Nigeria has one of the smallest spending governments in the world, yet it has handed private capital the backseat since 2014.
That has created a needless liquidity shortage, with government spending unable to make significant impact on an underperforming economy that has contracted three years straight in per capita terms and is haemorrhaging jobs.
At 4.7 percent of Gross Domestic Product (GDP) in 2017, Nigeria was outspent nearly three-fold by sub-Saharan Africa peers who spent an average of 13.2 percent of GDP, according to data from the World Bank, which also suggests that Nigeria spends less than peers because it earns much less.
In 2018, the Nigerian government spent even less than in 2017 at 4 percent of GDP, the lowest since 2005.
In comparison, the South African government spent 21 percent of GDP, five times more than Nigeria, while MINT peers Mexico, Indonesia and Turkey spent 11.6 percent, 9 percent and 14.4 percent of GDP, respectively. Emerging markets with about the same population size as Nigeria also spent substantially more.
Pakistan and Brazil with populations of 216 million and 211 million spent 12.4 percent and 19.7 percent of GDP in 2018, respectively.
No country with available data on the World Bank’s website spent less than Nigeria in 2018. For a government that spends so little despite needing so much, there should be opportunities for private investment to fill the gap created by weak public spending.
For instance, the Africa Development Bank estimates that Nigeria needs $100 billion annually in infrastructure spend for the next 30 years to address a gaping deficit.
The government has spent nothing on capital projects this year so far, according to a budget implementation report published by the budget office.
Despite the liquidity shortfall, opportunities to deploy private capital are scarce, with the government unwilling to tap equity capital, choosing instead to hold on to redundant assets and borrow at a steep cost.
Nigeria’s attitude towards private capital is perfectly summed up by data that show the country has only managed to raise N5 billion (USD$16 million) in the last three years through 2018, according to data by the budget office.
“Even Saudi Arabia which spends more than 10 times the amount Nigeria spends annually is wrapping up plans to sell some stake in its oil company Saudi Aramco to raise equity,” a senior banking source who did not want to be named said.
“It’s unbelievable that the government thinks drip-feeding the economy is sustainable while private capital remains largely unlocked,” the source said. There are also doubts that even if the government was willing to sell some of its assets, private investors would not balk at a deal with a government that has shown a penchant for consistently reneging on contracts.
It is the little importance attached to contracts that is costing the country’s power sector which has failed to take off despite 2013’s privatisation where the government sold $3 billion worth of power distribution and generating assets.
The power privatisation hasn’t managed to keep the lights on in Nigeria where incessant blackouts are taking a huge toll on households and businesses.
The bulk of the blame for that failure has been laid at the feet of the government which failed to abide by a promise made to investors at the time of purchase to consistently review electricity tariffs to ensure they were market-reflective.
Unable to recoup the market price for power supply due to the government’s hesitance to review tariffs upward in line with current realities, investors in the sector have been dissuaded by colossal operational losses from making more investments.
That has left Nigeria wallowing with an average power generation of less than 4,000 megawatts, 10 percent of South Africa’s 40,000mw.
Another example where the government, whether at federal or state level, didn’t uphold promises made to private investors is in the case of Visionscape.
The waste management company had signed a deal with the Lagos State government to rid its street corners of festering waste but was kicked out less than three years into the agreement following the exit of then governor Akinwunmi Ambode, with its assets taken over by the government-backed LAWMA.
“While it is likely that Visionscape was compensated, it doesn’t take away that the work done in setting up for full-fledged operations in Nigeria was a big waste of time and they must be disappointed,” an investor familiar with the matter said.
“These cases would make any investor think twice about investing in Nigeria but the government hasn’t even demonstrated the urge to make things right and attract some private money,” the investor said.
For the last time Nigeria successfully privatised an asset, one would have to go back 13 years to the $225 million sale of Port Harcourt-based olefins and polyolefins maker, Eleme Petrochemical to Indorama Group, in 2006.
President Muhammadu Buhari, whom critics describe as a socialist with disdain for private capital, has been more interested in ramping up government interventions that scratch the surface at best. Latest data suggest the government is even too broke to spend the full amount of the pittance earmarked for such interventions.
In 2018, about N400 billion was spent on social interventions, lower than the N500 billion in the budget.
“It is clear that the only sustainable path to addressing our liquidity shortage and boosting the economy is by privatisation, and the NLNG model already provides a winning blueprint for how this can work,” said Ayodeji Ebo, managing director of investment bank, Afrinvest Securities.
These are hardly new counsels, but they have so often fallen on deaf ears. In cases where they have not, the government has hesitated on the back of pressure from Nigerians who threaten protests if the country’s assets were sold to private investors.
There is a misconception that privatisation is like selling off properties that will benefit only the rich and impoverish a generation of Nigerians to come.
“The expectation of many Nigerians is that their government should subsidise everything from food to power and petrol because it is rich,” Adedeji Faseun, a student of development economics at the University of Birmingham, said.
“They are so wrong to think the country is rich when in fact it is broke,” Faseun said.
LOLADE AKINMURELE
