• Friday, June 21, 2024
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BusinessDay

Nigeria wants to borrow less but ignores easy revenue sources

The days of TINUBUlation are here!

Nigeria’s path to economic prosperity may lie in prioritising low-hanging revenue-generating opportunities over debt, according to experts surveyed by BusinessDay.

Africa’s biggest economy said it wants to reduce its reliance on borrowing and explore alternative means of generating revenue.

“Clearly, in the environment that we have now, internationally as well as nationally, we are in no position to rely on borrowing. Our direction for the tariff is to reduce the quantum of borrowing or intercept deficit financing in the 2024 budget,” Wale Edun, the finance minister, told a joint Senate Committee scrutinising the 2024–2026 Medium-Term Expenditure Framework and Fiscal Strategy Paper.

For Nigeria, debt is the easier of the two funding options. Exploring revenue opportunities requires disciplined planning, honesty, time-tested officials, economic reforms and consistent government policies that can inspire investors’ confidence.

Debt, on the other hand, requires far less rigour and a basic commitment to repay.

The problem however is that the room for more borrowing is fast diminishing, which has made it ever more important that the government goes the harder and more demanding route of raising fresh capital rather than binge on debt.

Read also: Nigeria can fund 2024 budget without debt – Agbakoba

Data from Nigeria’s budget implementation report showed the government in 2022 spent a total of N5.65 trillion on debt servicing, representing 106 percent of the total N5.30 trillion revenue generated within the period.

In the first six months of 2023, the federal government’s total expenditure stood at N8.5 trillion while its revenue amounted to N5.1 trillion, creating a deficit of N3.4 trillion.

While the Federal Government’s debt stock has tripled to N87.38 trillion in the last five years, economic growth has been stuck at around 2 percent when not contracting.

The rising debt level is not the only problem. The other worry is that most of that debt may not have been channelled rightly, gulped by recurrent expenditure and debt servicing.

For instance, data showed recurrent expenditure of N7.1 trillion account for 83 percent of total federal government spending of N8.5 trillion in the first six months of 2023.

The lifeline of low-hanging revenue opportunities

Experts narrowed down to a few equity financing options available including boosting export industrial expansions, attracting foreign direct investment, unlocking capital through joint ventures and unlocking dead capital.

“I have argued that the problem is that we are too focused on the (small) domestic market. We should be focusing on exports,” a public finance analyst, said.

“As long as the President and his administration continue to focus on the very poor, very small domestic market, then we are never going to make progress,” he added.

Olisa Agbakoba, senior partner and head of the Arbitration and ADR practice group at Olisa Agbakoba Legal, said the proposed budget for 2024, which stands at N26 trillion, can be funded by strategic efforts without acquiring debts.

Read also: FG’s H1 budget performance exposes urgency to boost revenue

“I wrote to the former minister of finance, pointing out something called ‘MOFI’, Ministry of Finance Incorporated; it holds all the assets of the federal government. As a result of my letter, she inquired and came up with preliminary findings that Nigeria had N33 trillion. So, when you say N26 trillion, the problem is not that we don’t have money, but that we do not look for it,” Agbakoba told BusinessDay.

The legal expert also explored potential revenue sources for the President Bola Tinubu-led administration, including areas such as space, finance, and maritime.

He said: “I am conducting a predictive study to identify potential sources of income. For example, we have Elon Musk, who owns Starlinks, with a constellation of satellites in low jurisdictional orbits in Nigeria, not contributing financially. We have a space agency and satellite service users like DSTV not making payments, and I estimate this could amount to around $6 billion.

“In the maritime sector, Apapa port has the potential to generate N20 billion a day, but achieving this would require a program to revitalise Apapa and its environs. This would involve an investment of $6-8 billion for road improvements, considering Ajegunle, originally reserved for a port, is now a thriving city. However, some opportunities can be explored.”

According to him, in the financial services sector, there are significant financial opportunities, but it requires thoughtful planning and strategic thinking.

“There are numerous avenues for funding that we can explore,” Agbakoba said.

Experts said inactivity in untapped oil fields presents another opportunity for Nigeria to tap into its huge potential and cement its place as the largest producer and exporter of petroleum in Africa and one of the 10 largest producers in the world.

Read also: How Nigeria can improve interstate commerce

BusinessDay’s findings showed no fewer than 23 oil blocks managed by both international and local oil companies, which are under Production Sharing Contracts (PSC) with the Nigerian National Petroleum Company Limited, failed to produce crude or were inactive.

According to a report by Nigeria Extractive Industries Transparency Initiative, in 2021, 12 of the PSC oil blocks made production, while 17 blocks did not produce.

The report showed that there were also six inactive blocks, bringing the total number of both inactive oil blocks and those that did not produce crude during the review period to 23.

Owowo oil field discovered in October 2012 by United States oil giant, ExxonMobil Corporation, with about one billion barrels of oil in the Owowo field, offshore Nigeria, is still idle.

Other experts pinpoint the importance of Nigeria upping its game in a bid to unlock the N180 trillion trapped in dead or idle government assets.

Nigeria has as much as N180 trillion trapped in dead assets mostly in real estate, according to PwC’s estimates. Unlocking that capital could be a game changer for a cash-strapped government whose debt service cost is forecast by KPMG, a consulting firm, to gulp 100 per cent of its revenues this year, up from 96 per cent in 2022.

“A list of corporate assets (just over 70 entities) have been identified and preliminary data captured for them,” Armstrong Takang, managing director of MOFI, which has set a target of raising N100 trillion from the country’s idle assets, said in an emailed response to BusinessDay.