On Lagos’ Fitch Ratings


By Tayo Ogunbiyi

Global leader in credit ratings and research, Fitch Ratings, recently upgraded Lagos State’s national long-term rating to ‘AA+ (nga)’ from ‘AA (nga)’, thus giving the state a stable outlook . Fitch equally confirmed the state’s long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BB-‘with stable outlooks and its short-term foreign currency IDR at ‘B’. Its N275 billion MTN programme, together with its N57.5 billion and N80 billion bonds, which mature in 2017 and 2019, respectively, were also affirmed at ‘BB-‘ and upgraded to ‘AA+(nga)’ from ‘AA(nga)’. The rating action reflects the following rating drivers and their relative weights: High: Management and Administration: Fitch believes that Lagos management is becoming progressively more sophisticated. Fitch equally rates the state high on debt management, which has improved with longer bond tenures and more loans from development banks.

The Fitch’s upgrade is a further testimony to the state’s continued firm operating performance, enhanced transparency and renewed efforts towards an increasingly urbane and transparent administration, which is favourable to increasing private sector investments. With a local GDP accounting for 20%-25% of the national GDP, Lagos is a critical driver of Nigeria’s economy. Domestic production is fuelled by its diversified economy as a commercial hub in the country, with service, construction, transport and industry making up 80% of the local economy. Fitch believes that Lagos’ socio-economic indicators will further improve as local GDP growth is expected to outperform the estimated national GDP growth of 7%-8% in 2014. To keen watchers of events in the country, the Lagos’ Fitch ratings do not come as a surprise. Today, Lagos remains a benchmark for budget implementation and performance in the country. The Fashola administration’s first two budgets were particularly indicative of the government’s plan to address infrastructure deficit in the state. In 2008, for instance, the state government budgeted 60.05 percent for capital expenditures and 39.5 percent recurrent expenses while in 2009 capital outlay was 63 percent while recurrent spending was 37 percent. In the 2010 budget, capital and recurrent expenditures stood at a ratio of 59 and 41 percents respectively.

In terms of commitment to budget performance, the State Government has also recorded high successes that reflect not less than 70 percent annual budget performance. For instance, in 2012 and 2013, the state’s budget recorded 89 percent and 85 percent performance respectively. The idea of quarterly budget assessment speaks volume of the pro-activeness of the state government as it affords a scientific basis of measuring performance in a consistent manner while putting pressure on government departments and agencies to meet budgetary targets.

Recently, the state government announced an 84 percent third quarter budget performance for the 2014 Budget with an 86 percent cumulative or aggregated performance for the first three quarters of the year covering from January to September. However, against the backdrop of the very high targets it sets, the cumulative performance, still falls short of government expectation.  Nevertheless, by many measures, the performance is a tough act to follow in West Africa, if not the whole of Africa. The manifestation is quite visible in the increased number of projects embarked upon by government across the state. Infrastructure development is critical to achieving human capital development in any society. The economic impact that infrastructure improvement has on nation building cannot be over-emphasised. Considering the statistics that about 85 percent of the people in the world reside in the developing world and transition economies, and with 67 percent of that population below age 35, the need for infrastructure development to support enduring development remains a matter of major concern for all nations of the world. Without doubt, Lagos leads in terms of putting in place a concise and precise infrastructure development vision and programme in the country.  It has demonstrated sincere resolve to tackle the power situation in the state through the delivery of embedded power and energy solutions that has led to the completion of 3 power plants across the state. Similarly, the state is currently implementing six simultaneous transport solutions namely; Mile 12 – Ikorodu, Lekki-Epe, Lagos – Badagry, Lagos Light Rail, Lagos Ferry and Lagos Cable Car. In terms of housing provision, the state now delivers 200 Housing Units on a monthly basis with a 10-year mortgage and a maximum interest payment of 9.5 %.

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Out of the ten Mother and Child Centres, planned for the state by the present administration, six have been completed and are fully operational including the Amuwo-Odofin MCC which recently became operational. Others are located in Ajegunle, Gbaja in Surulere, Ifako-Ijaiye, Isolo and Ikorodu. In Agriculture, the state has multiplied increments in Agricultural outputs in the area of poultry, vegetable, and Agro-processing such as rice and cassava milling, transportation:

It is instructive to state that a large proportion of the state’s infrastructure renewal drive is being financed from Internally Generated Revenue, IGR.  It is common knowledge that, for various reasons, the statutory allocations to states from the federal purse are now dwindling. It is, however, remarkable that the state government has continued to perform its statutory obligations on all fronts, irrespective of declining federal allocations. It is to the state’s credit that the idea and the compelling benefits of paying tax have become a way of life for the people of the State. Through the Lagos experience, it has been proven that, by developing a tax based economy; it is possible for a state to be self-reliant.

It is in this regards that Lagos is moving along the path of many countries of the world that had recognized that the payment of taxes was the first step to prosperity. It is important to stress that Lagosians are willingly complying with the payment of taxes because government has been able to win their hearts by providing quality public services and spending tax revenues justifiably. This is the best way to build the social contract between citizens and the government. It is, however, important to urge a significant minority of Lagosians in the formal sector who are yet to be persuaded to pay their taxes to come into the tax fold in order to sustain the rising profile of the state, as embedded in the Fitch ratings.

•Ogunbiyi is of the Features Unit, Ministry of Information & Strategy, Alausa, Ikeja.

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