UNDER CONTROL

Nigeria 2017 | FINANCE | FOCUS: MAINTAINING DEBT SUSTAINABILITY

In comparison to its high inflation rate (12.8% in 1Q2016), Nigeria's debt-to-GDP ratio offers investors some hope amidst low oil revenue.

According to Nigeria's Director General of the Debt Management Office (DMO), Dr. Abraham Nwankwo, the country's debt-to-GDP ratio is 13% and Nigeria is the seventh-best performer in the 2015-2016 Global Competiveness Report (GCR). In comparison to its peer group, which averages around 56%, Nigeria is in a strong position globally, especially in the region. Amidst poor commodity prices and a need for investment across sectors, Nigeria's need to smartly navigate the current volatile economic is imperative.
Nigeria is on the hunt to raise debt on the international markets to finance its investments. Buhari's budget for 2016 was a whopping NGN6.1 trillion to stimulate growth in Africa's monster economy. One of the thorns in Nigeria's side, unsurprisingly, is the fall in oil prices. The country also faces a decrease in oil production, as the federal government continues to fight militant groups across the Niger Delta region that have been disrupting pipelines, and thus government revenue. This has heightened the delicacy with which Nigeria's debt is being dealt as well as making more complex the plans to finance the diversification of the country's economy away from oil. The strong debt-to-GDP ratio remains an indicator of the country's ability to be a reliable borrower from international markets.

With oil revenue, which made up two-thirds of the government's coffers in 2014, not meeting the mark, the government is banking on a steep rise in tax from other sectors. The idea of strengthening the tax culture of Nigeria has been a priority since Buhari came into power, and the Ministry of Finance through the Federal Inland Revenue Service (FIRS) has plans to increase Nigeria's public tax revenue to 18% by the next fiscal year. Speaking to TBY in 2015, the new man at the helm, Tunder Fowler, explained how FIRS is closing the gaps in terms of its database and leveraging technology to coordinate tax systems with federal government ministries, departments, and agencies to implement a tax at point of payment system. His target is to increase VAT collections in 2016 by around NGN1 trillion.

On another front the Asset Management Corporation of Nigeria (AMCON) is joining the cause by pursuing a program aimed at improving the asset management of the public by training and sending 115 debt recovery professionals across the country to identify and become direct partners with debtors who have the intent to resolve their outstanding obligations. The Asset Management Partnership Program's target is to recover over NGN200 billion bad debts owed by small debtors.

On the ground, individual companies with strong balance books are not suffering when they venture out to look for investors. TBY spoke to one such company in the leasing business. Aquila Group told TBY it has benefited from the relationships that it built with foreign investors looking to partner with reliable Nigerian companies. Its reputation for adequate debt management allowed it to attract investment and further develop their companies. “We have established and maintained great relationships over the years, and that has helped to spread the word about our joint success in Nigeria resulting in more foreign investors being interested in partnering up with trustworthy and honest companies in the country,” explained Chuka Onwuchekwa, Managing Director & CEO of Aquila Leasing. From his point of view, with Nigerian companies increasingly anxious about making a large investment and buying an asset outright, the leasing business remains a viable option, allowing cash to continue flowing around the economy.

While Nigeria's debt-to-GDP ratio stays competitive, offering some breathing room in regards to inflation and low oil prices, the federal government's pursual of the appropriate fiscal policies will need to be diligently applied, while more flexibility related to currency controls and pegging can prove beneficial to its goal to boast greater revenue from public tax thus improving the budget deficit. The upgrading in administration of cash flow by Nigerians benefited by the application of adequate debt administration and recovery plans, as well as the increase in payment alternatives offered by reliable Nigerian leasing firms, in conjunction with government spending focused on capital projects like infrastructure, signals the diversification of Nigeria's economy to be already on its way.