Fri Oct 28, 2011 11:33am GMT Print | Single Page [-] Text [+]
(The following statement was released by the rating agency)

Oct 28- Fitch Ratings has revised Lagos State's (Lagos) Long-term foreign currency rating Outlook to Stable from Negative.

It has also simultaneously affirmed Lagos's Long-term foreign and local currency ratings at 'BB-', Short-term foreign currency rating at 'B', National rating at 'AA(nga)' with Stable Outlooks, as well as the Long-term ratings of 'BB-' and 'AA(nga)' of the NGN50bn and NGN57.5bn bonds, maturing in 2014 and 2017 respectively.

The Outlook revision on the foreign currency rating follows the revision of Nigeria's Outlook to Stable from Negative on 21 October 2011 (see 'Fitch Revises Nigeria's Outlook to Stable; Affirms 'BB-', available at www.fitchratings.com). According to Fitch's criteria, the Sovereign local and foreign Issuer Default Ratings (IDR) usually caps Subnationals' ratings. Based on this criterion, in October 2010, Lagos' Outlook was changed to Negative when the sovereign Outlook was revised to Negative from Stable.

With a per capita GDP of about NGN400,000 (USD3,000), roughly one third above the national average, Lagos is Nigeria's economic powerhouse and among the wealthiest states in the Federation. The state has an official population of about nine million (estimated 18 million) inhabitants and an unemployment rate close to 20%.

http://af.reuters.com/article/nigeriaNews/idAFWLA807620111028

Several interesting nuggets of information. At least to me

So no matter how well you run your own state, the best rating the agencies will give you is capped by the rating they'll give the FG

I guess I need to pay as much attention to what happens federally as I do regionally.

ekt_bear:

With a per capita GDP of about NGN400,000 (USD3,000), roughly one third above the national average, Lagos is Nigeria's economic powerhouse and among the wealthiest states in the Federation. The state has an official population of about nine million (estimated 18 million) inhabitants and an unemployment rate close to 20%.
http://af.reuters.com/article/nigeriaNews/idAFWLA807620111028

Lagos GDP is $3,000?
Seriously?

According to Fitch, yes.

ochukoccna:

Lagos GDP is $3,000?
Seriously?

This one na Fiatch ratings ooo. May be they did that from the internet.

ochukoccna:

Lagos GDP is $3,000?
Seriously?

In Accounting or Financial statement, though I'm surprised at just some zeros, however, numbers are rounded to the nearest preferably 3, 4 or 5 digits and carried over as in million or billion, whichever they're talking about. For instance, in this case, the $3,000 could be (millions) = $3,000,000,000 or N400,000 (in millions--- 000,000) = $400,000,000,000 which is N400 billion. What confused me though is that numbers ARE NOT converted to zeros, a true look should me mix of numbers like 3,456 or 3,567, etc

That is what I'm thinking they did, probably @ekt_bear did not catch it.


Although, you confused me and since I already written all that before seeing this, I guess I'll leave it alone, the article said GDP "per capita"; NOT overall GDP. It's sometimes called GDP per person and that is calculated by overall GDP figures / population. Since Lagos has about 9million residents, at least that's what they calculated, divide it by Lagos total GDP. However, since we don't have overall GDP, revise the equation; that will give us

Calculated GDP per capita ($3,000) x 9million residents = $27,000 (in millions---000,000). What this translates to is $27billion, WOW. About 10% of Nigeria's GDP represents LAGOS, GOOD JOB!

^^^
I have waited for your comment on this thread. So, can they facilitate a reasonably large loan and incur debts OR is debt a "bad" thing? ( with respect to the discussion on NL, the other day)

Oh geez.

I thought he was really asking "Lagos GDP is 3000 PER CAPITA?"

I was thinking that there was no way he could quote and highly per capita and still get confused.

Manny, they also estimate 18 million population. Keep that in mind.

ekt_bear:

Oh geez.

I thought he was really asking "Lagos GDP is 3000 PER CAPITA?"

I was thinking that there was no way he could quote and highly per capita and still get confused.

Manny, they also estimate 18 million population. Keep that in mind.

If they estimated 18million residents, they can play either ways;

1. It means "per capita" is further reduced given a constant GDP at $27billion, with 18million residents = $1,500 OR

2. It means "Overall GDP" is further increased @$54billion if he used a constant of $3,000 per capita @ 18million resident.

