Nigerian state governors are showing increasing interest in privatising unproductive idle state assets to enable them attract investments, generate revenue internally, and create jobs for their teeming populations.
This has become increasingly paramount for them as monthly allocations from Abuja dry up following the dual impact of a collapse in oil prices and a fall in demand caused by the coronavirus-induced lockdown, causing a strain in government revenues.
In a webinar on Tuesday organised by the Nigerian Stock Exchange (NSE), in collaboration with the Nigeria Governors’ Forum (NGF) and the Nigerian Investment Promotion Council (NIPC), no fewer than five state governors, including the governors of Ekiti, Lagos, Bauchi, Ogun and Kano, alluded to the fact that their revenues are under severe strain, and plans are underway for them to lay off unproductive assets in their various states.
They agreed that freeing up these idle assets to effective private sector operators will not only increase their revenue but will also allow them to channel their lean revenues into investments in education and health, which they said have a better impact on their populace.
“Since I came into office, I have racked my brain to see and identify those assets I can sign off,” Lagos State Governor Babajide Sanwo-Olu said.
“In the year, I have sat down to identify idle assets that Lagos has so we can throw into the basket and unlock potentials, and the only ones we have are just buildings. We have embarked on the securitisation of these buildings where we put them together and unleash the investments so that in 10-20 years, we can be getting rental incomes from them,” the governor said.
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“Furthermore, we are also doing a lot around concessions and Public Private Partnerships (PPPs) to unlock private capital and create value for our people. So far, I can say authoritatively that we are leading in that path, like the Fourth Mainland Bridge set to bring in about $2 billion, as well as the toll plazas and roads. Going forward, we don’t even want to have anything but allow private sector run,” he said.
Sanwo-Olu noted that the major challenge is the fact that many of the assets worth privatising are sitting on the jurisdiction of the federating unit.
Dapo Abiodun, governor of Ogun State, said his state has set up a law that will enable public/private partnership work smoothly.
“To unlock the potentials that are in a public-private partnership, We also began to identify some of the things that would be let go in various sectors such as power, infrastructure development, and we are beginning to engage third parties on them,” Abiodun said.
With interest payment on debt sucking more than 70 percent of revenue, the question of whether or not to prioritize equity over the debt has been a reoccurring one.
Some $900 billion currently sits as idle Federal government assets alone yet the country’s debt has more than tripled to N31 trillion, many of which are foreign denominated, susceptible to foreign exchange volatility.
Stakeholders have asked the government to prioritize equity over debt by either selling off these unproductive assets to the private sector players who are known to be better at the management of resources, or securitizing them as investable assets, to generate the needed revenue from these assets.
Kayode Fayemi, Governor of Ekiti State and Chairman of Nigerian Governors Forum, said irrespective of thin revenues most state governments have been constrained to increase spending in a bid to mitigate the effect of the pandemic. “But if the private sector takes over in critical sectors, state governments can focus on health and education among others,” he said.
The Webinar with the theme: Privatisation in Nigeria and the Outlook for Subnational Economic Development, was also attended by private sector players, business leaders and economic think tank, all of which said state governments need to deepen their role as an enabler and a catalyst for predominantly private sector driven economies and not an operator in the same space.
Nigeria has an economic challenge that is significant and potentially severe, said Doyin Salami, renowned economist and head of the Presidential Economic Advisory Council (EAC).
According to him, the Federal and the State governments alone lack the firepower and would need huge private investments to move the needle in the country.
Salami noted that the world is awash with $19 trillion in private capital, invested in negative-yielding assets, yet Nigeria struggles to attract private investments to create jobs and grow its economy.
“Nigeria is a capital diffusion country and the access of the public sector to resources is not just diminishing but the prospect is not looking too good. Private sector capital both international and domestic have to be relied upon if we are going to spur investments in any meaningful way,” Salami said.
“Nigeria needs to create roughly 19 million jobs, and grow at 6 percent in the next decade for it to tackle poverty and unemployment; and investments must be at the heart of that growth,” Salami said while delivering a keynote speech at the event,” he said.
He, however, tasked state governors to increase transparency and clarity to allow investing private sectors to determine what state projects are of interest to them to invest in.
Another renowned economist and member of the EAC, Bismarck Rewane, said the average level of gross fixed investments in Nigeria at 15 percent of the total GDP of $450 billion is too low percent.
“You will need about 30-40 percent for it to have an impact,” he said.
Rewane noted that investment-led strategy is the most effective one for growing countries, states, local governments, and this has been proven in various countries including Singapore and Indonesia.
“If you invest any amount in the private sector, you will get a 6.25 lift, which is the multiplier effect, against keeping or leaving it with the government. It will also create jobs and help in reducing income inequality. Over 60 percent of our gross capital formation in the country is stranded. Rather than raising debt, we need to sell those assets. This is because debt sustainability undermines fiscal consolidation,” he said.
Yewande Sadiku, executive secretary/CEO, Nigerian Investment Promotion Council (NIPC), said privatization at the state level is a decision that the government must make first borne out of political consideration but driven by economic imperative.
“We have seen lately that state governments are tapping the public market largely for debt but not so much equity. It will be interesting to see that the work that the BPE has done at the federal level and that the advantage that the federal government has taken to unlock potentials can translate to the state level especially as a wide variety of strategic assets sits on the state level,” she said.
