States lose N600bn in six months as FG disburses earned dollar income at N198/$1

Nigerian states may have lost about N600 billion as the Federal Government continues to avoid devaluation and insists on conducting official transactions at  the official rate of N179/$, BusinessDay investigations and analysis show.

Consequently, the cash starved states are being short changed since the conversion of the $17.7 billion earned income from June to December 2015 was at the official rate of N198/$.

Should the income which is equivalent of N3.5 trillion be exchanged at the prevailing parallel market rate of N300/$, it would have earned the country the sum of $11.7 billion, with a difference of N6 billion.

Therefore the N6 billion difference at the exchange rate of N300/$ would have earned the economy N1.8 trillion as against of the N1.2 trillion at the official rate of N198/$.

The analysis was arrived at, based on the summary of gross revenue allocation by FAAC committee shared among the states within last the six months, from June,(N923.9bn); July, (N521.3bn); August, (N442.6bn) and September, (N398.9bn) Others are October, (N473.8bn); November, (369.9bn) and December, (N387.8bn).

The implication is that the embattled states are being short changed, as well as the economy, for the much needed 2016 budget funding gap of N2.2trn or 1.93 percent of the nation’s Gross Domestic Product (GDP).

Some of the analysts say that government should embrace the fact that the naira has already been devalued, as the present practice encourages speculative activities at the foreign exchange market.

Coming at a time that revenue into the national purse has reduced significantly, owing to the fall in the oil price at the international market and the failure of some governors to exploit natural resources within their domains, means harder times ahead for the states and the citizens at large.

According to Bismarck Rewane, chief executive, Financial Derivatives Company limited, most of the states will experience difficulty in meeting their financial obligations to their citizens this year.

Rewane, in the current, Bi-monthly Economic & Business Update said, “The state governments will remain technically insolvent throughout 2016.

“Some states like Lagos, Rivers, Akwa Ibom will coast along, others might need to fire staff and rationalise their expectations and expenditure.

”Some other analysts believe that the Federal Government should be sincere enough to admit that a lot of things have to change, while some economic decisions will have to be taken.“

The Federal Government is not sincere in her handling of some of the economic issues because, even the presidency should know that the true value of naira is not N200/$, but N300/$,” says an analyst.

According to another analyst, “The Presidency should be honest enough to accept the reality on ground, as transacting official businesses at the exchange rate of N198 or N200 to a dollar, amounts to providing rent opportunities to some individuals who have access to the little forex and may sell same at the parallel market.

The implication, he said, would be more pressure on the local currency” According to Ayodeji Ebo, head, investment research, Afrinvest, “We expect further deviation between the official and parallel rates going forward, as more exchange rate users would continue to face restrictions, due to the low dollar liquidity in the system.

The equities market may also witness some sell-off, and consumer and investment spending would remain sub-optimal.

In the medium term, devaluation is inevitable and the CBN governor did mention that the bank is currently fine-tuning its exchange rate policy to be more flexible. So maybe the much anticipated devaluation would come after that.”

“We need to face the reality and stop giving a few people the opportunity to earn rent through arbitrage to the detriment of the economy and the society,” says Bolade Agboola, executive director, Cashcraft Asset Management Limited.

Rewane further observed that the persistent foreign exchange scarcity due to the dwindling oil prices continues to weigh negatively on the local currency.

Consequently, at the parallel market, he said that the naira reached an all time low on the 15th of January, depreciating against the dollar by 14.6 percent, trading at N305/$, compared to N266/N at the beginning of the year.

“The currency appreciated at the interbank market by 1.05%, trading at N197.28/ $, compared to N199.37/$.

The administrative measures taken by the CBN to stop dollar sales to Bureau De Change (BDC) will also exert further pressure on the currency.”

Buttressing his argument, Rewane said that on Monday 18thJanuary, Light Brent crude traded at $28.57, its lowest point in 13 years.

Also, the NSE ASI closed at 22,550.83 at the close of trading, its lowest point since December 2012.

Market capitalisation also reduced by 21.27 percent from N9.85 trillion to N7.76 trillion shedding over N2 trillion in the two weeks under review.

This, according to him, led to the year-to-date (YTD) return on the market at -21.27 percent, making the NSE the worst performing bourse in the world already this year.

John Omachonu