Nigeria has been grappling with high local and foreign debts servicing which gulped 96 percent of its revenue in 2021. The dire situation has made the country unable to deliver critical infrastructure needed to enhance liquidity and jumpstart the economy which is currently suffering from high inflation, unemployment and volatile exchange rates.
Therefore, instead of developing high appetite for foreign debts which have grown in recent years, the federal government, 36 subnational governments and Abuja, as well as the local governments in the country have been advised to look at their balance sheets for better financing options, Ayo Teriba, Cambridge-trained economist and CEO of Economic Associates, said yesterday at the quarterly economic outlook conference.
“Nigeria will either sail or sink as its outlook hinges on external reserves. If we do nothing, the external reserves will nosedive. Nigeria needs to open up sectors that need investments”, Teriba said.
“Investors care about risk, but so long that the return is higher than the risk, they will come. Investors are not shunning Nigeria, rather it is Nigeria that is shunning investors. And even the security challenges we currently experience are investment opportunities to some investors”, he added.
He further stated that Nigeria had earlier recorded successes when it opened up the nation’s telecoms, pensions and LNG, and what the country needed to do now was just to connect the local assets to global liquidity.
Teriba noted that there is no country in Europe, Middle East and Africa that has the opportunities that Nigeria currently has.
He said for Nigeria to get heavy inflows of FDI, it has to be through wholesale listing of its corporate assets, liberalization of infrastructure sectors, and commercialization of the government’s real estate portfolio. Nigeria must also increase its average cross-border M & A deal count from six a year compared with Brazil’s average of 131, India’s average of 135, as well as China’s average of 159.
In addition, Nigeria’s greenfield investment deal count was 49 a year from 2006 to 2019 compared with Brazil’s average of 319, India’s average of 795, or China’s average of 1,155, over the same period.
He urged the three tiers of government to think out of the box because the money currently available within the Nigerian economy has declined below the threshold that will ensure economic stability, implying that Nigeria’s current illiquidity problem will determine the amount of devaluation to come.
He further suggested that sectors such as electricity transmission and railway transportation, and the downstream sector, offer a better alternative to raise funds through the issuance of equity and debt against assets, as against pilling up debts that currently gulp a huge amount of Nigeria’s revenues through debt servicing and repayments, leaving the country with almost nothing to develop its infrastructure stock.
“Revenue is declining while debt is rising. Instead of borrowing more debts at the international market at 8 percent repayable in about 30 years, why not sell shares in existing plants?” Teriba queried.
He added that the biggest opportunity for revenue generation would not come from taxes. This is because the tax base has been shrinking, and Nigeria’s best option for huge revenue generation would come from its balance sheet.
He recommended to the three tiers of governments to consider issuing debt and equity against national assets as exemplified by Saudi Aramco which sold 1.9 percent of its shares to raise $29.4 billion in 2019.
Private sector players were advised to migrate into asset classes that could unlock wealth by positioning themselves in sectors where they will be differentiated and value chain higher as place-based enablers have eaten deep into the margins of the productive sectors. Finance companies were also advised to support economic activities where the value chain is higher as doing that will make them wealthier.
“Values that used to be captured in factory, farm gate, are now being captured by skill-based, space-based enablers”, Teriba said.