need for privacy/comfort for vehicle owners and the overall security of the society.
It is 6:30 pm on a cold harmattan smothered evening on Oregun Road in Lagos, and Sola was driving his friend’s car as they headed for an evening hangout. Fred, the owner of the car is sitting in the front seat as Sola attempts to make a U-turn just before the exit into Opebi Link Road when a commercial motorcyclist (Okada) comes speeding on the driver’s side.
In the ensuing crash, the Okada rider was sent flying into the air and his bike slid into the middle of the road. As is normal in Lagos, a large crowd had gathered taking pictures and generally being a nuisance and when they saw the occupants of the car were all young men, the assumption being that they were drunk and that was the cause of the accident.
A Police patrol team on routine patrol arrived at the scene to forestall the breakdown of law and order and immediately moved the crowd away after pictures of the accident scene had been taken. The experienced Inspector who led the team noticed the windows of the car were dark and heavily tinted- with small holes cut into it to allow a limited view of the side mirrors. This limited the angle of view of the driver as he made the turn and thus the accident.
A very high percentage of accidents at turnings/ intersections in Nigeria are caused by poor visibility on the part of drivers in heavily tinted vehicles. The use of 5% tint (which is the darkest form of tint) is most prevalent in quasi security vehicles such as the Toyota Hilux in convoys and in vehicles owned by personnel of government security agencies.
Tinted windows are a fad amongst Nigerians and a status symbol especially for politicians and the wealthy. Tinted windows are basically two kinds: the factory tinted and the fit for purpose tints installed by the owner of the vehicle. Factory tinted windows have the tint coloured into the windows themselves and so it is not removable; while for the fit for purpose tint involves the use of a layer of film over the glass and it can be removed.
Some of the reasons for a window tint in a vehicle include a level of privacy for the occupants, protection from UV rays / the glare of the sun and to provide a look that is pleasing to the eye. Tints were initially only included in Sport Utility Vehicles (SUVs) because they do not come with a covered-up luggage area (Boot) and so the tint provided some sort of cover for the items in the Boot from prying eyes.
Factory tinted windows have a pigment inside of the glass themselves; while the purpose fit tints require the installation of a nylon film over the window that creates a tint in varying degrees. The degrees range from 50% which is the same as a factory tint, 35% which is a light and acceptable tint, 25% tint which is dark and acceptable in most instances and the 5% tint which is very dark and not acceptable in most instances.
Factory tint can be found on the rear windows of most new and fairly used SUVs and trucks. Tints are measured by the Visible Light Transmission Percentage (VLT%) in terms of the amount of light (UV rays that they allow into the Vehicle) and the 5% is the extreme of the spectrum with very little light coming through and thus it is very dark inside the vehicle especially at night, while the 50% is the very start of the spectrum with plenty light into the vehicle, thus it is bright).
In Nigeria, the Police determines and regulates the use of tints in vehicles and what is acceptable in the entire Federation. The Laws of the Federal Republic Nigeria places the onus and burden for the regulation of the use of tint in vehicles on the Nigeria Police both as a regulator and enforcer of the rules and procedures.
In the beginning, the Police only licensed vehicles with factory tinted windows, but in recent times the permit has been issued for non-factory tinted windows. According to the regulations, exemptions are issued for owners with a medical requirement for these types of tint for their vehicles and owners are required to provide evidence from government-owned hospitals for the permit to be issued.
Some of the reasons why window darkness is regulated include safety issue for vehicle occupant and other road users (i.e., you cannot see clearly enough especially at night and thus become a danger to yourself and other road users). Secondly, law enforcement officers need to be able to see the occupants of a vehicle at any point in time (this might be for purposes of a routine search or just so that occupants are visible in the event of harm being done to anyone inside the vehicle).
In absence of a clear scope from the Nigeria Police on the acceptable levels of tint, what we have in play in Nigeria is individuals opting for varying levels of tints based on their own desires, needs and their location. The existing laws have been widely ignored and this has led to the proliferation of some of the harshest degrees of tints in vehicles in Nigeria and profiteering by unscrupulous groups and individuals in the market for vehicle tints. Road users have been known to be subject of inducements from law enforcement officers especially on the highways between states in the federation.
There is an urgent need to balance out the need for privacy/comfort for vehicle owners and the overall security of the society. The Nigeria Police has on several occasions raised the alarm about the use of dark tinted vehicles by kidnappers and armed robbers. This led to the issuance of the Tint Permit which required a physical inspection of the vehicle and capturing of the biometrics of the owner.
The non-enforcement of the original policy and its dilution with all manner of exemptions have totally eroded the initial gains of the policy. On the Portal for the tint permit hosted on the website of the Nigerian Police, there is a clear notice to vehicle owners informing them that the permit is only issued for factory tinted vehicles and there is a need to enforce this provision if we are going to eliminate the dangerous levels of tints we presently have on our roads.
While it is understandable that some individuals want to guard their privacy, public safety comes first.
Nairametrics | Company Earnings
Access our Live Feed portal for the latest company earnings as they drop.
- Seplat falls into a loss in FY 2020
- 2020 FY Results: Cornerstone Insurance Plc reports a 61.1% decline in profit
- Ellah Lakes increases operating expenses by 33.36% in HY 2020
- 2020 FY Results: Nigerian Breweries reports a 54.3% decline in profits in 2020
- Abbey Mortgage Bank projects N51.08 million profit in Q2 2020.