The Ogun N250bn bond

June 22, 2020
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LAST week’s approval of Governor Dapo Abiodun’s N250bn debt insurance programme under the Medium-Term Expenditure Framework programme by members of the Ogun State House of Assembly is a significant milestone.In particular, the bond is about  getting the economy back on track and creating wealth, after the ravages of Covid-19. To say the least, it has become imperative for every state to rejig its economy, restating economic activities in line with the realities on the ground. No one with a basic education needs an economist to realise that the fiscal condition of countries has worsened since January, and that issues of economic sustainability are proving rather testy even for the most forward-looking of governments. Consider, for instance, that in crisis situations like the ongoing Covid-19 pandemic, the French tend to save more while Germans and Britons tend to spend more, meaning that strategies for economic revival will not always be the same even if there are natural common grounds.

Particularly in Africa, Covid-19 has been an economic nightmare.As noted by economist Martin Davies, the outflow of capital from the emerging world has been huge in recent months and has left deep holes in developing countries’ finances. Facing rising fiscal deficits, over 100 countries have applied to the International Monetary Fund (IMF) for emergency funding while, in addition, the G20 has called for a debt moratorium from bilateral sovereign creditors to provide payment relief to highly indebted African countries. As Davies noted, private creditors have been less forthcoming, choosing to review debts on a case-by-case basis. Davies’ observations are spot on. The pandemic has had a devastating impact on Nigeria, an economy that is largely oil-driven. According to a report from FSDH research, the foreign portfolio investors (FPI) declined from $2.04 billion in January 2020 to $57.7 million in May 2020. The CBN intervention increased from $3.9 billion in January 2020 to $2.48 billion and $2.89 billion in February and March. And while the World Food Programme of the United Nations projected 13 million job losses, the Federal Government put forward a more devastating figure of 39.4 million jobs. It has now rolled out a Nigeria Economic Sustainability Plan, a 70-page document that critics of the Ogun State governor would understandably never been interested in drawing attention to since it would validate his economic strategy.

Right now, it is a fact that workers in all sectors are still being laid off and governments and states are looking for ways and means of financing their day-to-day activities: providing welfare, security, health and education, among others. The Federal Government, apprised of the mounting difficulties, has looked inwards: only recently, the National Assembly approved N500 bn bond for President Muhammadu Buhari in order to cushion the effects of this pandemic on Nigerians. The Federal Government has also taken advantage of Sukuk bond, an interest-free Islamic loan facility, to be able to finance some of the country’s basic infrastructure needs. States like Lagos, Ondo and Ekiti had also gone to the same bond market to also secure short-term loans for their people,  taking advantage of the low interest rate in bonds. In Ogun, previous administrations, including the Gbenga Daniel and Ibikunle Amosun governments, made unsuccessful efforts to obtain funding through bonds. However, arising from the harmonious working relationship cultivated between the current executive and the legislature, the story today is different. Besides, the Ogun parliament saw the need for the government to revive the socioeconomic life of the people. In a historic move, all the 26 members unanimously passed the bill authorising that bond, putting partisan proclivities aside.

Over the past one year, the Abiodun administration has been servicing debts incurred by previous administrations, through irrevocable standing orders in the lending banks. In the layman’s terms, this means that the allocations coming into the state’s coffers from the Federation Account are domiciled in the affected banks, and they (the banks) make the agreed deductions once the accounts are credited. Then there is the question of the inherited N221.55 bn debt left by the previous administrations. As of May 2019, the N221.55 bn financial liabilities left by the very reckless previous administration included domestic loans (107.6bn), external loan (N32.2bn), gratuity (51.04bn), contributory pension (N26.20bn) and leave bonus (4.51bn). How was the government to meet the expectations of the people in this situation?

Now, to the lawmakers’ heroism. Before granting Governor Abiodun’s  N250 bn bond spread through three years, the lawmakers engaged government agencies with a view to determining the desirability of the facility. That’s a sure way to get value for money. The facility is to come through any of bond issuance, public offering, book building or such other methods as may be approved by regulatory authorities, while access to other tranches are subject to further approval of the State House of Assembly. No doubt, the bond will help to revive the state’s economy post- Covid-19, especially given the drastic reduction in the internally generated revenue of Ogun State and in federal allocation. Besides, the fact that this is a three-year facility to stimulate and grow the Ogun economy, with the facility to be accessed in tranches of N100bn annually, means that it is based on measurable performance indicators.

Quite instructively, the Abiodun administration has been very prudent, modest and honest in approach. The administration is already a year old in office but the governor has no official car, either as main vehicle or backup. His commissioners, special assistants and others do not have official cars. The sacrifice, no doubt a huge one, is to ensure that the available funds are conserved and channeled to the priority needs of the long-suffering populace. The state government has embarked on rehabilitating a school in each of the 236 wards in the state, but can now do more. The health sector has projects begging for attention and even the road revolution of the last one year needs to be heightened.  Rehabilitation work is ongoing on the Epe/Ijebu-Ode and Sagamu/Abeokuta roads, both federal roads.

The long neglected 32-kilometre Akute-Ajuwon-Alagbole road has been earmarked for constructionlong. Work is ongoing on the Itoikin-Ibefun-Ijebu Ode road, Iperu-Ilisan road, Sango-Ojodu Abiodun road, Ilaro-Owode road, Abeokuta-Sango-Ota-Lagos road, Osi-Ota-Awolowo-Navy-Kola road, Balogun Kuku road in Ijebu Ode, among others. It seems sufficiently clear that the governor is interested in bringing positive development to the state. That, in my view, is what is needed at this moment.

  • Branco, a financial expert, sent this piece from jokebranko@aol.com

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