The Lagos State 2014 budget is expected to focus on infrastructure development, poverty alleviation and completion of ongoing projects. COLLINS NWEZE analyses key components of the budget and the economic implications.
The Lagos State 2014 budget shows that total revenue will rise from N416.32 billion in 2013 to N466.50 billion, an increase of 12.05 per cent, according to the Commissioner for Economic Planning and Budget, Mr Ben Akabueze.
At the budget’s analysis forum in Lagos, Akabueze said N139.3 billion would come from transfers from the Federal Government as revenue allocations. The recurrent expenditure will rise from N214.72 billion last year to N234.66 billion this year, representing 9.28 per cent increase.
The N489.69 billion budget is 3.43 per cent lower than the N507.1 billion for last year.
This year’s budget, he said, would record a zero per cent deficit, with recurrent expenditure standing at 48 per cent of the total budget, while capital expenditure accounts for 52 per cent.
An analysis of the budget showed that Internally Generated Revenue (IGR) will constitute the bulk of the state’s income. The state will generate N327.20 billion from IGR, with N265.86 billion coming from the Lagos Internal Revenue Service (LIRS); other agencies will account for N37.67 billion.
Akabueze said the government’s targets for this year are to complete two Independent Power Projects as alternative energy, rehabilitate and maintain existing street light infrastructure, develop enterprise zones in Ikorodu and Yaba, complete the expansion of Mile 12 to Ikorodu Road, among other projects.
Akabueze said the budget would assist the state to fast-track infrastructural development. “As a state government, we have continued to emphasis that our limiting factor is revenue. The more money that a government has, the more it can deliver quality goods and services. “Unlike 2013, where we projected a deficit of N79.8 billion, for 2014, we are not projecting any deficit. Our total revenue will cover our total expenditure for this year.
“That is in line with our strategy on fiscal deficit and debt sustainability. You will recall that towards the end of 2013, we had to accelerate our bond issuance programme. For 2014, we project no bond issuance,” Akabueze declared.
On the planned implementation strategies for the 2014 budget, the Commissioner said the government would intensify its revenue generation drive, pointing out that it was aimed at further reducing the dependence of the state on federation account allocation.
He said the government would also intensify the tracking of monthly revenue performance of ministries, departments and agencies (MDAs) by his ministry, adding that budget performance would also be monitored through rendering of monthly expenditure returns by MDAs.
Some other strategies, according to the Commissioner, include deliberately keeping recurrent expenditure performance below revenue performance and adherence to Capital Expenditure Readiness (CER) checklist to ensure adequate project preparation and monthly and quarterly budget appraisal by the Planning Units of MDAs.
He appealed to citizens to play their roles, including paying their taxes regularly, providing information to security agencies and patronage and protection of public facilities and infrastructure.
Akabueze explained that the highest allocation went to the Economic Affairs sector in line with the policy thrust of the government on infrastructure. He also said social sectors, such as health, housing and education were also accorded priority.
He listed deliverables under Economic Affairs to include accelerated food expansion programme such as rice production, development of coconut plantation, animal husbandry, expansion of agric YES project, massive production of asphalt and using same for road rehabilitation and expansion, improved water transportation, among others.
Oil benchmark
The annual budget of the state is generally followed with keen interest. Lagos State Governor, Mr. Babatunde Fashola (SAN), recently signed the 2014 budget of N489.69 billion, whose focus is aimed at ensuring the completion of ongoing projects, while consolidating on previous achievements.
The budget was predicated on the assumption of an oil production of 2.38million barrels per day, an inflation rate of 7.9 per cent, exchange rate of N160/$1, oil price of $77.5bp and an efficient system of internally generated revenue collection.
According to him, with the signing of the budget, “we are giving this budget the required push to ensure optimum implementation. This signing is a signal that we must get ready to commence full work.”
The critical focus areas for the budget are power, agriculture, transportation, housing, security (law and order), education, health, environment, e-governance, rural development, water and skills acquisition/microfinance.
Lagos debt profile
The state’s Commissioner for Finance, Ayodeji Gbeleyi said the state’s total debt stock currently stands at N435 billion. He said a total of N275 billion of the debt, are in bonds, with N50 billion five-year bonds will be redeemed next month.
Other bonds issued by the state include N57.5 billion seven-year bond issued in 2010 maturing in 2017; N80 billion seven-year bond maturing 2019 and N87.7 billion seven-year bond maturing in 2020.
