…as cash squeeze worsens
All eyes are on President Bola Tinubu to finally raise meaningful cash from the privatisation of idle government assets which seemed almost impossible under the watch of the previous administration.
Tinubu is aiming to raise as much as N298.4 billion from the privatisation of national assets in 2024 to fund the cash-strapped government’s budget, according to data obtained from the Budget Office.
However further analysis shows that Africa’s biggest economy generated zero cash in the first nine months of 2023 from its budget of N154.6 billion as privatisation proceeds. In 2022 and 2021, the country also generated nothing from asset sales from its budget of N90.7 billion and N205.2 billion respectively.
It is unlikely that things change next year, according to Johnson Chukwu, group chief executive officer at Cowry Asset Management Limited, who was sceptical about the government’s commitment to reverse the trend of zero asset sales.
“Have we identified the assets that will be sold, do we have financial advisers assigned and have we advertised them,” Chukwu said. “If we don’t have these things, we might end up with the way we are this year where nothing is entering,” he added.
Failure to raise any cash from privatisation will leave the federal government with an even larger budget deficit and that could lead to more borrowing or lower than planned capital expenditure.
Adeola Adenikinju, a professor of economics and president of the Nigerian Economic Society, however said the hunt for revenue by the new administration may lead to a change of tack.
“The president may do things differently than the previous administration because they are trying to look for revenue from various sources,” Adenikinju said.
He said privatisation is one aspect that the government wants to explore and that it seems to be more pro-market and less of states’ control or ownership of resources.
“So, it is more likely that they will explore that option, especially for some assets that would be better managed by the private sector. For me, the refineries are the ones that I support. They should be revamped so that the private sector can take ownership and management of those assets,” he added.
Tinubu last week outlined 2024 spending plans projected at N27.5 trillion. His administration targets revenue of N18.3 trillion to fund the budget.
Out of the N27.5 trillion, 30 percent (N8.25 trillion) will go to debt servicing. In the first nine months of this year, the nation spent N5.79 trillion servicing debt. That compares with N3.76 billion in 2022 and N3.0 trillion in 2021.
The sale of the assets is believed to be an attempt to bolster revenues and reduce the government’s reliance on debt which is fast becoming unsustainable.
The privatisation effort will drive macroeconomic growth as well as allow investors to participate optimally in the economy, said Wale Edun, minister of finance and coordinating minister of the economy.
“There is privatisation in the budget. That is the direction of travel to create a stable macro-economic environment in which investors can come in and the government is yielding grounds to them and allowing them to come in and invest and provide goods and services to Nigerians,” Edun added.
JP Morgan, a global investment bank, in August revealed that Nigeria is upping its game to unlock $17 billion from asset sales.
“The authorities are in the initial stages of identifying assets for sale, which may provide some medium-term relief,” JP Morgan said in its latest report.
It added, “For example, the President’s policy advisory council has recommended the government sell down its stake in the most joint-venture oil and gas assets, a proposal that is estimated to bring in up to $17 billion.
BusinessDay had earlier reported that Nigeria plans to unlock the N180 trillion trapped in dead or idle government assets as a renewed hunt for cash heats up.
Over 70 entities have been captured in a national asset register that aims to identify the country’s vast and mostly idle assets, according to the Ministry of Finance Incorporated, whose work it is to build the critical database that will help unlock badly needed cash for the government.
Africa’s most populous nation uses a larger part of its resources to service its debt, and that has become of great concern to economists, especially in the wake of already lean revenues made worse by the COVID-19 pandemic.
In 2022, Nigeria’s debt service-to-revenue ratio was at 80.6 percent — a figure far above World Bank’s suggested 22.5 percent for low-income countries like Nigeria.
Damilare Asimiyu, macroeconomic strategist & head of investment research at Afrinvest West Africa Limited, noted that the country has the assets but that the lack of the political will to market them is why it has generated nothing.
“So, what will determine whether the Tinubu government will get the amount from the sales of assets is the political will.”
A recent report by PwC estimates that Nigeria holds at least $300 billion or as much as $900 billion worth of dead capital in residential real estate and agricultural land alone.
“The high-value real estate market segment holds between $230 billion and $750 billion in value, while the middle market carries between $60 billion and $170 billion in value,” the report said.
Dead capital is an economic term related to the property that is informally held, is not legally recognised, and cannot be exchanged for financial capital.