South Africa’s sudden resolve to sell its cash-burning state-owned firms provides key learning for Nigeria as it desperately seeks to ease pressure on government finances in the wake of the COVID-19 pandemic and the fiscal crisis it is inflicting.
South African Finance Minister Tito Mboweni sees gross domestic product (GDP) slumping by nearly 6 percent in 2020, while tax receipts are expected to tumble by up to a third, and he told lawmakers on Thursday the government was willing to sell cash-guzzling public enterprises in the wake of the coronavirus pandemic and sharply falling state revenues.
Nigeria, a country of 200 million people, is in an even worse position.
“At well below 10 percent of GDP since 2015, the total revenue available to the three tiers of government in Nigeria has fallen so low that it does not cover even recurrent spending threshold of fiscal liquidity, as salaries and debt service each amounted to about 70 percent of Federal Government revenue in 2017, and deficits had to be incurred to meet both in full, with additional borrowings to meet shrinking overheads and a small and contracting capital spending,” said Ayo Teriba, a Cambridge-trained economist.
“With less access to debt markets, many states were known to have been unable to meet salary obligations in full, creating unpaid arrears of more than 12 months in some states,” he said.
Nigeria, which has a plethora of state-owned enterprises that can be better managed by the private sector, got a $3.4bn lifeline from the International Monetary Fund (IMF) on Tuesday, but this support will not get the country out of the fiscal bind that it finds itself.
“The sum of $3.4bn sounds like a large amount of money but it is roughly 1-2 percent of Nigeria’s GDP. It is not enough to solve our fiscal challenge,” said Mustapha Chike-Obi, former CEO of AMCON.
The formal letter requesting that IMF support was signed by both the Finance Minister Zainab Ahmed and CBN Governor Godwin Emefiele and in it, Nigeria committed to enthroning better economic management policies including a regime of flexible exchange rate.
Many are now calling on the government of President Muhammadu Buhari to loosen the state’s grip on the economy by embarking on a credible but deliberate programme of attracting badly needed private capital into Nigeria, beginning with restating the sale and concession of poorly functioning public assets.
BusinessDay learnt that so far, senior government officials including some ministers are resisting the move and doubling down at a time the public treasury is drying up despite Nigeria embarking on a borrowing spree.
“There is a battle going on for the soul of Nigeria,” said Clarke Huntingfield, economist and investment analyst. “There are those in government in Nigeria who do not see the big picture because of their parochial pursuit, and it is why purposeful leadership at this time is even more critical. Nigeria cannot afford to be borrowing and then failing to unchain the economy so as to rebuild it.”
Teriba said while Nigeria’s economic, fiscal, and financial struggles resulting from the decline in income have been conspicuous in news headlines and policy discussions, the solutions that the value of assets owned by Nigeria could unleash have been less so.
“It is time to broaden the conversation to include the differences that the value buried in vast assets owned by Nigeria could bring to the narratives, evaluate the case for unlocking domestic and external liquidity from them, and explore ways of doing so,” he said.
Teriba lists possible solutions to include the securitisation of financial assets; issuance of foreign currency bonds based on JV equity stakes; privatisation of corporate assets including selling up to 51 percent of all wholly-owned SOEs, as well as the liberalisation of intangible assets.
The leading economist also suggests breaking government monopoly infrastructure sectors; commercialisation of non-financial assets and optimisation of underutilised government lands and buildings that litter cities across the country. This, he said, would open up large non-tax, non-oil revenue streams that can compensate for lower commodity export and tax revenue.
He argued that Nigeria could raise domestic and external liquidity thresholds by doing the following: securitise government equity stakes in Joint Ventures with foreign currency bonds to give Nigerians at home and in diaspora opportunities to invest while shoring up foreign reserve thresholds; issue Asset-Based Securities and/or Diaspora bonds against financial assets; issue Asset-Based Securities against new income streams from non-financial asset; privatise all wholly or majority-owned corporate assets to attract brownfield FDI by encouraging foreign investors to own up to 51 percent, while keeping 49 percent securitisable equity stakes; liberalise to attract greenfield FDI by breaking government monopoly in all infrastructure sectors to encourage entry of foreign investors to operate in parallel to the joint ventures, and commercialise idle or underutilised public lands/built structures by relocating uneconomic activities from prime locations and redeveloping the sites to open non-tax revenue streams.
Participants in a recent BusinessDay webinar said the government also needs to let go of the Nigeria Gas Limited that has consistently failed to get gas to the power plants to produce badly needed electricity to energise the slumbering economy. The failing state airports should be sold or put under private management without delay, starting with those in Lagos and Abuja, they said.
The presidential committee on Nigeria’s post-COVID-19 economic sustainability which is chaired by Vice President Yemi Osinbajo held a crucial meeting on Thursday with the CBN governor and several key ministers as well as members of the Presidential Economic Advisory Council participating.
At the meeting, the well-respected economist Doyin Salami, who heads the Economic Advisory Council, presented a report in which he laid bare the scary prospects that confront Africa’s most populous nation if it failed to undertake urgent reform of the economy.
At that meeting, the size of the opposition to economic reforms facing Nigeria was on full display.
BusinessDay learnt that some at the meeting sought to create the impression that Nigerians pushing for long-delayed reforms were less altruistic than those defending the status quo, including continuation of the overbearing state control and the leakages that have virtually suffocated economic growth in the country.
According to Teriba, time is running for Nigeria which he said should get to work by first developing a national roadmap that seeks to answer the questions – how much should be unlocked, how easily, and what ideally should be the sequencing for each asset category in the context of a national roadmap for unlocking liquidity in Nigeria, to offer guidance to all tiers of government in the same way that the National Pension Reforms did.
“Doing these,” he said, “will change Nigeria’s economic, fiscal and financial narratives by unlocking the liquidity the country needs to strengthen the naira, rejuvenate fiscal, financial and foreign exchange streams, break dependence on volatile oil revenue and costly deficits, rebuild infrastructure, diversify and accelerate growth, eradicate poverty and unemployment, and lay the foundations for shared prosperity.”
He said leading developing countries have in the past adopted different combinations of these options to fuel the transformation of their economies. (BusinessDay)
