Wasting assets: Experts doubt FG’s capacity to fund N20.51tr budget

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• FEC approves team to sell, re-order abandoned property • Govt’s proposed asset sales is media propaganda,
say officials • FG yet to engage advisors  • Programme will not appeal to foreign investors, says Chioke • Legal
constraints could stall process – lawyer • Buhari’s asset liquidation performance is 0.65% • Only N5.92 billion
realised from privatisation proceeds in seven years • Asset disposal model erodes country’s intergenerational equity

The Federal Government is pitching a possible monetisation of select national assets to partly fund the gapping deficit stuffed into the proposed 2023 appropriation, but early signs coming from ministries, departments and agencies (MDAs) relevant to achieving the plan suggest the process is heading the way of previous similar experimentations.

Following expert views, exclusive leads, past trends and prevailing macro-environment, government could only dispose of the assets for fire-sale prices.

Different sources close to the Bureau of Public Enterprise (BPE) and other relevant institutions balk at government’s commitment to follow the process through, which an insider source dismissed as “a mere media agenda.”

The Federal Government plans to spend N20.51 trillion in next year’s appropriation laid on a revenue projection of N9.73 trillion or 47.4 per cent of the total expenditure. At 52.6 per cent, the deficit funding is the largest in the history of the country’s budgeting.

An estimated sum of N206.18 billion, about two per cent of the projected deficit, is to be sourced from privatisation proceeds – a recurring item in President Muhammadu Buhari’s budgeting estimates.

The wide gap seems to deride the theme of the appropriation – ‘Budget of Fiscal Sustainability and Transition’ – when weighed against over N60 trillion debt and other contingent liabilities the administration will pass on next year.

Barely two months into the new financial circle when the privatisation proceeds will be needed, government has not commenced the preliminaries of the asset liquidation process – whether sale or leasing.  

The Guardian gathered from relevant offices that the national assets touted for sale have not been valued, just as government is yet to engage financial and legal advisers.
 
A source informed, “internal consultation has not commenced” much less the activation of the process of seeking investors, which could involve a roadshow.”

Another source said key personnel, who should oversee the process, are yet to be briefed, doubting if government “really wants to sell any asset.
  
“Sometimes, it is difficult to know if that plan is anything beyond media campaigns. If government wants to sell a reasonable asset that you can describe as national, we will know. The process may not be as transparent as you would want but people will be invited to bid. These are not secret processes. There are no signs these things will happen soon. So, who is selling what?” a source asked.  
  
If the process fails, it will add to the number of botched national asset liquidation plans under the administration that have not seen the light of day.
THE Federal Executive Council (FEC) at its sitting, yesterday, okayed the constitution of a team aimed to review, re-purpose, privatise or transfer ownership of all abandoned and uncompleted government buildings across the country. This was made known by the Minister of State for Budget and National Planning, Clement Agba, after their closed door meeting, presided over by Vice President Yemi Osinbajo at the Presidential Villa, Abuja.

The Minister said the team to carry out the assessment on the abandoned property, known as Council on the National Capital Projects Information System, would be led by the Minister of Finance, Budget and National Planning. 

“The memo I presented had to do with approval for the creation of a database of National Capital Projects Information System of Government and what this project seeks to take care of is the increasing number of abandoned and uncompleted projects that we have all over the place, which is turning out to be a major drain of funds and represent a waste of the nation’s budget and scarce resources.  

“So, Council approved the setting up of a team, Council on the National Capital Projects Information System, which involves the key infrastructure ministries. 

“They are to look at and prioritise funds selected projects on a yearly basis for completion. Look at the possibility of maybe privatising some of the projects or transfer of ownership to either state or local government, how to repurpose the projects for alternative use, or completely abandon or dismantle the project and treat those as a sunk cost,” he explained.

DATING back to 2015, when Buhari took the rein of office through his 2016 ‘Budget of Change’, till the current proposal, asset sale has remained a recurrent proposal in funding the large deficit budgets.

What has also remained consistent is that the actual performance of the source, year-in-year-out, was zero, except in 2016, when the government realised N5.9 billion from the sale of a national asset.
  
In the 2015 budget, which was partly implemented by the President, N10 billion was projected to come from privatisation but the performance was zero.
The estimate was raised to N25 billion in 2016 and 2017 and further pushed up to N306 billion in 2018. In the three years, only N5.92 billion was realised. In all, N907.15 billion was to be sourced from asset monetisation from 2015 to 2021, the last fully executed budget. But sadly, the performance is 0.65 per cent.      
  
The revenue performance is not better, which raises a question on viability of the revenue projection of the 2023 budget, as Ike Chioke, managing director of Afrinvest West Africa Limited, an investment banker, said.
  
Chioke said the N9.78 trillion target is far above the average performance of government in recent years and the best government could do is around N7 trillion. Chioke’s projection is rather an optimistic markup of reality.

The highest revenue retained by government in the life of the current administration is N4.64 trillion (recorded last year), which is 50 per cent less than what the proposed budget contemplates.
  
The figure is also 54 per cent above the 2021 projected N6.64 trillion. From 2015 till last year, the range (difference between the lowest and highest) of the country’s revenue performance is as wide as N1.98 trillion, which underpins the volatility (unpredictability) of the figures.
 
