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State Governments Revenue To Be Strained over High Debt-To-Revenue Ratio

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Eniola Olayemi

 
The revenue of the states in the country will be further strained in the coming months owing to their rising debt portfolio and cost of servicing those debts.

This is coming on the back of the latest report on the states’ internally generated revenue by the National Bureau of Statistics (NBS), tagged, “Internally Generated Revenue at State Level”, which showed a high debt to revenue ratio for the first half of 2018 (H1’18).

The report showed that total states’ Internally Generated Revenue, IGR, grew by 27.7 percent year-on-year (y/y) to N579.40 billion from N453.83 billion in H1’17.

Of the 36 states, 28 states grew their IGRs, while states such as Ebonyi, Anambra, Benue, Abia and Kebbi recorded declines in IGR by 21.79 percent to N2.46 billion, 21.62 percent to N7.07 billion, 18.86 percent to N6.06 billion, 12.29 percent to N6.98 billion and 10.85 percent to N2.03 trillion respectively in H1 2018.

Lagos retained its number one spot, with an IGR of N196.4 billion, up 16.9 percent y/y and Rivers State recorded N60.9 billion, the second largest state by IGR.

The report showed that not much changed in terms of revenue sources as federation account allocation inflows continued to account for more than 70 percent of the total revenue (FAAC + IGR) for most states. Net federation accounts allocation to states grew y/y by 65.14 percent to N1.23 trillion in H1 2018 from N0.74 trillion in H1 2017 amid increases in production and price of crude oil.

The states’ total debt stood at N4.78 trillion in the year under review, comprising of N1.30 trillion external debt and N3.38 trillion domestic debt.

The high debt to revenue ratio, according to economy watchers, will put more pressure on fiscal operation of the states and also make implementation of capital expenditure more difficult.

In his reaction, Mustapha Wahab, a research analyst at Cordros Capital Limited, explained that adding growing debt to servicing cost and to the already depressed state revenues will put pressure on their fiscal operation. He said: “Currently a number of states can’t cover their recurrent expenditures on the back of insufficient FAAC allocations despite gains from higher crude prices relative to last year and significantly low internally generated revenues.

“Adding growing debt service cost to the already depressed state revenues will further put pressure on fiscal operations of the federating units, the impact of which will not only make capital expenditure, CAPEX, implementation a tall order but overhead spending also.”

According to him, the situation would mean growing risk of default on interest and principle payment for the states. He urged the states to increase their IGR to reduce the impact of declining crude oil price. “With IGR to FAAC ratio remaining abysmally low, states government must ramp up internally generated revenues to reduce the impact of volatile oil earnings on fiscal performance by significantly expanding the tax base and considerably monitoring revenue generating state owned corporations to effectively block all loopholes,” he said.

Cowry Asset Management, a Lagos-based investment banking firm, said: “Given states’ IGR of N579 billion and net Federal Accounts Allocation of N1.23 trillion in H1 2018, ‘dependency multiple’, FAAC to IGR, was 2.13 times.

In spite of the y-o-y increases in IGR and net Federation Accounts Allocation to the states by 27.7 percent and 65.14 percent respectively, the states’ average total debt to gross revenue still remained high at 2.75 times in H1 2018.

“We opine that high debt to gross revenue ratios of the states would further increase their debt servicing costs which in turn would burden future generated income of the affected states going forward, given that most of the borrowed fund would have gone into recurrent expenses such as payment of salaries.”

In a report titled, “State of States IGR in H1’18: Creating more “Lagos” across Nigeria”, analysts at United Capital Plc, another investment banking firm, emphasised the need for the state to up their IGR in line with Lagos State while expressing concern at the underwhelming performance of other states.

They also pointed out the need to expand the revenue base across states, saying that it would reduce dependence on FAAC inflows, which is largely exposed to the vagaries of the oil market. Increasing the revenue base of the states, according to them, would limit future fiscal crisis. “In addition, this would boost the credit ratings of states and enhance their ability to finance developmental projects,” they said.

“Further analysis of the IGR report indicated that Pay As You Earn, PAYE, is two times the size of FAAC inflow in Lagos and 1.1 times in Ogun States, implying that both states are significantly benefiting from a dominant formal sector relative to other states. Hence, to create more “Lagos States” across the country, there is a need for a concerted effort to develop the formal sector in the rest of the country. Put differently, tax authorities in other states may need to find creative ways to boost revenue from the informal sector going forward,” they asserted.

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Access Bank Appoints Uche Orji as Independent Non-Executive Director

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Access Bank Appoints Uche Orji as Independent Non-Executive Director

AJAGBE ADEYEMI TESLIM

SPONSORED BY: H&H

Access Holdings Plc (‘the Company’) is pleased to announce the appointment of Mr. Uche Orji as an Independent Non-Executive Director of its flagship subsidiary, Access Bank Plc (‘the Bank’), effective from January 7, 2025, following the approval of the Central Bank of Nigeria (‘CBN’).

This appointment reflects our commitment to enhancing our governance practices and ensuring a diverse and experienced board.

