Nume Ekeghe
The Group Managing Director of Afrinvest West Africa Limited, Mr. Ike Chioke, has said the elimination of subsidies in the economy will save the country $5 billion annually.
He listed the subsidies to include fuel, electricity and foreign exchange.
The amount, he added, could help fund Nigeria’s infrastructure deficit.
He spoke in Lagos at the weekend during the launch of the Afrinvest Economic and Financial Market 2020 Outlook.
“If we were to take out these subsidies, we could easily release another $5 billion of spending capacity for capital expenditure in the federal budget. I would probably say other areas of inefficiencies could double that number to $10 billion annually.
“And today, with modern techniques of capital raising, you could easily leverage that money to five or seven times and you are then able to do capital investment on an annual basis as targeting something around $25 billion to $50 billion yearly, which is essentially the kind of numbers many experts have told us is what we need to do to get this economy back on foot and begin to address all the critical bottlenecks we face,” he stated
The Head Research, Afrinvest, Mr. Abiodun Keripe, said, the nation’s current account had inherent weakness that had been identified.
“For the first time since 2015, we have seen three quarters of consecutive weakness in the current account balance, which is a sort of precursor to what you would expect around exchange rate stability.
“Also, with the slow accretion in terms of capital inflows into the economy, it doesn’t tell a good story for Nigeria and the economy.
“Looking forward into the rest of the year, there is a potential risk for us to see pressure around the currency and this is because of the negative current account balances we have sustained in the first three quarters of 2019. We would probably begin to face this pressure towards the second half of 2020,” he said.
The new Afrinvest Economic and Financial Market 2020 Outlook revealed that new tax initiatives introduced by the federal government were insufficient to plug the revenue gaps.
The report noted that based on budget assumptions, revenue is projected to rise 20.8 per cent to N8.4 trillion in 2020 with oil and gas revenue of N2.8 trillion expected to be collected during the year, amounting to 25.1 per cent below the previous year following downward revisions of oil price and production.
However, the revenue is still a lion’s share of the total expected revenue at 32.8 per cent.
“We expect oil revenue to moderately underperform despite the significant haircut due to sustained petrol subsidies.
“We are not optimistic that the border will remain closed for an extended period to reduce petrol leakages to neighbouring countries and prompt lower subsidies spending. Non-oil revenue is expected to advance 29.9 per cent to N1.8 trillion, accounting for 21.4 per cent of budgeted revenue,” the report added.
It identified the biggest leap in revenue collection as that from customs and excise duties, which could double to N618.6 billion.
“We suspect that this is expected to be driven by higher formal trade following the border closure but the attendant revenue gains are unlikely in our view,” it said.
The report acknowledged that independent revenues have recently picked up following more measured expectations in the 2018 and 2019 budgets.
It noted that in 2019, the revenue line was estimated to have recorded a 100 per cent performance but the forecasted 34.7 per cent increase to N850 billion in 2020 was ambitious.
Afrinvest identified the real challenge to achieving federal government’s revenue budget as coming from non-core revenue sources, including grants and donor funding, asset sales, recoveries and fines, which have a history of dismal performances.
“In our view, there could be slight reprieve from the introduction of stamp duty, which the Budget Ministry forecasted at N200 billion but the National Assembly more than doubled to N463.9 billion,” the report added.
It predicted overall revenue performance of 56.2 per cent in 2020, indicating a rise in retained revenue to N4.7 trillion, from an estimated N3.9 trillion in 2019.
It added that debt service to revenue would improve but remain elevated at 51.9 per cent.
“We expect higher-than-expected fiscal deficit to hamper budget implementation, which would be partly plugged by monetary financing from the CBN,” the report noted.