The highest performance– N4.64 trillion – came in 2021, while the worst year was 2017 (N2.66 trillion). But that does not imply a smooth progression, even as the revenue (just like the GDP) growth has also been largely anaemic.

For instance, government earned N3.24 trillion in 2015 and also fell back to N2.95 trillion in 2016 and further down to N2.66 trillion in 2017. From 2017, the growth was modest and positive until 2020 when COVID-19 shrunk revenue and led to negative growth again. However, government has performed well in raising its revenue profile.1 

Amid continued macroeconomic headwinds, government, without any sign it is ready to bite the bullet, is optimistic revenue will also double 2021 size, to enable it fund its next budget. Yet, oil theft, which reports said has cost the country $12.6 billion from January to September, continues to hobble earnings.

Experts said there is not much headroom for taxes as businesses and individuals struggle with head-shaking economic pains, many of which have been inflicted by government. Still, government said it is working on a new finance bill that could increase its tax revenues, which are among the poorest in Africa.

Experts, including Dr. Ayo Teriba, a leading economist, said the country could have creatively turned its dead assets to fill the huge black hole in the fiscal space as many other emerging countries have done. Leasing, which Buhari has jettisoned for debt financing for seven years, Teriba said, is a goldmine. He, however, regretted that government had missed the opportunity.

Prof. Godwin Owoh, an expert in debt management and monetary economics, also told The Guardian government is running against time, saying the earliest time it would get value if transaction goes as envisaged is December next year.

He does not see the need to hurriedly liquidate any national asset “if the process has not gone far by now” as the political risk would blunt the prospect.
  
“The political risk is extremely high, and I don’t see any country that would clear its nationals to come to invest in the country now. First, the possibility that there will be a change of government next year is almost 100 per cent. Even if the ruling party wins, there is the possibility that policies will change, which makes it difficult for any financial institution to fund any public asset deal that involves the Nigerian government,” he said.

The economist doubted the process would successfully pass through rigorous legal and economic scrutiny. He added that other distortions, such as the planned securitisation of the ways and means (W&M), which is estimated at N20 trillion, have added to the market risk.

Added to the local risks is the restrictive monetary environment. Recently, the United States Federal Reserve System raised the interest rate by 75 basis points for the fourth time in a roll. Since March, Fed has hiked the benchmark rate by a total of 3.75 per cent, which has taken the current rate to between 3.75 to four per cent, the highest since 2008.    A day after Fed’s recent hike, the Bank of England (BoE) also increased its rate by 0.75 per cent to three per cent. Other central banks, from Europe to Africa, have been involved in jumbo interest hikes to tame inflation.

Back home, the monetary policy rate (MPR) is seeing its highest in its modern history as it was adjusted to 15.5 per cent in the October meeting. Owoh said the highly restrictive monetary environment also means less interest from the investment market, predicting that the best Federal Government would get from the transaction is fire sale value.
  
But distress sale is a cash phrase in Nigeria’s privatisation programme. From refinery to power and Tafawa Balewa Square (TBS) to defunct Daily Times, some of which were revoked, the programme has been challenged. There were some cases, for the sale of Delta Steel Company (DSC), where government received far less than what it incurred in turning around the assets shortly before ownership changed.
 
Chioke agreed with Owoh that the Federal Government would not get “a fair value from the liquidation” owing to rising headwinds and time constraints. But unlike Owoh, he said the transaction could be sealed and value received in six months.
   
“If you have the appropriate reports, the actual process of conducting a sale should not be too difficult. Afrinvest can conduct a sale within three to six months. But considering the macroeconomic environment we are in, you are seeing only Nigerians and not foreign partners that would add value to the process,” he said.
   
Historical experiences where “assets were sold only for the processes to be revised by subsequent administrations” is a risk the market would be wary of.

Already, Nigeria is grappling with low attention. For instance, only Ethiopian Airlines reportedly showed interest in the much-hyped national carrier.

The turnout in the highly-competitive aviation reflects the drying interest in the country’s investment opportunities, especially in an area where government is directly involved.  
  
Proper valuation is among the integrity mix in Nigeria’s asset sale programme. Chairman of the Association of Capital Market Valuers (ACMV), Chudi Ubosi, who drew a correlation between valuation and market value determination, scored the previous exercises poorly in this regard.     
  
“How long the valuation will take depends on many factors such as the volume of work required and the number of individuals you assign to the assignment,” he said, assigning 40 per cent to the valuation of past exercises.        

Whereas litigations relating to the previous privaitisation programme are still in courts, Chuks Nwachukwu of Indemnity Partners, told The Guardian that the plans will face legal hurdles.
   
“The assets are sitting on lands acquired from people for public purposes. If you do not need the land anymore, the right thing to do is to return them to the original owners. The government does not have the right to sell land acquired for a public purpose to private people,” Nwachukwu said.
 
The lawyer argued that the legal position is that the government has to return land acquired for public good if the original purpose of the compulsory acquisition is no longer relevant, which is the reason the government does pay the market value for the land.

TheGuardian

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