Nigeria could raise $55bn with asset sales to jumpstart growth – Businessday

Nigeria could raise about $55 billion from the sale of government assets to help fund a bigger stimulus package to revive its ailing economy, business leaders and analysts tell BusinessDay.

Late passage of President Muhammadu Buhari’s 2016 expansionary budget and shoddy implementation since, has meant the expected fiscal impact on growth has failed to materialise.

Meanwhile, the 35 percent slide in the local currency, the naira, since June has left Nigeria’s 2016 budget smaller in dollar terms than the 2015 budget.

Business leaders say the government needs a bold vision with emphasis on a new wave of privatisation through the sale of Federal Government assets such as scarce 4G telecommunication spectrum, majority stakes in joint ventures (JV) with multinational oil companies that together produce over one million barrels of oil a day and stakes in the National Independent power Plants (NIPPs).

“The real challenge for us is to have the political will in selling some government assets. I think it is an easier route than going to the International Monetary Fund (IMF) or World Bank to borrow money,” Aliko Dangote, President of the Dangote Group and Africa’s richest man said.
“This is because what we actually need to do is to beef up the external reserves. As a business person, if  I have challenges with funds, I would not hesitate in selling some of my assets to remain afloat and transit to a better condition. It wouldn’t make any sense if I kept any asset, suffocating the whole organisation in the process,” Dangote said.

BusinessDay estimates that reducing its 55 per cent equity in the joint ventures — with Royal Dutch Shell, Chevron, ExxonMobil and Total, by 10 percent could raise $50 billion for the Federal Government, while selling a 10 percent stake in its NLNG equity holdings may be able to bring in between $2 and $4 billion.

Selling scarce 4G spectrum and stakes in the National Independent Power Plants (NIPPs) could also earn an additional $2 billion for the government.
Nigeria gets most of its earnings in the JVs from taxes and not dividends from equity holdings, meaning that a slight reduction in its equity stake would not materially affect future earnings.
Data from the NLNG shows that the Federal Government earned $2.16 billion in company income tax (CIT) and education tax (ET) in 2016, compared to the $1.04 billion, it earned in dividends for that year.
Selling some public assets can help raise billions of dollars needed to plug Nigeria’s infrastructure deficit, according to Ayo Fashina- Director at investment bank, Chapel Hill Denham.
“We can benefit from lower for longer oil prices if government starts to think of other ways of diversifying the economy. However, if they don’t focus on infrastructure projects, it would never happen,” Fashina said.

Nigeria’s economy slumped 2.06 percent in the second quarter of 2016 after a 0.4 percent contraction in the first quarter, the National Bureau of Statistics (NBS), said last month.
Selling state assets would enable Nigeria more cheaply finance its rising current-account and budget deficits.
The financing gap for the 2016 budget (which will be implemented until May 2017) is N2.2 trillion or $7bn. The budget also plans for foreign borrowing of N984bn, equivalent to $3bn.

Foreign portfolio holdings (debt and equities) which were close to $ 23bn at their peak in 2013 have declined to record lows post oil price shock.
“Portfolio inflows from 2012 had greatly contributed to stabilising the exchange rate at the time,” Samir Gadio, head of Africa strategy and FICC research Standard Chartered Bank said.

Abraham Nwankwo, Director-General, of Nigeria’s Debt Management Office (DMO) said over the weekend that it expects to raise $1 billion from Eurobonds by mid-December, to help fund the N6.6 trillion ($20.9 billion) budget, aimed at reviving an economy hit by slumping in oil prices.
“All borrowing would be used for capital projects. In raising the money, we are ensuring that local transaction partners, local banks, must be involved,” Nwankwo said.

The proposed Nigerian Eurobond is equivalent to just 0.3 percent of GDP.
This compares with Egypt’s $12bn loan deal (5% of GDP) recently reached with the International Monetary Fund (IMF) to restore confidence to its economy which like Nigeria’s is suffering from dollar shortages.

A fixed exchange rate regime put in place by the Central Bank for more than a year, which exacerbated the dollar shortages hurt the manufacturing sector which contracted by 3.36 percent in the second quarter (Q2).
Annual inflation reached 17.6 percent in August from 16.5 percent in June – a more than 10-year high – while unemployment accelerated to 13.3 percent in Q2, 2016.

Nigeria’s economy was last in recession, for less than a year, in 1991. Nigeria’s high debt service/revenue ratio of 35 percent means the authorities need to be cautious when increasing borrowing otherwise debt servicing will crowd out spending to priority sectors, including healthcare and education, according to Renaissance Capitals Africa economist Yvonne Mhango.  “The impact of this external financing on Nigeria’s FX reserves will not be as pronounced as it was in Ghana, Kenya and Zambia, simply because the incremental effect of the foreign loans on the country’s FX reserves will be relatively small,” Mhango said.

Nigeria’s external reserves fell by 2.86 percent to $25.45 billion in the one month period to August 2016, according to data from the central bank.
Two weeks since the Aug. 31 revelation by the NBS that the country is in recession, business leaders say Nigeria’s economic managers are in denial and not responding adequately to the country’s plethora of economic woes and public alarm over a lack of effective plan or communication about how climb out of the rut.  “Nigeria needs to restructure now that the oil boom days are over. In the mean time, we have to stimulate short term growth. We need money for this yet we have not assessed all the avenues for raising capital. May be we are still in denial,” Segun Ogunsanya Managing Director / Chief Executive Officer at Airtel Nigeria, said.