By Oke Godwin Olaoluwa
The novel COVD -19 can be classified has the greatest mystery to have hit the world in the past century. Stealthily, the COVID -19 pandemic emerged and advanced to take control of the direction of world economic activities. The mind’s eye of the world’s greatest clairvoyant could not foretell the emergence of the invincible enemy in the air. The insurgence of the virus was neither considered in any opinion nor did it form a significant variable in any model for forecasting the direction of the world economic activities in the year 2020. The study of the evolution of covid-19 will be a hard nut to crack in the near future.
The economy of Nigeria is in dire strait. The minister of finance explained our current situation as a double whammy; dealing with the covid-19 pandemic and low revenue due to the unprecedented fall in oil price below cost of production. The federal government expected oil revenue to drop to about 90% and the gross domestic product (GDP) to contrast by 3.5%, which is deeper than the year 2016 economic recession. While the federal government have revised its budget estimates and have resorted to heavy borrowing as a cover for shortfall in revenue, states governments are left to decide their own fate. Obviously, federal allocation to states and local governments is likely to fall to below affordable level and as rightly observed, about 22 states may be unable to settle their salaries obligations in full, in the coming days.
A popular musician once described Lagos treasury as “a gourd with regular flow of water that can never run dry”, this is a myth created to soothe our fantasies. Lagos state is the 7th biggest economy in Africa. The state is bigger than the economy of Ghana and Kenya. Lagos state runs an annual budget of less than 3 billion dollars. The budget of Kenya is 29 billion dollars while the total budget expenditure of Ghana is about 15 Billion dollars respectively, in the year 2019. Lagos state is expected to require as much 50 billion dollars to develop its infrastructures in-order to achieve its acclaimed status of a mega city.
Over the years, Lagos state implements its budget to a performance level of between 60 and 65%. A large chunk of implemented budget expenditure is used to settle several debt obligations and ever-rising recurrent expenditures while capital expenditure fluctuates between 30 to 35% in budget performance level. The post covid-19 economic condition should create a new window of opportunity for the state government to restructure its finances and set its priorities right. Infrastructural development should be at the topmost in the scale of preference of the state.
In the coming days, Lagos state is likely to face a situation of dwindled revenue amidst rising overheads and settlement of debt obligations, thereby crowding-out expenditures for basic infrastructures. This exigent circumstance requires a proactive approach by the state government. Lagos state government may consider floating a special purpose vehicle (SPV) for infrastructural development funding. The proposed infrastructure SPV shall warehouse appropriated funds for development of priority infrastructures.
The state government may consider setting up a legal framework to establish an infrastructural SPV that will be for the purpose of providing a funding and financing model to support the provision of specific infrastructures capable of fostering the economic growth of the state and improve livelihood of Lagosians. The proposed infrastructure SPV shall be entitled to first line charge from state’s purse and will be efficiently utilized to support highest priority projects and leverage additional financing from the private sector and development partners.
The infrastructural SPV shall be promoted by the state government and managed by seasoned professionals and technocrats with proven track records. The infrastructure SPV shall be allowed to enter into partnership with any interested investor in the state’s infrastructural development and offer advise to the state government on raising of infrastructure bond from the domestic capital market. The infrastructure SPV may operate as a mutual fund that will be regulated by the security and exchange commission so as to subject its financial dealings to public scrutiny.
The benefit of setting up an infrastructural development Special Purpose Vehicle is that, it will ensure that road rehabilitations, constructions and other major developmental projects are not starved of funds and are completed within timelines. It will enable the state to effectively manage its limited resource, also create room for proper planning and efficient distribution of resources of the state.
Oke Godwin Olaoluwa is an economist and a financial analyst. He is the co-founder of a research based NGO Advocacy for Economic Development (A-CED). He is also the Co-convener of the first Ikorodu division Economic Summit.