Gbeleyi said the full principal repayment for the N50 billion bonds will be provided by Sinking Fund currently managed by trustees. He said the state’s debt to Gross Domestic Product (GDP) ratio stands at 2.98 per cent, which is far less than 20 per cent benchmark for developing economies. He said the state’s debt remains sustainable and responsible, and is well rated by global rating agencies.
Budget analysis
The breakdown of the budget shows recurrent expenditure of N234.655 billion in the year, representing a 9.28 per cent increase over the N214.729 billion budgeted in 2013. Under the recurrent expenditure, a total of N87.921 billion was budgeted for personnel cost, as against N83.958 billion last year, while overhead cost in the 2014 budget stood at N146.744 billion, compared to N130.771 billion budgeted for last year.
It also shows the state plans to generate total revenue of N466.506 billion this year, as against the N416.328 billion it budgeted in 2013. Out of this amount, the budget estimates shows that N327.206 billion would come as Internally Generated Revenue this year.
In addition, N255.025 billion was budgeted for capital expenditure this year, representing a decrease from the N292.376 billion last year. The sectoral allocations also revealed that N101.834 billion was allocated to general public works; N18.027 billon for public order and safety; economic affairs was allocated N158.646 billion; and N39.534 billion went to environmental protection.
Similarly, housing and communities amenities was allocated N50.463 billion; N37.813 billion for health; N3.482 billion for recreation, culture and religion; education got N74.424 billion while social protection was allocated N2.467 billion.
Analysts said the government’s plan to deliver on key infrastructure projects and reduce poverty remains laudable adding that it is only when the budget targets are met that its impact would be felt by the population.
However, the state government said it is committed to systematically deploying all the necessary resources that would ensure the effective and qualitative execution of different projects highlighted in this year’s budget.
‘Lagos is Nigeria’s economic livewire’
Lagos State’s Gross Domestic Product (GDP) which stands at $32 billion is equal to Ghana’s after 2014 rebasing of Nigeria’s, Renaissance Capital (RenCap), an investment and research firm has said.
In a report obtained by The Nation, the firm said Lagos constitutes the bulk of Nigeria’s $284 billion GDP, which is expected to be rebased by this year.
Rebasing is the recalculation of the GDP to include growth in new sectors like telecoms and the Nollywood industries.
It said Nigeria’s economy is clearly Lagos State, which it said produces 12 per cent of Nigeria’s GDP. “Post rebasing – which we now expect in early 2014 – we estimate a 40 per cent upward revision in the country’s national income. By our estimates, Lagos State economy will become Africa’s 13th biggest economy in 2014, at $45 billion – equivalent to that of Ghana,” RenCap said.
It said focusing on the middle class, consumer companies are likely to find the greatest opportunities in states with the highest purchasing power, including Lagos and Abuja, as well as Oyo, Osun in the southwest (SW), Kaduna and Nasarawa (both adjoining FCT) and the Niger Delta states.
It also sees opportunities for banks to expand services and employees into states that have a combination of high income and high population density, as this will provide the step required to open bank branches.
Equally, states that fit this profile are Anambra, Imo and Abia in the southeast region; Akwa Ibom and Rivers in the Niger Delta region; and Osun in the Southwest.
RenCap said consumers are more likely to buy branded goods in the FCT Abuja, Lagos, Delta and Rivers states. This, it inferred from these states’ relatively low food spend/total consumption expenditure, which implies relatively high discretionary income.
It said these states may also drive air travel, and may prove to be higher value-added customers for telecoms companies.
“We believe food retailers have expansion opportunities in states beyond the southern region that are characterised by relatively high food spend, such as Nasarawa, Niger and Kaduna. We also note that food spending is relatively high in states that are further afield, such as Borno, often with politically volatile capital cities, such as Maiduguri. We think food retailers can capitalise on such states by focusing on second- and third-tier cities – a strategy that has borne fruit at Nestlé Nigeria, through revenue growth,” it said.
RenCap said the most educated workforce in coming years will also be apparent in the south and SW, where at least 60 per cent of children complete secondary school. “We think education levels in the south and SW is likely to spur even faster growth, as we have seen in emerging markets globally,” it said.
It said Katsina and Kano, in the north, employ one-fifth of the country’s manufacturing workforce, largely in the textile industry, which is one of the country’s biggest non-agriculture employers. It expects the success of the electricity privatisation process to significantly reduce high operating costs.
It said wholesale and retail trade is the biggest employer in the Southwest; however agriculture dominates employment in most of the country. We believe proximity to the country’s ports (Lagos Port Complex accounts for 47 per cent of country’s cargo traffic) largely explains trade’s dominance in the Southwest, and explains why it is also the fastest-growing sector, behind telecoms,” it said.