Mr. Orji is a renowned investment banking professional, information technology entrepreneur, and finance expert with three (3) decades of professional and board experience. He is the Co-founder and Partner of Titangate Capital Management, an equity firm that invests in deep-tech, enterprise software, semi-conductors, hardware, and artificial intelligence companies.

He is the Founder and Director of Vitesse Africa Limited, an investment advisory firm focused on African energy, technology and infrastructure sectors. He serves as an Executive Board member and investor in Ultrasafe AI, an artificial intelligence/IT development firm that maintains strategic collaborations with leading technology companies. He also sits on the Board of Private Infrastructure Development Group, London, and chairs the Risk Committee.

Previously, Mr. Orji served as the founding Managing Director and Chief Executive Officer of Nigeria Sovereign Investment Authority. He held positions as Managing Director and Senior Analyst at UBS Securities Limited New York and Managing Director and Head of European Technology/Semiconductor Equity Research at JP Morgan Securities, London. He also served as Executive Director/Portfolio Manager at Goldman Sachs Asset Management, London. Earlier in his career, he was Acting Financial Controller at Diamond Bank Limited and an Audit Trainee at Arthur Andersen & Co.

He holds a Bachelor of Engineering Degree in Chemical Engineering from the University of Port-Harcourt and a Master of Business Administration from Harvard Business School.

Commenting on the appointment, Mr. Paul Usoro, SAN, the Chairman of the Bank said:

“Mr. Orji has been appointed based on his exceptionally rich professional, academic, and corporate board experience which will be invaluable to the Bank as we continue to pursue our strategic objectives.

We are confident that his addition to the Board would further enrich the quality of our decision-making process, enabling us to deliver even greater value to our customers and stakeholders.

His appointment has been made in accordance with the Bank’s internal policies and has been notified to all relevant regulatory authorities underscoring our commitment to upholding the highest standards of corporate governance.

On behalf of the Board, Management and staff, I warmly welcome Mr. Orji to the Board and look forward to his contributions towards our goal of becoming one of the top 5 African Banks in the shortest possible time.”

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Go and List Your Challenges, Lagos Speaker tells NANS Member During Courtesy Visit

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Go and List Your Challenges, Lagos Speaker tells NANS Member During Courtesy Visit

AJAGBE ADEYEMI TESLIM

SPONSORED BY: H&H

The National Association of Nigerian Students (NANS), Lagos State University (LASU) branch, on Friday paid a courtesy visit on the Speaker of the Lagos State House of Assembly, Princess Mojisola Lasbat Meranda.

The student representatives said the visit was to congratulate Meranda over her emergence as Speaker of the State Assembly.

Meranda, an alumnus of LASU, was elected Speaker on January 13 after the removal of Mudashiru Obasa by the lawmakers over issues relating to alleged high-handedness and financial impropriety.

Describing her as a thoroughbred Lagosian, the chairman of NANS, Abdulraheem Azeez, used the opportunity to list some of the challenges faced by students in the university.

According to him, students have had to read in darkness as the Ikeja campus gets less than two hours of power supply daily.

Azeez also raised the need for the State to make available loans for indigent students as well as for the Assembly to provide opportunities for students to witness the plenary of the House.

Meranda, while thanking the students for the visit, urged them to always attend town-hall meetings in their constituencies where they can contribute and make their opinions known.

She further encouraged them to apply for the loans initiated by the government as done by students in other countries.

The Speaker requested the students to formally send their complaints in written forms to the House for action.

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EFCC Tasks Corps Members on Corruption

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AJAGBE ADEYEMI TESLIM

SPONSORED BY: H&H

EFCC Tasks Corps Members on Corruption

The Executive Chairman of the Economic and Financial Crimes Commission, EFCC, Mr. Ola Olukoyede charge members of the National Youth Service Corps, NYSC, to be change agents and strong resisting force against corruption.

He also enjoined them to be active foot soldiers and whistle-blowers or intelligence-gatherers against corruption.

Speaking on Thursday, January 30, 2025 at the NYSC Orientation Camp, Yikpata, Edu Local Government Area of Kwara State, Olukoyede said It is important for youths to realise that, these roles, if performed creditably, will bring up appreciable growth in the economy of our nation. He said that, “creative energies of youths will be maximised when corruption is brought to its knees.”

The EFCC boss whose address was delivered by the Head, Public Affairs Department, Ilorin Zonal Directorate of the EFCC, Ayodele Babatunde said that most of the problem confronting the country such as kidnapping, banditry, poor infrastructure, among others were connected to corruption. He added that all hands must be on the deck to tame the cankerworm.

Olukoyede encouraged the youths to embrace the virtues of hard work and shun fraudulent practices such as cybercrime noting that, “it’s profitable to earn dignity and fame through hard work and legit business.”

While calling on the youths to channel their potentials productively and shun crime, the EFCC Chair said that, “Yahoo-Yahoo is not a sustainable way of life.”

“There is no shortcut to wealth and fame. The fact that the rate of unemployment is high should not be an excuse to resort to crime. Act of criminality might deliver wealth in the short term but there will be misery and gnashing of teeth”, he said.

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