BREAKING: FG Looks To Unlock $1trn Dead Capital To End Borrowing

The Federal Government is considering ending the borrowing spree which the last administration was noted for by un­locking dead capital in the country that is said to worth more than $1 trillion. No doubt, Africa’s largest economy’s fiscal deficit has worsened in recent times as it currently spends 98 percent of its revenue on debt servicing from 96.3 per­cent in 2022 and 83.2 percent in 2021.…CONTINUE READING

According to the Debt Manage­ment Office (DMO), Nigeria’s debt ser­vice-to-revenue ratio is high and a threat to debt sustainability just as it noted that the government’s current revenue profile could not support higher levels of borrow­ing.

According to findings by Daily Independent, Nigeria’s debt ser­vicing spending slowed to N849.58 billion in the second quarter of 2023 from 43.04 percent compared to N1.49 trillion, which was spent in Q1 2023.

According to data obtained from the DMO, between January and March 2023, Nigeria spent N874.13 billion on domestic debt servicing, while it spent $801.36 million (N617.35 billion) on exter­nal debt servicing, giving a total of N1.24 trillion. Between April and June 2023, Nigeria spent N565.88 billion on domestic debt servicing, and $368.26 million (N283.7 billion) on external debt servicing, a total of N1.24 trillion.

In six months, a total of N2.34 trillion was spent on servicing the country’s debt.

Sensing the danger, the Feder­al Government said it would not embark on any loan expedition but to look inward to raise mon­ey by bringing dead capital that abound in the country to life.

Dead capital is an economic term related to property that is informally held, is not legally recognised, and cannot be ex­changed for financial capital. The uncertainty of ownership decreases the value of the asset and/or the ability to lend or bor­row against it. These lost forms of value are dead capital.

Minister of Finance and Co­ordinating Minister of the Econ­omy, Wale Edun, said the country cannot rely on borrowing to fund the 2024 national budget just as he said the nation must make nec­essary sacrifices to generate ade­quate revenues to reduce its cur­rent high deficit budget financing.

Edun may have been refer­ring to a document prepared by a team of experts in an advisory council that was put in place by President Bola Tinubu during electioneering campaign before the last general election.

In the document, it was recom­mended that one of the things to do was the sale of assets to settle Nigeria’s debt obligations and that the government should move to a well-functioning, market-ori­ented power sector.

The advisory council put to­gether by President Bola Ahmed Tinubu to support the delivery of sustainable and inclusive economic growth consists of Tokunbo Abiru (chair), Yemi Cardoso, Sumaila Zubairu and Doris Anite, with KPMG listed as the consultant.

The council called on Tinubu’s administration to set a policy di­rective that all proceeds from the sale of assets must be used to set­tle the existing Federal Govern­ment’s debt obligations.

The council also recommends privatising, concessioning, or selling down the Federal Govern­ment’s stakes in corporate assets to partners and other investors (possibly with a buyback option) to generate liquidity in the short to medium term, with a focus on sub-optimal assets such as NNP­CL refineries.

It also recommended that the government move to a well-func­tioning, market-oriented power sector; and conduct a forensic re­view of the outstanding balanc­es and utilisation of federation funds, e.g. stabilisation, natural resources development fund, ECA (Excess Crude Account), etc.

Significantly, analysts said one of the novel means of gen­erating funds by a country is by pooling illiquid assets togeth­er and transforming the same into tradable assets which are then issued to investors. This process is known as securiti­sation and it is optimally real­ised through the transforming machinery of a special purpose vehicle (SPV).

In an exclusive chat with Daily Independent, economist and Man­aging Director/ CEO of Econom­ic Associates, Dr. Ayo Teriba, said Nigeria has no reason to continue borrowing to augment shortfalls in the budget when it has the po­tential to raise over $1 trillion in optimisation of assets and secu­ritisation.

He said, “I am not advocating outright sale but optimisation of assets through market valua­tion of state-owned companies, real estate and infrastructure, partial privatisation to receive brownfield FDI, liberalisation to attract greenfield FDI, PPP in­cluding BOT in real estate and infrastructure to unlock rental incomes and fees from repur­posed and redeveloped govern­ment real estate and infrastruc­ture portfolios can go far in the desire to raise money.

“Nigeria has no reason for bor­rowing when it could make more than enough from its assets”, he said.

He said Nigeria should look at viable projects in every state and local government area for possible investments by investors while all these projects should be centralised and adopted by the Federal Government like it was done in India and Brazil for prop­er management.

“An infrastructure is a po­tential asset and it abounds ev­erywhere in the country. Equity comes to bring something out of nothing. Look at the telecom companies that we licensed for N270 million, we did not sell any structure to any investor, we sim­ply sold them a paper and today, that paper has brought so much wealth to the country.

“We can do the same in rail, ports, power generation, power distribution, roads, and many more. The government is putting an unnecessary burden on itself by borrowing to do projects that are not economically viable.

“Opportunities for issuing asset-backed securities that will connect global liquidity into lo­cal assets internationally, other countries are seizing heavily on these opportunities, but Nigeria continues to shun such oppor­tunities by focusing on the ex­change rate and demand-side participants rather than how to boost supply”.

He added that the global wave of asset-linked securitisation increasingly converts dead, idle, and underutilised public corpo­rate, infrastructure, physical, and intangible assets into new sources of immediate fiscal liquidity and future revenue flows that are required to close infrastructure gaps and unlock latent growth potentials, without the burden of interest payments through the budget, as commercial investors in such securities are happy to wait for the profits or rent to be unlocked by the assets, mostly at their own risk, with the comfort that most of such securities have investment grade ratings by fore­most agencies.

“We should create special purpose vehicles for packaging infrastructure assets for big-tick­et interest-free financing through asset-linked non-convertible or convertible bonds. The gains of India and a few other countries that have learned to attract record levels of foreign capital inflows by issuing asset-based bonds targeted at their diaspora, the breakthroughs of China, Brazil, India, and a few other develop­ing countries in leveraging local assets to receive record levels of global equity inflows through cross-border mergers and acqui­sitions and Greenfield deals, and the successes of Malaysia, Saudi Arabia, and about six other oil producing countries in issuing interest-free commercial bonds to replace interest paying ones, all show that Nigeria’s options for boosting non-oil, non-export liquidity in the prevailing global milieu are endless”.

Johnson Adigwu, a finance advisor, said the idea of looking inward to solve Nigeria’s funding problem should be applauded by many.

He said, “I think we should commend the Tinubu’s govern­ment for thinking this way. This is a safer way than going to bor­row again. My advice is that they should think of outright sales of some assets, leasing of some and securitisation of others.”