Between Bankrupt States And Sovereign Wealth - Business - Nairaland
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| Between Bankrupt States And Sovereign Wealth by Sunofgod(m): 6:57pm On Oct 31, 2011 |
Mni — 'States are not bankrupt, but , have no money!' And that is official! So, declared the chairman of the Nigeria Governors Forum (NGF) Chairman Chibuike Rotimi Amaechi, during the week. It is left for your imagination to discern between non-bankruptcy and running out of cash. Bankruptcy is a concept often associated with money, capital and industrial markets, not necessarily governance. Governor Amaechi may therefore be excused for making bankruptcy and lack of money as issues that are mutually exclusive. But that does not deny what bankruptcy is or what is not. For record purpose bankruptcy is an exit device for debtors who fail to meet debts obligations because of lack of money. One visible feature of bankruptcy is obviously lack of money. Many states may not be under receiverships or bankrupt but they are actually trillions of naira in debt; both domestic and external debts. And until there was a rule of deductions at source of federal allocations, scores of states were literarily bankrupt awaiting receiverships if they were corporate enterprises. According to the Debt Management Office (DMO), the 36 states of the Federation and the Federal Capital Territory (FCT) owed about $2.22billion (N333.05billion) in external debts as at June, 2011, almost half of national debt building up so soon after the much celebrated debt exit of 2003. The debt stock is party-blind. Indeed it is a kind of bi-partisan indebtedness. Lagos leads with external debt of $460.742million, representing 8.54 percent of the nation's external debt; Kaduna State owes $175.433million, representing 3.25 percent, Cross River, owes $124.022million, representing 2.30percent of the nation's external debt, and third leading debtor state. The debt profile of some other states are as follows; Abia State, $34.048million, Adamawa State; $29.45million, Akwa Ibom ($70.56million); Anambra ($23.722million); Bauchi ($58.8million); Bayelsa ($28.77million); Benue ($25.016million); Borno ($14.036million); Delta ($17.63million); Ebonyi ($42.149million); Edo ($46.92million); Ekiti ($36.201million); Enugu ($41.66million); Gombe ($27.96million); Imo ($52.32million). In the period under review, Jigawa State's external debt was $29.120million; Kano ($63.94million); Katsina ($78.75million); Kebbi ($51.644million); Kogi ($36.203million); Kwara ($48.557million); Nassarawa ($41.35million); Niger ($27.438million); Ogun ($91.902million); Ondo ($60.794million); Osun ($65.332million); Oyo ($93.990million); Plateau ($26.974million); Rivers ($36.501million); Sokoto ($41.206million); Taraba ($21.111million); Yobe ($31.690million); Zamfara ($27.186million) and FCT ($37.664million). DMO added that; "These figures exclude arrears that only become obvious by the end of the year". Again if we weigh the debt burden of the states with their monthly Federal allocations, your guess is as good as mine as to if the states are bankrupt or not. Whatever the case might be, the truth may very well be in what Governor Ameachi did not say. He certainly did not say the states are viable or prosperous. Many thanks to Governor of the Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi, who, during the weekend, improved on the narrative on the states. According to Sanusi, "the present political structures of Nigeria are too cumbersome and economically wasteful to guarantee rapid development of the country". On the occasion of the presentation of Professor Adamu Baike's book, "Against All Odds" in Kaduna he reportedly and pointedly too asked the critical question; "do we need 36 States? That must be one singular question against all odds. Answer to Sanusi's critical question must come from all the communities that are still clamouring for creation of more states. Or better still we must ask the scores of candidates lining up for gubernatorial elections due next year in Bayesa, Kogi and Adamawa states. Desperate candidates for debtor-states that "have no money"? It is time we thought aloud outside the box of the narrative on the state as promoted by the state chieftains themselves. Governor Ameachi has eloquently made a case for a review of revenue formula in favour of the states. And that is the real problem. The impression is that the problem of the states is more money and that this money must come from revenue allocation (read; oil money). Of course the states need more monies and legitimately too from oil sovereign money. But there must also be full disclosures about the existing pattern of state resource allocations before we know what is bankrupting