As you can see either way the scenario plays out.

jason123:

^^^
I have waited for your comment on this thread. So, can they facilitate a reasonably large loan and incur debts OR is debt a "bad" thing? ( with respect to the discussion on NL, the other day)

Oh wow, lol, I did not know you were waiting on me to comment on this thread, hey you could have referenced it to me though, I would have replied,  Thanks though.

With regards to your questions, because you asked two questions or should I say assumptions. I will answer them relatively of each other, and give my opinion, whereas you, you can draw your conclusion


1. So, can they facilitate a reasonably large loan and incur debts? Yes, they can. The reason why is that the GDP is just a measure of productivity within Lagos state. This activity includes Production approach ===> goods and services (manufactured either bough and sold, and services offered or requested) OR Income Approach  ===> household/corporate income earned, received and income spent, or given. Based on this theory, lenders are more than likely to lend large loans because they believe the money will expand the economy further, which will increase either the production or income approach.

Take for instance, if Lagos borrow $100million to build a 6 lane - 10 mile highway, if they erect tolls on that road, it will affect the production approach because the govt will be offering the road to users as a service toll road. Therefore, if there are estimated 100,000 cars that will ply that road each day in both direction and each car pays N20 per toll, or N35 if it's HOV-2, or N55 per commercial vehicles, the income generated falls under the Income approach method.

A quick math---> if all cars were same @100,000cars daily in both directions, that's an estimated 36,500,000 cars annually. Multiply that by N20 per toll, that's an income of N730 (in millions) or $4.7million annually. Now given the estimated life time of the road maybe 20years before major overhaul, it would be estimated to collect about $98million in revenue. Keep in mind that this is just an assumption, there are other variables that needs to be taken into account; however, this bring me to my second point; debt



2. is debt a "bad" thing? ( with respect to the discussion on NL, the other day) ---> Debt IS NOT a bad thing, in fact, your ability to effectively manage your debt tells creditors how responsible you are about credit. From my analysis above, you can deduct that the $98million (estimated revenue) is far less than the $100million (principal loan), other variable (interest rate, inflation, loan period, etc) have not been accounted for. Therefore, debt works both ways; if managed and forecast properly, then you wouldn't have a much problems like "cost overrun" in the long run. However, if calculated wrongly, and certain "unknown" variables are not considered, then you're in for a hot mess.

Take for instance, if we do not account for the fact that maybe 100,000 cars will ply that road over 20 years, that will reduce our revenue. If we do not account maintenance cost as well, the road will collapse before it time leading to loss of revenue. I mean I can least at least 20 different scenarios that must be considered into calculation for a very optimistic forecast so we can effectively manage our debt. The moment we decide, YES IT'S A GOOD DEBT, LET'S TAKE ON IT, then you are responsible for the above.

To correct what we have from 1.(para 3), it's either we increase tolls to x2, implore daily maintenance, staff the road with traffic enforcement (obviously trained and not the rowdy ones) etc, Lagos will have more than enough the debt after 20 years. Although keep in mind, I lapsed the period of the loan till the useful life of the road; in reality, this isn't always the case. Therefore, it's one thing to have a debt and manage it, and it's another to take on debt without "realistic goals"; it just wouldn't work.

Nope, I think they mean $3k per capita, estimated 18 mil pop. I.e., 54 billion dollar economy. This is roughly in line with Economist estimates, who estimated a $42+ billion economy.

ekt_bear:

Nope, I think they mean $3k per capita, estimated 18 mil pop. I.e., 54 billion dollar economy. This is roughly in line with Economist estimates, who estimated a $42+ billion economy.

Well I guess we are still saying the same thing; the article wasn't quite specific that was why I said the scenarios will play out with either the first or second option. Based upon what you're saying, I guess it's option 2 then, however, there's a lot of disparity between $54billion and an estimate of $42billion. Here is what I think the economist did; the article did highlight a 20% unemployment rate, given an estimate of 18million residents, therefore, 20% of 18million is 3.6million people leaving a true estimate of 14.4million individuals who contribute to the GDP. Given a per capita of $3,000 @ 14.4million people, that gives a true GDP about $43billion. Although, that calculation doesn't make sense but hey it's m best guess

Unemployed people don't necessarily not contribute to GDP right?

They at a minimum eat food.