them, or why the governors have ", no money". The CBN governor said states spend as much as 70 per cent paying salaries. What then about that? Workers pay taxes as they earn and the remaining sums are spent in the states on rents and food and diesel debts (since the pay does not meet basic needs anyway?) It is wrong to add the pay of thousands of non- value adding political appointees as over heads costs. What other projects do governors spend on that fuel the current indebtedness and possibly bankrupt them? Rivers State Government was just reported to have concluded plans to "buy a helicopter at the cost of thirty million US dollars which is equivalent to about four billion, eight hundred million naira". If Rivers state is one of the states that "have no money" but could buy a "helicopter" that "has a camera" at 4 billion Naira, ostensibly to catch armed robbers, pray what would Rivers with money buy; launch satellites for aerial security surveillance across the state? Also in similar vein, Plateau State Government had reportedly "signed a N4.4billion contract for the construction of a new government house". With billions of Naira casually thrown at non-critical mass of needs of impoverished peoples of the sates who on earth can disagree with Governor Amaechi that the states are not bankrupt but they "have no money"? Yours truly supports the governors in their protestation against what they dubbed 'illegal deductions' from the Federation Account by the Federal government. But have some of the governors for once pondered over the legality and above all, the morality and class character of some of their resource allocations? http://allafrica.com/stories/201110311419.html |
| Re: Between Bankrupt States And Sovereign Wealth by Beaf: 8:42pm On Oct 31, 2011 |
I took the time to format the data into a nice little table. Enjoy!  [table] [tr][td]Name of Federal State[/td][td][center]Amount Owed[/center][/td][/tr] [tr][td]Lagos [/td][td]$460.742million, representing 8.54 percent of the nation's external debt[/td][/tr] [tr][td]Kaduna State [/td][td]$175.433million, representing 3.25 percent[/td][/tr] [tr][td]Cross River [/td][td]$124.022million, representing 2.30 percent of the nation's external debt[/td][/tr] [tr][td]Oyo [/td][td]$93.990million[/td][/tr] [tr][td]Ogun [/td][td]$91.902million[/td][/tr] [tr][td]Katsina [/td][td]$78.75million[/td][/tr] [tr][td]Akwa Ibom [/td][td]$70.56million[/td][/tr] [tr][td]Osun [/td][td]$65.332million[/td][/tr] [tr][td]Kano [/td][td]$63.94million[/td][/tr] [tr][td]Ondo [/td][td]$60.794million[/td][/tr] [tr][td]Bauchi [/td][td]$58.8million[/td][/tr] [tr][td]Imo [/td][td]$52.32million[/td][/tr] [tr][td]Kebbi [/td][td]$51.644million[/td][/tr] [tr][td]Kwara [/td][td]$48.557million[/td][/tr] [tr][td]Edo [/td][td]$46.92million[/td][/tr] [tr][td]Ebonyi [/td][td]$42.149million[/td][/tr] [tr][td]Enugu [/td][td]$41.66million[/td][/tr] [tr][td]Nassarawa [/td][td]$41.35million[/td][/tr] [tr][td]Sokoto [/td][td]$41.206million[/td][/tr] [tr][td]FCT [/td][td]$37.664million[/td][/tr] [tr][td]Rivers [/td][td]$36.501million[/td][/tr] [tr][td]Kogi [/td][td]$36.203million[/td][/tr] [tr][td]Ekiti [/td][td]$36.201million[/td][/tr] [tr][td]Abia State [/td][td]$34.048million[/td][/tr] [tr][td]Yobe [/td][td]$31.690million[/td][/tr] [tr][td]Adamawa [/td][td]$29.45million[/td][/tr] [tr][td]Jigawa [/td][td]$29.120million[/td][/tr] [tr][td]Bayelsa [/td][td]$28.77million[/td][/tr] [tr][td]Gombe [/td][td]$27.96million[/td][/tr] [tr][td]Niger [/td][td]$27.438million[/td][/tr] [tr][td]Zamfara [/td][td]$27.186million[/td][/tr] [tr][td]Plateau [/td][td]$26.974million[/td][/tr] [tr][td]Benue [/td][td]$25.016million[/td][/tr] [tr][td]Anambra [/td][td]$23.722million[/td][/tr] [tr][td]Taraba [/td][td]$21.111million[/td][/tr] [tr][td]Delta [/td][td]$17.63million[/td][/tr] [tr][td]Borno [/td][td]$14.036million[/td][/tr] [/table] |
| Re: Between Bankrupt States And Sovereign Wealth by Sunofgod(m): 8:54pm On Oct 31, 2011 |
Beaf: Thanks for that . . . . . but you have not worked out all the percentages for us -  |
| Re: Between Bankrupt States And Sovereign Wealth by harambe: 10:17pm On Oct 31, 2011 |
How did Ekiti come to owe $36.201million? Why are all the biggest borrowers in the west? of the top 10 debtors, 5 are SW states.  am i missing something? |
| Re: Between Bankrupt States And Sovereign Wealth by Beaf: 10:41pm On Oct 31, 2011 |
Sun of god: Lol! Oliver asks for more! At some point I'll produce a bar chart of the figures, but not today.  I'll do it with national debt and region represented. @topic Isn't it strange that those states that can barely afford it are the ones in debt to the tune of billions? |
| Re: Between Bankrupt States And Sovereign Wealth by Sunofgod(m): 10:49pm On Oct 31, 2011 |
Beaf: . . . and they seem also to be the ones shouting loudest for a change to the revenue sharing formula. Should 'Bankrupt States' be entitled to more? Or should they be allowed to go broke? And will financially prudent states be penalised or rewarded for their management of debt? Why has the FG not curbed 'Lags' borrowing and impoed 'Austerity Measures' that the state must abide by? |
| Re: Between Bankrupt States And Sovereign Wealth by ektbear: 11:14pm On Oct 31, 2011 |
As long as they aren't going into debt to fund recurrent expenditure, are borrowing at reasonable rates and are are able to service the debt, not that big a deal. For some of those states, the debt load is fairly small if compared against revenue and GDP. |
| Re: Between Bankrupt States And Sovereign Wealth by Kilode1: 11:53pm On Oct 31, 2011 |
^ That aside, with the exception of Lagos, most of the borrowing probably happened during 8 years of PDP rule in those SW states. They def didn't borrow all that between April and today. Didn't Gbenga Daniel try to raise some 500m bond shortly before he left? |
| Re: Between Bankrupt States And Sovereign Wealth by ektbear: 11:56pm On Oct 31, 2011 |
Kilode?!: You actually raise a good point. How has the debt evolved over time? I honestly wish record-keeping in naija weren't so damn poor  Btw, here is a table of the debt loads (thanks to Beaf for that formatting, less work for me): https://docs.google.com/spreadsheet/pub?hl=en_US&hl=en_US&key=0AsNUaGBnBF1KdGxWRUc4aTNjbFc1VkFNa2xQdmlKbFE&output=html |
| Re: Between Bankrupt States And Sovereign Wealth by ektbear: 11:59pm On Oct 31, 2011 |
Lagos's debt load is fine, btw. $460 million debt with a $42 billion economy (according to The Economist) or ~$54 billion economy (according to Fitch) is pretty reasonable. |
| Re: Between Bankrupt States And Sovereign Wealth by Beaf: 12:03am On Nov 01, 2011 |
Kilode?!: Really? Aregbesola has just borrowed 25billion. It will show up at the end of the year, when Osun will hit $231,998,666.667 (beginning to threaten Lagos). Up Aregbe! Uselessness in practice. |
| Re: Between Bankrupt States And Sovereign Wealth by Kilode1: 12:09am On Nov 01, 2011 |
ekt_bear: That was quick ( the spreadsheet ) Yes the debt load % looks very small on average. Lagos looks high though. Ekt_bear can you get data on ratio of State revenue to recurring expenditure? That will be good to know. I suspect the debt is low because they are actually focused on embezzling available revenue Seriously, I won't be surprised if these debts are actually for capital projects they were forced or shamed into by multilateral organizations like UNDP, World Bank, DFID, ADP and co. |
| Re: Between Bankrupt States And Sovereign Wealth by Beaf: 12:10am On Nov 01, 2011 |
Lagos states debt is unsustainable; its not like they are doing anything to generate more money than they already have. I don't see anything to ease the business environment of incubate high turnover businesses. Everything Fashola has done (aside from the moribund Eko Atlantic), is cosmetic; nothing wealth generating; thats the reason Lagos is at the forefront of subverting the meaning of fiscal federalism to mean even more money into the Abuja begging bowl. States like Kaduna and Katsina are even worse. God alone knows why they owe so much. |
| Re: Between Bankrupt States And Sovereign Wealth by Kilode1: 12:15am On Nov 01, 2011 |
Beaf: One day Aregbesola go troway you one hot slap. I go buy the video walahi |
| Re: Between Bankrupt States And Sovereign Wealth by ektbear: 12:19am On Nov 01, 2011 |
Kilode?!:As I stated earlier, I disagree. If you have a $40 or 50 billion economy, then having a debt load that is 1% of GDP is miniscule. Being at 150% like Greece is obviously bad, though If someone is willing to post this information, i can add it. To be specific, I guess we'd want total revenue for a year as well as recurrent expenditure %. I suspect that this is a hassle to get though If anyone wants to find out the #s for their own state, kindly post it and I'll add it to the sheet. Why don't we fix the 2010-2011 year, just to keep everything standardized. Lol. I assume you are being sarcastic here? Oyinlola's 6 stadiums in Osun was something the World Bank forced him to do at gunpoint? Or Segun Oni's dairy farm in which most of the cows died, UNDP made him do it? |
| Re: Between Bankrupt States And Sovereign Wealth by jason123: 12:32am On Nov 01, 2011 |
Beaf: But even the cosmetic work is important, isn't it? To continuously be attractive to international investor, I think the "cosmetic and tree planting" work is equally important. The first experience of most foreign have about Nigeria is in Lagos and probably Abuja. Personally, I think its sustainable, after all, the debt is not that high. USA has trillions of debt to China, yet, its still the place to be in the world. The highlighted reminds me of a saying from a famous mathematician when he solved a problem, " When you can't crack a nut, its sometimes better to leave the nut for days, it'll crack itself". Not every project must be to generate direct income, sometimes its better to build secondary projects and later reap its reward indirect. In fact such projects might have chain effects, boosting your primary projects to generate more income. |
| Re: Between Bankrupt States And Sovereign Wealth by ektbear: 12:41am On Nov 01, 2011 |
States are now ranked by debt/GDP (where I used Wikipedia state GDP figures. Obviously not ideal, but best I have.) Question, what did Kaduna borrow $175 million for? What project was it for? Cross River borrowed for Tinapa. Lagos is Lagos. But what actually happened in Kaduna. . . ? |
| Re: Between Bankrupt States And Sovereign Wealth by jason123: 12:46am On Nov 01, 2011 |
ekt_bear: Forget Kaduna for now. The highlighted part is what is important for now till we find a more suitable system for us in Nigeria. |
| Re: Between Bankrupt States And Sovereign Wealth by Kilode1: 12:55am On Nov 01, 2011 |
Ekt, I was half kidding, but I just can't call 6 stadium "capital" anything. I know for sure that many of the water, health and agricultural projects we have in our states are partly funded by ADP, DFID IFC e.t.c. Those projects go through better due process from consulting > award> completion. And I assume that they keep records of what we owe them and expect us to pay back. If I get data on state revenue/expenditure i'll post on the thread. |
| Re: Between Bankrupt States And Sovereign Wealth by ektbear: 12:55am On Nov 01, 2011 |
jason: I don't follow. Anyway, I'm actually curious what Kaduna borrowed the money for. |
| Re: Between Bankrupt States And Sovereign Wealth by Kilode1: 1:00am On Nov 01, 2011 |
You are right, I didn't look at the Lagos numbers that way initially, that % of debt to revenue is pretty low. I don't have The real Lagos debt:revenue numbers, we are just assuming this DMO data is good. |
| Re: Between Bankrupt States And Sovereign Wealth by jason123: 1:01am On Nov 01, 2011 |
ekt_bear: I am basically for having good debts. |
| Re: Between Bankrupt States And Sovereign Wealth by nduchucks: 1:48am On Nov 01, 2011 |
ekt_bear: The report below accounts for over $53million of the debt. SMH The government encourages these debts - just last march Nigeria removed all taxes and cut transaction fees for sub-national and corporate bonds spurring interest in the fledgling debt market.
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| Re: Between Bankrupt States And Sovereign Wealth by mencer(m): 2:50am On Nov 01, 2011 |
and the SWF (Nigerian money) goes to some banks , investment corps in the united state the likes of Goldman sachs, morgan stanley, JPmorgan chase , thats where madam Ngozi is taking our money |
| Re: Between Bankrupt States And Sovereign Wealth by Bawss1(m): 9:47am On Nov 01, 2011 |
Beaf: ekt_bear: ekt_bear: All I saw here was somebody's failed attempt at attacking Lagos. |
| Re: Between Bankrupt States And Sovereign Wealth by buzor(m): 10:09am On Nov 01, 2011 |
pls can some one clear me on this - when soME states default on their debts or fails to service their as we ALL know will happen soon. then how will the banks recover their money, . i hope is not wot am thinKIng. . . |
| Re: Between Bankrupt States And Sovereign Wealth by manny4life(m): 5:01pm On Nov 01, 2011 |
buzor: Simple --- sell of the underlying assets used to cover the loan. In most instances, depending on the contracts, in the case the assets upon it's auction does not yield enough money, banks will seek federal order to seize upon further assets to cover the loan until the balance is "paid in full". However, some banks will offer you like to restructure and consolidate your debts, they negotiate with you, some nice banks will offer to write-off a portion of the debt only if you can make for instance a one or two time payment (which is mostly impossible), I mean there are several options, although either way, if you go about it the right way, you will be removed from default. @OP, while the numbers might be true, there's an important factor to look at when comparing financial ratios ---(Debt Ratios). In this case, it's the Total Liabilities Total Assets Personally, I think it's dangerous to compare debt/GDP, it should be compared to revenue or more so Assets (current/ liquid asset) preferably. That gives us a perfect ideal comparison. |
| Re: Between Bankrupt States And Sovereign Wealth by nairapark: 9:49am On Nov 02, 2011 |
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